Indexing The Digital Small Business Economy
- Hosted October 28, 2020
- By Admin
The onslaught of news articles on the current state of small businesses in the United States paints a dire picture of the entire sector taking a substantial hit. Yet this gloomy outlook is partly because the data is too broad: While there’s no shortage of general statistics on the overall small business population, there are few, if any, that focus solely on digital businesses. These specific insights are vital so we can contextualize the growing role of digital businesses and understand their power as economic drivers.
To address this, Azlo’s new quarterly Pulse Survey seeks to index the confidence and trajectory of the Digital Small Business Economy, meaning any company that uses digital platforms to market, build, operate, and/or sell. This growing group of digitally savvy business owners is redefining what it means to be an entrepreneur and shaping the way businesses are able to survive and thrive in both the short- and long-term.
In September 2020, we surveyed over 1,000 of Azlo’s founders, entrepreneurs, and freelancers, all running a digital business in the U.S. with less than 20 employees, and asked them the following questions:
- Compared to this time last year, how has your business revenue changed?
- Looking forward, how do you anticipate your business revenue will be one year from now?
- Do you have any plans to hire employees or bring on other talent in the next six months?
- Do you anticipate needing funds (loan, capital, etc) for your business in the next six months?
- Imagine you are offered a full-time, permanent job working for someone else. How likely are you to consider that?
The findings were fascinating and overall revealed that entrepreneurs operating in the digital small business economy feel optimistic about the future and are committed to being their own bosses. Diving deeper, we also uncovered interesting variances by demographics, including race, gender, and location.
Changes in Business Revenue Over the Last Year
Interestingly, there isn’t one clear set of experiences when it comes to reporting on how business revenue has changed. Of those whose businesses were up and running a year ago, 26% had seen improved revenues, while for 24% their business revenue has worsened. And nearly 20% of founders reported that their revenue remained relatively the same. About a third were not in business a year ago, which speaks to the opportunity many have found to start businesses despite the turmoil of 2020.
Optimistic About Future Growth
Over 70% of founders anticipate their business revenue will be better a year from now. Almost one-fifth (17%) are uncertain about how their revenue will change in 2021 and only 4% of founders anticipate a decrease in business revenue in the next year overall.
Younger generations tend to be more optimistic about revenue growth overall, though all age groups generally share this trait. Founders under the age of 40 were particularly optimistic about growth (nearly 3 in 4), although 40+ were still on the high side at 69%.
Plans to Hire Vary
It’s a mixed bag when it comes to plans for hiring: 27% of respondents stated they plan on hiring in the next year, while 54% do not plan to hire.
Anticipated Need for Funding
36% of founders anticipate needing funds in the next six months. The differences among founders in terms of race were the most striking.
Breaking it down by race, a higher percentage of founders who identify as being Black or African-American or of mixed race anticipate the need to tap into capital in the next year. This percentage, compared to other groups, was in some cases more than double.
Committed to Staying in Business
Only 2% of respondents report that they would rather have a full-time permanent job. Half (49%) wouldn't consider taking a job no matter how great, while a quarter (27%) might consider a job, but only a really good one. It suggests digital business founders are not doing this because they can’t find employment. In fact, digital small business founders (23%) are holding a full-time job in addition to running their business as a side-gig.
Interestingly, founders who identify as Asian or mixed race are more likely to think about taking a good job than other founders. (35% and 34% respectively compared to only 27% of white founders.)
Challenges Facing Digital Small Businesses in 2020
The pandemic has undoubtedly had a negative impact on our mental state as a whole, but what about the mental load for entrepreneurs? We found that challenges facing digital small businesses are tied to shifts in the way we work, the way our children are receiving their education, and the state of our economy due to COVID-19.
Among digital business founders, 80% have expressed that their mental loads have been impacted for the worse. Here are the top three reasons:
1. Lack of customers due to recession or changes in behavior.
Because of the economic downturn, both in the U.S. and globally, the lack of customers has also impacted the mental load of entrepreneurs. Our research finds that this is the bulk of founders’ concerns, with 41% worried about not having a large enough customer base.
2. Running a business in a tough work environment.
Thirty-one percent cited issues with operating in a challenging work situation. For instance, working from home while their partner is also working remotely or dealing with added childcare responsibilities due to remote learning.
3. Making shifts in the way they work.
A third (33%) of founders express changes in the way they do business impacts them mentally. For instance, the inability to interact with customers face-to-face and not being able to attend conferences to network has created stress and worry.
Communities of Color and Women Face More Hurdles
Our research finds that women and communities of color are being hit the hardest in the COVID economy. Their pain points include:
A need for more capital.
While only 36% of founders state they anticipate needing capital in the next six months, 59% of those who identified as being Black or African-American expressed the need in the near future.
Among mixed-raced founders, over half (54%) stated they would be anticipating a need for capital, and over a third (36%) of those who identified as Hispanic stated the same. Only one-quarter (25%) of white founders expressed this anticipated need for capital.
More negatively impacted by greater childcare needs.
Our research found that 39% of founders have school-age children living with them. Within this group, 90% have children who are participating in distance learning or online school at least part of the time.
Of these founders, 42% state that their earning potential or business revenue has taken a hit due to the need to support their kids who have shifted to remote learning. Within this group, only 35% of men say their business income has taken a blow while half of women founders have been negatively affected.
And breaking it down by race, 56% of African-American founders cite being impacted and 57% of Hispanic founders cite the same. In contrast, only about a third (37%) of those who identify as white express this sentiment.
The tapestry of the Digital Small Business Economy is a varied one—made up of founders from a vast swath of industries and parts of the country. Yet they share an optimism for the strength and vitality of their businesses and an eye toward growth in the coming year.
Without paying close attention and continuing to learn more, we wouldn’t be able to achieve an understanding of their power to contribute and potentially change our economy. We look forward to seeing how things shift each quarter.
Behind the Numbers — Our Respondents
- They’re young businesses. Our research finds that founders of digital small businesses are a fairly new crop of entrepreneurs. The vast majority of these businesses are three years or younger—20% launched their businesses between 2017 and 2018, 18% started their endeavors about a year ago, and 39% of founders kicked off their businesses within the past year.
-They’re both male and female-founded businesses. Breaking it down by gender, 43% of founders are female and 53% are male.
-They’re diverse in age. The majority of founders (85%) were between the ages of 25 to 55.
-They’re lean. Currently, these companies operate as single-person businesses (68%), or with one or two employees (21%).
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