Issue 002 - SMB Before The Great Recession

How Do You Define SMB?

Did you know that the formal definition of “small business” was born in America in 1953?  Public Law 83-163 enacted on July 30, 1953¹, created the Small Business Administration (SBA) to aid, counsel, assist and protect small-business interests.  It protected those interests in two significant ways -- working to ensure small businesses received a fair share of government purchases/contracts and by authorizing federal business loans and loan guarantees.  It also created the first formal definition of small business in America:

During The Great Recession, the Small Business Jobs Act of 2010² authorized the SBA to set two types of size standards for program eligibility: industry-specific standards and alternative standards based on net worth and after-tax income. The intent of “quantifying” small businesses, in other words, was always about SBA program eligibility — not in understanding their composition or impact.

For years, the US government broadly defined “small business” as under 500 employees for empirical research purposes. Today’s definition is industry-specific — in some industries, over 1,000 employees still counts as small.  And since there’s never been a formal definition of “midsize” or “medium” business, there’s no common definition of “SMB” at all. A dynamic, complex market that has never been properly quantified or understood.

According to the 2025 Small Business Profiles released by the Office of Advocacy of the US Small Business Administration, the largest cohort within the 36.2 million small businesses reported is 29,811,495 “without employees”³.  But what does “without employees” mean?

What about a family-run business owned by a patriarch or matriarch where the workers are family members who aren’t on a payroll and therefore, don’t count as employees?

How about this modern day, real-world scenario?

If two entrepreneurs:

That’s classified as a nonemployer business according to the US Census Bureau. Whether their revenues are $1,000 or $50 million.

You’ve just met a couple of Artificial Entrepreneurs.  A lot more to come on that in later issues.

What will the SMB landscape look like when there are millions of these types of companies?  The CEO of OpenAI, Sam Altman, recently predicted that we will see a billion dollar “solopreneur” business which others have predicted will be achieved by 2028⁴.  One person.  No employees.  A billion dollars in revenue. 

But I digress.  There is little doubt that quantifying, segmenting and effectively targeting the Small and Midsize Business market in America has historically been difficult — and is about to get harder.  Next week, I will share how the Great Undercount by the US Census data has materially missed the true impact of SMB cohort formation, and release my new SMB Cohort Formation Index 2006-2014 as a benchmark for what’s coming.  But first, let me share the foundational SMB thinking that’s shaped my strategy since The Great Recession.

In the next three Tuesdays, you’ll get:

·      Issue 003 – how the Great Undercount by the US Census data materially misses the true scale of SMB cohort formation along with the release of my new SMB Cohort Formation Index 2006-2014.

·      Issue 004 – the peer-reviewed academic paper that finally explains why recession-born cohorts persistently outperformed baseline.  Spoiler:  it’s not what everyone thinks.  In fact, it’s not what I thought in 2009.  It even shocked me.

·      Issue 005 – the bridge to the parallel weekly braid you’ll get from Issue 006 onward describing the present-day implications of The Accidental Entrepreneur and what I expect, and will be discovering in real-time, about The Artificial Entrepreneur.

But in order to go forward, we have to go back.

What Was US Entrepreneurship Like Before The Econoquake?

In 2011, I left HP after accomplishing my mission and joined Symantec in a new business unit dedicated to SMB.  While employed there, I put keyboard to PowerPoint and authored some slides to explain my theories of the SMB market before and after The Great Recession.

I had come to believe that pre-The Great Recession, the US SMB market was bifurcated into two disproportionate cohorts which I named the Problem Solvers and the Pleasure Seekers. 

The Problem Solvers fit the marketplace stereotype of “startups”.  Some of them were wildly successful and created an entrepreneurial mystique that was celebrated in print publications and on the internet.  After a pause due to the Internet bust, by 2007 solving problems was back in vogue.

The Pleasure Seekers most logically fit the description of a “lifestyle business”.  A desire to be one’s own boss was often more important than the actual day-to-day activities, or financial potential, of the business.

I believed that the SMB market had roughly adhered to this construct for several decades with “small” business being represented disproportionately by Pleasure Seekers and “midsize” business being represented disproportionately by Problem Solvers.

During my last two years at HP, I had assembled enough Accidental Entrepreneur data to be confident that the companies born of The Great Recession were different. By 2012, I had conducted primary research that confirmed they were unlike any cohort ever identified.  I had a new nickname for The Accidental Entrepreneurs:  The Profit Machines.

The Profit Machines were almost certainly the biggest wave of the most talented businesspeople to ever choose entrepreneurship.  The Great Recession had robbed many of a lucrative six-figure career, so their passion wasn’t “the better idea” or a personal hobby — it was money.  They weren’t broke; many had a substantial nest egg, but falling home values and a crashing stock market created real urgency.  They had the experience to study markets, assess competition and identify underserved gaps worth exploiting.  They knew the right people — a network that could open doors, invest dollars or serve as a sounding board.  This new class of entrepreneurs proved accidental by origin only.  They were absolutely, positively, trying to get rich.

They were…velociraptors released into the herd:

That’s why, fourteen years later, I’m planning a research product called “The Profit Machines Index”. Stay tuned as I will reveal details in future issues.

Primary Research Empirically Proved My Hypothesis

In May 2012, the research I had commissioned was presented internally at Symantec.  305 US SMBs with 3 to 250 employees—roughly half each founded before and after 2008.

54% of SMB founded post-2008 called themselves a growth business with an exit strategy.

75% expected to grow their revenue more than 10% in the next year (vs 39% pre-2008)

35% of the post-2008 founders reported they left their previous employer because of the recession.  (AUTHOR NOTE: Another 50% reported they left because they dreamed of starting their own company which confirms the “necessity” vs “opportunity” designations predicted in the HP Accidental Entrepreneur deck I presented in Issue 001.)

Nearly half expected to double their headcount in two years (vs 12% pre-2008).

The Business Press Reported The Story

CNBC covered the release of the research (with a visual of a velociraptor!):  https://www.cnbc.com/2012/06/14/recession-spawns-new-breed-of-accidental-entrepreneurs.html

“These companies are born of the recession, are focused on the Internet and are finding addressable markets to dominate”⁵

Fox Business covered the release of the research:  https://www.foxbusiness.com/features/recession-spawns-new-breed-of-accidental-entrepreneurs

“The Great Recession spawned a new breed of “accidental entrepreneurs” more driven by profits than passion, a new study finds.”⁶

As did Business Insider:  https://www.businessinsider.com/accidental-entrepreneurs-are-purposefully-using-technology-and-thriving-symantec-study-finds-2012-6

“These accidental entrepreneurs are agile, highly educated, tech-savvy and battle-tested business professionals and the companies they founded and will found [in the future] are born to grow.”⁷

By 2015, The Results Were Measurable

Did This Strike A Chord?  What Do You Like?  What’s Missing?

Have you ever conducted primary research on the SMB market with an interesting angle that you are willing to share?  Anything from the entire study, if you have the rights, to your observations and conclusions would be valuable to this audience.

Were you a Profit Machine who started a company during The Great Recession?  Did you know/do you know any?  How did you/they fare?

I’d like to meet you/them and hear your/their story.  With your/their permission, I want to share as much real-world experience from those who lived it and I may use anecdotes or case studies in future issues.  Introduce us please.

I can deliver a better quality, reader-centric production if you are willing to provide me with real-world examples and logical, empirically supported feedback.  Have some data that conflicts with my market assessment?  Share it and I’ll respond and learn from you.  Disagree with one of my conclusions?  Tell me and we will have a civil discussion.  Maybe you will convince me and I will share with the group.  Leave me feedback by replying to this newsletter or at [email protected].

History Doesn’t Repeat Itself, But It Rhymes

Fourteen years later, another cohort is being born under conditions that rhyme with 2008-2012 – but the disruption isn’t an Econoquake this time.  It’s Artificial Intelligence.  And the professionals AI is displacing are young, technical and armed with the very tool that’s disrupting their traditional path.

In the next three Tuesdays, you’ll get:

·      Issue 003 – how the Great Undercount by the US Census data materially misses the true scale of SMB cohort formation along with the release of my new SMB Cohort Formation Index 2006-2014.

·      Issue 004 – the peer-reviewed academic paper that finally explains why recession-born cohorts persistently outperformed baseline.  Spoiler:  it’s not what everyone thinks.  In fact, it’s not what I thought in 2009.  It even shocked me.

·      Issue 005 – the bridge to the parallel weekly braid you’ll get from Issue 006 onward describing the present-day implications of The Accidental Entrepreneur and what I expect, and will be discovering in real-time, about The Artificial Entrepreneur.

See you next Tuesday.

Know Someone Who Should Read This?

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My Current Plan for Year 1

After the Foundation, the two parallel weekly threads run in alternating fashion, with crossovers.

The SMB Cohort is independent research and commentary. Analysis draws on primary research, public and licensed data sources, and the author’s professional experience and judgment; while rigorously developed, it can be wrong. Nothing published here is investment, financial, legal, tax, or other professional advice, and nothing should be acted on without independent verification from other sources. Brian D. Burch and The SMB Cohort accept no liability for outcomes resulting from reliance on this content.