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4.20 Industry Analysis of Number of Establishments by Number of Employees for Target Market Questionnaire

What is the Establishment by Number of Employees analysis and how does it help a small business like Lights On Electrical, Inc. in Cuyahoga, Ohio?

The Establishment by Number of Employees analysis is able to break down precisely the total number of businesses for any given industry segment like Electrical Contractor and tell the reader of the how those businesses can be sized up in terms of scale based on the number of employees they have. Thus in one quick table and graph we are able to show the reader not only the total number of establishments in Cuyahoga, Ohio but also just how many of these establishments have 1 to 4 employees and more.

The 5 categories that are used for breaking down the total establishments in Cuyahoga are as follows:

  1. The number of establishments in the Electrical Contractor, or similar industry segment in Cuyahoga, Ohio, that have 1 to 4 employees.
  2. The number of establishments in the Electrical Contractor or similar industry segment in Cuyahoga, Ohio, that have 5 to 9 employees.
  3. The number of establishments in the Electrical Contractor or similar industry segment in Cuyahoga, Ohio, that have 10 to 19 employees.
  4. The number of establishments in the Electrical Contractor or similar industry segment in Cuyahoga, Ohio, that have 20 to 49 employees.
  5. The number of establishments in the Electrical Contractor or similar industry segment in Cuyahoga, Ohio, that have 50 to 99 employees.

This analysis has many benefits - the most important of which of course is that a small business owner like Andy Powell is now able to ascertain just what the competition is like in terms of the total number of firms operating in the Electrical Contractor. Once this information is at hand we can then easily look at the next piece of information to find out just how many small, mid sized and large businesses we are competing against. Thus if Lights On Electrical, Inc. has only 1 to 4 employees then the number of establishments in the analysis that have 1 to 4 employees will be the immediate competition and while others will also be competing for the consumers dollars they will have different scales of operations and hence different cost structures.

It is very important to understand the distinction between the sizes of the various establishments and not get too intimated by the total number of establishments. Consumers tend to very picky and selective about the kind of establishments they do business with - many consumers like to go directly to the large well established businesses with significant office and staff size, and yet there are plenty of folks who prefer the personal touch of a small establishment and like to give that firm patronage over the larger more visible names.

A classic example of this is the restaurant business - if you ever take a stroll down New York City, you will find that restaurants of all sizes are able to do well. Some are very humble 'holes in the wall' type places who barely have 2 to 3 employees including the owner but are well known for serving their customers an excellent fare. On the other hand you will also find the very large restaurants that have many employees that are also frequented by many. The bottom line is that there is no one size or scale that works for any business - you can have a very small business or a large business and still be profitable and have a steady clientele.

Where is the concentration of the Number of Establishments for a business like Lights On Electrical, Inc. when it comes to the no. of employees?

For most businesses, we have found that the concentration of the number of establishments tend to be those where there are between 1 to 4 employees. This of course is not surprising, the smaller the employee size indicates a smaller scale of the business and not all businesses are able to grow from humble beginnings into large well run companies employing many people. The simple fact about starting and running a small business is that it takes not just excellent entrepreneurial skills but also excellent management skills to be able to add size and scale to the business. Most small business owners tend to be very good entrepreneurs and idea people but they tend not to be very good managers and have a very tough time delegating their work to others and this of course results in them never being able to grow their firms beyond a certain size.

It is rare to find many firms in the high end of the Establishments matrix - those have more than 50 to 99 employees - these firms tend to be few and far between and their scale of operations and management is very different from the smaller ones who have between 1 to 4 employees. In many instances, the owner will most probably not be the manager but will instead install a few managers to run the day to day operations of the business while the owners focuses on the big picture and strategic decisions of the business.

What should a small business establishment with 5 to 9 employees do to stay competitive with both the larger and smaller firms in a market like Cuyahoga?

Being in the middle can always be a tough preposition and one of the many challenges facing a growing business tends to be the fear of losing their original customer base as they get more aggressive and go after newer clients and change the price structure of their goods and services. Thus if you were a humble 'hole in the wall' restaurant with only a seating for 10 in the early days and are now expanding into a larger establishment with a seating capacity of 50, your costs will most certainly go up in almost every aspect of your operations; in order to keep up with the rising costs you will have to raise your prices. If the quality of your product remains good you will most probably get newer clients, but at the same time a certain part of your client base that is used to your older business model may decide not to give you their patronage anymore.

We always recommend that small business owners like Andy Powell stay focused on the quality of their products or service and always keep their customers and employees as the key focus areas of their small business - the rest will tend to take care of itself. Even if you begin to grow from a very small business of between 1 to 4 employees to a larger busienss of between 20 to 49 employees, you need to make sure that your growth does not affect your ability to deliver an excellent product or service that you are well known for. The loss of older customers tends to be offset by the addition on newer ones.

Another very important consideration when looking at the Establishments by number of employees analysis is of course operational efficiencies and scale:

Smaller firms have the ability to keep their cost structures very low and therefore tend to be very nimble and have a much lower break even point in terms of absolute dollars - that is to say that they don't need much in sales to be able to break even. On the other hand larger firms need to have much higher sales volumes and to be able to break even on their larger costs. Taking the example of the restaurant illustration, a small and humble restaurant may only need to serve 30 meals a day to break even, whereas a large one may need to serve 300.

This issue of scale can be very important when times are slow and the entire economy is going through a cycle of slow growth or recession. We highly recommend that small businesses grow at a steady pace so they are able to absorb the increased demand for their products and services and still maintain the same level of service and integrity towards their customers. Growing too rapidly can dramatically affect the quality of a service provided by a small business and we have seen many businesses grow very quickly only to perish as larger businesses. As a general rule steady growth will ensure that the higher costs that come with increased scale can be absorbed slowly and steadly by the business as it builds up the larger clientele needed to support the higher cost structure. In our example earlier, if a small humble restaurant was to contemplate renovations versus doubling its size, we would recommend that unless the financial conditions of the restaurant are excellent, that they consider upgrading their scale by renovating and creating more room rather than taking on a much larger lease without any window into the ability of the business to be able to generate the sales required to stay profitable at that level.

There is no hard and fast rule of course - each business decision has to be evaluated on its own merit and we have had many clients who have grown very rapidly and have stayed profitable and successful as well.

Quick Links:

  1. Go to the Corresponding Template section for this industry.
  2. Go to the Corresponding Business Plan section for this industry.

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