Three-quarters of all firms in the United States are categorized as “non-employers”. Non-employers are business that provides work for only a single or part-time owner. While small businesses which employ many people are usually started in response to marketplace opportunities, non-employer business is often started as occupational decisions. They can be a way to deal with the loss of a job or serve as part-time ventures to supplement the owner’s income when they are under-employed.
A study conducted by the SBA discovered that for every one “employer business” started there were three “non-employer business” started. When turnover, the ratio of entry to exit rates in the business, was examined, turnover was closely associated with the amount of capital required to start the venture. Specifically, businesses with greater start-up capital requirements had lower turnover, while business with lower start-up requirements, like a service-based business, had a much higher turnover. Another correlation related to regional unemployment rates.
The study found that when the labor market worsens people respond by finding clients to work for rather than employers. By contrast, as the economy and labor market improves, many of the owners of non-employer, service-type businesses chose to close up their business in favor of full-time employment. When a business closes it leaves their clients stranded, making these clients available to a new provider. Some owners may elect to cherry-pick their best clients and continue to conduct business on a part-time basis while they take up other employment.
For those that choose to remain in business, new market-driven opportunities will present themselves as clients accustomed to services are left without a provider. Many of these providers, responding to the new market demand, will evolve from the ranks of the non-employer to become employer firms as they pick up these new clients. These new firms would be well-served to take the time now to develop a solid business plan so that they can take maximum advantage of any changing tide.
