What is a small business?
A question I get asked often by marketers and others is, “What exactly is a small business?” By that, the questioner means, “What is the size that separates a small business from a big business:”
Maketers want to know the answer to this question because they have in mind, an ideal audience for their particular product and service — and they want that to be the definition of a small business. Marketers tell me, “We’re targeting companies with less than ten employees” or “Our target customers have 50 or more employees” or “We find that companies with $3-5 million in revenues are our best target market” or “The independent contractor is our customer.”
Of course, all of these groups are small businesses. It’s a bit like trying to lump all consumers under one big category called “consumers.”
Frustrated, marketers try to come up with different terms that divide small businesses into clusters — and, frankly, marketers would love it if small businesses started thinking of themselves voluntarily as such terms as: Solo-preneurs, Small and Home Office (SOHO), Mid-size business (bigger than small, but not big).
But, to the frustration of marketers (and the surprise of no one) small business owners don’t want to keep up with all of those terms, they’ll just continue using the label “small business” to describe everything that’s not big: from a self-employed individual to a company with 500 or more employees (especially if they are not publicly traded and are still primarily owned by one family or a small group of investors).
The technical definition of “small business” is probably not that helpful to marketers, but it is vital to one group of small businesses: those who provide services or products to the government; and those who are seeking financing backed with SBA guarantees.
Because nearly all government contracts include provisions that insure a percentage of the contract is awarded to small businesses (sometimes called “set-asides”), the technical definition of what a small business is is very important — and highly technical. Indeed, the stakes are so high with small business “set-asides,” there are continuous examples of large companies trying to bend the definition — or worse, to circumvent the regulations — to secure such government contracts.
The Small Business Administration is designated by law to define what is, and is not, a small business.
As you can imagine, this is not an easy task. It is so difficult that no one definition works. Nearly every industry has some nuance that makes it unique when separating the difference in “big” and “small” businesses in such a context.
So, therefore, the SBA maintains a “size standard table” that classifies the “technical requirements” of a company in each category of the North American Industry Classification System (NAICS). This table is the closest thing there is to an answer for what is, according to the U.S. government, a small business.
On SmallBusiness.com, to learn more about “why size matters,” visit the following entries: