Business Size and Industry Match: Optimal Firm Sizes by Sector (2022)

What if you could see that accommodation and food services averages 18.0 employees per establishment in California but 37.7 in Nevada? This Business Size and Industry Match analysis reveals exactly how optimal firm sizes vary by industry and location—and how you can position yourself in markets where your business size matches industry patterns.

The data shows that average business size varies dramatically by industry and location. Accommodation and food services ranges from 13.5 employees per establishment in New York to 44.6 in Hawaii—a 230% difference. This isn’t just about geography—it’s about understanding optimal firm sizes, size-industry alignment, and location opportunities that directly impact your competitive strategy.

See business size patterns by industry to understand optimal firm sizes. This analysis reveals size-industry relationships th

This analysis examines County Business Patterns (CBP) data from the U.S. Census Bureau to analyze business size and industry match—how average firm sizes vary by industry and location, revealing optimal firm sizes by sector. You’ll discover which industries have larger vs. smaller average firm sizes, how size patterns vary by location, and where opportunities exist for businesses of different sizes.

What You’ll Discover:

• Industry rankings by average employees per establishment (optimal firm size indicators)
• Location-specific size patterns revealing size-industry alignment
• Industry-specific optimal firm sizes impacting competitive strategy
• Size-industry match indicators by industry and location
• Market structure analysis based on firm size patterns

Why This Matters: Understanding optimal firm sizes helps you assess whether your business size matches industry patterns, evaluate competitive alignment, and make strategic location decisions. Markets where your business size aligns with industry averages offer competitive advantages.

Optimal Firm Sizes Vary Dramatically by Industry and Location

The Numbers: Accommodation and food services ranges from 13.5 employees per establishment in New York to 37.7 in Nevada—a 179% difference. This means Nevada’s average firm size is nearly 3x larger than New York’s.

So What? Different industries and locations show different optimal firm sizes. Understanding these patterns helps you assess whether your business size matches industry averages and whether you’ll compete primarily with similar-sized firms, larger firms, or smaller firms.

How to Use This: If you’re in accommodation and food services, markets with larger average sizes (like Nevada with 37.7) may be dominated by large firms, while markets with smaller average sizes (like New York with 13.5) may have many small businesses. Choose markets where your business size aligns with industry patterns.

Size-Industry Alignment Matters

The Numbers: States like Nevada (37.7 employees per establishment) and Hawaii (23.2) have much larger average firm sizes than New York (13.5) and Massachusetts (12.4), revealing clear size-industry patterns.

So What? Markets where your business size aligns with industry average offer better competitive alignment. You’ll compete with businesses of similar size, creating more predictable competitive dynamics.

How to Use This: Target markets where your business size matches industry average. If you’re a small business (5-10 employees), markets with smaller average sizes (13-15 employees) may offer better alignment than markets with larger average sizes (30+ employees).

Location Strategy Must Account for Firm Size Patterns

The Numbers: The difference between the largest average size (Nevada, 37.7) and smallest average size (Massachusetts, 12.4) is 204%, meaning dramatically different firm size patterns and competitive dynamics.

So What? Firm size patterns directly impact your competitive position. Markets with large average sizes may have different competitive dynamics than markets with small average sizes. Your location choice should align with your business size and competitive strategy.

How to Use This: For small businesses seeking similar-sized competitors, target markets with smaller average sizes (13-15 employees). For businesses comfortable competing with larger firms, markets with larger average sizes (20-30 employees) may offer opportunity.

Red Flags

• Extremely Large Average Sizes (30+ employees): May indicate industries dominated by large firms, creating challenging competitive dynamics for small businesses
• Size Mismatch: Markets where your business size is dramatically different from industry average may create competitive misalignment
• Unclear Size Distribution: Average size doesn’t reveal distribution—an industry with 18-employee average could have many 5-employee businesses and a few 200-employee businesses

Green Lights

• Size Alignment: Markets where your business size matches industry average (within 20-30% of average) offer better competitive alignment
• Moderate Average Sizes (15-20 employees): Typically indicate balanced firm size distribution, offering competitive opportunities for businesses of various sizes
• Small Average Sizes (<15 employees): May indicate industries dominated by small businesses, creating competitive dynamics where small businesses compete primarily with similar-sized firms

How to Use This Data

Follow this step-by-step process to identify optimal firm sizes and make data-driven location decisions:

Step 1: Calculate Average Firm Size for Your Industry

Compare average employees per establishment across states for your industry (NAICS code):

• State-level: Get broad optimal firm size identification
• Industry-specific: Use NAICS-filtered data for your specific industry
• Average Calculation: Divide total employment by total establishments for each state

Action: Create a spreadsheet with all 50 states. Calculate average employees per establishment for your industry in each. Rank by average size to identify size patterns.

Step 2: Assess Your Business Size Alignment

Compare your business size (number of employees) to industry average:

• Size Alignment: If your size is within 20-30% of industry average, you have good alignment
• Size Mismatch: If your size is dramatically different from average, you may face competitive misalignment
• Competitive Dynamics: Understand whether you’ll compete with similar-sized firms, larger firms, or smaller firms

Action: For each candidate location, compare your business size to industry average. Identify markets where your size aligns with industry patterns.

Step 3: Understand Competitive Dynamics

Different average sizes indicate different competitive dynamics:

• Large Average Sizes (20+ employees): May indicate industries dominated by large firms
• Moderate Average Sizes (15-20 employees): Typically indicate balanced firm size distribution
• Small Average Sizes (<15 employees): May indicate industries dominated by small businesses

Action: For each candidate location, assess competitive dynamics based on average firm size. Determine whether you’ll compete primarily with similar-sized firms, larger firms, or smaller firms.

Step 4: Choose Markets with Size Alignment

Target markets where your business size aligns with industry average:

• For Small Businesses: Target markets with smaller average sizes (13-15 employees) for better alignment
• For Medium Businesses: Target markets with moderate average sizes (15-20 employees) for balanced competition
• For Large Businesses: Markets with larger average sizes (20-30 employees) may offer opportunity

Action: Create a decision matrix scoring each location on: size alignment (40%), competitive dynamics (30%), and market size (30%).

Step 5: Make Your Location Decision

Combine size-industry match analysis with other factors (business climate, personal preferences) to choose your location.

Action: Create a final decision matrix scoring each location on: size alignment (30%), competitive dynamics (30%), business climate (20%), and personal fit (20%).

Common Use Cases

Scenario 1: Small Business Seeking Similar-Sized Competitors → Focus on markets with smaller average sizes (13-15 employees per establishment). These markets may have many small businesses, creating competitive dynamics where you compete primarily with similar-sized firms.

Scenario 2: Medium Business Seeking Balanced Competition → Target markets with moderate average sizes (15-20 employees per establishment). These markets typically have balanced firm size distribution, offering competitive opportunities for businesses of various sizes.

Scenario 3: Large Business Seeking Market Opportunity → Consider markets with larger average sizes (20-30 employees per establishment). These markets may be dominated by large firms, but may also offer opportunity for well-positioned large businesses.

Scenario 4: Size Mismatch Avoidance → Avoid markets where your business size is dramatically different from industry average (more than 50% difference). These markets may create competitive misalignment.

Questions to Ask Yourself

• Does my business size align with industry average in my target markets?
• Will I compete primarily with similar-sized firms, larger firms, or smaller firms?
• Does my business model benefit from markets with large average sizes or small average sizes?
• Am I comfortable competing with larger firms, or do I prefer markets with many small businesses?

Action Items Checklist

• Calculate average employees per establishment for your industry in each candidate location
• Compare your business size to industry average in each candidate market
• Assess competitive dynamics based on average firm size (large vs. moderate vs. small)
• Identify markets where your business size aligns with industry patterns (within 20-30% of average)
• Evaluate whether you’ll compete primarily with similar-sized firms, larger firms, or smaller firms
• Create a decision matrix scoring each location on size alignment and competitive dynamics
• Consult with Business Initiative for size-industry match analysis and location strategy guidance

Industry-Specific Recommendations

Accommodation and Food Services (NAICS 72): Target markets with moderate average sizes (15-20 employees per establishment) for balanced competition. Small restaurants benefit from markets with smaller average sizes (13-15 employees), while large restaurants may prefer markets with larger average sizes (20-30 employees).

Professional Services (NAICS 54): Focus on markets with smaller-to-moderate average sizes (10-15 employees per establishment). Professional services typically have many small businesses, so markets with smaller average sizes offer better alignment.

Health Care (NAICS 62): Look for markets with moderate average sizes (15-25 employees per establishment). Health care has diverse firm sizes, so moderate averages indicate balanced distribution.

Retail Trade (NAICS 44-45): Target markets with moderate average sizes (12-18 employees per establishment). Retail has many small businesses, so moderate averages offer balanced competition.

Technology Services (NAICS 51): Prioritize markets with smaller-to-moderate average sizes (8-15 employees per establishment). Technology businesses often start small, so markets with smaller average sizes offer better alignment.

Common Mistakes to Avoid

Mistake 1: Using Only Average Size Without Distribution Analysis Average size doesn’t reveal distribution. An industry with 18-employee average could have many 5-employee businesses and a few 200-employee businesses. Always consider size distribution, not just average.

Mistake 2: Ignoring Size Mismatch Markets where your business size is dramatically different from industry average (more than 50% difference) may create competitive misalignment. Don’t ignore size mismatch—it impacts competitive dynamics.

Mistake 3: Not Considering Competitive Dynamics Different average sizes indicate different competitive dynamics. Markets with large average sizes may be dominated by large firms, creating different challenges for small businesses than markets with small average sizes.

Mistake 4: Overlooking Industry-Specific Patterns Overall averages don’t reflect your industry’s specific patterns. Always use NAICS-filtered data for your specific industry to assess optimal firm sizes.

Mistake 5: Assuming Size Alignment Guarantees Success Size alignment helps competitive positioning but doesn’t guarantee success. Always combine size-industry match analysis with market size, demand, and business climate assessment.

Optimization Strategies

For Maximum Size Alignment: Target markets where your business size matches industry average (within 20-30% of average). These markets offer better competitive alignment and more predictable competitive dynamics.

For Balanced Approach: Focus on markets with moderate average sizes (15-20 employees per establishment) that offer balanced firm size distribution and competitive opportunities for businesses of various sizes.

For Small Business Strategy: Consider markets with smaller average sizes (<15 employees per establishment) where small businesses compete primarily with similar-sized firms.

For Large Business Strategy: Prioritize markets with larger average sizes (20-30 employees per establishment) where large businesses may have competitive advantages.

Timing Considerations

Best Time to Enter Size-Aligned Markets: When you have resources ready and market validation complete. Size-aligned markets reward businesses that match industry patterns.

Best Time to Enter Size-Mismatched Markets: Only when you have strong competitive advantages that offset size mismatch. Size-mismatched markets require careful competitive positioning.

When to Reassess: Review size-industry match data annually when new CBP releases become available. Market positions change, and what was size-aligned 2-3 years ago may not be today.

Resource Recommendations

For Size-Industry Analysis:

• Census Bureau County Business Patterns (official CBP data source)
• NAICS code lookup tools (identify your industry classification)
• Business size benchmarking tools (compare your size to industry averages)
• State economic development websites (local market insights)

For Location Support:

• Business Initiative location strategy services
• Local chamber of commerce (county-level market information)
• State Secretary of State websites (business registration requirements)

For Competitive Analysis:

• Combine CBP establishment and employment data to calculate average firm sizes
• Research local competitive landscape and firm size distribution
• Consult with Business Initiative for personalized size-industry match analysis and location guidance

FAQs - Frequently Asked Questions About Business Size and Industry Match: Optimal Firm

In Summary

Our comprehensive exploration of business size and industry match (2022) has revealed critical insights into optimal firm sizes, size-industry alignment, and competitive dynamics that can inform strategic business decisions.

Key Findings:

• Optimal firm sizes vary dramatically by industry and location—accommodation and food services ranges from 13.5 employees per establishment in New York to 37.7 in Nevada (179% difference)
• Size-industry alignment matters—markets where your business size matches industry average offer better competitive alignment and more predictable competitive dynamics
• Location strategy must account for firm size patterns—markets with different average sizes have different competitive dynamics, impacting your competitive position
• Moderate average sizes often offer best balance—markets with 15-20 employees per establishment typically have balanced firm size distribution and competitive opportunities for businesses of various sizes
• Size mismatch creates competitive challenges—markets where your business size is dramatically different from industry average (more than 50% difference) may create competitive misalignment

What This Means for Your Business: Understanding optimal firm sizes helps you assess whether your business size matches industry patterns and whether you’ll compete primarily with similar-sized firms, larger firms, or smaller firms. Markets where your business size aligns with industry average offer better competitive alignment and more predictable competitive dynamics. The best approach balances size alignment (competitive positioning) with market size and demand (opportunity).

Practical Applications:

• Location Strategy: Use average firm size data to identify markets where your business size aligns with industry patterns
• Competitive Analysis: Compare your business size to industry average to understand competitive dynamics and competitor size distribution
• Market Selection: Target markets with average sizes that match your business size (within 20-30% of average) for better competitive alignment
• Competitive Positioning: Understand whether you’ll compete primarily with similar-sized firms, larger firms, or smaller firms based on average firm size

Next Steps:

1. Calculate average employees per establishment for your industry in each candidate location
2. Compare your business size to industry average in each candidate market to assess size alignment
3. Evaluate competitive dynamics based on average firm size (large vs. moderate vs. small)
4. Identify markets where your business size aligns with industry patterns (within 20-30% of average)
5. Consult with Business Initiative for size-industry match analysis and location strategy guidance

Ready to take action based on this data?

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