Up and Running:

Once upon a time the so-called “home office” market was a pot of gold hidden at the end of a rainbow. Maybe it will be someday. And, maybe more important than that, home office businesses are at the very least real, employing people, getting things done and growing.

I first noticed the so-called home office market back in the middle 1980s, when I did my business from a home office (so perhaps my attention wasn’t entirely by coincidence). I was consulting for a living in those days, doing planning and related research mostly for high-tech companies. I was also writing a monthly column in Business Software magazine. And one of the markets most of my clients wanted to reach was what they called the home office.

The problem, however, was that the people who ran their home office businesses didn’t really make a market. They were out there diffused in the world, without an identity, without much in common with each other and without product identity.

What did a home office need that was different from what small businesses needed? What did a home office buy, different from a general small business? It was hard to tell. In comparison, the mobile travelers needed some predictable items and read predictable magazines. So did the students, the engineers and so on. But not home office businesses. Or so it seemed back then.

Earlier this week Steve King of Emergent Research tipped me off to new research about home-based businesses that adds a new angle on the lure of the pot of gold. In his post “The Rise of the Homepreneur,” he offers real numbers from a new report based on data from the Network Solutions Small Business Success Index. The report is available here. And some of the key findings are:

• Home businesses employ more than 13 million people.
• Nearly 6.6 million home businesses generate at least 50 percent of the owner’s household income
• 35 percent of home businesses generate $125,000-plus in revenue and 8 percent more than $500,000.

So with new data from a new angle, it’s not that home office businesses are necessarily a market; it’s that they are a lot of people doing business, making money and doing (I hope) what suits them. And a reminder, as well, that “home office business” doesn’t mean inconsequential; the millions of businesses in this study are supporting people, employing people and generating real money.

And if you dig into the study, they are being taken seriously by customers and clients. And they offer lower-cost startup alternatives, too.

Now where was that rainbow?

Very interesting piece on BusinessWeek.com today, “Is Entrepreneurship Declining.” John Tozzi gets two contrary points of view from two people I’m proud to know and admire: Scott Shane and Steve King. John picks up the right links:

Scott says yes and

Steve says no.

Both pieces are well-written and well-researched. William Blake said, in The Marriage of Heaven and Hell, “anything possible to be believed is an image of truth.” I’ve always liked that quote.

Tozzie concludes:

I can’t argue with the entrepreneurship numbers. But as one of Scott’s commenters points out, you get different trend lines depending on where you start counting. I think there could be an inflection point around the beginning of this decade that reflects growth of new types of ventures. Curious to hear more thoughts on this in comments or on Twitter.

What do you think?

Recession or not, the Silicon Valley Insider’s chart of the day shows Broadband Thriving Despite Economic Collapse:

I enjoy the chart of the day; it’s almost always interesting and usually informative. I really like a good business chart as a way to see a lot of information quickly.

Steve King at SmallBizLabs asked an interesting question recently: “Are Statistically Significant Research Methods Passe?” He notes that a growing number of surveys that show up these days are not statistically valid because they don’t start with random populations. Steve says they’re “based on informal groups of respondents rather than statistically significant population samples.”

He cites three drivers for this trend:

1. Cost and speed–It is much cheaper, easier and quicker to do surveys informally, rather than investing in the rigor of statistically significant research methodology. The appeal of doing 100 quick-and-dirty surveys instead of investing in one statistically rigorous survey is obvious.
2. The availability of easy-to-use Internet survey tools–Tools like Survey Monkey make it easy to do quick and simple online surveys. This has resulted in a substantial increase in the number of surveys conducted (and results published), which may or may not measure the population that the survey is trying to understand. Think of it as a litmus test without really knowing whose chemistry you’re testing.
3. There is value in the information produced by non-statistical surveys–While informal survey results are not projectable to a broader population, they can be useful. They provide something to react to quickly and cheaply which can help decision-makers and researchers think out of the box. Also, time or resource constraints often eliminate the use of formal surveys, and some information is often better than none.

I agree. And I especially like the fact that it comes from Steve, who is part of Emergent Research, a research and consulting firm that has published some very interesting work. If you’re curious, look at its studies of small business trends.

The key point here is his number three: There is still value, sometimes, even without statistical fundamentals. You just have to stick with common sense. If I remember my business school classes in statistics, if the sample population isn’t random then you can’t project results into the larger population. But if you have a non-random sample that’s directly related to your business needs, then so what?

What I say is, use it well and wisely, recognize that what you’ve got is based on a very narrow subset of the whole world; keep a healthy skepticism, but use the information.

I’ve posted from time to time about the 20 million (or so) businesses in the United States with no employees. I like to think of these as the core, the bedrock foundation of entrepreneurship, the home-office and one-person businesses of today that will generate the growth businesses of tomorrow.

While that’s a nice notion, Steve King of Small Business Labs has an interesting post picking up on some SBA statistics that bring me quickly back to reality. If you rule out the businesses that report less than $50,000 in annual revenue, that number goes down to only about 4 million, not 20 million.

The SBA study is from 2002, six years ago, so the numbers don’t match exactly; their total is less than 18 million, while the more recent total is more than 20 million. Still, you can apply these percentages: 43 percent of the personal businesses had sales of less than $10,000 and 37 percent had less than $50,000. That’s 80 percent–that would be 16 million of the 20 million–that are probably more like hobby businesses, tax-related businesses or part-time businesses. That’s a good thing to keep in mind, for me at least, because I keep thinking 20 million.

True, the $50,000 cutoff is artificial, and there might be another 2 million or 3 million businesses that sell less than $50,000 per year but are still full and complete businesses. Some of these businesspeople make minimum wage or near that now but still hope for the future and keep going. Others undervalue revenue in tax-related tax planning–I don’t mean cheating, just, for example, living in the motel and drawing a wage that might seem lower than average wage because it includes food and shelter.

There’s also the phenomenon of tax-related businesses; businesses that spring up and last for a while and disappear, motivated more by tax law than by normal business practice.