Experian study quantifies 'small businesses'

Source: BtoB Magazine

Experian study quantifies 'small businesses'
By Carol Krol

Sep 11, 2006

Small-business owners continue to be attractive business prospects for b-to-b marketers. A study released last month by database provider Experian may shed some light on that lucrative segment and give marketers intelligence on how to target it.

Specifically, the study's findings suggest that marketers need to dig deeper to understand their customers and not make outdated assumptions about what "incorporated" and "unincorporated" companies look like.

Experian's study is the second part of its ongoing small-business owner study, "The Face of Today's Small-business Owner." In it, the database company looked at small businesses, which it defined as "microbusinesses": 25 employees or fewer and $10 million or less in annual sales.

For starters, small businesses that incorporate tend to be more affluent and better educated than their unincorporated counterparts, according to the survey results.

Incorporated business owners have incomes 35% higher than the overall population, while unincorporated owners' incomes are 24% higher, according to the research. In addition, incorporated company owners are 56% more likely to have completed college, while unincorporated owners are 29% more likely.

"Incorporateds" larger
Incorporateds also tend to be larger companies than their unincorporated brethren, based on annual sales. According to the study, incorporateds are 97% more likely to have sales of $1 million to $4.99 million and 2.62 times more likely to have sales of $5 million or more compared with unincorporateds.

In addition, contrary to conventional wisdom, incorporated business owners are more likely to be start-ups, defined as being in business two years or less, while unincorporateds are more likely to have been in business for three or more years.

These revelations should matter to b-to-b marketers targeting small businesses because it is a common practice to leave out incorporated businesses when targeting prospects, due to the perception that incorporated businesses are large organizations.

"In the b-to-b marketing space, what we saw was some clients would exclude incorporated businesses because they really wanted to market to the small-business segment," said Denise Hopkins, senior director of Business Marketing Solutions at Experian. That would be a mistake, she said.

"We also see some marketers exclude the very new businesses--the under a year and under two years in business--to avoid the risky nature of the start-up," Hopkins said. However, if marketers leave new businesses out, they might be excluding the young incorporateds with rapid revenue growth.

Companies can grow quickly
"What we've seen in the technology age and the Internet age is that companies can grow very quickly," Hopkins said. "Many of these business owners are learning early on to set up [an incorporated structure] for the company."

Marketers could benefit from taking a second look at the incorporateds and realigning their assumptions. "Looking at incorporated businesses may be a way to get to those companies that are more likely to grow fast," Hopkins said.

Christine Pratt, research director-consumer banking and credit advisory service at Financial Insights, an IDC company, said the new study provided a glimpse into the demographics of small-business owners. "From a marketing perspective, there's not a lot of information available about the owners of these small businesses," she said. For financial services companies, the study will be useful, she added, because one of the largest segments for lenders is small-business owners.