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.
By Steve Waters
Managing Director, SMB Intelligence
May 7, 2018
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.
1. Waters, Steve. “Most Small Business Owners are Motivated by Lifestyle – Not Growth”, SMB Intelligence, May 2018. Available online.
2. Waters, Steve. “Identifying the Small Businesses Most Receptive to New Solutions”, SMB Intelligence, May 2018. Available online
3. Waters, Steve. “Which Firms are Most Likely to Experience Substantial Growth”, SMB Intelligence, May 2018. Available online.
4. Waters, Steve. “These Firms are the Engine of Small Business Job Creation”, SMB Intelligence, May 2018. Available online.
5. Waters, Steve. “Quantifying Prime Growth Firms”, SMB Intelligence, May 2018. Available online.
6. The Hartford. “2015 Small Business Success Study”, 2015. Available online
7, 8. Pugsley, Benjamin Wild and Erik Hurst. “What Do Small Businesses Do?”, Brookings Papers On Economic Activity, Fall 2011. Available online.
9. Infusionsoft. “Defining and Achieving Small Business Success”, 2016. Available online.
10. The overwhelming majority of small firms do not grow by adding employees from year to year or even over three year periods. Approximately 80% of small businesses do not grow at all, even over a relatively long period. Most surviving small businesses do not grow by any substantial margin – most start small and stay small. Pugsley, Benjamin Wild and Erik Hurst. “What Do Small Businesses Do?”, Brookings Papers On Economic Activity, Fall 2011. Available online. Only 22% of small businesses are planning to hire additional employees in the next 12 months. Bank of America. “Small Business Owner Report”, Spring 2018. Available online. 22% of owners are planning to hire new employees in 2018. TD Bank. “2018 Small Business Survey”, May 2018. Available online. 71% of owners expect savings from the 2017 tax policy changes, however only 14% of those plan to use those savings to hire more employees. Bank of America. “Small Business Owner Report”, Spring 2018. Available online. Seasonally adjusted net 20% (of small business owners) plan to create new jobs. NFIB. “NFIB Small Business Jobs Report”, NFIB, June 2018. Available online. Over the next 12 months 31% of small business owners expect the overall number of jobs at their company to increase, 62% expect it to stay the same, and 7% expect a decrease. Wells Fargo. “2018 Small Business Index Survey”, April 2018. Available online.
11. Waters, Steve. “Measuring the Digital Engagement of Prime Growth Firms”, SMB Intelligence, May 2018. Available online.
12, 13. Collins, George and John O’Mahony and Sara Ma. “Connected Small Business US”, Deloitte, 2017. Available online.
14. Waters, Steve. “Growth-Based Classification vs. Traditional Small Business Segmentation”, SMB Intelligence, May 2018. Available online.