Entrepreneurial Economy Trends 2025: What the Data Reveals About Growth and Profitability

Private sector payrolls are declining, and many are wondering if the U.S. is already in a recession.

At CRI Simple Numbers, we’ve been closely tracking the performance of 100 entrepreneurial companies since before the COVID-19 pandemic. The data has been signaling a slowdown for quite some time. Our tool, the 100 Company Model, is a diverse sample from various industries and geographies within the entrepreneurial economy. It provides an abundance of data that the Fed and others do not have. Over time, we have developed deeper visibility into the trends shaping the private business landscape.

Understanding the Current Economic Landscape

The trend of stagnation and mild decline continues. For our Simple Numbers clients, this isn’t new news. In fact, we discussed this shift in an October 2024 LinkedIn post, noting that the economy had become increasingly divided between the “haves” and “have-nots.”

Signs of a Slowdown

Currently, our model indicates year-over-year revenue growth at 9%. However, since December 2024, this pace has slowed to 5%. Companies with revenues under $10 million are experiencing growth of less than 1%.

The more concerning metric is profit: rolling 12-month profits have decreased by 3% since December 2024. Labor efficiency, a key driver and metric of profitability, has also declined. If labor productivity had held steady with July 2024 levels, these companies would have generated an additional $4 million in profit over the past year.

What We’re Seeing by Business Type

High-End/Luxury

High-end and luxury markets remain strong. High-income consumers continue to spend, providing a buffer against the downturn.

Healthcare

The healthcare sector is stable and remains strong. This resilience is crucial as it supports overall economic health.

Necessity Services and Products

Home services, such as plumbing, HVAC, and electrical, along with essential business services, remain steady. While consumers may not be opting for top-level goods and services, necessity continues to drive spending.

Discretionary Products and Services

On the other hand, discretionary products and services are experiencing a continued downturn. Retail, fast-casual dining, and certain B2B sectors are declining. Marketing, business coaching, and other professional services, though arguably not discretionary, are also seeing a decline.

Growth and Profitability Pressures on Smaller Companies

The path forward remains uncertain and cloudy. Efficiencies are being gained from AI, but AI isn’t a consumer. Broader improvement will depend on a rebound in consumer spending. Lower interest rates will also help, but that impact will take time to materialize.

Smaller companies (under $10M) are likely to continue feeling pressure. Real inflation is running between 5% and 6%, and with limited ability to raise prices, leveraging overhead remains a challenge. We are in an environment where you must be profitable at your current gross margin levels.

Strategies for Navigating Economic Challenges

Embrace Efficiency

To thrive in this environment, businesses must prioritize efficiency. Streamlining operations can help reduce costs and improve profitability.

Focus on Core Metrics

Understanding key performance metrics is essential. Companies should focus on labor efficiency, profit margins, and revenue growth. These metrics will guide strategic decisions and help businesses stay grounded.

Adapt to Consumer Behavior

As consumer spending habits shift, businesses need to adapt. This may involve reevaluating product offerings or adjusting marketing strategies to align with current consumer preferences.

What It Means for Business Owners and Advisors

These insights are not just data; they highlight trends that can spark meaningful discussion. Growth has slowed, costs have remained high, and profitability is under pressure. However, companies that understand these patterns and manage labor efficiency and margins accordingly will be best positioned when conditions improve.

For those working with or advising businesses, this information provides context for understanding where companies stand in the broader entrepreneurial economy. It also illustrates how efficiency, margins, and strategic choices are affecting overall performance.

For business owners, these results continue to remind us that the fundamentals never go out of style. Disciplined management and a focus on the right performance metrics can help businesses stay grounded and ready to move when opportunities return.

If you have questions about what these trends may mean for your business, feel free to contact us.

Conclusion

In conclusion, the current economic landscape presents challenges and opportunities. By staying informed and adapting to changes, we can navigate these turbulent waters together. Let's embrace the journey ahead, focusing on growth and profitability as we work toward a brighter future!