So last time, we talked about seeing the big picture of business.

And doing it a way that we’d be able to remember.

And in that class we looked at the number of businesses in the United States and organized them by their size.

Specifically, we looked at the number of employees they have.

‍

In this class we’re going to look at businesses by what they do.

Now there could a bunch of different ways we could answer the question of what a business does.

Does it sell a product or a service? Or maybe a combination of products and services?

Does it sell to individuals and families – to consumers? Or does it sell to other businesses?

Does it create something new or does it sell something that some other business created?

We’ll talk more about some of these in the class about business models.

But in this class we’re going to talk about something more basic.

More fundamental.

We’re going to talk about a way to organize businesses in our minds by the type of business that they are.

To understand what I’m getting at, I’d like for you to think about the businesses in the town where you live.

If you’re in a city, maybe you can take a look outside of your window.

Or just imagine that you’re driving around or walking around in your town.

What kind of businesses do you see?

‍

So, I live in Seattle Washington…

And I was getting ready to write this class so I wrote down a few of the businesses that I’ve seen in the last few days .  

• There’s our incredible independent bookstore, Elliott Bay

• I saw a bunch small local restaurants in my neighborhood

• This morning a UPS truck out making deliveries.

• And one of our famous music venues

• And a sign on a door listing some technological startups

• And a small hotel

I could go on, but you get the idea. That was just spending 10 minutes looking around one neighborhood…

And keep in mind that’s just what I could see.

Many of the businesses around us we can’t see—they’re hidden away in buildings and people’s house and industrial parks, or they have no location at all—they only exist online or only on paper.

So how do we begin to make sense of all of this?

How do we organize all of the businesses that make up our economy? That make things work?

The answer is that we have a handy categorization tool that does this for us.

‍

The NAICS system

NAICS stands for North American Industry Classification System

It’s North America because it works for the United States, Mexico and Canada

And it does what it says—it’s a system for classifying all businesses.

It organizes business types by Sector and Industry.

Let’s start with the Sectors

There are 20 sectors within the NAICS categorization system

(Technically Agriculture and Public Administration (government) is another sector but we’re going to leave them out of it today.)

‍

Describe each and then organize by size…

Agriculture, Forestry, Fishing and Hunting $59.3 billion 2,500

Mining, Quarrying, and Oil and Gas Extraction $182.9 billion 600

Utilities $398.9 billion 500

Construction $1.2 trillion 8,000

Manufacturing $6.35 trillion 12,900

Wholesale Trade $10.0 trillion 5,900

Retail Trade $5.63 trillion 15,900

Transportation and Warehousing $382.2 billion 7,900

Information $891.8 billion 3,000

Finance and Insurance $4.97 trillion 6,900

Real Estate and Rental and Leasing $335.6 billion 2,200

Professional, Scientific, and Technical Services $886.8 billion 9,000

Management of Companies and Enterprises $107.1 billion 2,200

Administrative and Support and Waste Management $432.6 billion 9,100

Educational Services $30.7 billion 3,900

Health Care and Social Assistance $1.21 trillion 17,500

Arts, Entertainment, and Recreation $141.9 billion 2,500

Accommodation and Food Services $449.5 billion 14,300

Other Services $307.0 billion 5,800

‍

Every NAICS CODE has 6 digits

The first 2 digits represent the SECTOR

The first 3 digits represent the SUB SECTOR

The first 4 digits represent the INDUSTRY GROUP

The first 5 digits represent the INDUSTRY

And when you add the last of the 6 you have the NATIONAL INDUSTRY (U or C or M)

So let’s look at an example

First let’s pick a Sector

I’m going to go with 71: Arts, Entertainment, and Recreation

This is a fun sector

It includes things like movie theaters, sports leagues, stadiums, but also artists and rock bands and entertainers

Next we’ll narrow things down a little by adding a 3 for the sub sector—Amusement, Gambling and Recreation

This includes racetracks, casinos, and amusement parks.

I told you this was a fun sector

Now we’ll add a 9 and we’ll get to Other Amusement and Recreations Industries

We’re getting more narrow here: we have marinas, skiing resorts, gyms, yoga studios

 And if we add a five, we get to our final destination: bowling centers.

The NAICS code for the bowling alley industry is 713950

Pretty cool, huh?

‍

The NAICS code unlocks a lot of information.

We can just look up 713950 and we can find out that there are 2,650 bowling alleys in the country,

Or that in 2017 the total revenue for bowling centers was $3.5 billion

Or that 70,000 people were working in bowling alleys and they had a total take home pay of $1 billion

Having that code also allows you to start to track an industry or a sector over time…and to start to see trends.  

Is the industry growing or shrinking?

If you looked back 20 years, how many bowling centers would there have been compared to today?

And what about how these trends are different in different parts of the country?

Are there some states or cities where there are more bowling alleys?  

So understanding industries and sectors is an incredibly powerful and important tool, particularly when paired with the idea of the NAICS code.

That simple, six-digit code allows you to unlock tons and tons of information about any industry and sector.

Okay and now we add a 5 and we get to our final destination!

Bowling Centers… 713950

Pretty cool, eh?

That code: 713950

Active Businesses

• There are 2,650 verified business locations operating primarily in this industry.

Total Revenue

• In 2017 the total revenue for Bowling Centers was $3.5 billion

Annual payroll

• In 2017 the annual payroll was $1 billion

Employees?

• The number of reported paid employees is 70,000

‍