Microbusinesses — firms with fewer than 5 employees — face a difficult environment coming into 2009 and it will be harder for them to navigate than the 2002-2003 downturn. The economy will be the story for most of us during the next twelve months. The basic trend – no surprise – is that almost all of what we will be doing next year will in some way be a response to what is expected to be the most difficult economic downturn in almost a century.
That said, the nation’s microbusinesses are better structured to endure these difficult times, thanks to a lean operating style and creative business models. Because of that, they will end the year having taken less damage than their larger cousins and will be in the best position from which to lead the way out of recessionary darkness into the light of a new business growth-cycle day.
â™¦ Lots more of ‘em — Perhaps the biggest microbusiness trend of 2009 will be a renewal of strong growth in their numbers. Sure, the current icky economy will cause plenty of microbusiness failures but, in the aggregate, the number of microbusinesses is likely to zoom during the 2008-2009 period.
Historically, people tend to start many more very small businesses during economic downturns, either because they are out of work and desparate for income or need extra cash in hand to make ends meet. Over the next year, large numbers of laid-off workers will start new single-person businesses, referred to be the Census bureau as “nonemployer” firms and defined as firms with no paid employees other than the business owner(s). In addition, tough times will cause microbusiness employers to cut jobs and some will shrink back down to nonemployer businesses. The result is that we will see a return of the 4-6% growth in nonemployer numbers that we saw during the last recession.
Meanwhile, firms with up to 20 employees will also be shedding workers, which should make up for losses in the number of microbusiness employers. As one economist said to me recently, “Everybody’s going to be a bit smaller.”
â™¦ Lean machines – Pundits have been predicting that Americans will learn to live within their means as a result of the twin challenges of a faltering economy and a collapsing credit market, and microbusinesses will be no exception. Of course, they tend to be lean operations by definition. But, in 2009, nobody is going to want to spend a dime more than they have to, so look for microbusinesses to take frugality to new heights.
Among other things, don’t expect hiring to pick up anytime soon in this firm size class. Even more traditional business owners will discover the cost savings to be had from running virtual businesses with home-based help or hiring microbusinesses or independent contractors (those “nonemployer” businesses) on a project-by-project basis rather than creating full-time positions. That strategy, which can help them to keep going during lean times, may work so well that many will not return to creating quite so many traditional jobs even when the economy turns the corner.
That, in turn, will mean lots and lots of work for microbusinesses and nonemployer businesses, which will help them to stay afloat in uncertain times. In the end, there is a good possibility that these changes in hiring practices could finally start a much-needed conversation about the changing nature of “work” and “jobs” in the 21st century economy.
â™¦ Sniffing out opportunity – It seems counter-intuitive, but game-changing ventures are often started during business cycle troughs and this one will be no exception. The industries to watch over the next couple of years will be energy and health care.
Right now, the health care sector is the only one that is still adding jobs and that trend will continue into the next twelve months, particularly if the health care industry goes through some major retrenching instigated in Washington.
The same goes for the fuels and energy industry sector; with President-elect Obama making plans to make R&D in renewable energy a part of his economic recovery plan, there is likely to be plenty of investment and growth potential here. One or two energy sector microbusinesses started within the next year may go on to change the world.
Another area that many new microbusinesses will discover is the world of product repair. Since budgets are so tight, the market for fixing things so that businesses and consumers won’t have to buy new to replace worn or broken stuff has already picked up and is likely to be quite strong in the coming year. Among established microbusinesses, we’ll hear a lot about saving money. Savvy business owners know that, in the current economic climate, anybody who offers to show consumers or businesses how they can spend less, get more out of what they do spend, improve cash flow or anything along those lines should find demand high.
A bit of creative price structuring — a sliding scale charging a percentage of the savings realized, for example — may counter tightened belts and help many low-overhead micros weather the storm and thrive.
â™¦ Moving and shaking online – Nobody seems to know exactly how many small businesses use the Web and/or do business there but a Jupiter Research report last year found that 89% of them are microbusinesses. That research also found that microbusinesses had been quick to sign up for social networking sites but slow to use them, probably because many of us thought we didn’t have the time.
With the economy in a shambles, though, look for even more adoption of social networking among microbusinesses looking for cheap marketing alternatives. The growing popularity of LinkedIn, Facebook and Twitter among microbusinesses is a trend that shows no signs of slowing down.
Lots of opportunity there for software developers and how-to gurus, provided they learn from the mistakes of the SEO crowd. Microbusiness owners tend to be a do-it-yourself bunch, preferring to find (and often pay for) information rather than forking over buckets of money (which they don’t have) for highly-paid consultants to do things for them.
â™¦ And attracting a bit more attention from legislators — Back in 2005, I predicted that policy makers would be decidedly more interested in microbusinesses by the 2008 election cycle. ‘I told you so’ is always obnoxious but there has definitely been an uptick in interest in the nation’s smallest businesses on Capitol Hill, particularly among House Democrats looking for a middle class agenda. So far, the growing focus on microbusinesses been very behind-the-scenes but look for 2009 to be the year for several microbusiness-aware lawmakers to out themselves.
It won’t be a revolution, exactly, but somebody has to push that snowball off the top of the hill. Don’t be too surprised, for example, if House Small Business Committee Chairwoman Nydia Velazquez (D-NY) holds a hearing on microbusinesses and their issues during the next session of Congress. Over in the Senate, newly named Committee on Small Business and Entrepreneurship Chairwoman Mary Landrieu (D-LA) represents one of those Southern, largely rural states with chronically struggling economies. That perspective might inspire her to focus more specific attention on microbusinesses than we’re used to in the Senate.
It’s not likely that any specific legislative proposals will come of all of this but it’s progress and you have to start somewhere.
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About the Author: Dawn Rivers Baker, an award-winning small business journalist, regularly reports and analyzes small business policy and research as the Publisher of the MicroEnterprise Journal, where the nation’s business meets microbusiness. She also publishes the Journal Blog.