Dan Bricklin's Web Site: www.bricklin.com
Small Business and Web Sites
Small businesses are a large, diverse market needing web sites, but mainly for simple marketing purposes and not to be online catalogs "like Amazon".
The company I founded and for which I work, Trellix Corporation, produces web site creation systems that are used by regular people to create web sites for individuals and small businesses. Lately, the small business web site market has shown continued good growth in contrast to many other areas of the business use of the Internet. As part of my preparation for press and customer meetings, and to help in product development, I've done some research and thinking about the small business area. Over the last few months, when I shared some of it with members of the press and analysts, they found it eye opening and helpful. I decided to present some of that information here as background for future meetings with the press and as something interesting for my readers. A companion web page has annotated links to some of the raw data I used.

Many people have been asserting that all small businesses should and will become eBusinesses, doing most of their selling, communicating, and computing using the Internet. They see an enormous, almost untapped market bursting forth right now. Others don't see broad adoption of the Internet by small businesses, or view the "notoriously fragmented" nature of this market and reluctance to spend, as reasons why there's no money to be made here. I believe that both of these views are mistaken. A large percentage of small businesses are clearly willing and able to spend large sums of money to use the Internet as part of their relationships with customers (and will benefit from such use), but only for appropriate purposes, such as a basic informational web site. For most, "being like Amazon", online catalogs with credit card transactions, reengineering their backroom processes, and keeping vast interactive databases about customer visits and preferences, is not that purpose.

Those Internet-bubble-like assertions are mistaken. I've surveyed a vast variety of businesses and found that few fit the Amazon model -- yet the general market remains huge. Basic web sites are becoming a core part of the marketing mix for many small businesses. The business owners know they need one -- even if they are not sure exactly why. And the cost of basic Internet uses, such as simple web sites, fits well within the marketing budget of most small businesses.

Won't all businesses become eBusinesses?
It is clear to me that much of what has been written about the role of the Internet with respect to small businesses is based on a flawed idea. There seems to be this religious belief that the natural evolution for a business is to start with a simple Internet account, a little email and some web surfing, then add a web site, and finally reach the necessary ultimate goal: eCommerce (selling on the web), eCRM (keeping databases about customers and interacting with them), eBackoffice (doing accounting and other applications using a browser, perhaps sharing information with customers), and other "Amazon'ing" of the business. Email and basic web sites are seen as mere stops along the way to the inevitable destination. This way of thinking misunderstands small businesses and can lead to misdirection of efforts. Small businesses are ready to take advantage of the Internet and spend large sums to do it, but only for things truly helpful to their businesses and that fit their current business models and methods of operation. Uses of Internet-related technology that we in the industry see as trivial can be enormously helpful to small firms. Uses we see as "the next must-have" are often too disruptive and of too little real benefit to already successful businesses that have weekly payrolls to meet. We too often ignore the pragmatic, boring uses for more interesting envelope pushing ideas. Doing that here can be a waste of effort and money.

When you look at big businesses, you see that almost all of them are embracing the Internet in many ways. They procure a major component using a browser-based bidding system, or they notify customers of a particular service of shipments by email. This makes it sound like they are becoming complete "eBusinesses", but in reality, much of what they do is still done the way it was before they started embracing the Internet. A big business has many parts, and when we publicize their technical efforts, we may be making a little part seem more important than in is. There is also the effect of scale. If you do thousands of transactions a day, the savings gained from improved efficiency can pay for a lot of development costs and overhead. A small business that handles a few transactions a week may find it hard to justify using a system. Most small businesses cannot afford to dedicate the people and time necessary to craft, test, implement, and maintain major changes to how they work.

What types of small businesses are there, and how many are there of each?
When you think of eBusinesses, you think probably think of Amazon.com and other nationwide (or worldwide) retailers or wholesalers. You think of catalogs and shopping carts. When you look at the actual numbers and types of small businesses, you can see how narrow this kind of thinking can be. By looking at lists of real businesses, you are reminded how small a percentage of businesses fit in the complete "eBusiness" mold. Only a small fraction are catalog retailers like Amazon. (Only about a quarter of all businesses that pay taxes are retailers, wholesalers, or manufacturers.) Many businesses have too few customers with too many special individual needs, or too little direct contact with customers, to rely on affordable web-based customer relations packages. You see many types of businesses for which the touted coming web-based backoffice services aren't worth risking the time to deploy and maintain. On the other hand, you also see how many would benefit from a basic Internet presence if it's in their budget range. (Of course, there are still a reasonable number of businesses that could benefit by going the full "eRoute" -- just not the dominant percentage many imply.)

Deployment numbers from research groups like IDC support this view. When those numbers initially came out (showing continuing growth in the deployment of basic web sites and email but low growth in eCommerce, eCRM, and eBackoffice) the low penetration of eCommerce was "surprising" in light of the Internet hype -- but not when you look at the needs of real businesses. Also, eCommerce, eCRM, and other "cool" services aren't the only services that can be sold to small businesses. Expenditures for Internet-related marketing purposes, such as domain name registration, and search engine submission, are quite high.

There are lots of ways to find information about what types of businesses exist and how prevalent different types are. The US Government provides many statistics that make a good starting point. I've found that reading the census numbers that list businesses by category to be very enlightening.

When you are examining data, the particular choice of what to include and exclude is important. You'll read all sorts of "small business" data, but be careful to understand what it covers. Sometimes the report is more interested in businesses that aren't huge (i.e., not Fortune 1000), but still purchase hundreds of thousands or even millions of dollars of products and services, and have dozens or hundreds of employees. These reports probably exclude many small businesses. Other reports use a more inclusive definition of a business. When mixing information from different reports, be careful to look at the data to see how it was gathered, how it is segmented, and what it covers. When you are doing analysis, think about which data is appropriate for the question you are trying to answer.

I'll break the small business segment into three parts: Businesses with more than one employee, individuals running a business by themselves full-time, and individuals doing part-time business of some sort. We can call these groups "Companies", "Lone Professionals", and "Entrepreneurial Avocations". All three of these groups need web sites, but their cost structures are probably somewhat different.

To examine "Companies" (businesses with more than one employee), I looked to the US Census data that lists businesses with a payroll. It's basically businesses that file business tax returns. This report, titled 1997 Economic Census: Summary Statistics for United States 1997 NAICS Basis, has detail pages that list business types down to a very fine-grained level.

Examining the data, you realize how narrow the view of business is in the old eCommerce advertisements. Of the 6.4 million companies with a payroll (averaging 16 people each), only about 30% sell "things": 1.1 million retail firms, 453,000 wholesalers, and 364,000 manufacturers. If you are looking for businesses that can sell through a simple catalog and ship their products, you'll find many bad candidates for eCommerce: those 1.1 million retailers include 149,000 food and beverage stores, 127,000 gasoline stations, 123,000 motor vehicle and parts dealers, 93,000 building material/garden equipment/supplies dealers, 65,000 furniture and home furnishings, and 31,000 shoe stores. And there are many other products that are made to order or need to be seen in person to buy. There were also 44,000 "Nonstore retailers". 13,000 of those were fuel dealers, and 7,000 were vending machine operators. Of the "Nonstore retailers" in 1997, 10,000 were "Electronic shopping & mail-order houses". Even if you look at businesses where discussing eCommerce was popular in the press, you find that it is a small percentage of retail sales. There were 8,300 pet and pet supply stores with total sales of $5 billion including the live puppies (0.2% of all retail sales) and 11,000 hobby/toy/game stores (0.6%).

You can compare the 30% of companies that sell things to the others that mainly "do things". Those "services" include 656,000 construction firms (10% of companies), 646,000 health care & social assistance businesses (10%), 620,000 professional, scientific & technical service firms (10%), 545,000 accommodation & foodservices firms (8%), and 520,000 "other services" firms like repair shops, beauty salons, and dry cleaners (8%).
To put the variety in perspective, here are examples of other more specific types of companies (most are small) -- again, these are big enough to have a payroll: Retail bakeries: 7,000; Dry pasta manufacturers: 266; Yarn spinning mills: 412; Printers: 38,000; Machine shops: 24,000; Computer & peripheral equipment manufacturers: 2,000; Electronic tube manufacturers: 159; Motels: 21,000; Full-service restaurants: 191,000; Limited-service restaurants: 174,000; Museums: 4,000; Roller skating rinks: 2,000; Bowling centers: 6,000; Automobile driving schools: 2,000; Excavation contractors: 18,000; Electrical contractors: 61,000.

The total number and variety of businesses is huge. The number of potential "buy it on the web with a credit card" companies is a pretty small percentage. The variety of different needs from customer relationship management or back office integration systems is huge, yet the number of companies you can actually imagine deploying something that takes time to set up and maintain is small.

The percentage of these businesses that are appropriate for an informational web site is quite high. For yarn spinning mills to beauty salons to motor vehicle dealers, posting on the web what they do, what their hours are, where they are located, and answers to frequently asked questions is valuable and something they can (and do) do.

The Census data above is based on businesses with a business tax return and a payroll. These are what I am calling "Companies", and exclude the larger number of businesses that consist of what I call "Lone Professionals". To find out about those, I looked to the statistics of even smaller businesses based mainly on the personal income tax return 1040 Schedule C's that have no payroll (just the money that is left over for the owner after all expenses are paid), such as the 1997 Economic Census - Nonemployer Statistics - United States. (This report doesn't go into as many levels of detail as the previous one, but is still very helpful.)

In 1997, that "non-employer" segment represented 15.4 million additional businesses. If you look at these very small businesses and compare them to the other statistics, you find even more businesses in the "services" sector. For example: Carpentry & floor contractors: 414,000 (no payroll, Lone Professionals), 57,000 (with payroll, Companies); Masonry, drywall, insulation, & tile contractors: 139,000 (no payroll), 50,000 (with payroll); Non-physician mental health practitioners: 75,000 (no payroll), 12,000 (payroll); Home health care: 62,000 (no payroll), 16,000 (payroll); Lawyers and other legal services: 210,000 (no payroll), 174,000 (payroll); Management, scientific, & technical consulting services: 564,000 (no payroll), 80,000 (payroll); Taxi & Limousine services: 101,000 (no payroll), 6,000 (payroll); General freight trucking: 288,000 (no payroll), 45,000 (payroll); Couriers and messengers: 121,000 (no payroll), 11,000 (payroll); "Independent artists, writers & performers": 431,000 (no payroll), 11,000 (payroll);

Looking at the retail segment, you find a smaller jump when adding these smaller businesses. For example: motor vehicle and parts dealers: 118,000 (no payroll), 123,000 (payroll); furniture and home furnishings: 40,000 (no payroll), 65,000 (payroll). Explaining the large number of "dealerships" with one person: 86,000 of the Lone Professionals sell used cars, or trailers and other specialized vehicles, sometimes in conjunction with other businesses like repair services. In a likely place for eCommerce, "Nonstore retailers", you see a jump, with 889,000 with no official payroll compared to the 44,000 with payroll. Looking closer, though, you see where the growth is: "Other direct selling establishments" (door-to-door sales and home parties, portable stalls/street vendors, coffee-break wagons/trucks, etc.): 747,000 (no payroll), 15,000 (payroll); Electronic shopping & mail-order: 56,000 (no payroll), 10,000 (payroll).

Yet again, we see many businesses that can make good use of basic web sites and few that could justify eCRM or eBackoffice today. It's easy to see the reason for web sites if you are a consultant, healthcare practitioner, taxi/limo service, or artist/performer. Even carpenters and masons can (and do) list their skills, references, and contact information on basic web sites.

If you want to get even more inclusive, you may want to add all the "businesses" that don't report revenues for tax purposes, which I call "Entrepreneurial Avocations". These can include teachers doing tutoring, part-time pet breeders, people doing photography or handiwork on weekends for others, and grandma selling her needlepoint patterns, as well as underground tax-avoiding cash businesses. Some of these could well make use of a web site, and almost all could use email, but very few could justify eBackoffice or eCRM systems. eBay has proven very popular as a marketing channel for some. In fact, eCommerce and the Internet in general have been catalysts for large numbers of such part-time businesses.

While many businesses already have web sites, there are always new businesses which have to start from scratch. Old businesses stop operating or are transferred to new owners -- the transferred businesses often need changes to the web sites. On the whole, the number of businesses goes up. The number of corporate tax returns (Form 1120, not individual's Schedule C) went from 4.3 million in 1990, to 4.8 million in 1995, to 5.5 million in 2000. Schedule C's went from 14.1 million to 17.6 million in the same period. Every year, there are over 20,000 new construction related businesses, over 20,000 each of new restaurants and retail stores, and over 10,000 each new consultants and beauty salons.

In any case, there are millions of small businesses in the United States, with many reasons to have a web site, if only to showcase previous work or provide other contact information. Most cannot dedicate a full-time person to the task, yet they know that having a web site is helpful. In one survey conducted for the National Federation of Independent Business, about half of businesses with web sites said that it brought additional and new types of customers. With well over half of the US population using the Internet, and many of them depending upon the Internet for researching information, not having a web site or email address can be a liability. (See my "The Internet is now a dominant tool for regular people" essay.)

Can small businesses afford a web site?
The next question is whether the cost of a web site puts it out of the range of those businesses. To answer that question, I looked to expenditures on similar needs for advertising, marketing, or customer support.

Here are some examples of costs just for printing and distribution -- not including creating more than a basic advertisement or logo:

Advertising in the Yellow Pages of a somewhat large city (Pittsburgh): $16/month for a regular one line listing, $110/month for a 1" space ad, $1,346/month for a half page ad; a bold, one-line White Pages listing runs $24.50/month.
Ad in a small, local suburban newspaper: $10-$30 per column inch per insertion. (A column inch is about 2.062" wide and 1" high -- a regular business card is about 2" by 3.5": $35-$105 each time it appears.) Spot color can add $100 per color. Big city newspapers are much more expensive: $300 or more for a column inch.
Printing business cards: $20-$100, stationery (letterhead and envelopes): $200-$300. Brochures can be much more expensive. Mailing is postage plus labor to address and stuff in an envelope. Including all the costs, a simple brochure can cost a few dollars each time someone requests one to be sent out.
Total newspaper advertising revenue in 2000 was $49 billion (national and local advertising) -- $4.2 billion more than broadcast TV. Local Yellow Pages advertising was $11.1 billion (national Yellow Pages advertising was $2.1 billion).
Marketing costs for a full-service restaurant are 3% of sales -- $167 per seat. "Advertising services purchased from outside companies" among all restaurants were 2.4% of sales. In a supermarket, advertising is 4% of sales, the same as rent.
According to the National Restaurant Association, about half of all full-service restaurants have a web site. "Such sites primarily offer consumers information about the restaurant and provide location details," they say.
Compared to these expenditures, a $10-35/year domain name, $10-100/month web site, or even a $1000/year fee for special placement in a targeted directory web site, is not very much. That tiny home care, funeral home, or dance studio ad in the town newspaper next to the list of police activities or local high school sports could cost $300 per month or more. If they included a "See our web site for more information" instead of some of the text they could pay for the web site just in saved space. Also, like other forms of marketing and customer relations, web sites can be effective ways to spend money. They are good for reaching new customers, supporting current customers, and reducing costs associated with responding to other types of inquiries (e.g., telephone questions, including mailing brochures).

How do they see the Internet?
From my discussions with many small business owners I've found some other, anecdotal information:

The small business owner mindset is often to lump all "Internet-related" marketing into one bucket. If you ask about their web site, they will often respond about their emails with customers. Their email address and domain name (which often come bundled with a web site) are very important. When they need to make new stationery, the email address and web site address are both needed. The desire to print new stationery can be a driving force to get the domain name (though not necessarily to author the web site -- it can stay "under construction"). Many companies buy a domain name/web site/email package and never bother to complete the web site. From a marketing viewpoint, to a very small business, all marketing that is done "when dialed into AOL" (or wherever, meaning the Internet) is one bucket, that done with a newspaper another, and through person-to-person networking another.

Businesspeople are very concerned with being found in search engines and directories -- and will readily spend money to do so, often more than for the web site itself.

Many small business people are willing to try once anything that sounds reasonable, that isn't a permanent commitment, and that isn't too expensive. Putting up a web site is in that category. Switching to eCommerce, eCRM, or eBackoffice, is not. The commitment in time and change in operation is too severe, with the benefits harder to recognize. Becoming a real eBusiness is much more complicated than just getting a web site. Most small businesses do not take credit cards, nor do they need to -- most only deal with customers they meet face to face and many do mainly custom work. Most businesses are not set up for 24x7 order taking or support. For example, I heard of one specialty food firm that needed to change all sorts of ways they worked when they tried to sell their wares from a web site. They needed to develop an entirely new relationship with a new vendor (an overnight shipping company) and figure out how to package their wares for safe transit (creating new custom boxes). Previously the products had been picked up by the buyer themselves. The company needed to change their entire way of working, and were forced to bring in consultants to help. Many small businesses are not ready or able to make such changes.

Small businesses often get their value from their uniqueness and how they are tuned to the individuals who run them. Their Internet strategies will similarly need to be tuned by those individuals. Outsiders may not be sensitive to those differences and nuances, but the small business owners are. This makes the design of inexpensive "cookie-cutter" web services difficult.

Small businesses are an extensive and varied market and have shown they will spend money on the things web sites and other Internet technologies can provide. To work with the vast majority of these businesses, we all need to stop thinking about serving little Amazons. Those that will dive fully into eBusiness will hire professional web masters who will buy and implement best-of-breed professional systems. But for the near future, there will be few of those. Think of what businesses need to run as they already do. Businesses are not just catalogs. Finally, as the use of the Internet becomes more and more ingrained in general society, different capabilities will become required for a minimal Internet presence. We need to track that carefully.

[See also: Links to background material about small businesses. Reading these references is very helpful to get a feel for the small business market.]

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