Expansion in the Small Business Sector?

There’s a good news-bad news story about small business expansion plans in the some recent data from Discover Small Business Watch, a survey of a random sample of 750 small business owners with five or fewer employees. The good news is that things improved in January. The bad news is they got worse again in February, leaving us pretty far from where we were before the recession started and without any sort of trend towards improvement yet.

The figure below plots the answers of respondents to the monthly question about their business development spending plans since the survey began in August 2006. The blue line shows the percentage of owners planning to increase spending and the red line shows the percentage planning to decrease spending.

Small Business Development Efforts

There was some improvement so far this year over the end of last year, but there’s still 22 percentage point gap between the fraction of owners that plan to decrease spending and the fraction that plan to increase it.

The situation with hiring plans is less clear. As the figure below shows, the share of small business owners who plan to hire jumped in January 2010 and showed a steady decrease in the fraction that plan to lay people off from August of last year through January of this year. But then things got worse again in February, with the percentage of businesses planning to hire dropping to 5 percent. As a result, we again have fewer owners planning to hire than planning to lay people off.

Moreover, we are far from the consistent pattern of more owners planning to hire than to lay off like was present from the survey’s initiation in August 2006 through August 2007. And just 5 percent of small business owners intending to add staff doesn’t bode well for improvement in the employment numbers in the small business sector any time soon.

Small Business Hiring Plans

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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.

7 Reactions
  1. Nice post.. Thanks for share…

  2. Jeff Ski Kinsey

    How “regional” is the data source? Methinks a big drop in actual hiring in February was in part due to all the lost “snow days” in the northern states. But that can’t explain such a significant drop.

    Was there something else in play? Like fiddling with health care while the job creators burn (like with the new proposed tax on banks to “get back” funds that were already paid back)?

    That movie “Clueless” comes to mind.

  3. Scott,

    Great information. Thank you.

    Simply put, small business owners of all types are still afraid to take a risk, and hire new employees. There’s just too many things up in the air;

    1. Health care reform?
    2. Uncertainty concerning tax increases/incentives
    3. Consumer debt issues

    Until some of these “questions” are answered, I’m afraid that most small business owners will remain in a holding pattern.

    The Franchise King

  4. Basically, the data seems to be indicating uncertainty amongst SMB owners about the long-term prospects of the economy in 2010 (as evidenced by variability in hiring plans). With last year’s abysmal performance in the books and no solid signs that 2010 will be significantly better I’m not surprised at all by these signs of uncertainty.

  5. this data suggests to me that a shift is occurring in smb to be more permanently lean. Any business that can grow without the overhead of full time employees and related risks/ headaches should. This is not a bad thing if more freelance, flexible workers get to live their entrepreneurial dreams without the false security of a boss/ full time job. time to adjust to the new web 2.0 economy and help each other connect in more authentic and balanced work relationships.