SBSI Wave-5
The Small Business Success Index
This research is based on a holistic approach to gauging the health of small businesses, as captured in the Small Business Success Framework (see Figure 2). At the heart of the framework is “competitiveness,” a multi-faceted construct that is measured with the Small Business Success Index (SBSI). The framework goes beyond the SBSI to also capture the outcomes or consequences of competitiveness, as well as other factors that relate to competitiveness, both internal (such as owner traits or technology usage) and external (like the economy or regulation). These areas are covered in the survey questionnaire, and their linkages were validated in the baseline study (December2008/January 2009).
Figure 2
Small Business Success is measured on several dimensions and quantified on a scale of 0 to 100 (completely failing to completely successful). The full SBSI is based on 281 measures, which capture the six dimensions (or sub-indices) below:
- Capital Access, including availability of working capital, capital for long term investments, and expert financial advice
- Marketing and Innovation, such as identifying new prospects, showing effective corporate positioning, converting leads, finding ways to efficiently advertise, and the ability to come up with new ideas
- Workforce, including the ability of small businesses to attract, retain, develop, motivate and deploy employees efficiently, as well as encourage creativity from them
- Customer Service, which is the ability of small businesses to service their customers, show they care about them and grow their relationships
- Computer Technology, which includes making technology work effectively and efficiently in the organization
- Compliance, which is the ability of the small business to understand and comply with laws and regulations, including ensuring data security
These dimensions have varying importance in a small business’s overall SBSI score. For example, performance in Capital Access has the most impact on overall competitiveness, accounting for one-third of the total competitiveness score (see Figure 3). Marketing and Innovation is also highly important, making up almost one-quarter of the SBSI score. These weighting factors, which sum to 100%, are based on the degree to which each sub-index is able to explain a small business’s perceived success in meeting broad goals such as building wealth, growing, and providing an attractive income and lifestyle for the owners.
Figure 3
How competitive are small businesses today? As of January 2011, when the most recent wave of the Small Business Success Survey was completed, small businesses had an SBSI score of 73. This can be considered a middling rating, or the equivalent of a ‘C-’. Based on their scores, individual small businesses can be classified into four competitiveness groups (see Figure 4):
- 20% of small businesses are Highly Competitive (an SBSI score of 85 or higher)
- 28% are Marginally Competitive (an SBSI score of at least 75 but less than 85)
- 25% are Marginally Failing (an SBSI score of at least 65 but less than 75)
- 28% are Failing (an SBSI score below 65).
Figure 4
Competitiveness, as measured by the SBSI, relates strongly to the ability of a small business to succeed in meeting broad business goals. Owners of businesses in the “highly competitive” category largely believe they have successful businesses; for example, the businesses are growing, creating wealth, avoiding risk, and meeting the owners’ expectations for income and an attractive lifestyle. In contrast, those in the “failing” category tend to be failing in meeting these broader goals, and those that are “marginally failing” can be deemed as not in a crisis but clearly not successful in meeting the owners’ expectations.
The SBSI is currently at a low point since it was first quantified two years ago (December/January 2009). It held steady at 75 through January 2010, but dropped to 73 in June and remains at that level as of January 2011. There are fewer “highly competitive” or “marginally competitive businesses” than last year; in December of 2009 (13 months ago), 56 percent of small businesses fell into one of the competitive categories, but only 48 percent do so now. Perhaps of greater concern is the increasing share of small businesses classified as “failing”; failing businesses were 19 percent two years ago, 21 percent a year ago, and are now 28 percent.
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