In our research, we tend to get into the weeds on a whole range of very specific aspects of the SMB market. However, it’s worth pulling back occasionally to ensure you have good context for thinking about the huge and diverse SMB segment, and aren’t overlooking any key segments or marketing opportunities. If you or any team members are new to the SMB segment, it’s also useful to have an “SMB 101” style overview.
To that end, here are a few essential basics on the SMB market.
What is an SMB?
The short answer is, whoever represents the most profitable target for your business that isn’t a consumer or an enterprise. The most common ways to segment SMBs are by headcount or revenue, but we’ve assessed them for clients by industry, role, growth outlook, location, age and many other attributes. As a rule of thumb, we define SMBs as companies with up to 500 employees. Within that, we break them into very small business (under 20 employees), small business (20 to 99 employees), and mid-sized business (100 to 500 employees).
The SBA defines businesses as small for program and preference eligibility purposes differently by industry. For example, a semiconductor manufacturer can have 1,500 employees and still be considered a small business, while a farm machinery wholesaler can only have 100.
How many SMBs are there?
According to the Census Bureau, in June 2020 there were 31.7 million small businesses, collectively composing 99.9% of all U.S. business and employing 47.1% of the private workforce. However, that was before the pandemic, which has led to the closure of many small businesses (no good figures exist yet on actual closures due to COVID-19, although estimates range from 100,000 to more than 4 million).
How big is the typical SMB?
The distribution of SMBs by company size is a very flat pyramid. The vast majority — almost 26 million — are what the Census Bureau calls “non-employer firms,” defined as businesses with no paid employees, over $1,000 in annual revenue and subject to federal income tax. Most non-employers are self-employed individuals operating very small unincorporated businesses, which may or may not be the owner’s principal source of income.
The size distribution of SMBs necessitates a careful segmentation strategy. While there are many more one- to four-employee businesses than 100- to 499-employee businesses, for example, very small businesses have much smaller budgets, less sophisticated buyers, fewer sources of information and longer purchase cycles than their larger peers.
U.S. businesses by headcount
What are the most common SMB industries?
The biggest industries among SMBs are health care, accommodation and food services, retail, construction and professional services. The percent of the U.S. workforce employed by small versus large businesses varies significantly by industry. For example, small construction firms employ 82% of all construction workers. Conversely, utilities are much more concentrated among larger firms; small utilities only employ 17% of all utility workers.
In our next issue, we’ll continue the SMB market overview with a look at business formation and funding sources, as well as overall SMB contribution to the U.S. economy.
Need help understanding and/or engaging SMBs? Bredin can keep you up to date on evolving SMB needs and challenges through quick-turn, actionable market research. We can also help you develop high-value content to boost SMB awareness, brand perception, leads, conversion and revenue.