Small Business in Houston

As significant contributors to our regional economy, small businesses provide income and wealth-generating opportunities for residents

Despite the pandemic’s immediate effect on the economy, small business growth in Houston’s three-county region remains strong. Yet, disparities persist for women and Black, Indigenous, and other people of color.

Why small businesses matter to Houston

Small businesses, critical to economic and community development, are considered the lifeblood of our national, state and local economies. As major drivers of employment, small businesses and the entrepreneurs who run them are beneficial to our economy and stimulate growth by helping to lower poverty and reinvest in low-income areas.1 2 Small businesses also empower individuals and strengthen communities by employing and paying residents who spend their money in the community and increase the local tax base. Small businesses also provide income and wealth-building opportunities for people who may face larger employment barriers or discrimination, including immigrants, Black, Indigenous, and other people of color (BIPOC), and women.

However, barriers such as lack of credit access, social capital, and generational wealth have a disproportionate effect on aspiring female and BIPOC entrepreneurs, preventing their full contributions to the small business economy. The more we understand the systemic obstacles unique populations face in building small businesses, the more we can do to support their — and our region’s — collective success.

The data

Small business growth in Fort Bend and Montgomery counties outpaces Harris County

While the definition of small businesses can vary depending on industry, employee count, level of revenue, the U.S. Small Business Administration (SBA), defines a small business as one that is independently owned and operated, exerts little influence in its industry, and (with some exceptions) has fewer than 500 employees. According to the SBA, small businesses of 500 employees or fewer make up 99.9% of all U.S. businesses and created 17.3 million net new jobs between 1995 and 2021, accounting for nearly two-thirds of new net jobs created. A 2019 SBA report found that small businesses accounted for 44% of U.S. GDP.

Because nearly all businesses employ fewer than 500 people, and our geographic scope is regional, Understanding Houston focuses its analysis on businesses that employ between 1 and 9 people, inclusive. In 2022, there were nearly 14,000 small businesses (with fewer than 10 paid employees) in Fort Bend, 77,900 in Harris, and 10,700 in Montgomery counties. Between 2010 and 2022, the number of small businesses grew 101% in Fort Bend County, 22% in Harris County, 62% in Montgomery County, 27% in Texas overall, and 12% nationally.

At 78.9%, Fort Bend County had the highest percentage of businesses with fewer than 10 employees in Houston’s three-county region in 2022 — nearly four percentage points higher than in 2010. In Montgomery County, 73.4% of businesses employed fewer than 10 people. In comparison, Harris County (70.9%) had the lowest proportion of businesses with fewer than 10 employees in the area, which is slightly lower than the state and U.S. level.

Women-owned businesses in Houston decreased

Not only do small businesses create jobs and add to the economy, they provide wealth-building opportunities for and contribute to growth and vitality in local communities. In particular, creation of small businesses by immigrants, people of color, and women — sometimes a necessity to overcome employment barriers, challenges in building personal wealth, and discrimination — can help increase economic opportunity — a cornerstone of the American Dream. A 2022 study found that immigrants are about 80 percent more likely to found a business, compared to native-born citizens. Immigrant-owned firms also have about 1 percent more employees than those founded by U.S. natives, on average.3

Overall, the percentage of businesses with fewer than 10 paid employees are more likely to be owned by people of color (defined as anyone who does not identify as non-Hispanic white) in the nine-county Houston-The Woodlands-Sugar Land Metropolitan Statistical Area (Houston MSA) than in Texas and the U.S. overall. 

In the Houston MSA, 38.5% of small businesses are owned solely by people of color, compared to 32.4% in Texas and 21.0% across the nation. In particular, Asian Americans are overrepresented among business owners — they own 22.2% of small businesses in the region, but comprise 8% of the MSA’s population. Additionally, the Houston MSA has a higher rate of Asian-American-owned small businesses than Texas (14.5%) and the U.S. (11.6%). The percentage of Hispanic-owned businesses was also much higher in the Houston MSA (11.2%) than the U.S. (7.3%), but slightly lower than in Texas (14.5%). More small businesses in Houston are also Black owned at 4.7% compared to Texas (3.0%) and the U.S. (2.8%).

In 2020, small businesses in the Houston MSA were slightly more likely to be owned by women compared to the state and the nation. In the Houston MSA in 2020, 24.6% of small businesses were owned solely by women compared to about 22% in Texas and the U.S. However, between 2020 and 2021, the percentage of women-owned small businesses in Houston decreased 7 percentage points from 25% in 2020 to 17% in 2021.

22%

of Houston-area small businesses are owned by Asian Americans, despite comprising 8% of the population.

More Houstonians work for themselves

Nonemployer businesses have no paid employees, annual business receipts of $1,000 or more, and are subject to federal income taxes. Most nonemployers are self-employed individuals (e.g., real estate agents, independent contractors) operating unincorporated businesses (known as sole proprietorships), which may or may not be the owner’s principal source of income. According to the Census Bureau, the majority of all business establishments in the United States are nonemployers, yet these firms average less than 4 percent of all sales and receipts nationally.

The number of nonemployer businesses in Fort Bend County increased 96% to 101,570 in 2021 from 2010 — the most rapid growth rate in Houston’s three-county region. In Montgomery County, nonemployer businesses grew 78% to 67,438in 2021 from 2010. Growth in Harris County (49%) was similar to Texas (48%); and the state and region outpaced the national growth rate (29%).

The over 680,000 nonemployer businesses in Houston’s three-county region generated nearly $36 billion dollars in revenue in 2021 — this is a 75% increase from 2010 — with the greatest growth in Fort Bend and Montgomery counties.

$36 billion

Revenue generated by Houston-area nonemployer businesses in 2021.

Helpful Articles by Understanding Houston:

Resources

References:

  1. Rupasingha, Anil.” Locally owned: Do local business ownership and size matter for local economic well-being?” Federal Reserve Bank of Atlanta No. 2013-01 (2013).
  2. Kugler, Maurice, Marios Michaelides, Neha Nanda, and Cassandra Agbayani. “Entrepreneurship in Low-Income Areas.” US Small Business Administration Office of Advocacy, 2018.
  3. Azoulay, Pierre, Benjamin F. Jones, J. Daniel Kim, and Javier Miranda. 2022. “Immigration and Entrepreneurship in the United States.” American Economic Review: Insights, 4 (1): 71-88.