October 26, 2014

What Does the Average American Business Look Like?

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The Census Bureau recently released the results of the 2007 Survey of Business Owners, the government’s effort to examine American businesses every five years. The survey paints an interesting picture of what the average American business looks like.

The largest share of American companies is in the professional, scientific, and technical services sector, which accounts for 14.0 percent of U.S. companies. Construction accounts for the next highest portion at 12.6 percent. Manufacturing and agriculture, once the mainstays of American business, now account for 2.3 and 1.0 percent of U.S. companies, respectively.

The vast majority (78.8 percent) of U.S. businesses have no employees. And the share of businesses without employees now exceeds 90 percent in agriculture and arts, entertainment and recreation. The only sector of the economy where the majority of businesses has employees is accommodation and food services, in which 61.5 percent of businesses still have workers.

The average business generates over $1.1 million in sales, has more than 4 employees and pays an average compensation of over $41,000. However, when firms without employees, which have an average of only a little more $45,000 in sales and no employees (by definition) are excluded, average sales per firm rises to over $5 million, and average number of employees per business exceeds 20.

Wide industry variation exists in average sales and average employment. Average sales range from a little more than $96,000 in other services to over $25.1 million in utilities. Average employment varies from 0.7 employees per business in agriculture to over 107 in the management of companies.

One final point about the data is worth noting. The difference in economic impact of employer and non-employer firms is extraordinary. The 78.8 percent of businesses without employees only account for 3.2 percent of sales and none of the employment of U.S. companies. Employer firms are clearly much more economically important than non-employer firms.

Click here to see a table showing the numbers in greater detail (Excel –
.XLS file)
.

10 Comments ▼

Scott Shane


Scott Shane Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool's Gold: The Truth Behind Angel Investing in America ; Illusions of Entrepreneurship: and The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By.

10 Reactions

  1. Dear Doctor Shane:

    Happy New Year. I found your analysis very interesting. Using your data, I am interested in the MEDIAN results? Excluding outlier data points

  2. I agree with Neal. It would be an interesting post to show what the median American business looks like.

  3. I agree with Neal and Robert. I was very surprised to hear that 78.8% of businesses have no employees and would love to hear the median results were looking like. I’m also interested to see what they are going to look like 5 years from now.

  4. I was surprised with the 78% as well, but the average revenue of that 78% being $45k was more surprising. I would have guessed that number would have been much lower than that. So are we assuming that 78% of the businesses are consultants or farmers?

  5. I can’t spell to the word “average”… ;) I haven’t seen an average company, only an unique business in every case. But I understand the meaning of the post and it is very interesting to see the big amount of companies without employees. It is time to value the non-employer firm as an important part of the market economy. Regular employment conditions are a thing of the past, according to my view. I think we will see new forms of employment in the future.

    Here is an excerpt from Uppdragshuset.nu :

    “Many people dream of starting their own company but hesitate because of the uncertainty and complications involved.
    Now we can offer you an alternative that combines the freedom of being self-employed with the advantages of being an employee: Business employment.”

  6. Actually, the statement that “The 78.8 percent of businesses without employees only account for 3.2 percent of sales and none of the employment of U.S. companies” is incorrect in this sense: they do have employees — the employees are the owners of those firms. I consider myself employed — by the firm I own. My firm keeps me from the unemployment lines, and isn’t that what we’re talking about, after all, when we talk about “creating jobs”? Therefore, I submit that that’s well over 25 Million full or part time employees that such firms create.

  7. Let me start by saying it is damn decent of you to include the data. I wish all journalists did this.

    There is a conceptual conflict in stating that 78% of companies have no employees and saying the “average” one has 4.8. Like others have pointed out, the median is the relevant number here, not the mean.

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