Business in America: An Overview

As of 2007, there were nearly 30 million documented businesses in the United States. Firms with paid employees accounted for 5.5 million of all U.S.-based businesses. Sectors that were overrepresented among these businesses included construction; professional, scientific, and technical services; health care and social assistance; and other uncategorized services. Together, the firms within these four sectors represented nearly half of all the businesses the U.S. Census lists as part of the nation’s economy. Interestingly, businesses with 500 or more employees within these four sectors combined account for less than 2 percent of all such firms.

Over half of U.S. firms are home based: 58 percent of nonemployer businesses are home based versus 22 percent of businesses with paid employees. There is a noticeable correlation between business revenues and being home based. Nearly 65 percent of businesses making less than $5,000 are home based compared to less than 6 percent of firms with revenues of $1 million or more. Not surprisingly, the data show that as business workforce size increases, the likelihood of having a home base drastically decreases: the largest percentage of employer-firms that are home based, at 29 percent, are businesses with 1–4 employees.

Those who hang out a shingle to leverage their own skills, expertise, and experience often represent what are commonly referred to as the self-employed. These individuals may prefer “being their own boss,” despise bureaucracy, or seek greater flexibility to honor that nebulous equilibrium known as “work–life balance.” Some subset of the self-employed are professionals such as lawyers, accountants, and consultants, people who often do not plan to grow their businesses in terms of hiring employees or becoming a highly scalable enterprise.

The self-employed who operate in the service economy by leveraging their skills, credentials, experiences, and networks—their invisible capital—are also known as independent knowledge workers or “entreprofessionals.” Even though they are not necessarily innovating in their business, they may be taking career risks by choosing to end their search for employment, as noted in a recent New York Times oped piece by former Clinton-era secretary of labor Robert Reich. Reich alluded to the fact that in the span of just three years, from 2001 to 2003, the number of individuals who pursued self-employment by forming subchapter S corporations (“S-corps”) and limited liability companies (LLCs) increased by over 12 percent. Appropriately, his column was entitled “Entrepreneur or Unemployed?”

The self-employed also include business owners who are franchisees or multilevel marketing associates. Franchisees are individuals (or groups of individuals) who essentially buy a business model in a box. Based on a 2002 U.S. Census Bureau survey of business owners, they represent fewer than 4 percent of all firms with employees. Running a franchise is neither cheap nor easy to do well. In fact, despite the seemingly obvious advantages of buying into an already market-tested business, some research shows that the odds of success in franchising may be lower than for business owners who create their enterprises from scratch.

Even so, franchise survival rates are surely higher than those for multilevel marketing (MLM) businesses—enterprises also known as network marketing organizations or direct sales organizations, including well-known companies such as Mary Kay, Avon, and Amway. MLMs have earned a poor reputation for having an unethical business model, some being little more than pyramid or Ponzi schemes. That said, according to the Direct Selling Association website, over 15 million people are involved in direct selling, reaching 74 percent of all Americans and accounting for over $114 billion in sales worldwide.

Figure 6
U.S. Employer-Firm Population by Size

Indeed, there exist at least a few socially conscious multilevel marketing companies, just as there exist highly unscrupulous nonprofit organizations. Ultimately, though, an enterprise’s business model will shed the most light on its organizational values. The MLMs that profit by design from their members’ failure to sell mediocre (or worse) products or services after they have bought an expensive initiation fee are sadly the norm, with only a few notable exceptions. An MLM’s products and services are rarely what generates the most profits for it; that would instead be the initial fees that systematically provide the continuous infusion of cash extracted from each successive wave of often underemployed, unemployed, retired, or otherwise cash-strapped new sales associates (also known in the industry as “independent business owners”).