Are You Bad at the Internet?

A Kauffman study released Thursday illuminates how small businesses are struggling with using the Web to convert sales, while a few unlikely industries are finding success.

In the world of start-ups, a website is a company’s lifeblood.

But for the rest of small business owners in America, it seems, having a vibrant website is sometimes merely an afterthought.

In a study released this morning titled Casting a Wide Net: Online Activities of Small and New Businesses in the United States, Kauffman Foundation researchers compared data from the Census Bureau’s 2007 Survey of Business Owners to a data set that followed nearly 5,000 young firms that started up in 2004. The study provides one of the first in-depth looks at how small businesses—across industry sectors—are leveraging the Web to sell to customers.

Or, not leveraging the Web, as it may be. According to government data, as of 2007, only about a quarter of all small businesses in America had a website. And within that figure, only six percent reported online sales revenue.

Alicia Robb, the study’s co-auther and a senior research fellow at the Kauffman Foundation, says a particularly unexpected finding was the relatively low percentage of Web sales within the retail category. In 2004, just 2.1 percent of overall retail revenue was generated on the Internet. By 2009, that percentage hovered around 4 percent.

“It’s a tiny fraction of sales,” Robb says. “I was expecting something larger.”

Manufacturing, on the other hand, seems to be hitting its e-stride. In 2009, Web sales within manufacturing represented 42 percent of overall industry revenue.

And within nearly every vertical, Web sales are growing at a much quicker yearly pace compared to industry revenues. Web sales in manufacturing, for instance, grew 87 percent from 2004 to 2009—compared to a growth rate of just 3 percent of total manufacturing sales.

“E-commerce sales are growing much faster than overall sales.” —Alicia Robb, Senior Research Fellow at the Kauffman Foundation

“E-commerce sales are growing much faster than overall sales,” Robb says. “It’s going to be an increasingly instrumental part of firms as they go forward, and they’ll have to have an online presence to be competitive.”

Though it’s somewhat of a no-brainer, the study confirms an often-assumed idea: young companies appreciate the need for a Web presence, and they also are more adept at selling online. Nearly a quarter of small businesses founded in 2004 that sell online said that online sales accounted for between 51 and 100 percent of their revenue, compared to just 13 percent of the rest of American small businesses.

Still, Robb says this study just scratches the surface of a subject that will become a focal point point of economic policy in the years to come.

“We hope this report will stimulate further research about these activities and their influence on our economy, as well as a serious discussion about how official statistics can be improved to allow for the study of this growing phenomenon,” Robb says.

By Eric Markowitz |  @EricMarkowitz

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