Small Business Employment Trends for 2007

John Mariotti on Small Business Employment Editor’s Note: One of the areas that keeps evolving and changing is the workplace — how we earn a living. Our guest expert, John Mariotti, has been observing and tracking changes in the workplace and what it means. In this guest article he comments on the implications for small business employment issues.

By John L. Mariotti

1. CORPORATE EXODUS TOWARD BUSINESS OWNERSHIP CONTINUES: People who leave major corporations voluntarily or via downsizing will continue to see the value in starting their own small businesses or being self-employed specialists. Many return to the same companies, industries and/or professions as “consultants” or contract workers. While going it alone is not always easy or successful, when it is, it is far more satisfying.

  • Tip: Uncover Rocks For New Opportunities — Contractors now perform many U.S. Department of Defense services. One of the best opportunity areas for the self-employed is in health care, the fastest growing source of jobs in the country. Hospitals, clinics and nursing homes need more help and use contract workers to keep costs variable and staffing flexible. Other small businesses often need support services too so don’t overlook them as “clients.”

2. U.S. GOVERNMENT STATISTICS CONTINUE TO UNDERCOUNT SMALL BUSINESS EMPLOYMENT: Government statistics fail to recognize the levels of small business employment. The U.S. Department of Labor’s Bureau of Labor Statistics won’t (or can’t) explain its flaws. This is a critical issue for small business owners since it influences access to benefits, distorts rules for self-funded retirement plans and complicates tax reporting.

  • Tip: Seek Help to Save Money On Taxes — A good tax accountant is a must-have so that your small business does not leave money on the table. For instance, there are obscure provisions of the IRS code, like section 105, that provide very small firms with a tax-favored status on health related expenses. Consult your tax advisor to learn more or go to and click on AgriPlan/BIZPLAN.

3. BENEFITS CHALLENGE SMALL EMPLOYERS AND SELF-EMPLOYED: Traditional benefits (health care insurance, life insurance, disability and retirement/pension plans) continue to be a problem for small business. An employee normally relies on the employer’s human resource function to provide information, and many small businesses lack this expertise. This area used to be called “fringe benefits” but it is far from “fringe” as costs rise annually at double-digit rates with no relief in sight. Replacing this web of benefits is one of the largest challenges in small business employment today.

4. JOB MARKET CONTINUES TO TIGHTEN FOR SMALL EMPLOYERS: Recruiting and keeping people when there is fierce competition is a big challenge as the job market tightens up. The keys to retention are job satisfaction and competitive pay and benefits — in that order. Treat people as part of the business; make them partners in behavior (NOT in fact); give them insight into the business’ goals, progress and plans. The more involved they feel, the more likely they’ll stay.

  • Tip: Find People Through Referrals — Online employment has become a huge area, but it doesn’t help much with the “sorting” of candidates. Test online job boards to see if they fit your needs, but remember that nothing replaces personal referrals as a source of finding people. There is less science involved in the selection, but there is greater knowledge about the person. Consider offering “rewards” (cash bonuses) to employees who bring prospects that get hired and stay.

5. LEGAL REQUIREMENTS CHALLENGE SMALL EMPLOYERS: Anti-discrimination provisions have grown substantially in recent years, limiting what can be asked, and what employment tests can be used. Impending changes in minimum wage laws (which vary by state) can be yet another challenge. Illegal immigrants are a particular problem in Border States and a handful of other states (Utah, Illinois and New York, for example).

  • Tip: Educate Yourself to Know Which Laws Apply — Identify the laws that apply to your business — get help on this and/or refer to Web resources. Two good sources of information about small business employment law are Cornell University’s Labor Table and Management Help. Temp agencies can be good sources of employees, since agencies can screen the people professionally — but make sure they DO. If you do your own interviewing and testing of candidates, learn the applicable laws. You can find employment testing systems for sale on the Web, but before going there, read a general overview (PDF).

6. OFFICE ARRANGEMENTS CHALLENGE SMALL EMPLOYERS MORE: Workplaces are different today: more telecommuting, less camaraderie, less teamwork. A workplace that is in the home presents a special challenge, since it can create unexpected conflicts of work vs. home life — being “there,” but not really there. The wonder of modern telecommunications permits a workplace to be wherever a laptop with Wi-Fi or a powerful PDA/Cell phone combo exists. These create two special problems. One is a problem of focus on work in the midst of distractions. The other is the strong tendency to de-personalize work relationships.

  • Tip: Stay Flexible, But Stay In “Touch” — One office solution for small businesses is a building that uses “hoteling” (sharing of offices with all the amenities — like renting a hotel room — computer hookups, telephones, answering & steno services, etc.). These get your small business out of the home and add professionalism but also add fixed overhead costs. One of the most insidious problems you may face is the absence of “colleagues” with whom to talk shop, discuss ideas, etc. If you were once part of a larger organization this becomes an issue very quickly. Replace organizational contact with memberships in business/professional organizations and social organizations.

7. SMALL BUSINESSES FACE THE CHALLENGE OF MAKING FACE-TO-FACE CONTACT: With more small businesses operating “virtually” with people scattered in different locations, recognize that there is no substitute for person-to-person, face-to-face interaction. Once the personal relationships are well established, technology makes staying in touch and informed easier than ever. But electronic communications make it too easy to be misunderstood or say things you’d never say to a person’s face.

  • Tip: Observe The Do’s And Don’ts — Beware of technological isolation from people. Find a way and a place to get face-to-face. Experts repeatedly confirm that 70% of communication is non-verbal — the words don’t convey as much of the message as the tone of voice (phone is more personal than a computer) or the “body language” (no substitute for being there — video conferencing still doesn’t do it). Do meet people face to face as soon in a business relationship as possible, to establish those non-verbal communications. Don’t try to resolve tough disputes or negotiate tough issues by email — or even by telephone — if a face-to-face meeting is possible. Dispute resolution and arguments can escalate dangerously when using email or text messaging. Telephone is better. Live and in-person is best especially if there is a potential misunderstanding.

8. BUSINESS INSURANCE GETS MORE EXPENSIVE: One way to provide security for your employees is to insure your business, so that you can get back to business quickly should a disaster hit. Although this was a benign hurricane season in the Southeast U.S., insurers’ actuaries have long memories and last year’s disasters are still fresh in the financial statements. Small businesses especially will have difficulty insuring many typical risks like business interruption, products liability, disaster relief, and a plethora of personal injury types of claims.

  • Tip: Use The Power Of Numbers — There is no easy solution to this problem other than to recognize it, join others with common needs and then shop aggressively. Joining with other small businesses (e.g., under a franchiser’s plans) improves the potential for finding insurance and/or getting better rates. If you are buying a business, assume any insurance possible from prior owners. This is almost always a better deal than starting over with no track record.

9. BABY BOOMERS PROVIDE A QUALIFIED TALENT POOL FOR SMALL BUSINESSES: The demographic impact of retiring Baby Boomers will be an overriding issue for employers of all sizes. Not only are Baby Boomers starting their own businesses, but they are being employed by small businesses, too.

  • Tip: Fit The Need To The Person (Or Vice-Versa) — Many early retirees are willing to work for less than they used to earn, provided that the schedule is less demanding and/or more flexible — to accommodate their transition into “retirement” — if that ever comes. This permits a small business owner to employ several part-time, highly qualified, mature people and gain the equivalent of a full-time person (or several). There are cases where these early-out people did not get the kind of health insurance they expected, or none at all. While this must be carefully managed from the cost side, an employer who can provide them some kind of health insurance, even if it is (less costly) “catastrophic coverage” can gain a valuable hiring tool.

10. SMALL BUSINESS EMPLOYMENT GROWS AND ALSO DECLINES: There are many changes coming in job concentration by industry, and this presents opportunities and challenges for small businesses. On the positive side: A huge source of new job creation is health care and that means there are opportunities for small businesses to support the huge, growing health care/medical services industry. On the negative side: The housing downturn will impact U.S. jobs and many of these are in smaller businesses. Here is it critical for business owners to tighten-up the operations of their businesses, find additional sources of work/revenue and reduce fixed costs. As always, small businesses must manage cash flow vigilantly. This means planning ahead (in detail) and facing the reality of a dramatic pullback in the housing market.

  • Tip: Follow the Growth Segments to Find Opportunities — The largest growth segments in the U.S. are service jobs, thus they present the best defense against any kind of downturn, as well as the source of new opportunities. Look for health-care or government related opportunities that are still growing and being funded. New businesses could focus on technological support for new diagnostic and treatment equipment. There are less sophisticated jobs, which will also grow, such as delivery and transportation services for the ill, the infirm, and the aged. In-home services to the elderly is a huge growth opportunity as nursing homes have limited appeal to many people who are mentally alert but only physically limited and wish to continue living in their own home and community. Also learn how to bid on government jobs and capitalize on any minority-related or special set-asides to gain an advantage.

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About the Author: John L. Mariotti is President and CEO of The Enterprise Group — Time-shared Executive Advisors. He was President of Huffy Bicycles, Group President of Rubbermaid Office Products Group, and now serves as a Director on several corporate boards. Mariotti has written eight business books and a novel. He has been a conference keynote speaker, a radio talk-show host, and a multi-national columnist for IndustryWeek, Management Centre Europe, the American Management Association, Fortune Small Business, Tiempo de Mercadeo, and a contributor to Business — The Ultimate Resource and the Encyclopedia of Health Care Management. His electronic newsletter THE ENTERPRISE is published weekly. His Web site is


John Mariotti

John Mariotti John Mariotti is an internationally known executive and an award winning author. In The Chinese Conspiracy he merges a fictional thriller with factual reality of America’s risk from Cyber-Attacks. John does Keynote speeches, serves on corporate boards and is a consultant/advisor to many companies.

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