There are around 68 million active small businesses in the world.
That number is way smaller than what is typically reported. So let’s explore why many popular sources say that there are hundreds of millions more small businesses when that’s obviously untrue.
Why the Headline Number is Wrong
If you Google “How many small businesses in the world?” you’ll see an estimate of 400 million.
That’s one for every 19.4 people in the world.
In the United States, the Small Business Administration estimates that there are 30.7 million small businesses.
That’s one for every 10.7 people in the United States.
This simply cannot be correct. Most people in the world are either too young to work, too old to work, in the armed forces, work for the government, work for a large corporation or simply don’t work at all.
Plus, the average number of employees in a small business is estimated to be about 10. If there’s one small business for every 10.7 people in the United States, then everyone would work for a small business.
No, it can’t be true. The number is vastly overstated.
It appears that these estimates include the total number of registered businesses, which is fundamentally different from the total number of active small businesses.
So we’ll have to calculate the true number ourselves.
What Counts as a Small Business
Size matters when it comes to a small business.
The typical measurement of size for small businesses is employees, rather than revenue. And the main question we need to answer is: What is small? Or, what puts the small in small business?
Let’s start with what the Small Business Administration (SBA) in the United States has to say. They define a small business as a company which has less than 500 employees. To me, that’s far too big.
For comparison, in the European Union any business with less than 50 employees is considered a small business. In Australia, companies with fewer than 15 employees are considered small businesses.
I can’t use the SBA definition. That’s because 499 employees isn’t a small business. That’s not the spirit of what we’re talking about here. Here’s the simple approach I’m taking:
- Does 499 feel like a small business? No.
- Does 299 feel like a small business? No.
- Does 199 feel like a small business? No.
- Does 99 feel like a small business? No, not quite.
- Does 49 feel like a small business? Yes, feel about right.
It doesn’t need to be any more scientific than this, and it aligns with the definition they use in the European Union.
So we’ll count businesses with less than 50 employees.
What Doesn’t Count as a Small Business
Employees matter when it comes to a small business.
Believe it or not, when you look at official statistics there are a lot of companies included that have 0 or 1 employees.
As far as I’m concerned, to be a small business means hiring and managing employees. I firmly believe it is a necessary ingredient. Handily, only counting businesses with employees also means that we exclude businesses registered as personal tax vehicles, and dormant businesses.
So on the lower side, I’m going to put it out there:
- Sole traders don’t count as small businesses.
- One-person tax vehicles don’t count as small businesses.
So we’ll count businesses with at least one employee.
Counting the Number of Small Businesses
To calculate the total number of active small businesses in the world all we have to find the total number of companies with:
- At least one employee.
- Less than 50 employees.
Then we just have to add these up. How hard could that be?
Turns out, a little difficult but not impossible. I did some digging across various government statistics from a number of countries. Here are the numbers that I triangulated across them all, rounded to the nearest whole number:
- 80% of businesses have 0 employees.
- 17% of businesses have between 1 and 50 employees.
- 3% of businesses have more than 50 employees.
It appears that 17% of registered businesses fit our definition of a small business. So starting with the estimate of 400 million registered businesses, that means there are 68 million active small businesses in the world.
That would be one for every 114 people in the world.
In the United States, that would mean 5.2 million small businesses.
That’s one for every 63 people in the United States.
Feels about right.
So no, there aren’t 400 million small businesses out there. There are roughly 68 million small businesses in the world. If you mess with the definition of what a small business is you could drive that number higher.
But even if you did that, there certainly is nowhere near 400,000,000 small businesses.
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