The largest and smallest businesses each occupy very different parts of the economy. Large companies and megaprojects employ lots of people and offer politicians the opportunity for great photo ops. Smaller businesses represent the grass roots of the economy, where individual entrepreneurs flourish. They aren't as newsworthy, but because there are so many small companies, they play a major role in the country's prosperity.
What Is Small-Scale Industry?
Small-scale industry takes place at the low end of the business spectrum, where companies and the revenues they generate are small. The very smallest of all are referred to as cottage industries, with production work actually taking place in your home. That can be as simple as making jams to sell at the local farmer's market or as formal as doing piecework like sewing, welding or woodworking, which is then passed on to a larger company to be incorporated into a finished product. Small-scale industries also include mom and pop businesses that employ just a few family members or go all the way up to well-established companies with hundreds of employees and multiple locations. The key point is: How big a company can you get and still be considered small?
Defining Small-Scale Industry
Because small businesses contribute so much to the economy, the federal government dedicates an entire agency – the Small Business Administration – to providing the tools you need to be successful. The government also gives preferential treatment to small businesses in a number of other ways, from reduced oversight in some industries to contracts that only small businesses can bid on. That means it's important to have a really clear definition of small. The SBA uses two criteria: The dollar value of a business' revenue and the number of employees it has. The standards are different from one industry to another since the industries themselves are different. A farm is considered small at up to $750,000 in annual revenues, for example, but if you're a home builder you business is still small at anything under $36.5 million.
Landing in Never-Never Land
On the whole, it's a good thing there are programs in place to help small businesses survive and flourish in the face of larger, better-funded competitors. That being said, there's a potential downside to those incentives. It's entirely possible that you might opt to keep your company at or below a specific size or volume of business, just so you can continue to enjoy those competitive or regulatory advantages. This is sometimes called the Peter Pan syndrome, because you're essentially choosing to not allow your business to grow up. If small-business programs make up a core part of your business plan, a smarter option, rather than stifling your company's potential, is to plan in advance to transition away from incentives and toward a different business model. Removing that artificial ceiling creates the possibility of taking your business to new heights, which is good for you and contributes more to the local economy, as well.
What Is Large-Scale Industry?
One way to define a large business is that it operates beyond its own local or regional area. That's a starting point, but not a particularly useful definition when even the smallest companies sell and ship globally on the internet. Another option is to consider a business large if it exceeds the SBA's definition of a small business, though again that's a pretty limited perspective. For banking purposes, federal law considers any business to be large if it generates $1 million in gross revenues or if it's publicly listed on one of the national exchanges. The Organization for Economic Cooperation and Development considers any business with 250 or more employees to be a large-scale enterprise.
Difference Between Large-Scale and Small-Scale Industries
To generalize in a broad way, large industries have significant quantities of capital and employ lots of people. They also have a broad geographic reach or generate substantial volumes of revenue. Consider lumbering, for example. It's entirely possible for a small family business to operate a woodlot or a forest concession, milling their own wood into lumber for local sale or selling logs to a larger operator. That's a classic example of a small-scale industry. On the other hand, a giant like Kimberley-Clark, which turns those logs and other raw materials into over $18 billion in retail consumer products, is a classic example of a large industry.
It's Not Just Size
Kimberley-Clark is an example of a large industry not just because of its massive sales or its 42,000 employees, though it would qualify on either count. It also ticks the other main boxes: It's listed on the New York Stock Exchange, its reach is global, and the company has a huge amount of capital invested in production capacity. That last factor is very important. There are a lot of businesses you can open by getting a bank loan or taking out a second mortgage on your house, but things like paper mills, oil refineries or aluminum smelters won't be among them. The amount of capital needed is too large – they're considered capital intensive – and puts those companies immediately among the large industries.
Large-Scale Industry Examples
There are a big number of large-scale industries across the United States, no matter which criteria you follow: revenues, number of employees, capital intensity or listing on a major exchange. You can probably think of several without much effort, and chances are they'll fall into one or more specific categories. Large-scale industries crop up in any number of fields, but these are a few examples of industries where the players will almost always be large:
Heavy equipment manufacturing: It's possible to build an exotic sports car by hand in a relatively small shop, but manufacturing giant earth-moving equipment, tractors, excavators and other heavy equipment requires a substantial factory and a heavy investment in capital. You'd be hard-pressed to start a company like John Deere or Caterpillar out of your garage, even if you had relatively deep pockets.
Smelting metals: Turning out metals on a commercial scale is not for the faint of heart. First, you need to mine the ore, then process it, smelt it and ship the finished metal to market. A smelter is usually located at or very near the mine to reduce the cost of shipping the bulky ore, and they're often owned by the same company – this is called vertical integration – to provide better control over the production process. Aside from the amount of capital needed for production, metal production is a messy affair that's tightly regulated for environmental regions. That adds to the cost and the legal staff needed to set up shop.
Telecommunications: It's possible to set up a relatively small company to resell telecommunications services, but establishing those services in the first place takes a really heavy degree of investment. Landline communications and cable television systems don't work until you lay thousands of miles of fiber at a substantial cost. You can't set up a cellular network without building or leasing hordes of towers or a satellite system without launching or buying bandwidth from a satellite. None of these is an easy or low-cost option for the small entrepreneur.
Railways: Railroads provide a cost-effective way to haul large and heavy loads, but setting one up is no picnic. If you want to open a completely new line, you'll need to buy or lease a right of way, then pay to have the tracks laid. Once those are in place, you still need locomotives and rolling stock for them to pull. Even if you start by leasing tracks from an existing railway, which is definitely the easier option, getting into the railway business usually puts you straight into the ranks of large-scale industries.
Small-Scale Industry Examples
Small-scale industries aren't represented by the kind of big names you read about in business magazines. Instead, these are the enterprises you see in your local industrial park or in the business pages of your hometown paper. Some employ just a handful of people, while others are regional success stories with dozens or even hundreds of staff, but they all meet the SBA's definition of a small business:
The family farm: A small farm is one of the most iconic small-scale industries, regardless of whether the crops are corn, soybeans, dairy or less conventional options like crawfish or microgreens for local chefs. They're often run purely by family labor, though just as often may be supplemented by a hired hand or two and a number of migrant pickers at harvest time. The most enterprising farmers add value to their raw products by processing them in some way – making cheese from their own milk or pressing apples from their orchards into cider. These types of products can be sold at better profit margins than the basic crop itself.
Cabinet making: How do you compete with a major manufacturer turning out prefabricated cabinets by the thousands? By creating custom cabinets to order, that's how. Skilled craftspeople can create cabinetry to fit the most awkward spaces in older homes or to fulfill the strangest requests of a builder's clients. Small-scale cabinet makers can also take advantage of local materials, turning boards milled from the surrounding area's forests into cabinets that give homeowners a direct connection to their community.
Microbrewing: Major brands and international conglomerates may own the biggest marketshare, but microbreweries and microdistilleries, cider houses and wineries can inspire fierce local pride and loyalty. If you're really good at what you do, you can draw new traffic and additional spending into your community.
Automotive accessories: Manufacturing cars and trucks is pretty capital-intensive. Building accessories for cars and trucks, motorcycles and RVs is not. Anyone with a small shop and the necessary skills can turn out trailer hitches, truck caps, decorative chrome work and any number of other accessories. Whether you sell through dealers or do custom work directly for your own customers, you'll have plenty of opportunity to build a loyal clientele.
Making the Transition
Many of today's large-scale industries, from mines to factory farms, started off as small-scale industries operated by a single family or employing just a few people. That changed with the Industrial Revolution, when businesses harnessed machinery to become larger and more productive. The process goes on today with new companies and entirely new industries – computers and cellular phones, to name just two – arriving on the scene.
Transitioning from a small company to a large company is a big adjustment; even seasoned, experienced entrepreneurs with deep pockets struggle. Elon Musk, for example, has become a force in rocketry with SpaceX, but his car company, Tesla, has struggled to make the leap from a boutique builder of exotic vehicles to a mass-market automaker with his Model 3. The company is already large by most measures, but a minnow among car builders; scaling up production has proven to be a massive headache. You may someday face a similar scenario with your own company, so if your ambitions are large, you'll need to plan for growth right from the start.
- U.S. Legal: Large United States Business Law and Legal Definition
- OECD.org: Enterprises by Business Size
- Investopedia: Cottage Industry
- Inc: Are Small Businesses Really the Backbone of the Economy?
- Kimberley-Clark: About Us
- Investopedia: Capital Intensive
- U.S. Small Business Administration: Size Standards Table
- Bloomberg: Tesla's Production Problems Spawn a Legion of Model 3 Stalkers