Canada is full of small businesses. Of the 1.18 million firms operating in Canada, 1.15 million — 97 percent — are small businesses. That statistic may not come as a shock; for every Enbridge, there are thousands of smaller companies in the energy transportation and distribution industry.
Those smaller firms play important roles in the economy, depending on which sector they’re in. “There are lots of reasons for small firms to exist,” Ted Mallett, vice-president and chief economist for the Canadian Federation of Independent Business (CFIB), told Apollo Magazine. “They occupy the niches that large enterprises can’t necessarily fill, whether it’s a specific industry, specific geographies, and so on. You can’t have a Walmart in every town and city across the country, and of course there are all kinds of specialized professions like lawyers and accountants who operate under their own shingle.”
He added that construction was an example of an industry that has seen large growth in small employment, as opposed to retail, which has remained generally stagnant. He credited that to the scale-intensive nature and strong competition in the retail industry.
Overall, small and medium sized enterprises account for about half of the entire Canadian economy.
How big are small businesses?
While a majority of firms carry the ‘small business’ label, what isn’t always as obvious is just how small many of those businesses actually are. Generally, small businesses are categorized as any business with fewer than 100 employees, but it’s worth taking a closer look.
First, there’s a subcategory of small businesses known as a micro-enterprises. They are firms made up of between one and four employees. These micro-enterprises account for a whopping 54 percent of all businesses in Canada. If you expand that to include firms with between five and nine employees, that bumps up to 73 percent of businesses.
While this provides an interesting lens on the Canadian small business scene, these statistics don’t even take into account the largest demographic of all: the ‘solopreneur.’
An army of solopreneurs
While small employer businesses make up a large portion of the Canadian business landscape, in terms of sheer numbers, they come second to businesses of one. “The large majority of self-employed are in fact solopreneurs, and it’s a fairly large portion,” said Mallett. “We’ve got 2.8 million self-employed people across the country, by our account over half of them are running just single person businesses themselves.”
According to data from the Canadian government and CFIB, the number of incorporated and unincorporated solopreneurs combined is nearly 1.8 million.
Although rates of self-employed Canadians have generally stayed pretty steady over the years, they did spike in the 80’s and 90’s, said Mallett.
Is the small business community growing?
The short answer is: it depends. Although some reports predict that 45 percent of Canadians will be self-employed by 2020, Mallett believes those numbers are exaggerated.
On average, there’s about a 10 to 15 percent churn of businesses every year in Canada. About the same number are born that die off, making the net growth gradual over time. Within that, different sectors see different rates of growth. In general, most firms are gradually becoming larger.
“Because the pressures on costs and the advantages of scale, it is easier for larger enterprises to offer certain kinds of services at effective prices,” said Mallett. He pointed to retail, wholesale, transportation, and manufacturing — sectors that skew towards bigger business. “Hospitality, retail — those are still large business enterprises to a large degree. Because they’re able to source their products effectively at lower cost, they can pre-prepare their product offerings and standardize them to a large degree. This brings the cost down, and drives demand to their customer product.”
Mallett pointed to the construction and professional services sectors as two specific exceptions to this. Construction is a craft industry, he explained. “Every project is a custom product.”
He credited technology with allowing professional services firms to scale effectively, giving them the ability to act like big firms. “They’re benefiting from the advent of technologies that allow smaller and smaller enterprises to take advantage of information management.”