Is it just me, or is small business dying, and dying fast? According to Gallups CEO, more businesses are dying than being created in the United States for the first time starting in 2009 and continuing on.
There is certainly scrutiny and difficulty finding accurate data around this, and if you count sole proprietorships or non-employer based business data, it might not be quite as clear as to how fast businesses are dying, or even if they truly are. However, research suggests that new businesses popping up are often subsidiaries of larger companies, demonstrating that big business is eating up the little guys that are barely surviving.
These are the seven main things I believe are killing small businesses, and will continue to kill small business, indefinitely, unless new changes come into play helping SMB companies to thrive or more frequently startup.
Factors destroying small businesses:
- Lack of affordable financing
- Consolidation of businesses
- Income Gap
- VC funding
- Insufficient government help for SMB companies
- Student Debt
I think there are many factors contributing to the death of small business, but the first and most clear one, to me, is technology. Technology is destroying small businesses because it is imperative to success, profitability, and scalability, but incredibly expensive to implement and execute well.
Yes, there are many cheap and free cloud options to help you become competitive, but leveraging all these systems effectively, and building a great web presence, is ultimately expensive. It is also incredibly expensive to hire good technical talent, whether it be marketing, eCommerce, or simply programmers. The talent is all scooped up by big companies, or VC-backed companies that can afford it, leaving most small businesses with essentially zero technical talent.
Additionally, to become competitive, you need automation, and technology is the best path to automation, therefore making it a crucial component of business, especially as more and more is automated. However, the upfront cost to creating automation is usually not cheap and requires significant investment.
Lack of Affordable Financing
Getting a line of credit or loan is not as easy as it used to be, and new financing options like Kabbage, Fundbox, and others are incredibly expensive with terrible interest rates and fast payback terms. Small businesses get crushed with high interest and bad term loans. There are SBA loans and other means, but ultimately it is not as easy as it used to be to get good financing as an SMB, especially in the early years with low revenue when you need it most.
Consolidation of Businesses
Large companies are continuously buying up other companies making them stronger and harder to compete with. Additionally, for companies focused on B2B, which is a large percentage of SMB companies, it is now even harder to win customers since there are less of them out there and the money is at the top. Large enterprises are harder to get as clients and consolidation makes it more challenging for SMB companies to win business accounts.
Now that the rich are getting richer and the middle class is struggling, more so than ever, it is difficult for the average person to invest in a new business, as well as take a lower salary in the early years of starting up the company. With a college education, healthcare, and other costs skyrocketing, if you have a family it is nearly impossible to start a business for most people.
VC funding may seem like a good thing for SMB’s and “startups” creating more businesses but this is actually not the case. Most VC-backed companies fail from a financial investment standpoint or get sold successfully. So, in the failure case, they either shut down or get forced into a sale to get back some of the money invested, further consolidating business. The successful ones that sell are simply just adding to the big behemoths that is big business. The rare cases in which the companies stay independent is the only thing helping SMB growth and most of those go public and become non-SMB companies anyways.
Insufficient government help for SMB companies
The government is not doing much to help traditional SMB companies. Some companies may get grants, but those require very specific requirements. Ultimately, the traditional SMB company is not getting much help from the government, if not at all. In fact, from personal experience, they have only been a hindrance to Trellis in terms of the difficulty complying with tax laws etc, and other time suck issues/costs.
Young people have the best chance of starting a company because they don’t have a family and the risk of failure isn’t as big of a deal. Additionally, they can take lower pay since they don’t have the cost of supporting a family in most cases, which is essential for almost any company starting up that won’t be super profitable in the early years. However, with student debt crippling most young people, they can’t afford to start a business because they have to earn a larger than normal income to simply live.