For years, I made the mistake of thinking that I owned a small business. I’m not blaming anyone for the misunderstanding; there are no nefarious players that I know of. What do you think when you think “small business”? Do you think of that little mom and pop store on the corner of your block? Yeah, that’s probably not a small business either.
Small Business Defined
Did you know the Small Business Administration has definitions for small business? They do, and it’s classified by a NAICS code, which is basically just a number for whatever industry you are in. There are lots of codes because there are lots of businesses. A small business is defined either by the number of employees, the revenue generated, or both. To be eligible for a SBA loan, a small business would have to be within this range. The table for your industry can be viewed here. For offices of real estate agents and brokers, the limit is 7.5 million dollars in revenue. We’re doing well at Deerwood Realty, but we aren’t likely to hit the threshold any time soon.
Why Does It Matter If You Are A Small Business Or Not?
Here’s the thing: For most of my life, I’ve heard politicians talk about how they are looking out for small business, or they are a “friend” to small business. When they talk tax cuts, they say things like “we’re going to tax greedy corporations!” That all sounds good and all, but their description of small business probably isn’t yours. For example, A company that is involved in research and development in biotechnology has a limit of 1,000 employees. That likely isn’t a mom and pop shop. So, when you hear small business, just know it probably is actually pretty good size business.
If You Aren’t A Small Business, What Are You?
We work with many companies that have less than 5 employees. Deerwood Realty has no full time employees, we are all real estate agents. That makes us independent contractors. The biggest mistake I’ve ever made was thinking we were a small business. We are a micro business, and that’s something that I made up so I can better understand what we should be doing in the marketplace.
What Is Different About A Micro Business?
There’s a lot actually. In a small or large business, you can get away with a few errors and usually nothing happens. In a micro business, just one marketing effort that fails could cost you for years.
Another issue is in who you choose to work with. In real estate, we have to be working with people who can buy or sell property. We can’t take on clients who have no intention of buying or selling anytime soon. There’s just no room for them. When we work with vendors, we usually need to know quite a bit about them, because we can’t spend a bunch of time working through layers of people to get a job done. There’s just no time for that.
An Easy Error To Make
For years, I would read about other “small business” and how they would find solutions through other service providers. Almost every day, I would get calls from salespeople of all types hawking their wares on me, the small business owner. Many of these products are sold with the idea that it helps small business. But, there’s something wrong with scale. The best way I can illustrate the problem is through relatively simple math.
Let’s say that there’s a real estate marketing company out there that can get you lots and lots of leads. And let’s assign a cost of that product as $4,000/month. Watch what happens with its relationship with revenues. Now, I know that last year, the highest performing real estate team did over 600 transactions in St. Louis. It’s a big team, and they did a great job. Let’s just say that they earned an average of $1,000 dollars per transaction. That’s $600,000/year in sales. The product that the marketing company was offering was $48,000/year. As a percentage, the product was just about 8% of the total revenue.
What happens when the revenue is only $100,000? That marketing product is now a whopping 48% of total revenue! Now, this is a simple example, but the main point is that expenses seemingly reasonable for a “small business” can be catastrophic for a micro business.
Businesses Are Vastly Different
Hopefully, my example shows you the difference between small business and micro business. It’s an easy mistake to make. The penalty for making that mistake as a business owner is the end of the organization. The next time you hear a politician talk about small business, they’re probably not talking about your mom and pop store. And, when you declare that you want to work with small, local business, It’s probably not going to be a firm with 1,000 employees and 100 million in revenues.