When the Chairman and CEO of a company with the brand and reputation of Gallup publishes an intentionally provocative opinion piece that suggests American entrepreneurship is dead, of course we’re going to listen. It’s Gallup. Despite hiding behind the veil of timidity* that causes writers and editors to add a question mark at the end of a headline (American Entrepreneurship: Dead or Alive?), Jim Clifton writes, “You never see it mentioned in the media, nor hear from a politician that, for the first time in 35 years, American business deaths** now outnumber business births.”***
To support his argument, Clifton, points to a previous set of Gallop surveys from late last year that is reported under the headline, “Starved of Financing, New Businesses Are in Decline.” However, we noted earlier this week that the notion that small businesses are “starved for financing” is at odds with the long-running NFIB research of small business optimism that indicates small business demand for financing is at an historic low. In other words, if new businesses are in a decline because they are “starved for financing,” the same is not true (according to NFIB’s research) for existing small businesses.
However, a bigger challenge to Clifton’s point of view is the misguided way in which he so casually dismisses a segment of what the federal government considers small business, but Clifton apparently doesn’t: the non-employer business.
“You will often hear from otherwise credible sources that there are 26 million businesses in America,” says Clifton, “This is misleading; 20 million of these reported “businesses” are inactive companies that have no sales, profits, customers or workers. The only number that is useful and instructive is the number of current operating businesses with one or more employees.”
I’m perplexed by that claim (and perhaps I’m also one of those otherwise credible sources). Our company, the one that hosts SmallBusiness.com****, has around 20 employees. Yet each week I sign checks that are sent around the country to independent contractors, free lancers or self-employed as described by the government. During the past decade, we have utilized a network of almost 600 creators and contributors and developers (for work other than SmallBusiness.com, which has a staff of, well, none). We have offered some of them full time jobs, but they have chosen to remain independent for reasons ranging from the desire for flexibility to their part-time work on building up their own small practice or craft into a traditional business. In other words, we’re a 20-employee business that would be larger if we used a traditional model of employment rather than a model of distributed and independent workers.
Even more perplexed is Steve King, an analyst and consultant who is a partner in an innovative cooperative of analysts and consultants who market their practices under one brand, Emergent Research. “Emergent Research doesn’t have traditional employees, so it’s counted as a non-employer business by the U.S. government and considered inactive by Gallup,” King wrote on Emergent’s blog, Small Business Labs.
“But Emergent Research has customers and sales and generates most of my family’s household income. So please don’t tell me my business and the 18 million other American solopreneur businesses that collectively generate over $1 trillion in revenue are inactive and/or don’t matter.”
Bottomline: I agree with Clifton’s opinion that the country needs more independent businesses to keep the economy growing. However, I doubt that we’ll ever go back to the days when small businesses were modeled on the traditional model he says are the only kind that matter.
And in the process, a whole new definition of entrepreneurship and small business will emerge.
*For an explanation on why journalists use question marks, see Betteridge’s Law: “Any headline which ends in a question mark can be answered by the word ‘no.'” In this case, where the question is not answerable in the yes-or-no form, we must drop back to an earlier source on this question, a quote from the 2004 book, My Trade, by Andrew Marr: “A headline with a question mark at the end means, in the vast majority of cases, that the story is tendentious or over-sold. It is often a scare story, or an attempt to elevate some run-of-the-mill piece of reporting into a national controversy and, preferably, a national panic.”
**The meaning of “business deaths” is a greatly contested issue. As examined last year by the Washington Post’s Fact Checker, the term “closure” (or in Clifton’s choice of terms, “death”) is often applied to businesses that didn’t “die” or “fail,” but were closed by owners who may have executed a planned exit strategy, closed a business without excess debt, sold a viable business, or retired from the work force.”
***For the first time in 35 years, we’ve also (1) gone through a blistering economic meltdown, a deep and prolonged recession and an excruciatingly slow jobless recovery and (2) seen the emergence of a revolutionary new form of self-employment (or solo prioritorships, solo practices, et al) made possible by an explosion of interent marketplaces for tasks and talents like elance, Uber, Kickstart, Lyft, Airbnb.com, TaskRabbit.com, Voices.com, Snapwire.com, and on-and-on.
****SmallBusiness.com is not a business, it’s a service of the company Hammock Inc. SmallBusiness.com has no employees.