At the Root of Economic Growth is Small Business

| March 2010 Posted in Business | Comments

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Many find the present economy unpleasant, and as the percentage of unemployed Americans increases, wonder when they can expect to see a change. Expert Economists, business analysts, presidential committees, and associations such as the Small Business Association (SBA) are pointing to small and micro businesses as the solution the economy needs. Research over the past few years evaluates the positive improvements such companies offer, and recognizes the immediate impact they have on their local economy. These experts are noticing that these small businesses are driving what many experts describe as a “new economy”. The overall consensus is that small and micro businesses are supporting the growth and reformation of our economy. However, in order to see the economic growth needed, an increase in small business must be achieved.

Small and micro businesses (which I will refer to as small businesses for the duration of this report) have distinct roles in improving the economy. According to the SBA, small businesses are responsible for creating jobs as well as a large portion of new innovative ideas and technologies (The Small Business Economy 44-45). These small businesses also provide economic support and growth, through both the income and profits they generate as well as their community involvement. Additionally, they generally provide better quality services and products (Muske and Woods 97).

“Businesses with less than 500 employees are generally considered small and it’s these firms that have created most of the new jobs in the U.S. over the last two decades.” (Anderson 39). According to the U.S Department of State, the number of Americans that work for companies that employ less than 20 workers are 19.6 million, companies employing 20 to 99 employees is 18.4 million and companies that employee 100 to 499 employees totals 14.6 million. In contrast, the number of companies that employ more than 500 employees is 47.7 million. The SBA reported, “…small enterprises account for 52 percent of all U.S. workers…” (About.com). It has been discovered that young companies, three years old or less, are accountable for a large percentage of employment (The Small Business Economy 45). According to these experts the numbers clearly present a solid foundation for small businesses and point out the huge impact they have on creating the jobs that millions of Americans rely on. Businesses having fewer than ten employees “…represents a substantial sub-segment of all small business, [and] [a]s such, they are credited as a significant contributor to economic growth of a community” (Muske and Woods 97). Scott Anderson a senior economist suggest, “[n]o matter how you slice it, the conclusion is the same: the small-business impact on the U.S. labor market is anything but small” (39).

“We are entering a new economy…a new economy built on silicon, computers and networks” (Tapscott 8). A company in San Jose, California has proven the power a small business has in providing innovation. That company is Bloomenergy®, whose innovative genius and founder K.R Sridhar, has discovered an alternative solution for creating energy. Sridhar started Bloomenergy® with six employees in 2006 and now employs two hundred. This small business plans to provide over one hundred additional jobs in 2010. K.R Sridhar’s discovery is currently being used by companies such as Walmart, ebay, Staples, Google and others (60 Minutes). If a state desires to have economical success they will need to focus on “…how effectively they can spur home-grown technological innovation and entrepreneurship” (Nagendra and Ali). Research done by the SBA has proven that “…small businesses are more likely to develop emerging technologies than their larger counterparts (The Small Business Economy 47). Business analysts have agreed that there are ten “themes” small businesses should focus on in this “new economy” that will continue to aid the growth it needs. Of these “themes” there are four that refer to and relate with innovation, Knowledge, Digitization, Integration/Internetworking and Innovation itself (Tapscott 8-9). Our nation’s future growth will be shaped by those small businesses that are actively engaged in defining cutting edge technologies (The Small Business Economy 47).

Small businesses are finding more success and support in smaller towns surrounding cities of already established business centers. These smaller towns are called “edge cities” says Joel Kotkin of The American Enterprise (Kotkin 68). Kotkin also noted, “More recently, some entrepreneurs have forsaken the metropolis entirely for new opportunities in smaller towns and rural areas…places with low taxes, light government regulations, moderate labor and housing cost…” (68). Business owners interviewed by Joel all suggest that the communities they established business in welcomed them warmly and with great support. Among small business owners in these “edge cities” you will find many that spend extra time as community volunteers. In an article by Glenn Muske and Michael Woods, it was reported that “[small] business owners are often involved in community activities and take on leadership roles” (97). Small businesses have also been known to contribute to these small city communities through what is known as new dollars, the ability to bring “dollars from consumers outside of the local area” (Muske and Woods 97). This new dollar also provides opportunity for new wealth within a small community.

Large corporations continue to struggle with providing quality services, products and effective customer service, but many small businesses excel in these areas. “[C]ompanies need to move beyond cost control to address the more significant issue of how to create value” (Tapscott 1). Peter Bregman, author of “Why Small Companies Will Win in This Economy” said, “A small company gives its employees a sense of security and employees pass that feeling on to clients” (Harvard Business Review). The small business is more agile, and able to respond quicker and address concerns or problems on a personal level. The employees of small companies are more likely to be energized and passionate about their work (Keough 2). A small company named Passlogix displayed these skills and was chosen to receive a million dollar contract over their competitor IBM. The CEO of Passlogix shares his work ethic with Peter Brigman, “[I] tell clients about [my] commitment to the company and to them, and they know exactly who to call if the work isn’t done to their expectations…the personal relationship, that trust, is important to them” (Harvard Business Review). “Small is the new big. Sustainable is the new growth. Trust is the new competitive advantage” (Bregman).

The economist John Anderson said, “A full economic recovery won’t really begin until small businesses start spending, and hiring, again (39). Small companies have for years been a driving force in our economy and the growth of our communities. Reliability, relationship, commitment, sustainability, profit, community, and passion are characteristics of the type of businesses that will be the great opportunity of our time (Bregman). The SBA in their report to the President suggested that risk-taking entrepreneurs positively impact our nations economic development every day in almost every city across the U.S (The Small Business Economy 46). We can conclude that the experts agree; the future of our economy is dependant on the success of small businesses. We should hope for more “[n]iche companies whose owners are trying to build sustainable businesses they love…” (Bregman).

The Solution!

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Work Cited

Anderson, Scott. “Not Just Hype-Small Business Means Jobs.” USBanker Feb. 2010: 39. Academic OneFile. Web. 01 Mar. 2010.

Bregman, Peter. “Why Small Companies Will Win in This Economy.” Weblog entry. Harvard Business Review 23 Mar. 2009. Web. 06 Mar. 2010.

Izzo, Phil. “Economists Point to Muted Growth in 2010; [2].” Wall Street Journal 14 Jan. 2010. ProQuest. Web. 22 Feb. 2010.

Keough, Jack. “A small amount of satisfaction.” Industrial Distribution 03.05: 2-3. Academic OneFile. Web. 06 Mar. 2010.

Kotkin, Joel. “Business boom, business bust…it’s the culture, stupid.” The American Enterprise 8.4 (1997): 68+. Academic OneFile. Web. 22 Feb. 2010.

Muske, Glenn, and Michael Woods. “Micro businesses as an economic development tool: what they bring and what they need.” Journal of the Community Development Society 35.1 (2004): 97. Academic OneFile. Web. 05 Mar. 2010.

Nagendra, Prashanth B., and Abbas J. Ali. “Competitiveness, new economy and small business.” Global Competitiveness 11.1 (2005): i+. Academic OneFile. Web. 05 Mar. 2010.

“Small Business in the United States.” About.com. Web. 06 Mar. 2010.

Tapscott, Don. “Strategy in the new economy.” Strategy & Leadership Nov.-Dec. 1997: 8+. Academic OneFile. Web. 22 Feb. 2010.

“The Bloom Box: An Energy Breakthrough?.” Nar. Lesley Stahl. 60 Minutes. CBS. 18 Feb. 2010. Television.

United States. Small Business Association. Office of Advocacy. The Small Business Economy. Washington: GPO, 2009. Web. 22 Feb. 2010.