Small Business Owner Mindset

Most small business owners are motivated by lifestyle – not growth

Why prime growth firms are the small businesses currently most likely to be motivated by growth.

Background

Developed by SMB Intelligence in 2018, Prime Growth is a growth-based classification standard for the small business sector. Growth-based classification uses development stage, growth format and growth scale to categorize firms rather than traditional small business segmentation (revenues, company age, company size, and digital engagement). The purpose of the standard is to identify current prime growth firms and segment them by their current growth priorities.
 
 

What are prime growth firms?

Prime growth firms are independents or small chains, that are employers, with a commercial location(s), that are currently at a seed (new) or expansion (high growth) development stage.
 
They are the small businesses currently most likely to be motivated by growth¹ and receptive to new solutions², and if successful in their current growth plans, to experience substantial growth³ and create new jobs⁴.
 
At any given time only roughly 1% of all small businesses would be defined as prime growth⁵.
 
 

Defining growth motivation

We define growth motivation as how currently likely an owner is to want and expect their firm to experience substantial growth. We define substantial growth as quickly increasing revenues and adding new jobs, as opposed to incremental growth which we define as gradually increasing revenues.
 
Owners who are currently primarily focused on substantial growth are considered to be growth-motivated.
 
 

Why this matters

The majority of small businesses are motivated by lifestyle considerations rather than by growth. A survey of small business owners conducted by The Hartford found that only 33% of owners reported their primary goal is to grow⁶, and a Brookings Institution study found that only 24% of owners wanted their firm to be “as large as possible”⁷, and more than 50% of owners cited lifestyle considerations such as “being my own boss” and “flexibility over schedule” as a primary reason for starting their firm⁸. A survey by Infusionsoft found that only 12% of small business owners wanted to grow to staff larger than 50 people⁹.
 
 

The big question

Why are prime growth firms the small businesses currently most likely to motivated by growth?
 

Employer firms are more likely to be motivated by growth than nonemployers.

Choosing to have employees signals the desire to create a firm that can grow beyond what the owner can produce themselves and a willingness to take on increased financial risk, commitment and operational complexity, versus remaining a nonemployer. It also signals a desire to pursue larger opportunities in industries that require employees to operate.
 
 

Firms with a commercial location are more likely to be motivated by growth than home-based.

Acquiring a commercial location signals a willingness to take on increased financial risk, commitment and operational complexity, versus operating from your home. It also signals a desire to pursue larger opportunities that require a commercial location.
 
 

Firms at a seed or expansion development stage are more likely to be currently motivated by growth than at other stages.

Owners at seed stage are in the process of launching a new firm and are highly likely to be currently motivated by growth, as they are starting from zero and have to grow just to exist.
 
Owners at an expansion stage have moved through seed, existence and early growth stages to establish a sustainable firm, and have now chosen to marshal resources in an attempt to scale their success through expansion, rather than focusing on maintaining the status quo.
 
While firms at the other seven stages can also be attempting to grow, they are more likely to be focused on incremental growth, breaking even, day-to-day survival or maintaining the status quo, as the vast majority of firms do not experience substantial growth, even over a three year period¹⁰.
 
 

Firms that are highly digitally engaged are more likely to be motivated by growth than firms with low digital engagement.

Prime growth firms are highly digitally engaged¹¹. Firms with an advanced level of digital engagement have taken the time and expense to establish and maintain their digital presence, and have nearly 4 times the revenue growth¹² and are nearly 3 times as likely to create new jobs as firms with low digital engagement¹³.
 
 

What about the traditional small business segmentation of industry, revenues, company size and company age – don’t they help determine who is currently most likely to be growth-motivated?

Traditional small business segmentation on it’s own provides some insight, however development stage outweighs traditional firmographics as an indicator of current growth motivation¹⁴. Learn about growth-based classification vs traditional small business segmentation.