Understanding a business’s industry sounds straightforward, but that basic piece of information is surprisingly difficult to define, especially for small businesses.
A company’s industry provides context about nearly every aspect of its operations and how it makes money. It’s a key that helps unlock a wealth of data about a business. An industry classification code is a label or definition for a business’s industry, using a word or digit based categorization system.
There are many different approaches to defining a company’s industry, with different industry classifications systems that have originated from different eras and organizations. Most organizations rely on one of the following four common systems.
The North American Industry Classification System is a 2-to-6-digit code used to classify businesses by industry. This expansive, detailed system is a leader in industry classifications. The NAICS code is specifically valuable for businesses seeking government grants and certifications.
However, the expansiveness of NAICS codes can result in complex, broad industry groupings. For example, a single NAICS code stands for “Administrative and Support and Waste Management and Remediation Services.” This includes everything from septic tank cleaning to temp agencies.
For many uses, a NAICS code provides a good starting point but lacks granularity, which can result in increased risk exposure if you don’t have a complete understanding of a business’s activities.
GICS, or Global Industry Classification Standard, is an industry classification system used by financial institutions and systems around the world.The GICS organizes companies first into one of 11 sectors, then into increasingly more detailed industry groups, industries, and sub-industries.
A full GICS classification is an 8-digit code with a text description that reflects this hierarchy of detail. The first two digits refer to a sector; the first four refer to a sector and industry group; the first six digits reflect sector, industry group and industry; and the full 8-digit code reflects sector, industry groups, industry, and sub-industry.
This classification system provides accuracy industry definitions, but that accuracy comes at a cost: it sometimes fails to capture the full picture.
The Standard Industrial Classification is a 4-digit code developed and used primarily by the U.S. government to define industry areas. It has been widely replaced by the NAICS system, although some major agencies - from the U.S. Census Bureau to the SEC- continue to use the SIC codes.
This system is older, so it struggles to capture new and emerging fields, and still leans toward manufacturing rather than service industries.
If you’re looking for data on contemporary, technology-based businesses, you may find that the SIC system is limited.
Enigma’s industry classification system is designed to address some of the accuracy, coverage, and usability gaps they present, but still maps to other common classification systems.
Our system is designed to give reliable insight into business model and risk. Enigma’s industry classification system reflects contemporary business models, such as hybrid online and brick-and-mortar companies, and provides details about how a business operates.
Given that data about small and mid-sized businesses tends to vary in quality and accuracy, this is an area where industry classification codes can suffer in terms of accuracy.
In testing, Enigma’s industry data outperforms incumbent data providers by 2-3X in terms of accuracy and coverage of small businesses. By September, our industry classification coverage will extend to 80% of small businesses.