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Most Entrepreneurial Businesses Are Very Small—We Might Accurately Call Them “Tiny”
Recent research published by the National Federation of Independent Business (NFIB) has reported that approximately one-third of small businesses with nine or fewer people are located in someone’s home (National Business Poll: Business Structure, Dennis, 2004). Most small businesses (59 percent) “are owned by one individual (including his/her spouse if applicable),” and “twenty-seven (27) percent or over one in four have two owners.”
The U.S. Census Bureau identifies through its data a classification it calls “nonemployer businesses” (which is based on Internal Revenue Service (IRS) data obtained from annual business tax forms that are filed). According to the Bureau’s latest available nonemployer data, it has indicated that there are approximately 17 million nonemployers across all industry sectors. To place this number of nonemployer firms in perspective, consider this: there are a 5.7 million firms with employees as compared to 17 million without employees (for a total of 23.7 million businesses). As a whole, small businesses with less than 500 employees account for 99.7 percent of all businesses.
So what does this all mean, you might ask? Well for starters, it means that although large corporations may dominate news headlines, small businesses are the very “soul” of our economy. It also means that despite any misconceptions that you may have, most entrepreneurial small businesses are very small, indeed. We might accurately call them “tiny,” by virtue of their ownership structure, number of employees, and other dimensions by which they could be measured and described.
Overwhelmingly, Startup Businesses Are Founded by Bootstrappers
Once one begins to construct a realistic view of entrepreneurship in the U.S., it becomes apparent that there are millions of businesses with quaint beginnings. Instead of imagery that might be associated with the likes of Microsoft, Dell, and Amazon, three that made it to the “big time,” you might consider more accurate imagery associated with the vast majority of businesses as portrayed by the data. In provoking these alternate images, I might suggest a small business owner, whose condition is such that most of the assets of the business ride around in the back of a pickup truck with a trailer in tow.
The majority of businesses are also founded by bootstrappers—individuals who use creative financing, ingenuity and hard work as a substitute for capital. While many entrepreneurs clearly do complain about a lack of startup capital, it is also the case that some individuals are driven to succeed, regardless of the odds that are stacked against them. This is the type of individual who, after “making it,” is invited to speak at somebody’s annual meeting or a convention. Their stories often have a similar theme: “Life handed me a bunch of lemons, and I threw them back.” They are walking, talking, living, breathing business heroes who defied the odds and snatched a piece of the American dream. In some other cultures, it’s an insult to point out that an individual is a product of “new money” and the crassness of industry versus “old money” and the “pedigree” associated with privileged classes by birthright. However, in this culture, we very much admire and cheer for underdogs who win against adversity. The more humble the beginnings, the more these stories give the rest of us who are stuck in the trenches, hope.
Now, we can crack open some textbooks on entrepreneurship, and some will begin with arguments over “what is entrepreneurship?,” or “who is an entrepreneur?” Among those who pose the arguments, are some who discount franchise owners and the independently employed in favor of the traditional model that is often taught in business schools (and in elite schools, they can truthfully boast that it works—of course it works when many of the students have roommates with parents who hail from upper class backgrounds themselves). The model looks something like this: Have a great idea; write a business plan; present the plan to a group of bankers, lawyers, investors, angels and well-heeled friends; get the money; lease the space; fill it up with inventory and hire the employees; enjoy meteoric growth and profitable sales; cash out after an IPO (initial public offering); and live happily ever after. Unfortunately, this portrayal is largely a fairy tale.
You Can Pucker up All You Want
Most entrepreneurs are more like the frog hoping and waiting to be kissed. You can pucker up all you want, but I would not recommend closing your eyes. The good news is that there is a great deal of hope to be found in the positive interpretation of the data. There are literally millions of people who have their own small business, working independently as compared to working as an employee. I have phrased this last sentence carefully: even business owners have a “boss”; there’s no escaping the fact that unless you are independently wealthy, you are going to have to please somebody. Your new “boss” will be your clients and customers. You will need to get along well with your suppliers and build a cohesive team of individuals who are also dedicated to this cause. (In instances where I have switched from entrepreneurial roles to employment roles, I have sometimes been aggravated by recruiters who did not recognize the ludicrous stereotype of the entrepreneur as a loner, as compared to the quintessential team builder that he or she must often be.)
You do not have to have a sophisticated business. You do not have to have a business with extraordinarily high start-up costs. You do not have to be an inventor, or otherwise generate some sort of brilliant new idea. You do not need a college degree. You do not have to create your own business plan from scratch. With the right franchise or business opportunity, assuming that it has created a successful pattern for you to follow, you don’t have to know much of anything at all, except how to excel at following instructions and implementing the directions that you have been given. Putting all academic arguments aside as to what constitutes entrepreneurialism, you can leave your employer behind and forge your own future, with a small, “tiny” business.
How to Become a “Tiny” Entrepreneur, and Grow
Notwithstanding the above “good news” interpretation above, let me continue by undoing, somewhat, a few of the inferences that you may have drawn. While a business needn’t be sophisticated, as an entrepreneur, you must be alert and identify a need, even if it is a simple one, which begs to be fulfilled. Thus, you must keep your eyes wide open to opportunities that arise and create an ability to provide that which is lacking in an existing marketplace. It may be that this would entail doing so at a better price, or with a smoother delivery process, or better customer service. There’s nothing particularly earth-shaking about the concept of a local moving service in terms of sophistication, for instance. Building brand name recognition by providing customers with a stress-reduced or stress-free moving day may require some innovation on your part, however. You may need to pay your crew more, create an employee-owned company, or introduce some other sharing arrangement to increase sensitivity to the customer and his or her experience.
Relative to start-up costs, one of the biggest expenses during the initial stages of many businesses is the opportunity cost as it relates to time invested by the entrepreneur (this is often a “hidden” cost, because the entrepreneur fails to estimate or track time that has been invested). I highly recommend taking a long hard look at any entrepreneurial proposition before taking the plunge. It is perhaps a very favorable omen when one finds a little niche for him or herself that simply grows from a part-time pursuit to a full-time passion. When one little project that an individual services, perhaps while also holding a regular employment position, is contracted for and delivered, and then that leads to more projects, and more projects, a certain momentum that foretells the future of the business becomes evident.
Further, start-up costs become more inconsequential when incremental investments pay for themselves. If a carpenter buys $200 worth of power tools, and builds a deck for a customer, a service for which payment in an amount that compensates for time, tools, and other expenses is received, then that carpenter is well on the way to making the start-up cost issue a moot point. Thus, don’t try to swallow your start-up costs in one big gulp; you’ll probably choke and croak.
Even though you do not have to have a brilliant new idea or invention, it helps tremendously to have a unique twist in terms of the value proposition that you have set out to offer customers. This is otherwise known as a unique selling proposition. Without one, how will you make your business stand out from your competitors? You should strive to do something differently and better. If customers can remember you for the delicious “one-of-a-kind” slushy ice cone flavors that only you have managed to formulate on your end of an island, you will stand a better chance of being talked about and developing a positive reputation, and repeat business.
As for a college degree, or any education and training that you acquire—whether it is formally delivered or you are self-taught—the more that you know, the better. A formal education provides credibility to the extent that institutions, programs, and courses are respected. While we can argue that our education system has its flaws, as for myself, I am going to continue to demand that my physicians have an M.D. degree, that my attorneys have a J.D. degree, and that my accountants have a C.P.A. credential (which requires an accounting degree). I would also submit that anyone who points to the likes of Bill Gates or Michael Dell to support the argument that college has no value has forgotten to account for less optimistic stories associated with the millions of other individuals who are asking questions such as “Would you like fries with that?” for a living. The plight of this latter group can often be traced to a failure to pursue higher levels of learning and skills.
You should look at every possible avenue toward developing the type of business and lifestyle that you want. If you need guidance, start by reading “how-to” books and e-books. There are typically several “nuts and bolts” books on how to start a bed and breakfast, how to start a business for $1000 or less, how become a professional graphic designer, dog-sitter, or just about anything else under the sun that have already been written. Go to the library, to a small business development center, the Internet, or your local book store and read these books. You can also read articles on the Internet as well as offline (the fact that you are reading this is a reassuring sign).
Many entrepreneurially successful persons I have met tell me that they tinker all of the time. They also use combinatorial methods. Oh gosh, what’s that, you ask? This means that they apply things that they learn from a variety of sources and combine them to develop new ideas and opportunities. For instance, an e-book might discuss online marketing, and an article might discuss ten hot new product ideas; by using a combinatorial technique, an entrepreneur might decide to market a new product online, in a way that has not been tried previously. I have invested in several Internet sites. One of these sites offers domain names for sale, and I purchased the privilege to provide this service under a turn-key arrangement for less than two hundred dollars. (A turn-key arrangement means that an entire system was already set up to sell these domain names as well as provide customer service and technical support.) Offline, I am an independent consultant for a rapidly growing network marketing firm. I speak, teach entrepreneurship, and write. I have combined several of these activities to not only earn a living, but to do so while helping other aspiring individuals achieve their own entrepreneurial ambitions.
Talk to other people. Observe other businesses. Form alliances. Investigate business opportunities and franchises, or develop your own ideas and inertia. Introduce yourself in social situations, and let everyone know that your mission in life is to become a “tiny” entrepreneur, and grow. Over 17 million others have already become “tiny” entrepreneurs, and gained their freedom from traditional employment, which had previously been their only career alternative. Now you know that you can, too.
Dr. Robert Lahm is the founder of several businesses, an entrepreneurship professor, a public speaker, and a writer. His typical topics include creativity and innovation, careers, start-ups, and small business marketing. Article reproduction permission is hereby granted providing this article is republished in its entirety, with content, author's information and any links intact. Copyright 2005 by Dr. Robert J. Lahm, WebPreneurship.com.