Small is the New Big in Business

By, Guest Blogger, Allyson Stewart

More businesses are starting small and staying small according to a new study published by the Bureau of Labor Statistics in March 2012. Reversing the trend seen in the late 70’s, 80’s, and 90’s, the study finds that the average size (measured by employment) of business establishments is falling – startups went from an average of around 6.8 employees in 2001 to 4.7 employees in 2011.

You might be wondering, “Isn’t that just because businesses have had less access to capital to hire employees?” In fact, this trend toward starting small and staying small has persisted throughout the economic upswings and downturns over the past decade, with average number of employees dropping during the recessions and staying constant through the period of economic expansion. The study attributes the trend in declining establishment size in part to shifts in industry composition and in part to the age of the establishments, hypothesizing that the trend toward starting small and staying small may be in part due to an increased emphasis on technology, and a lesser emphasis on labor.

The study also finds that while the share of employment in the smallest businesses remained constant throughout the 2000’s, the share of businesses classified in the smallest size category increased – during the 2003-2007 expansion, the share of private sector businesses with fewer than 5 employees increased from 50.4% to 51%.

As more entrepreneurs decide to start small business, we expect to see an increase in demand for business training and support services appropriate for the smallest of businesses here at the Women’s Initiative, where on average our graduates provide an average of 2.5 jobs for others 5 years after graduation and see an average increase in income of almost $13,000 just 1 year after graduation.