10 Small Business Statistics You Need to Know For 2023
Article
by
Maryam Mohsin
Many people dream about starting their own businesses based on their own ideas and dreams. They try to break free from workplace rules, politics, and all the internal chaos that can limit their growth.
It’s no wonder that the same people desire to have full control over their time and goals. Starting your own business can sound overwhelming and complicated at first, but if you break down the process of how to start a business into steps, you’ll just need to take the first big leap of courage that will lead you along your entrepreneurial journey.
And whether it’s an ecommerce store or a brick-and-mortar business, knowing what’s happening in the world of small businesses can help you better manage your risks and opportunities.
Whether you already have your own business or are planning to start a new one this year, these statistics will help you make sense of what’s new and what you should expect. They will help you understand what influences small businesses, how they work, how they impact the economy, and much more.
Here’s a look at the top 10 small business statistics and what to expect in 2023.
The Small Business Administration (SBA) defines a small business as a firm that has fewer than 500 employees. This means that many highly valued startups in the US fit within this definition of small businesses.
Interestingly, the definition of a small business varies across the world. For comparison, in the European Union, any business that has fewer than 50 employees is considered a small business, while in Australia, this is companies with fewer than 15 employees.
Breaking these small business stats down further, we see that of the 33.2 million small businesses in the US, there are 27 million with no employees, 5.4 million with fewer than 20 employees, and around 650,000 that have between 20 and 499 employees.
2. How Many Jobs Are Created by Small Businesses?
With so many small businesses in the US, it’s no surprise that small businesses generate millions of jobs there every year. According to the Small Business Administration, US small companies created 8.7 million new jobs between March 2020 and March 2021 (SBA, 2022). This is 400,000 less than the preceding year, when US small businesses created 9.1 million new positions.
Past years' statistics show us that small businesses have always been an integral part of the US’s economy and growth. They offer job opportunities, financial growth, and an array of unique products and services. So whether or not they become larger corporations, they contribute to economic growth.
3. Small and Medium-Sized Businesses Are Major Drivers of Global Economic Growth
Over 90 percent of the business population represents small- and medium-sized businesses, also known as SMEs (SalesForce, 2019). And as the last few statistics showed, small companies are responsible for creating a large number of jobs.
In the past few years, SMEs have generated a significant amount of employment. SMEs are also key players in contributing to innovation. These contributions vary widely across firms, industries, and countries. But better access to global markets and improvements in knowledge networks, as well as digitalization, have played a large role in the advancement of SMEs to participate in the global economy. All in all, SMEs contribute significantly to global economic growth by providing employment, promoting sustainable industrialization, and fostering innovation.
4. What Is the Most Common Reason for Starting Your Own Business?
There are many reasons why people might be motivated to open their own businesses. Among the most common motivations, 29 percent of respondents said that they were opening their own business because they wanted to be their own boss (Guidant Financial, 2021).
The next most popular reason for starting your own business is dissatisfaction with corporate US. 17 percent of respondents chose this as their primary motivation. Other common reasons include wanting to pursue one’s own passions, a presented opportunity, feeling inspired, and simply not feeling ready to retire.
Starting your own business means that people have the freedom to not only be their own boss, but also the boss of their time. It gives you the freedom to make decisions and work how and when or where you want. There may be many reasons that people around the world decide to go for this financial freedom, but most of the top motivations are related to having freedom from their current jobs and more independence in terms of how they work.
5. Small Businesses Hit Hard by the COVID-19 Crisis
Uncertainty is one major factor that can really impact small businesses, and this has been particularly evident during the coronavirus pandemic.
According to the latest small business statistics, nearly one-third (31 percent) of small businesses in the US are currently not operational (Facebook, 2020).
Over 70 percent of US small businesses shut down in March 2020 when the US became the new epicenter of the virus. More than 60 percent of these small businesses that closed were due to government orders, as large parts of the country went into lockdown in a bid to curb the spread of the virus.
Some small business owners have taken measures to adapt to the new reality the coronavirus has created. Many of them have increased their online activities to try and reach out to their client base and keep their business alive by selling their products and services online.
In fact, more than half (51 percent) say that they have increased the interactions they have with their clients over the internet. Additionally, 36 percent of personal businesses that use online tools are now also doing all their sales online.
Looking forward, 28 percent of these small business owners say cash flow will be their biggest challenge in the near future, followed by a lack of consumer demand.
6. Younger Generations Are More Likely to Create a Side Business
Statistics show us that the new generation of entrepreneurs is more likely to side-hustle. In fact, Millennials and Gen Zers are 188 percent more likely to have the aim of creating a side business, compared to Baby Boomers or traditionalists (Salesforce, 2019).
In comparison to Baby Boomers, Millennials and Gen Zers are also 48 percent more likely to say that they started a business because they had an idea that they were passionate to bring to the marketplace. And thanks to the ease with which you can start your own business, the process has become much more comfortable for newer generations who are looking to become their own boss. Because of the rise of online marketplaces, it’s become easier to run a business from the comfort of your own home.
7. What Percentage of Small Businesses Fail?
One of the biggest fears that people who start their own businesses have is the risk of failure. And it’s not an unrealistic fear. As a matter of fact, the latest statistics show that more than 20 percent of small enterprises fail in the very first year, and nearly 50 percent of small startups fail within the first five years (Bureau of Labor Statistics, 2021).
Now, this statistic shouldn’t discourage you from starting your own business. In fact, it should do the opposite. By knowing why and how the majority of small businesses fail within their first year, you can plan a business strategy to overcome potential risks that might come your way. Of course, you won’t be able to completely eliminate all risks, but it will help you better understand what you can do in different scenarios that are likely to arise, which brings us to our next small business statistic.
8. What Is the Primary Reason That New Businesses Fail?
The primary reason that new businesses fail is because of a lack of cash. In fact, 38 percent of small businesses fail because they either run out of cash or are unable to drum up more financial support (CB Insights, 2021).
The next most likely reason that new businesses fail is that there’s no market need for their product. Statistics show that 35 percent of new businesses fail because of this. That said, aspiring entrepreneurs should go the extra mile to ensure there’s demand for the product they’re offering consumers.
Other main causes for the failure of startups include getting outcompeted by rivals, having a flawed business model, and facing regulatory or legal challenges. Pricing issues, having a mismatched team, and mistimed product launches are also some of the main reasons new businesses fail.
9. What Is the Biggest Challenge for Small Businesses?
In the first few years of starting a new business, small companies have to face a number of challenges that can restrict their potential. One of the top challenges that small businesses face is the poor quality of labor. In fact,52 percent of the respondents stated that the most important problem for small businesses was labor quality (CNBC, 2019). Small business owners say that it’s hard to find qualified individuals to hire. For businesses that have more than 50 employees, 63 percent of owners find it harder to find qualified hires.
Other than this, small business owners are also faced with financial challenges. As smaller corporations don’t have the advantage of being backed by a lot of funds, they usually struggle to figure out how they can manage their finances.
10. Top Digital Marketing Channel Among Small Business Owners
Social media is a preferred favorite for small business owners. In fact,64 percent of surveyed small businesses use social media in their marketing strategy (The Manifest, 2019).
The same study shows us that nearly all small businesses run ads. And in most cases, this advertisement is through digital mediums (in comparison to traditional channels). After social media marketing, the next most popular method of advertising is online marketing (49 percent), followed by print marketing (36 percent) and TV (22 percent).
Small businesses rely on digital as a medium of advertisement because they can target their customers in a more effective manner. Digital marketing helps small businesses reach people who are likely to be interested in their products, whereas traditional methods reach a broader audience.
Social media statistics show us that social media marketing can be an effective tool for businesses, as 73 percent of marketers believe that their efforts through social media marketing have been “somewhat effective” or “very effective” for their business.
Conclusion: Small Business Statistics
Without a doubt, 2023 will be a significant year for small businesses. In the face of rising competition, these statistics will help guide your way to better decision-making if you’re a small business owner, or you are interested in starting one and are brainstorming small business ideas. And even though you’re likely to face challenges, knowing the current trends will help you tackle difficulties in a more proactive manner.
Summary: Small Business Statistics
There are 33.2 million small businesses in the US.
US small businesses created 8.7 million new jobs between March 2020 and March 2021.
Over 90 percent of the business population represents small and medium-sized businesses.
29 percent of respondents said that the biggest motivation for opening their own business is being their own boss.
COVID-19 has rendered 31 percent of small businesses in the US non-operational.
Millennials and Gen Zers are 188 percent more likely to have the aim of creating a side business, compared to baby boomers.
More than 20 percent of small businesses fail in the very first year, and nearly half of small businesses fail within the first five years.
38 percent of small businesses fail because they run out of cash.
52 percent of the respondents say that the biggest problem for small businesses is labor quality.
64 percent of surveyed small businesses use social media in their marketing strategy.
