Big Growth in Tiny Businesses

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[The crapification of labour. U.S. companies that employ nobody soar. *RON*]

Jeffrey Sparshott, Wall Street Journal, 28 December 2016

Owner Brian Kulbacki keeps a close eye as he cans beer at the Departed Soles Brewing Co. in Jersey City, N.J. PHOTO: PETER FOLEY FOR THE WALL STREET JOURNAL
A tiny segment of U.S. manufacturing appears to be thriving—the one with no employees.

A mix of technology, economic necessity and adventure is leading more Americans to found companies that plan to stay very small. That entrepreneurial spark also highlights challenges facing the economy, from difficulty re-entering the job market to the diminishing role of fast-growing young firms.

Nicholas Hollows wants to be his own boss, and not anyone else’s.

“I definitely don’t intend to switch my role from a person who makes things to a person who manages people,” said the 32-year-old sole proprietor of Hollows Leather in Eugene, Ore. “Being hands-on is the whole reason I do this.”

The number of businesses classified as manufacturers with no employees has been rising steadily since the depths of the recession. The tiny operations often make food, craft beer, toiletries or other niche products. Their growth stands out in a sector that has been shedding workers for decades.

U.S. food manufacturers with no employee but the owner nearly doubled from 2004 to 2014. One-worker beverage and tobacco makers expanded 150%. Such chemical manufacturers—a category that includes makers of soap and perfume—grew almost 70%.

In all, there were more than 350,000 manufacturing establishments with no employee other than the owner in 2014, up almost 17% from 2004, according to the most recent Commerce Department data. By comparison, there were 292,543 establishments with other employees, down 12%. The shift creates a challenge for building back the number of jobs in the U.S. manufacturing sector.

Mr. Hollows eased his way into leatherworking, first making a wallet for himself and then small products for friends. He enjoyed the creativity and control of handcrafting products enough to swap from a job as a bike mechanic to a full-time business owner in 2011.

The work may use old-fashioned tools, but technology underpins the business. His website, built using Squarespace, allows him to reach customers in places like New York and Miami, markets that would have been more daunting to serve 25 years ago.

“A big part of the reason why people are making money with it and pulling away from traditional jobs is the ease of selling on online platforms,” Mr. Hollows said.

William Dunkelberg, chief economist for the National Federation of Independent Business, said tech platforms are certainly making many small businesses viable. With a good website and social media presence, a company doesn’t need, say, a director of marketing. But other factors hold them back.

“It’s so expensive to hire the first worker—it’s grim, all the paperwork, unemployment taxes,” he said. “So the temptation, I am sure, is that they maybe hire someone to do a part-time job or don’t have an employee.”

Margot Reiss, 54, might eventually hire someone. She started her soup-making venture, Kitchen 36, when no one would hire her.

She has a master's degree in health administration and more than 20 years of experience in the field, but after time off as a stay-at-home mom and then helping her husband run a software company, she wasn’t able to break back in.

“I had to think about how to help myself,” she said.

Mrs. Reiss decided to combine her administrative background and love of food to form her own company. Now, she rents space a couple of days a week at a “kitchen incubator” in New York’s Long Island City section, where she makes vegetarian and vegan soups. She packages, freezes and sells them at a farmers market near her home on Roosevelt Island, situated between Manhattan and Queens.

Mrs. Reiss has hopes of slowly expanding to additional markets and wholesaling to health food stores, which could entail finding her own commercial kitchen space and adding a handful of workers, in addition to meeting food and health regulations—all expensive propositions.

“Starting small is the key,” she said.

Small firms not only are thriving but are staying small for longer, according to the Ewing Marion Kauffman Foundation, a Kansas City, Mo., nonprofit that studies entrepreneurship. That may be good news for Mr. Hollows and Ms. Reiss, but it also means they are unlikely to provide the kind of mass employment of a big factory or burgeoning tech firm.

“We need those firms that are just a few folks,” said Jason Wiens, policy director at the Kauffman Foundation. “But we do need to encourage those gazelles, those fast-growing companies, because that’s where innovation and job creation come from in the economy.”

At the moment, rather than fast-growing young companies fueling job growth and reallocating resources to the most productive sectors, larger, older companies increasingly dominate the economy.

Still, small businesses have sheer numbers on their side. Nonemployer companies account for almost 80% of all U.S. businesses. According to a Federal Reserve survey released last week, almost two-thirds are the primary source of income for their owners and 59% operate profitably or break even. The vast majority provide services, not manufactured goods.

Still, some sole proprietors find they can’t handle all the work themselves. Brian Kulbacki opened Departed Soles Brewing Co. in Jersey City, N.J., on Memorial Day 2015. He worked as its only employee—seven days a week, often putting in 13 hours or more a day—until this month, when he hired his first full-time employee.

“If I could be a nice two- or three-man operation where everyone could provide for themselves and their family—that’s where I’d like to be,” he said.


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