The #1 Challenge for Small Business Owners

May 24, 2022

Stressed business owner

In 1953, writer William Burroughs gave us the often quoted phrase, "If you're not growing, you're dying."

In the world of business, this quote seems to have achieved the status of gospel, being the default goal and aim of every business owner.

Yet, research in 2013 of more than 1,700 business owners from 83 countries by 
the eMyth organization found that the greatest challenge identified by businesses was "growth".

In addition to growth, this same research found that 80% of business owners identified "inconsistent cashflow" as another major challenge.

Today, these same challenges remain, along with other newer challenges that reflect the current economy.

Typing on keyboard

The Biggest Challenges for Small Business Owners

Small business lender Guidant surveyed over 2,400 current and aspiring small business owners in 2021 to determine, among other things, what their greatest challenges were.

Eight years after the study by eMyth, "lack of capital/cashflow" remained a top issue for 23% of respondents.

Coming in second was "recruitment/retention of employees", identified by 19% of respondents as their top issue, foretelling the coming of the "Great Resignation" that started in March of 2021 and peaked in November of that same year.

By 2022, the issue of recruitment and employee retention had moved squarely to the top of the list of challenges identified by small business owners.

Small Business Challenges 2021

7 Common Small Business Problems and Their Solutions (Guidant)

The #1 Challenge for Small Business Owners

The US Small Business Administration just released a new report which stated that employee recruitment became a particularly challenging issue for small businesses starting in the summer of 2020 as the United States and the rest of the world grappled with the COVID-19 pandemic.

According to the SBA, 23.4% of businesses surveyed identified labor needs as a challenge in August 2020.  By the end of March 2022, challenges with labor
 grew to over 40% .

Guidant's 2022 study of small business owners showed very similar results, with 32% of 
small business owners identifying employee hiring and recruitment as "somewhat difficult", and 39% saying it was "very difficult", compared to previous years.

In the struggle to find and retain employees, as might be expected, the impact is not felt equally across all businesses.

Some businesses suffer more than others.

In 2022, 32% of small business owners identified employee hiring and recruitment as "somewhat difficult", and 39% said it was "very difficult".


The "Little Guy" Suffers Most

The SBA generally defines a "small business" as "an independent business having fewer than 500 employees."

According to the US Bureau of Labor Statistics' "Job Openings and Labor Turnover Survey" (JOLTS), as reported by the SBA, the smallest businesses are being impacted the most by the national labor shortage, 
especially in 2022.

Prior to the end of 2021, employers with 1 to 9 employees and 10 to 49 employees followed the same ups and downs as other employers, albeit a much higher job openings rate for the 10 to 49 employers than for the 1 to 9 (see chart below).

However, in the last quarter of 2021 and continuing into 2022, both 1 to 9 and 10 to 49 employee firms have seen much higher increases in job openings relative to the larger employers in the United States.

This data suggests that 
the smallest of "small businesses", who comprise over 90% of all businesses, are losing the battle to recruit and retain employees.

SBA Chart

Small Business Facts, Small Business Hiring Needs (May 2022)


The "Great Resignation" created an unprecedented surge in American workers actively choosing to quit their job, with some holding out for a position that better fulfilled their desire for more money, a better opportunity, and/or simply a more enjoy place to work.

Some workers quit out of necessity for reasons related to the pandemic such as personal health, taking care of children who couldn't attend school, or tending to family members who became ill.

It comes as no surprise then that "a lack of job applicants" was identified by 
Guidant's 2022 study as the number one difficulty small business owners experienced when trying to fill positions.

"Competition from Other Employers" was ranked the second most important cause of difficulty, which is often based on compensation, i.e. who can pay the highest wage or salary and other benefits.

Faced with this challenge, business owners are responding in very predictable ways.

Difficulties Chart

2022 Small Business Trends (Guidant)

How Are Small Businesses Responding?

According to the Guidant 2022 study, the number one response from business owners to increased competition from other employers for employees has been to "increase compensation."

In fact, three of the six changes made by small business owners in response to hiring and retention challenges (see list below) had to do with compensation, with the fourth and fifth most popular responses being  "increasing benefits" and offering "hiring bonuses", respectively.

While there is no doubt that compensation is an important factor in recruiting and retaining employees, it is important to keep in mind the lessons that are starting to emerge from The Great Resignation

In particular, the regrets expressed by some employees who have quit their jobs in search of higher compensation, then realizing that the position and responsibilities were quite different than explained in the interview process.

Alternatively, many employees realized once in their new job that their higher pay doesn't compensate for a less positive and/or less friendly work environment.

In other words, there is much more to recruiting, hiring and retention than just money.

What Changes are You Making?
(to deal with hiring and retention challenges)
1.  Increased Compensation
2.  Improving Retention
3.  Expanding Recruitment Efforts
4.  Increasing Benefits
5.  Hiring Bonsues
6.  Expanding Training Programs
2022 Small Business Trends (Guidant)

Beyond Compensation

My business working with home builders to provide testing, inspections and administration of the EPA's ENERGY STAR for Homes Program was highly competitive but not highly lucrative.

To be clear, we were a profitable business and I was able to charge higher rates than my competition because we delivered a very high quality service that our clients were willing to pay for.

Even so, we earned a relatively modest fee for the services we provided when compared to the other trade contractors in the home building industry.

In turn, there wasn't a large revenue stream that allowed us to pay employees a lot of money. We paid well, but not nearly as well as the framing contractors, electricians, plumbers, and other trades.

This meant that I had to make up for this shortcoming by creating a culture that attracted great employees, and made them want to stay, even though they could be making more money elsewhere.

I did this successfully for the first sixteen years I was in business, but doubled down on it with even greater success when I rebuilt and revamped D.R. Wastchak, LLC for the final time starting in 2016.

FF Logo

We started by establishing a very clear vision of our future that described a company every employee would be excited, and proud, to be a part of.

The vision also included a goal to make every home our clients built as energy efficient and comfortable as possible for the home owners that would be living in them.

This vision, and the goals we established to make it a reality, gave the work everyone did each day greater meaning and purpose as we all worked together to fulfill the vision.

I assembled a Leadership Team to help me run the business.

One of the first things we did as a team was to discover our core values, i.e. what we believed in and stood for as individuals and as an organization.

These shared core values were the lubricant that made everything run smoother, from recruiting and hiring, to employee reviews, to client selection and interaction, to overarching messaging and policy setting in all aspects of the business.

Was a superior culture based on vision and values a silver bullet to solving the challenge of recruiting and retaining employees?

There are no silver bullets, and I definitely lost employees to other organizations (businesses and government) that offered more money than we could pay.

However, almost every person who left for more pay, or other reasons, told me and/or the friends they were leaving behind how much they enjoyed working for D.R. Wastchak, LLC and being a part of our team.

Many stayed in touch, came back regularly to visit and say hello, and asked for letters of recommendation.

This is the essences of a 
Freedom Focused organization!

Imagine now the kind of cohesive, engaged, excited, and truly successful organization you could have if it was both Freedom Focused and also paid employees a highly competitive wage/salary, great benefits, and threw in hiring bonuses?

Wow.  Who wouldn't want to work for such an organization?

The number one challenge for small business owners would be all but eliminated.

Not at all beyond the realm of possibility for many, if not most, small businesses when they become Freedom Focused and, in doing so, stay...

Focused on their freedom!

Listen to the podcast episode: #025 The #1 Challenge for Small Business Owners

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