I’m sure you’ve heard the bromide- employment gains really come from the small businesses in the US. I, for one, am not so sure this applies anymore. But, that’s because small businesses in the US are really small business.
As part of the 1% phenomenon, where the rich are getting richer (much, much richer) and the rest of us are being left behind, the same has been happening with our businesses.
I thought about this while I was reading one of the many magazines I get- this time, it was Fortune. In particular, this was the Fortune 500 issue, which lists the 500 biggest (not necessarily the most profitable) businesses in America. And, this issue included some historical figures. Those from the first 500 listing back in 1955, one 40 years later (1995) and this years (62 years later).
Not surprisingly, the biggest business in 1955 was GM, with Standard Oil (now Exxon), GE, and US steel among the top firms. 40 years later, it was GM and Ford (almost neck and neck) with Exxon, GE, IBM, AT&T, and Walmart as the big kahunas. This year? Walmart, Berkshire Hathaway, Apple, Exxon, McKesson- with GM, Ford, AT&T in tow.
The first thing you realize is that retail is still a big business. And, since Exxon now includes Mobil, AT&T is a completely different firm that it was (an extant baby Bell bought what was left of AT&T and took its name), and Berkshire Hathaway is really a holding company, we can easily see the coalescing of smaller businesses into these large behemoths.
But, the real change is the rest of our economy. Back in 1955, the Fortune 500 comprised just 12% of our GDP. Now? It’s 65%.
Think about that for a second. Five hundred firms, 65% of all US sales.
Now, here’s another number to juggle- there are 535,818 firms that have at least 4 employees (not including the 3.6 million solopreneur to 3 employee entities, with an average of 1.65 staff members) in the US. Obviously, many of these firms are pretty darned small- and certainly don’t contribute a lot to our economy.
There are 5 million firms with fewer than 20 employees. And 600,000 more employing less than 500 (but more than 19). And, 1986 firms that employ at least 5000 souls.
Back in 1955? There were 4 million firms. So, in 62 years, our GDP has risen from $ 2.7 trillion (in 1955 dollars) to $ 18.7 trillion in absolute numbers. (The economy really shrank- it is about $ 2.3 trillion in 1955 dollars.) And, the smaller firms’ share of the pie has shriveled from almost 88% to not quite 35% (compared to the Fortune 500).
It also means the average business (not in the Fortune 500) turnover in 1955 was $ 385K. (Remember, that’s also 1955 dollars!). While the Fortune 500 average that year was almost 1000X bigger at $ 299 million (also in 1955 dollars).
Now, the average business turnover is $ 2.9 million!!!! Except in 1955 dollars, it’s about the same number as it was in 1955.
Think about that as we celebrate breaking $ 1 million in sales- or even that $ 2.9 million mark.
Pretty startling when you look at the pie graphs. Both my husband and I once owned small businesses, and we ended up folding after a few years—too hard to compete with the larger businesses that offered similar products in bulk at a cheaper price.
Again, you were relegated to the spam folder, Marcia. So sorry.
Even sorrier that your dreams did not come true.
This article makes so much sense – all throughout. It’s interesting (and makes sense, based on observation and things my Dad has shared) that using 1955 dollars, our economy has shrunk.
Also, you made a great point that just because a company is on the Fortune 500 list doesn’t mean it’s the most profitable.
It’s a fascinating trend that in 1955 the Fortune 500 made up 12% of the economy, and now it makes up 65% of the economy.
Thanks for sharing. I’m looking forward to your next posts on the topic.
Your dad has been paying attention to what’s going on, Ruthanne!
Not only the Fortune 500, but we stopped participating in the Inc500 when it was clear they only valued growth in the top line, with nary a care about the bottom line. (They were great parties for the five years we participated…)
Where I am more and more small based businesses are closing. Its why I am determined to build my own business so in 9 years I can give it to my son. So he never has to worry.
That is somewhat depressing- no, not what you are growing, but that so many of your neighbors are giving up the ghost.
Glad you are not, Glenda.
Well my microscopic super small business has only 4 employees (started with 2 back 50 years ago) and we’ve managed to stay afloat even when larger companies (Walmart for one) forced many small businesses out. Very interesting firgures.
Martha recently posted..Super Delicious Salmon Sauce
That is simply super, Martha.
We deliberately shrank after we hit the dividing line between a small and a large business. I (and my partner) decided that the responsibility for 3 or 4 thousand individuals’ financial affairs wasn’t what we had in mind when we started our venture. Attrition and sales of divisions got us back to a number with which we were comfortable. (It was either that or going public; but we love our freedom to say no.)
Goes to the saying, you need to have money to make money I guess – crazy to see fortune 500 companies claiming such a large percentage of the whole GDP!!
Yes, it is crazy to see that 500 businesses can control that much of the economy, Megan.
These are some eye opening numbers.
Micro businesses still tend to focus on their reach to a smaller community rather than globally.
Kandas:
The small business community tends to focus locally, not even nationally or globally- but some do.
It takes a great deal of effort to become a big player.
Thanks for the visit and the comment.