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Analyzing the Best in Small Business

Emily Kate Pope

Emily Pope is a writer and editor at Fundera. She specializes in all things small business marketing and financing.

In the U.S., nearly 29 million small businesses make up 99.7% of all commerce today.

Of these small businesses, less than 1% earn the distinction of being profiled on the Entrepreneur 360 list. The listestablished in 2015chronicles some of the most successful private companies in the U.S. to better understand what drives growth in today’s economy.

We studied the latest list to see the components that make up the top small businesses. Company size, founding year, and even the founding city or state all play a significant role in continuous growth. Curious to see what we discovered about the businesses listed on the most recent Entrepreneur 360 list? Keep reading to find out.

A Small Business Snapshot

Considering the average annual revenue for companies on the Entrepreneur 360 list was almost $5 million in 2015, we can learn a thing or two from these businesses.

New York City was the most popular U.S. city for small businesses on the list. The cost of living in NYC may be steep, but the Big Apple has a long history of encouraging the entrepreneurial spirit. Political initiatives also make NYC a great place for female entrepreneurs looking to leave their mark on the world. In 2016, the city announced its plans to award $16 billion to minority and women-owned businesses by July 2025.

San Francisco was the second most popular city for small businesses on the Entrepreneur 360 listdespite the perception the city is not friendly toward small businesses.

Additionally, St. Louis was the highest ranked cities on the list, and small- to micro-sized businesses were ultimately more common than larger organizations.

The Most Successful Cities for Small Businesses

As discussed, New York City and San Francisco ranked as the two most popular locations for successful small businesses. While other cities may have a strong reputation for tech, small businesses in NYC are playing their part in evolving the industry.

Even in Chicago, small businesses are finding success. The number of customers and revenue in the Midwest can substantially contribute to a company’s success.

Among the cities with small businesses garnering the highest average annual revenue, Boston was No. 1, with its companies from the Entrepreneur 360 list earning an average of $111.2 million annually. Scottsdale, Arizona, ranked second overall, with average annual revenue of $66.8 million.

Austin, Texas, was both popular and high-earning, with companies like ClearDATA, Chameleon Cold-Brew, and Student Loan Hero all in the top 50. From the Entrepreneur 360 list, Austin’s companies earned an average of $62.3 million in 2016.

The Most Successful States for Small Businesses

Across the U.S., businesses in California were the most popular on the 2016 Entrepreneur 360 list. According to the Small Business Administration, small businesses make up over 99% of all companies in the state, and they employ nearly half of the state’s workforce. Annual business growth in California was higher than the national average in 2015.

Similarly, small businesses make up 99% of all companies in New York, equating to more than 2 million operations or over 7% of the national total.

Texas was also one of the most popular states for successful small businesses. In fact, small firms equate to nearly 99% of Texas’ professional economy.

While Massachusetts didn’t have as many businesses on the 360 list, this state’s companies earned an average annual revenue of $58.9 million in 2016. Arizona came in second, with its businesses each garnering $41.2 million, on average.

The Most Successful Types of Small Businesses

With 360 small businesses profiled every year, the Entrepreneur 360 list ranks companies in two dozen industries. So who’s leading the charge?

Using the companies’ listed industries from LinkedIn, marketing and advertising accounted for more than 1 in 10 businesses on the list. As technology continues to evolve, companies are finding new ways to acquire customers and retain existing ones. And that’s where marketing and advertising step in to answer the call. In 2015, $60 billion was spent on internet advertising, and over a third of that revenue was devoted to mobile ads.  

The information technology and internet industries tied for second for the most popular industries on the 2016 list. In fact, companies around the world are predicted to increase their IT spendingincluding services, software, and devicesto $3.5 trillion in 2017.

While marketing and IT companies accounted for four of the top five most popular industries, real estate, as well as telecommunications, were ultimately the highest earners on the list, with $99.1 million and $61.5 million in average annual revenue, respectively. Automotive companies also fared well, accumulating an average of $38.8 million in 2016.

Bigger Isn’t Always Better

Successful small businesses come in all shapes and sizes. While you may initially think of a smaller number of employees when you hear “entrepreneur,” this image isn’t always accurate.

Companies with 50 or fewer employees accounted for more than two-thirds of businesses on the latest Entrepreneur 360 list, of which 28% reported having between two and 10 employees on LinkedIn. Less than 1% of all businesses on the 2016 list had only one employee.  

Small- to micro-sized organizations were ranked lower than organizations with hundreds or even thousands of employees. However, businesses that are small in scale tend to be closer to their customers, letting them build deeper client relationships and an elevated level of customer service that may be difficult for larger organizations to manage. They may also have the freedom to be more innovative, helping them stand apart from their competitors.

Larger companies vastly outperformed smaller companies; companies with 501 to 1,000 employees earned an average of $152.3 million in 2016, while those with 51 to 200 employees earned just $21.6 million on average. That said, companies with more employees may need more revenue to survive.

Age Is Just a Number

If you’re new to your industry or still on the fence about starting a small business, the latest Entrepreneur 360 list has some good news: Nearly 58% of companies that made the list were founded between 2010 and 2016.

As a new generation of small-business owners comes into focus, being an entrepreneur resonates stronger with Millennial business owners who identify more as risk-takers and want to evolve their business to the highest levels of success.

Businesses founded before 1980 completely outshined other founding decades regarding revenue. With decades of experience, these companies earned an average of $20.3 million last year.

Men and Women in Small Businesses

The number of female small business owners in the U.S. has risen over the last decadeup 68% since 2007.   

However, male-founded businesses made up 72% of the companies on the 2016 Entrepreneur 360 list. They also ranked higher than those founded by women or co-founded by both. Still, businesses established in Columbus, Houston, Los Angeles, and Miami had a higher rate of female-owned companies.

While men primarily founded businesses focused on marketing and advertising, women had more presence in consumer goods, as well as the food and beverage and internet industries. Today, business grants and microloan options are available for women through alternative lenders to help them turn their dreams into a reality while tackling unique challenges.

Teamwork, however, brought home the most in revenue. On average, companies founded by both men and women earned $22.9 million in 2016 more than all of the companies founded by single genders combined.

Location, Location, Location

It comes down to this: the two geographical titans of small businesses in the U.S. Ultimately, the most popular locations for companies that were on the latest Entrepreneur 360 list were in New York City and San Francisco.

While more than twice as many businesses came from NYC than San Francisco, those with roots on the West Coast ranked higher, on average, than those from the Empire City. While internet and marketing brands were top-tier industries, the highest ranking industry in New York City centered on financial services. In San Francisco, just a stone’s throw away from tech giants like Facebook and Google, computer software companies topped the list.

Both cities offer unique resources and financial opportunities for female entrepreneurs, but men founded an additional 19% of businesses in San Francisco compared to those in New York City.

Ultimately, New York proved to be the revenue king, with its Entrepreneur 360 companies earning more than three times the amount San Franciscan companies made in 2016, on average.

Small Businesses Level Up

With nearly 29 million small businesses across America, yours may be one of a kind. It may be a five-person shop or a team over 300 strong. It could be located in one of the busiest U.S. cities, like New York or San Francisco, or in a smaller town, like Boulder, Colorado.

Methodology

We analyzed the Entrepreneur 2016 list, published in October 2016. To determine company size, industry, and founding year, we used the information found on the companies’ LinkedIn pages. The companies’ founder(s) were also determined using LinkedIn, as well as the companies’ webpages and any related news articles. We used Owler to determine annual revenue. If Owler data were not available, we used company reports or news articles. Annual revenue data were not available for 13% of companies.

Fair Use Statement

Want to share our findings with fellow entrepreneurs for non-commercial purposes? Just be sure to link them back to this page.

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

Emily Kate Pope

Emily Pope is a writer and editor at Fundera. She specializes in all things small business marketing and financing.

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