When most people think of “business,” they often imagine skyscrapers filled with cubicles, CEOs in corner offices, and thousands of employees. But the reality is far more grounded. The vast majority of businesses in the United States are small—extremely small. In fact, most have fewer than five employees.
This fact alone changes how we should think about business in America. Small businesses aren’t a fringe part of the economy—they are the economy. With nearly 99.9% of all U.S. businesses falling into this category, it’s clear that America’s business engine is built on the efforts of individuals, families, and small teams working tirelessly across every industry.
Let’s take a deeper look at what defines a small business, why most are so lean, and what this means for the future of work and entrepreneurship in the U.S.
Defining “Small Business” in America
The term “small business” might sound simple, but its definition varies widely depending on the industry and context.
Revenue and Employment-Based Classifications
The U.S. Small Business Administration (SBA) uses both revenue and employment as criteria to determine what constitutes a small business. Generally speaking:
- A small business might have revenue ranging from $1 million to over $40 million, depending on the industry.
- Employee count thresholds can vary from 100 to 1,500 employees.
These ranges show just how broad the “small business” category really is. What counts as “small” in one industry could be considered a medium-sized enterprise in another.
Industry-Specific Examples
To put this into perspective, let’s consider a couple of examples based on SBA definitions:
- A roofing contractor is classified as a small business if it has annual revenues of $16.5 million or less.
- A business in asphalt shingle and coating material manufacturing is still considered small if it has fewer than 750 employees.
These figures may seem large to the average person, but they demonstrate how industry-specific variables impact classification. This nuanced definition ensures that small business support programs target companies that genuinely need them—regardless of how “big” they may look on paper.
The Numbers Don’t Lie: Small Business Dominates
Despite the occasional perception that corporate giants dominate the American landscape, small businesses are undeniably the foundation of the U.S. economy.
Here’s a snapshot of just how impactful small businesses truly are:
- 99.9% of all U.S. businesses are considered small.
- There are 34,752,434 small businesses across the country.
- Small businesses employ 45.9% of American workers, translating to roughly 59 million people.
- They contribute 43.5% of the U.S. Gross Domestic Product (GDP).
- These businesses are responsible for 39% of all private-sector payroll.
- In FY 2022, 26.5% of federal contracting dollars went to small businesses.
These numbers paint a powerful picture: small businesses are not only prevalent—they are essential.
Most Small Businesses Have Fewer Than Five Employees
While the broader SBA definition of small business can include companies with hundreds of employees, the reality is that most small businesses operate on a much smaller scale.
Why So Small?
There are several reasons most small businesses remain under five employees:
- Low Barrier to Entry: Many modern businesses, especially those in service, digital, and creative industries, can be started with minimal capital and overhead. One person with a laptop can now launch a consulting agency, e-commerce shop, or freelance career from home.
- Lifestyle Preference: Some entrepreneurs deliberately keep their operations small to maintain flexibility, work-life balance, and autonomy. Growth is not always the goal—freedom often is.
- Financial Constraints: Hiring employees is expensive. With the added burden of payroll taxes, benefits, and HR compliance, many small business owners opt to wear multiple hats themselves instead of expanding.
- Technology-Driven Efficiency: Thanks to automation, software, and outsourcing platforms, small teams can do the work of much larger ones. A single individual using tools like QuickBooks, Canva, Shopify, and ChatGPT can manage multiple aspects of a business once handled by entire departments.
The Challenges These Micro-Businesses Face
Despite their power and prevalence, small businesses—especially those with under five employees—face unique challenges:
Limited Access to Capital
Micro-businesses often struggle to secure financing. Traditional lenders see them as high-risk due to limited collateral and short financial histories. Even SBA-backed loans, while helpful, can be hard to obtain without proper guidance.
Regulatory Burdens
Even a one-person business must navigate complex tax rules, licenses, permits, and labor laws. For a tiny operation, the time and money needed to remain compliant can be a serious burden.
Vulnerability to Market Fluctuations
Smaller businesses are more susceptible to economic downturns. They usually don’t have cash reserves or diversified revenue streams to withstand prolonged disruptions, such as those caused by the COVID-19 pandemic.
Talent Acquisition
Competing with larger firms to hire skilled talent can be daunting. Small businesses often can’t match the salaries or benefits that big corporations offer, even if they can offer more meaningful work or flexibility.
The Upside: Agility, Innovation, and Community
Despite the hurdles, small businesses—especially the smallest among them—offer undeniable advantages.
Nimbleness and Agility
A five-person business can pivot much faster than a 500-person one. Whether responding to market trends, experimenting with new products, or adjusting pricing models, small teams can act immediately without bureaucratic red tape.
Close Customer Relationships
Smaller teams tend to foster strong personal relationships with clients. These relationships build loyalty, improve retention, and often lead to referrals—one of the most powerful growth engines for micro-businesses.
Community Impact
Small businesses are the heartbeat of local economies. They sponsor little league teams, support local charities, and provide jobs for neighbors. They offer personalized service that big box chains simply can’t replicate.
The Role of Federal Support and Policy
The federal government recognizes the importance of small businesses and has structured multiple support systems to bolster them:
Federal Contracting
In FY 2022, over a quarter (26.5%) of federal contracting dollars went to small businesses. These contracts represent billions of dollars and provide critical revenue streams that can transform a small company’s trajectory.
SBA Support Programs
The SBA offers programs that assist with everything from capital access and counseling to disaster recovery and government contracting. Microloans, mentoring networks like SCORE, and regional Small Business Development Centers (SBDCs) exist to support these entrepreneurs.
What the Future Holds for Small (and Micro) Businesses
Trends suggest that the number of micro-businesses (those with fewer than five employees) will only continue to rise in the coming decade.
The Rise of Solopreneurship
Driven by shifting work preferences, the gig economy, and a desire for autonomy, more Americans are choosing self-employment. Digital platforms make it easier than ever to turn passions and skills into income-generating ventures.
Technological Empowerment
AI, low-code tools, and advanced cloud software are reducing the need for large teams. A single entrepreneur today can scale and operate at levels previously reserved for companies with dozens of employees.
Policy Advocacy and Reform
As the small business economy grows, more attention will be paid to making the regulatory and financial systems work better for smaller operations. Expect to see innovations in how business insurance, retirement plans, and healthcare options are offered to very small employers and sole proprietors.
Final Thoughts: Rethinking What It Means to Be “In Business”
When we think about businesses in the U.S., it’s time to move beyond the image of massive corporations and embrace the reality: the typical business is likely run by just one to five people.
These micro-businesses are everywhere—your neighborhood coffee shop, a freelance graphic designer, a local landscaping team, or a stay-at-home parent selling handmade items online.
They are lean. They are adaptable. And they are essential.
Supporting and celebrating small businesses isn’t just good economics—it’s a recognition of the American spirit of resilience, independence, and entrepreneurship.
Whether you’re a policymaker, investor, community leader, or consumer, one thing is clear: betting on small businesses is betting on America’s future.