August 31, 2014

Home-Based Businesses Employ More People Than Venture Backed Companies

Home-based businesses employ more people in the United States than venture-capital backed companies.

This surprising fact — along with a number of other myth-busting facts — comes from a new report titled  “Homepreneurs:  A Vital Economic Force.”  The report is culled from the recent Network Solutions Small Business Success Index (SBSI) survey, commissioned by Network Solutions, LLC and the University of Maryland’s Robert H. Smith School of Business, along with some other federally-available data.

Successful homepreneurs are viable home-based businesses that provide at least 50% of their overall household income.  Roughly 6.6 million home-based businesses fit the homepreneur description, yet according to the report, these businesses are:

“… the Rodney Dangerfields of the small business world, rarely regarded as significant players in the U.S. economy.  Instead, the common perception is that home-based businesses are merely hobbies or side businesses contributing little to the business owner’s income or the overall economy.”

successful homepreneur Steve King — one of the Small Business Trends Experts and principal at Emergent Research — authored the report.   And what he points out about these “homepreneurs” is sure to challenge long-held biases.

“Homepreneurs are operating significant businesses that are as successful as non-home based businesses,” states Emergent’s report. “Even more noteworthy, their home-based businesses are important contributors to employment and the overall U.S. economy.”

Steve commented to me:

“I was very surprised to see that the home-based business sector employs more people than venture-capital backed companies.  I was also surprised to see that home-based businesses scored as well on the Network Solutions Small Business Success Index as firms located outside the home. It turns out size and physical location aren’t predictors of competitiveness or success.”

The Small Business Success Index measures small business competitiveness on a scale from 1-100 along six key functional dimensions: capital access, marketing and innovation, work force, customer service, computer technology and compliance. Home-based businesses in the study scored within one point of non-home-based businesses in all six categories.

Here are some other myths this report puts to rest:

Myth: Home-based entrepreneurs are part-timers.

  • Reality: The vast majority-75% – work full-time in their businesses.

Myth: Home-based businesses are short-lived.

  • Reality: Nearly half of the homepreneurs in the survey had been in business for more than 15 years.  Just 20%  had been in business for less than five years.

Myth: Home-based entrepreneurs are solo entrepreneurs.

  • Reality: Half of all homepreneurs have employees. The average number is two (including the owner), but 39%  have between two and five , and 10% have more than five.  Based on these numbers, Emergent Research estimates home-based businesses employ some 13.2 million Americans when you include their owners.

Myth: Home-based business owners don’t make much money.

  • Reality: There are some 6.6 million home-based businesses that generate at least 50% of the owner’s total household income. Home-based businesses also account for about 34% of all small businesses that provide more than half of the owner’s household income.  As for dollar figures, 35% of home-based businesses generate more than $125,000 in revenue; 8% make more than $500,000 annually.

“Due to everything from advances in technology to demographic and economic shifts, the number of homepreneurs is likely to surge over the next few years,” the study concludes. That makes now a better time than ever to fully understand the impact of these businesses on our economy.

To read the full study and find out more about home-based entrepreneurs, visit the Network Solutions Small Business Success Index site.  Or, download the PDF report on homepreneurs here.

33 Comments ▼

Anita Campbell - CEO


Anita Campbell Anita Campbell is the Founder and Publisher of Small Business Trends and has been following trends in small businesses since 2003. She is the owner of BizSugar, a social media site for small businesses, and also serves as CEO of TweakYourBiz.com.

33 Reactions

  1. I find this hard to believe. Or at least wondering who they are factoring into “home based businesses”.

    I guess it’s in the PDF Report. I guess I’ll download that now.

    Thank you for the info.

  2. Anita:

    How is Rodney Dangerfield?

    I have to study this report. Very fascinating findings. Do you know about areas in the United States of America that have started to focus on home-based businesses? For example, giving good broadband internet services, home office supplies, local meeting places for small business owners who want to socialize now and then and taking a break from sitting at home. Where is the ideal place to start your home-based business? I am very interested to learn more about your experiences out there, as I am planning to move to America. I have lived in Manchester, NH, and Troy, OH.

  3. It should read: Who is Rodney Dangerfield? ;) Sorry for the typo. I have now searched on his name and found out that he was a comedian. Talking about comedians, I am looking forward to watch Eddie Izzard’s stand-up show in Gothenburg on December 20! :)

  4. Hi Carl,

    I believe the data.

    For all the hype, there really are very few venture-backed companies compared to the number of small businesses operating out of the home. :)

    – Anita

  5. Hi Martin,

    Rodney Dangerfield was a very funny comedian whose jokes often started with “I don’t get no respect.” That’s what the report is referring to. Home-based businesses don’t seem to get any respect by policy-makers and others who worship so-called “high growth” businesses.

    They always point to the couple of businesses that make it really big. What you never hear from those policy-makers are all the venture-backed, high-growth companies that just fold up one day and put people out of work. They really ought to start tracking not just the number of people hired, but the number of people who get the pink slip and are laid off when the majority of such companies don’t make it (since the majority do not make it).

    It’s not that I am cheering for anyone to be laid off — it’s an awful thing to get laid off.

    I’m just referring to the terribly skewed perspective some policy-makers have in thinking that all entrepreneurial resources should be placed on high-growth businesses. Yet those businesses may not have made any revenue and may never achieve profitability. Meanwhile, they ignore businesses that are actually making money.

    [Now climbs down off soap-box.]

    - Anita

  6. What soap do you use? It must been a stable box, I heard you loud and clear! Keep speaking out for the small business owners out there! Talking about soap, I recently listened to an interview with Eric Ryan of Method at DishyMix podcast.

    Do you know about ad-hoc organizations that have looked into this “problem”? It is interesting to see a report by a domain / internet company and a business school.

  7. Anita,
    The thing that surprised me in your report is that so many home-based business owners have employees.

    Maybe I should hire one or two..

    The Franchise King
    Joel Libava

  8. It’s a surprising fact indeed. The majority of home based entrepreneurs have a passion for what they do, and they work full hours.
    Starting an Online Business is not easy, as all those myths have aroused, so if you see a Scheme that claims you can become Rich overnight or make $100 a day for such amount, it’s definitely a scam! The good news is, it only takes hard and dedicated work one time for it to generate passive income streams that can last a long time.

  9. I believe it. A lot of the people that I know own a home-based business. Most of my sales consulting work centers on Internet start-ups that are making the transition to become major players in their space.

    Typically all of the people involved are self employed home-based businesses. You need a programmer you rent one, need a web developer you rent one, need a CFO for a few days, and you can find one of them as well.

    Even when we are getting ready to flip the switch and send some piece of the business to a BPO, the BPO employs home-based workers (but in this case they may or may not be full time employees).

    My grandchildren will probably ask me one day… “Grandpa what are all of those big buildings for?” “Well grandson people used to have to drive there to go to work.”

    If you are a home business and you don’t want to hire more people, just rent them the will probably be happier too – check out a BPO.

    David Peterson
    Atlanta Sales and Consulting
    http://www.atlantasalesandconsulting.com/BPO_call_center.htm

  10. Some quick comments on the comments:

    Carl: Over the last couple of decades on average only about 4000 US companies per year were funded by VCs. If you take out the late 90′s Internet boom, the two decade average is closer to 3000 per year. The majority of these firms failed. So it is not surprising that the home business sector would have greater employment. Venture backed companies do have much greater total revenue and assests.

    Martin: Thanks for asking about Rodney Dangerfield. It is a US centric – and starting to be an old US centric – reference. In a global economy, local references in reports should be better explained:).

    Anita: totally agree that the policy orientation in this country is focused on high growth companies. I think this is starting to change as the policy community learns more about the small business sector.

    One of our key goals for this report was to help inform the policy community of the importance of home businesses. So keep on the soap box – it helps all of us small business owners.

    Joe: I too was surprised by the number of employer home-based businesses. There have been few studies of this type on home-based businesses, but the ones we could find show a trend of increasing numbers of employer home-based businesses. These older studies also showed lower but consistent results on home-based employers.

    I agree with David’s explanation that technology and outsourcing has made it cheaper and easier to be a home-based employer business. Several studies also suggest increasing numbers of businesses started in the home are staying home based even as they add employees(the SBA study referenced in the report, for example).

    In our interviews we talked to multiple businesses that either used to be in commercial space but had moved to the home, or had stayed home-based despite adding employees. Almost of all these firms were established, profitable and had employees. They were home-based to save money and/or improve work/life balance.

    Steve

  11. Anita- This one was a stunner. I know so many people who are operating home based businesses, but didn’t ever think these businesses had so much “pop”. Thanks for pointing that out to us.

  12. Hey Anita,

    I would have to agree with the study especially if you factor in all the eBay home businesses of the world. I have a good friend who has a very successful eBay business that has employed multiple people over the past 6 years.

    BTW speaking of Rodney Dangerfield he was one of the first Internet ecommerce pioneering new territory in cyberspace, Rodney was the first entertainer to personally own a Website on the Internet. Launched in February 1995, his state-of-the-art site has won numerous awards and distinctions as one of the most popular destinations on the World Wide Web and can be found at http://www.rodney.com

    All the best

    JB

  13. Thanks for this interesting post. For those of us trying to bring value and help small business owners, it opens up a whole different perspective on where our target market may be ‘hanging out’ during the day. It also makes me wonder about the viability of commercial real estate development if so many small businesses simply don’t need premises.

  14. Lots of hidden gems for sure. Nice to see this info all in one place.
    Having an employee or two makes good tax sense…. ask your accountant.

  15. David — I love this part of your comment:

    My grandchildren will probably ask me one day “Grandpa what are all of those big buildings for?” “Well grandson people used to have to drive there to go to work.”

    We’re certainly headed in that direction.

    - Anita

  16. This data confirms the transformation of homebased businesses in the last ten years. For example, in the SBA report “Homebased Business: The Hidden Economy” only 9% of homebased businesses had paid employees http://www.sba.gov/ADVO/research/rs194.pdf

  17. Hi Jeff,

    Yes, I have the same anecdotal reports that eBay is a significant source of home-based businesses. Affiliate businesses are another. And thanks for sharing Rodney.com. :)

    Hi Andee,

    That’s a great point about where your target market may be hanging out — it’s “at home.”

    - Anita

  18. Hi John,

    Appreciate your pointing out that SBA report for discussion.

    And when you consider how old that report is (based on data from 1992 – 17 years ago), it’s easy to envision how the transformation of home-based businesses has continued in the years since.

    - Anita

  19. Who is Rodney Dangerfield? What has become of us!

    Rodney Dangerfield is the greatest movie entrepreneur of all time.

    Yes, you read it right. The late, great Rodney, getter of no respect, exemplifies in life and on film the Everyman heart of a business owner. One of my favorite movies is Back to School, which should be on the DVD shelf of every business owner because of its celebration of entrepreneurial values. Even if you’ve never seen it, you know the character Dangerfield plays—the guy who “gets no respect” partly because of his boorish behavior, but mostly because he gleefully exposes hypocrisy. The movie is an updated version of the children’s story about the emperor who has no clothes; here the emperor is the puffed-up world of academia, and Dangerfield is the fifty-something “boy” who joins his son at college and becomes the voice of reason.

    In Back to School Dangerfield plays a tailor par excellence, an entrepreneur who has built a clothing empire and an entire worldview with a needle and thread. His single-minded passion for men’s clothing suggests the focus a successful business owner must possess; attending a literature class taught by sexy Sally Kellerman, he “analyzes” Hemingway in terms of his being a great Big and Tall client for his store. Confident in the value of his own real-world experience, he explodes the microeconomics professor’s theory of the firm as “being managed in fantasy land,” then dismisses a report by the Rand Institute as being “too light” to earn a high grade. Weighing the report in his hand, he notes, “It feels like a B.”

    This is the same Dangerfield character we see in Caddyshack, a film in which he offends the establishment by besting its members, building condos within sight of the snobby country club, and proving wrong Ted Knight’s assertion that “some people just don’t belong.” A classic American story: the triumph of the common man. Rodney Dangerfield enacts the entrepreneurial conviction that honesty, straightforwardness, humor, and excellence will trump corporate pedigrees, fancy MBAs, and PowerPoint presentations, every time.

    I began my career as one of those corporate-MBA-PowerPoint guys, and the suit fit me like a hair shirt. It wasn’t until I started embracing plain talk over pedigree that my own business really took off. This is a vital lesson for business owners who must rely on wits, experience, and personal drive to seize each opportunity to grow their company.

  20. Small businesses at home are booming now especially in the UK! Online business has given homeworker’s the opportunity they needed to easily generate income from home. There are worldwide opportunities available, especially in the US – the land of opportunity! New sites such as Moneytrackers Net at http://www.easywealth.ukgo.com are leading the way to linking homeworker’s and entrepreneurs to online business. Working from home is easier than it’s ever been!

  21. Thanks Anita for debunking some of the myths around home-based businesses. It will be interesting to see if there in an upward trend in more and more entrepreneurs choosing to cut costs by operating from their basements versus spending too much money on office space. Regardless, we at Network Solutions are here to make sure a good idea transforms into a good brand!

    Regards,

    Shashi

  22. I belive this report as I am one of those home based buiness’s that employee 3 employees plus myself and my business gross’s a 6 figure income. we have been in business for 12 years and counting. check out my web site for more information on what my business is and what it is we do. http://www.aosidaho.com Thanks.

  23. I have owned a home based business for 8 (eight) years. During slow business times or economic downturns I will be ok because my over head is low. I do business meetings outside the home and network my business at my local Chamber of Commerce, direct mail marketing, and conventions. Home based business is the wave of the future and it’s green!
    We have 5 (five) franchises.

  24. Anita, Steve King and Andy Birol: Thanks for telling me about Rodney Dangerfield. I will ask freelance writer Scott Holleran for his perspective on the movie entrepreneur. I interviewed Scott Holleran on movies and culture on May 5. Please click on my name if you want to listen to the podcast.

  25. COSE (www.cose.org), a northeast Ohio based non-profit that serves small businesses, commissioned a home business research project in late 2008 and some of the results were pretty consistent with this report. You can find the full report here http://www.flipseekllc.com/cosehomebiz.html.

  26. Corrected link for the COSE report referenced earlier – http://www.cosehome.org

  27. Anita, I believe this report to be spot on. Even when we pull out of this economic hole and begin to add jobs, people are going to lean towards being an entrepreneur at home. Millions are so turned off at the rules in playing the corporate game, they’re just so tired of making someone else rich. And since today’s climate is literally forcing all of us to learn the ropes, we’ll be that much further along when the times are good again and won’t want to turn back.

    John Sternal
    @sternalpr

  28. This information about homebased businesses is not new. There are thousands of home-based business owners. This is the reason the Home-based Business Chamber of Commerce was established. The Chamber is here to support, promote and regulate the members. Primarily, the goal is give EXPOSURE to the home-based business owner. The types of businesses run the gamut from pet services to attorneys to bookkeepers to promotional sales.

    We are looking to expand nationally in order to provide more support to home-based business owners nationally. We want to provide credibility to the industry.

    If you are interested in establishing a local chapter, please contact the chamber.

  29. The bottom line is all businesses have to sell something to generate revenue. Find a need and fill it.

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