The Divided Entrepreneurial Economy: What the Latest Simple Numbers Data Reveals

On a recent episode of Profitability Playbook: The Simple Numbers Podcast, hosts Mike Maxson and Brandon Gray broke down fresh insights from the Simple Numbers 100-Company Model, an analysis of 100 companies through November. What they uncovered is a clear picture of a divided entrepreneurial economy: One part moving forward with confidence, the other fighting to stay afloat. Understanding the differences between these groups and the forces shaping their outcomes is essential for any business owner seeking to maintain or improve profitability in the current environment.

Here are the biggest takeaways and what they mean for business owners navigating 2026.

The Two Buckets: Growers and Decliners

Although many business owners have shared concerns about sluggish demand, the data unexpectedly showed a slight uptick in momentum over the past three months. However, this improvement is far from universal. Companies generating more than $10 million in revenue and operating in necessity-based or technology-oriented sectors, such as home services, IT, software, and cybersecurity, are the ones driving the upward trend. These “growers” achieved a 20% increase in gross margin dollars compared to the previous year, signaling strong performance even in a restrained economy.

On the other side of the divide, the “decliners” are companies in retail, wholesale, professional services, financial services, and real estate. These businesses continue to face headwinds driven by reduced discretionary spending and slower customer activity. Many reported a 14% decrease in gross margin dollars, making it significantly harder to support profitability or reinvest in growth.

Why Some Companies Rise While Others Struggle

An overarching factor is the shrinking marketplace. Declining birth rates and reduced immigration have led to fewer consumers and fewer workers entering the economy. This structural reality limits demand and labor availability, making it more difficult for companies to rely on natural market expansion. As Mike described, we are operating in a “street‑fight economy,” where growth depends on a company’s ability to capture market share rather than benefit from a rising tide.

Success, therefore, often comes down to marketing and sales effectiveness. Businesses seeing meaningful growth tend to be those that are out-communicating and out-positioning their competitors. Meanwhile, the companies struggling most often lack strong messaging, clear differentiation, or consistent outreach, all factors that become critical when customers are more selective with their spending.

Operational Performance: The Metrics Behind the Divide

Labor efficiency proved to be one of the most revealing metrics. Growing companies increased their labor efficiency by 3%, largely because growth drives urgency, productivity, and better use of team capacity. Declining companies, however, experienced an 11% drop in labor efficiency. This erosion is exacerbated by leaders who are hesitant to reduce headcount, fearing they won’t be able to hire again when conditions improve. Brandon referred to this dynamic as “buying hope,” where businesses continue paying for labor they cannot fully utilize in anticipation of a future rebound that may not materialize.

Operating expenses tell a parallel story. Growing businesses have managed to hold their expenses flat relative to margin, even while absorbing inflation. Declining companies have not been able to maintain that same discipline, with operating expenses rising roughly 2% of revenue. In an environment where gross margin dollars are falling, even small increases in overhead can significantly erode profitability.

External Indicators Provide More Caution Than Comfort

Brandon and Mike also examined broader economic signals. While some commentators have suggested optimism for 2026, the hosts remain skeptical. Survey-based optimism often reflects emotional sentiment rather than measurable performance. At the same time, commercial construction spending is up in dollars but not in project volume, due mainly to extremely expensive data center projects. This concentration creates a potential bubble rather than broad-based economic health. Marketing spend, a strong historical indicator of companies shifting from defense to offense, has not increased either, suggesting that many businesses are still hesitant to invest aggressively.

Guidance for Companies on the Rise

For businesses in the growing category, the hosts encourage continued expansion, but with caution. This is a valuable moment to take market share, strengthen your positioning, and differentiate clearly. However, it’s also important not to overextend. Administrative hires, new fixed costs, and long-term commitments should be approached carefully. Growth can stall quickly, and companies that become overburdened with overhead may find themselves unexpectedly vulnerable.

Guidance for Companies Facing Decline

For companies experiencing contraction, the first priority is assessing available capital. If cash reserves are limited, immediate actions such as labor adjustments or expense reductions must be taken to prevent further losses. When cash is available, leaders have more flexibility, but the need for discipline doesn’t disappear. Establishing a firm threshold, often 1 to 2 months of core capital, helps determine how long the company can sustain losses responsibly while attempting to regain traction.

Forecasting also becomes incredibly important. Leaders should ask for clear, realistic projections and avoid making decisions based on overly optimistic sales assumptions. In some businesses, especially those with unpredictable weekly sales patterns, historical year-over-year comparisons may provide the most reliable guidance. Meanwhile, refining competitive messaging becomes essential; companies must clearly articulate why customers should choose them, especially when those customers may be navigating their own financial pressures.

Leadership and Strategy in a Divided Economy

Mike emphasized that this environment requires entrepreneurs to lead from the front. Business owners have the most at stake, and moments of uncertainty call for hands-on involvement. Whether a company is growing or declining, leaders must focus on honesty, clarity, and strategic decision-making. Understanding the numbers, acting decisively, and strengthening operational discipline are essential to navigating the current economy and positioning the business for future opportunities.

Final Thoughts: Clarity, Discipline, and Action

Growth is possible, but it requires strong market positioning, disciplined operations, and a willingness to adjust quickly. Decline is survivable, but only with honest evaluation, focused action, and careful capital management. The companies that understand these dynamics and respond proactively will be the ones best positioned to succeed as the economy continues to evolve.

If your business is navigating this divided economy and you want clearer direction for your next steps, now is the time to take a deeper look at your numbers and strategy. Simple Numbers provides tools and advisory support to help leaders interpret performance, understand their financial position, and make informed, data-driven decisions. Explore the resources available at simplenumberscri.com and contact us to take the first step toward building a more resilient, profitable future.