Memo #6: An Explainer on Main Street Small Business
By: John Archer and Judy Morgan, Three Sixty Collective
Image credit: AtaliaPhotos
As the devastating economic and social implications of the COVID19 crisis emerge in our cities and communities, a big focus area has been the immediate and lasting impact on main street small and independent businesses.
Main streets matter to our communities. As summarized in Memo #1: Why Main Streets Matter:
they are hubs of social and cultural activity;
they support community health and safety;
they make communities more resilient; and
they provide value for investment.
And as main streets are the spine of every vital urban centre, small businesses make up a large portion of the activity along them.
But what exactly is a main street small business? Everyone intuitively has a sense. Yet, if we are to understand and respond effectively to the needs of main street small and independent businesses across the country, we will need clear and common language with more consistent data.
Image credit: AtaliaPhotos
Defining and Counting Small Business
When speaking conversationally, “small business” and “independent business” tend to be used interchangeably. Informally, treating the two terms as synonymous is a useful convention.
From a formal, analytical perspective, however, it’s more complicated. Various studies and data sources including Statistics Canada and San Francisco’s Formula Retail among others highlight two key and common criteria for defining small, independent businesses:
Decision-making authority is vested in the local owners and not subject to conditions dictated by another corporate entity; and
There are a limited number of outlets, ensuring the owner is able to oversee and provide personal service at all outlets.
In addition, the total number of employees provides a useful sub-category to identify businesses that are start-up and “mom and pop” family-operated businesses.
Or course, not all businesses will fit neatly under these criteria. For instance, franchise operations are often owned and managed locally, but subject to different rules or levels of decision-making authority set out by the franchise head office.
Pragmatically, Statistics Canada provides the most useful definitions for the purpose of analysis.
An “independent business” has one to three outlets operating in the same industry class under the same legal ownership at any time during the survey year. This helps to ensure direct owner oversight for the daily operations of the business.
A “small business” is defined as having fewer than 100 employees. This definition is of limited practical relevance, unfortunately, as virtually all main street businesses have fewer than 100 employees.
A “micro-business”, which has one to four employees, is a useful sub-category of Statistics Canada’s small business definition, permitting the analysis of start-up and “mom and pop” family-operated businesses.
It should be noted that some small businesses have zero employees, relying on family members or contract workers for their workforce. These businesses are not included in Statistics Canada’s micro-business definition.
Beyond these StatsCan definitions, there are other ways to think about and track small business. For instance, we could define “small” from the perspective of sales volumes or floor space occupied.
There are various ways sales could be measured. Statistics Canada collects and publishes retail sales data, the Canada Revenue Agency tracks business GST remissions, and third-party transaction providers such as Visa, Moneris or Apple Pay could offer another data source. Still, none of these data are presently reliable, and there are no widely accepted definitions of typical volume of sales transactions for small businesses.
Commercial floor space, another potential measure that could be useful for planners and other professionals, is similarly challenging. There is no reliable national data source on the amount of floor space by individual business. Size of commercial space is also very dependent on the type of goods or services sold, with no widely accepted definition that would distinguish “small” businesses.
While offering interesting potential for analysis, these measures have obvious drawbacks. For defining and counting small businesses, the StatsCan “independent business” and “micro-business” measures are the most reliable we have at this time.
Small Main Street Business is Big Business
It’s clear that small, locally-owned businesses are intimately intertwined in most main street communities across Canada. While national and international chains, shopping malls and other business forms also play an important role in serving the community, it is a main street’s independent businesses that often define its character and ensure its uniqueness.
Local, independently-owned businesses dominate all retail, food service, and consumer service sectors. Recent studies have provided empirical evidence. A study we conducted for the City of Toronto found that upwards of 75% of businesses in most main streets were independently owned, a trend that held pretty steady from 2011 to 2018 (see table below). A City of Vancouver study had similar findings when adjusting for vacancy.
The impact is even greater because independent businesses are more likely to buy the goods and services they need to operate from other local businesses, amplifying their impact on the local economy and employment.
Newcomer entrepreneurs often build their new lives in Canada on main streets. Some family-run businesses are also passed down from generation to generation. This community building aspect of main street entrepreneurship is re-enforced through the same 2019 survey of Toronto independent business owners, who were asked why they opened their business:
· 75% are motivated by “doing what I love”;
· 76% want to contribute to community; and
· 55% want to enrich others’ lives.
Community residents place high value on being able to shop at local, independent businesses. For example, 45% of Toronto resident respondents reported that they were doing more shopping in local independent businesses along main streets than two years ago. They also place high value on the contributions independent businesses make to community life. One of the resident survey respondents told us that:
“Local businesses in my ‘hood are participants and supporters of community events, volunteers on committees, lead initiatives for those in need, create a feeling of safety, personal connection, history and permanence. They become friends with many of us and a point of contact during our daily lives.”
Overall, our research found that small businesses are essential providers of needed goods and services on main streets, and that their role to the residents of a community extends beyond the purely transactional function.
The COVID-19 Threat to Small Business Survival
In spite of their large presence and essential role on main streets, there is widespread concern that small, independent businesses will face a terrible toll as a result of the crisis.
Understanding the conditions of small business, and devising policies and solutions to help them survive and rebuild, requires that we are able to define and count them. Statistics Canada’s current data sets are the best we have, and the agency must continue to collect and publish on a consistent and national basis. But in bringing back main street, a priority must be finding new, consistent ways of measuring main street.