In search of the SME

Jim Donovan is ranting about the term SME (meaning “small medium enterprise”) and objects to people calling a company with 10 staff a SME.

He suggests:

  • < 100 staff = small
  • 100- 1000 staff = medium
  • 1000+ = large (I’m filling in the gaps)

Jim, one man’s “small” is another man’s “medium” I suppose?

Here is what the numbers tell us:

Source: Ministry of Economic Development, SMEs in New Zealand, May 2006

So, using Jim’s definition, 99.46% of all enterprises in NZ are small.

But, if practically everybody is going to be classified as “small” doesn’t it make a bit of a mockery of the classifications?

14 comments on “In search of the SME

  1. benkepes says:

    I think Jim’s comments related to the global scale – small in NZ i minnow sized elsewhere

  2. Andrew says:

    Could be useful to see how we compare with similar countries such as Finland. Interestingly if you remove the 63% of 0 employee companies from the mix it only marginally changes the number < 1000 from 99.44% to 98.49%

    1-5 78,149 63.45%
    6-9 17,821 14.47%
    10-19 14,858 12.06%
    20-49 8,152 6.62%
    50-99 2,329 1.89%
    100-499 1,551 1.26%
    500+ 309 0.25%

  3. rowan says:

    Ben, I’m not sure the numbers support what you’re saying.

    I don’t think there is any argument that there are a small number of very large companies overseas which employ many more people than the largest companies in NZ do.

    But what about at the other end of the spectrum?

    There are very small businesses everywhere, and in fact there is no evidence I’ve seen to suggest that the *proportion* of small businesses here in NZ is any different from anywhere else.

    I really recommend reading the MED report I linked to. It’s very interesting.

    According to their numbers:

    63% of enterprises in NZ have no employees (i.e. one man bands)
    86% of enterprises in NZ have 5 or fewer employees
    92% of enterprises in NZ have 9 or fewer employees

    0.09% of enterprises in NZ have 500+ employees

    Here are some equivalent numbers for the UK (from: http://stats.berr.gov.uk/ed/sme/):

    72% of enterprises in the UK have no employees
    90% of enterprises in the UK have 4 or fewer employees
    95% of enterprises in the UK have 9 or fewer employees

    0.10% of enterprises in the UK have 500+ employees

    So, the UK has a slightly higher proportion of very small businesses than we have here in NZ.

    And, that’s a massive market of just under 4 million “enterprises” in the UK with 4 or fewer employees.

    It does raise another interesting question – when we’re talking about companies employing only a handful of people is it even accurate to call them “enterprises”? In reality they look and act much more like individuals. But that’s a topic for another post …

  4. rowan says:

    Andrew, I’m sure those numbers are online.

    Here is the official site: http://www.stat.fi

    I found this, which I think says that the number of enterprises in Finland grew by 1.8% in 2005, but doesn’t seem to provide a breakdown.

    http://www.stat.fi/til/syr/2005/syr_2005_2006-11-30_tie_001_sv.html

    Anybody who speaks Finnish or Swedish who can help here?

  5. benkepes says:

    I replied to Rowan….I appreciate the reply – an it’d be great to see some US statistics can see how that compares – I suspect that US figures would skew the data in favour of larger sized companies. This though is a gut feel rather than something with an empirical backing.

    Thereafter I found some empirical data to back up my opinion

    US stats (from US census bureau)
    Year 2004

    14% of businesses have no employees
    61% employ under 4 pax
    79% employ under 9 pax
    90% employ under 19 pax
    0.3% employ 500+ pax

    So as I thought US stats skew business size upwards of what NZ and UK show

  6. rowan says:

    Thanks Ben.

    The US data is here:

    http://www.census.gov/epcd/www/smallbus.html

    Unlike the NZ and UK stats they break out “non employer firms”, so I’m not sure how self-employed people who take dividends or drawings rather than paying themselves a salary are treated?

  7. Stuart says:

    As an infrastructure consultant, I find that an important factor in how companies are classified is their annual turnover. That MED report refers to the Irish systems of classifying SMEs which to me makes more sense:

    “Small businesses are defined as those who employ fewer than 50 people and whose annual turnover and/or annual balance sheet total does not exceed €10 million. Within the SME category, a micro-enterprise is defined as an enterprise which employs fewer than 10 persons and whose annual turnover and/or annual balance sheet total does not exceed €2 million.”

    From: http://www.med.govt.nz/templates/MultipageDocumentPage____28588.aspx

  8. Jim says:

    It was always a risk that the statisticians and pedants (just joking) would come back at me. I don’t resile my position. On a global scale, a 99 person business is small, whatever the statistics say.

  9. rowan says:

    Good on you Jim.

    I have to admit I don’t see how a business that is *bigger* than 99% of the businesses on the planet can be said to be small, even on a global scale, but I commend you for sticking to your position.

    :-)

  10. Tim Norton says:

    Interesting discussion, I’m a little late in the game here,

    I think there has to be enough businesses in a category for the classifications to be useful, and as you say Rowan if you’re bigger than over 90% of businesses and still in the same size category as them, then there’s really no value in that classification.

    I think you’ve got to look at why these classifications exist. The biggest value they can offer is to help push businesses through the growth curve. If the next milestone is 100 employees in New Zealand to get to a medium, the its a long haul for almost every small business.

    We’re not the US, we’re not a country who are masters of taking on the world with the biggest companies on the planet, and nor are we likely to be.

    We have to play to our strengths, and getting from small to medium is the step we want to see heaps of NZ companies taking, lets not set the bar so high that nearly no-one gets there.

    I want more medium companies, and getting to something like 25 employees and a couple a mil in profit is definitely a recognisable step forward from a small business, and the type of business that more ‘small’ businesses can aim to be and achieve.

  11. Dean Goble says:

    “Hi, I’m a small businesman”
    “We’re a small business running a global SAAS operation”
    “My small business pays the mortgage and feeds the kids”
    “My small business has sold a gazillion books and film rights for a trillion bucks while I travel the speaking circuit”

    yeah right

    Regardless of the scale of the business or how you quantify it, people in these organisations don’t refer to themselves as “small”

    A ‘small business’ really can be big business nowadays and all are potentially customers so I think care needs to be taken if you are marketing to these organisations and using terminology that is not empathetic.

    Where do I as a potential customer draw the line and say – well thats not for me I’m not a small business (I’m big time!)?

  12. rowan says:

    Good point Tim, but why draw the line at 25?

    Imagine if a decent proportion of the 1 and 2 person businesses in NZ grew to 5 staff. There are hundreds of thousands of them. The effect would be massive.

  13. Tim Norton says:

    Good call. Thats a strategy we could actually run focus on and drive home to the 10′s of thousands of 1 and 2 people businesses. I remember last year when we made a conscious decision to grow the web design business. I looked for a company to acquire, found it, bought it using a credit card, shared the load with a partner, hired someone new paid of the acquisition in 5 months, hired another, and suddenly the business is at the next stage.

    Growing through acquisition for the little guys

    A huge number of businesses could do this sort of thing if the focus was on helping them do it and understanding the options they have to do it.

  14. [...] In search of the SME, on understanding your customers [...]

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