What does a UK small business REALLY look like in 2013?

Enterprise Nation editor Simon Wicks kicks off a series of posts looking at the results of our inaugural Quarterly Small Business Survey by asking whether we really understand what a small business is in the first decades of the 21st century.

Throughout March, we conducted the first Enterprise Nation Quarterly Survey, writes Simon. We want to know who the UK's small enterprises really are, how you're operating and growing and what you need to support you as you strive to build your business. We had a fantastic 723 responses from start-ups and growing businesses all over the UK. The results give us an excellent snapshot of the UK's emerging businesses - and one that certainly tallies with some aspects of government data released last Autumn.

But our results also challenge conventional wisdom about the small business sector and how our smallest enterprises can thrive and grow. Over the next few weeks, I'll be sharing key findings with you. But today, I'm concentrating on who you actually are, how you operate and why it's REALLY important for policymakers to change the way they think about small businesses.

What is a small business?

Much of the content on Enterprise Nation is aimed at emerging businesses, so it's no surprise to find that two-thirds of our survey respondents were less than three years old. Very nearly a third, in fact, were less than a year old. Nevertheless, we have a good enough spread here to be able to say, 'Yes, these are pretty typical businesses'. What's more, some 56 per cent of our survey respondents are part-time businesses, meaning they are either run purely as an additional income stream alongside another commitment such as a job or a family; or they are run by people making the transition from employment to self-employment. This is a very significant stage in the development of any business and a fragile point where things can go wrong and support may be needed. It's also a period in the life-cycle of a business that is easily overlooked by policymakers - but there are lots and lots of businesses at this stage.

How old is your business?

Up to 1 year 1-2 years 2-3 years More than 3 years

xxx

32% 23% 14% 31%

Do you run it full- or part-time?

Full time Part-time

xxx

44% 56%

This is where it starts to get interesting. Very nearly two-thirds of our respondents were sole traders, a figure that tallies almost exactly with the official records. Furthermore, some 70 per cent of small businesses - according to our survey - operate mainly from home.

What kind of business are you?

Sole trader Limited company Partnership Social enterprise

xxx

64% 27% 5% 4%

Where do you mainly operate from?

Home Premises: Co-working spaces: Mobile (ie, you travel to customers) A mixture of the above

xxx

69% 15% 1.4% 4% 11%

So it's clear that only a minority of small businesses actually occupy a 'workplace'. Of these, barely more than a third (38%) actually own their workplace; more than half (57%) lease. We could look at this another way: given that virtually all UK businesses can be classified as 'small', this means the most common business workplace in the UK is, in fact, the home. So already we're thinking about the typical British small business in a different way: it is quite likely to be part-time; it is very likely to be run as a sole tradership; it is more than likely to operate from home. What else do we associate with businesses? Employees. Yet almost three-quarters of our respondents (73%) are single-person businesses. Around one in seven have one to two employees; a small minority have more than this. Bear in mind that the 'small business sector' provides around half the employment in the UK; in fact, a high proportion of this is self-employment. Further questioning revealed that just 16 per cent had permanent employees. Very nearly the same number relied on freelancers, and 8 per cent are staffed by a mixture of contracted employees and freelancers.

How many employees are in your business?

One - it's just me 1-2 3-5 6-10 More than 10

xxx

73% 14% 8% 2% 3%

Are your employees:

All permanent All freelance/self-employed A mixture

xxx

16% 15% 8%

A couple more details to mull over

I want to pick out a couple of other details, too. Though the largest single portion of our emerging businesses retail to consumers (30%), a significant number (24%) offer creative services (eg, copywriting, graphic design) or some form of business consultancy (22%). A very significant number (30%) sell some kind of handmade goods. These, in my view, are the real fast-growing sectors in the UK. And it's easy to see why: we now have technology that enables individuals to run these kinds of businesses quite easily. A few years ago, most sole traders were 'white van men', but various studies have revealed that this is changing. Our survey reinforces this view. More than half of small businesses trade locally and local markets remain the most significant for close to half (49%). However, almost 40 per cent (39%) regard the national market as their most important, and one in eight small businesses (12%) look to international markets first. Significantly, a third of small businesses (34%) trade overseas in some way - no surprise, since more than half (55%) sell via their website. An encouraging 80 per cent are planning to grow their business in the next year, but only 16 per cent plan to grow by taking on employees. One in five are preparing to expand by subcontracting. Most businesses are planning to grow by entering new markets (50%), acquiring bigger customers (38%)  and launching new products and services (64%).

"A typical UK business is, in fact, a sole trader operating from home. Our survey, along with the government's own published records, confirm this view."

The challenge to conventional wisdom

We tend to think of businesses as organisations with premises and employees that grow by taking on more employees and bigger premises, and it's fair to say that a good deal of government business policy is directed towards firms like these. But most businesses are not like this. A typical UK business is, in fact, a sole trader operating from home. Our survey, along with the government's own published records, confirm this view. But what does this mean in terms of policy?

• Policies aimed at making workplaces easier to rent or buy, or tax breaks based on traditional premises, though welcome, will only ever touch a minority of businesses.

• Policies to make it easier to take on employees, including National Insurance holidays, though welcome, will only ever touch a minority of businesses.

• Tax breaks for investors, though welcome, will only ever touch a minority of businesses.

• Investment in business accelerators and incubators to support narrowly-defined  'high-growth' companies, though welcome, will only ever touch a minority of businesses.

• Much touted, and doubtless very costly, schemes to simplify health and safety legislation - by way of example - though welcome, will only ever touch a minority of businesses.

The vast majority of ALL UK businesses are largely untouched by much of government business policy. Politicians and business leaders can talk as much as they like about investment and high-growth and employment - their words fall on largely deaf ears. These things are not within the realm of the typical British small business.

"How about looking at the reality of the business sector and creating practical policies to help these businesses operate and grow - however they choose to define growth?"

Six demands for policymakers

So what should we do to help these businesses? How about looking at the reality of the business sector, to kick off with? Then how about thinking of some practical policies that will actually help these businesses operate and grow - however they choose to define growth? If I were able to present a list of demands to the Business Secretary tomorrow, it might well include these: 1. Spread the resources Let's end the obsession with directing disproportionate resources to classic 'high-growth' businesses (ie, rapidly scaleable, usually tech-based, attractive to investors who are looking to reap the dividends of the business-owner's efforts). Let's open our minds and share some of these resources out to a wider range of businesses. You may be surprised by what emerges as a success. 2. Help with homes Let's help 'real' businesses with their premises - their homes. Let's give them a mortgage discount or a significant council tax rebate or a better deal on claiming for utilities or grants. Let's give them a grant to help them convert an area of their home into a proper, functioning workspace. Let's save them money - after all, they're saving the rest of the country money by not commuting, not taking up masses of office space and not burning energy to heat bits of buildings that are rarely occupied. Let's help them out. 3. Turn empty office space into co-working spaces and workhubs Speaking of premises, the changing nature of work means there will shortly be a ridiculous amount of empty office space in our metropolitan areas. We know that more and more of our independent businesses are using co-working spaces and business lounges, where available. How hard would it be to encourage larger businesses to provide equipped working space for their smaller siblings in their empty offices? Or even create incubators and accelerators for the freelancers, the consultants, the online retailers, the crafters. Let's bring these 'hidden' businesses into the light and give them absolutely the best chance of succeeding. 4. Subsidise employment of freelancers Let's give businesses a personnel boost by enabling them to employ people in the way they want to employ people. Many more firms would take on freelancers if they had the means to do so. So let's give them the means. How about a 'Buy British Freelancer' voucher scheme that can be redeemed through an existing platform like Elance?

"There is massive potential in our micro-business community that is untapped because policymakers, politicians and investors overlook it again and again."

5. Help small online retailers reach bigger markets Modern businesses reach their customers and sell through digital media. But how many of them are maximising their market reach this way? We know that a third sell overseas from time to time, but this is only actually the most important market for a tenth. Why the gap? Let's push resources into helping our small online retailers use digital media to build national and international sales. Let's give them workshops and training programmes and mentors and free support. Let's unlock the global market for our small online retailers. This is potentially massive - but we have to do it right now, while we still briefly have the edge in ecommerce. This really cannot wait. 6. Ease the transition from employment to self-employment Let's take note of the sheer number of businesses that are operating part-time. How about helping these people make the transition to self-employment with interest-free bridging loans or grants, targeted workshops (such as our own StartUp Saturday classes and StartUp Workshops!) and training courses and the like? How about taking a much larger portion of the huge sums given to banks to lend to small businesses and putting this money into crowdfunding platforms where it will go directly to start-ups and growing businesses?

Untapped potential

My bigger point is that there is massive potential in our micro-business community that is untapped or undeveloped because policymakers, politicians and investors overlook it again and again. There are five million businesses in the UK. Almost every one of them is a small business; and almost all small businesses are micro-businesses; and the majority of micro-businesses are sole traders. This is the reality - and it's the reality we need to address. When we talk about economic recovery and stimulating growth, this is where we actually need to be looking. Over the next few weeks, we'll be looking at the results of our first Quarterly Survey in detail, including how the UK's small businesses fund themselves; how they reach their customers; what their growth plans are; what technology they're using; and who they turn to for support. Some of these results are surprising! Stay tuned. Finally - congratulations to Jackie Speight, who runs Angel Assistant (a classic 21st-century small business!), winner of the iPad Mini for taking part in the survey. Thanks to everyone who took part - your contribution is invaluable. Simon

Photo credits: Gerlos (binoculars),  Jess Shanahan (desk)__