I grew up the son of a small business owner in Indiana during the ‘60s and ‘70s. Today, I am a practicing CPA serving small business owners in Chicago. Until now, I spent 30 years as an accountant/consultant with several global professional firms serving some of the world’s largest corporations. While those big, established corporations certainly fueled economic growth. I have learned that the United States desperately needs both big and small businesses to drive a balanced economy and create opportunities for our workforce.
For definitional purposes, I tend to think of big businesses as public companies, noting there are many exceptions but they would include any company with 1000 employees or more. A small business is considered to be a company with 500 employees or less. The small business owners I serve, typically are even smaller with less than 100 employees.
According to the U.S. Small Business Administration (SBA), there were 30.2 million small businesses in the U.S. in 2018, representing 99.9% of all businesses.
There were almost 8,000 companies on U.S. Stock Exchanges in 1997. But by the end of 2017, 20 years later, the number of public companies shrank to just 3.600 (Bloomberg). The remaining public companies are fewer but they tend to be larger and going public is no longer a requirement to attract capital.
Both small businesses and big businesses are important to our economy but I believe it is essential that we help our small businesses thrive. And here’s why:
When big companies merge or go private, often times jobs are lost in the short term but corporations do create new jobs as they grow and expand geographically. However, when big companies hire, they tend to hire younger people in larger numbers rather than more experienced people. Younger people cost less and are more trainable.
So while big businesses grow jobs, small businesses generated 1.9 million net new jobs (SBA).
Last year, 35% of all startups were founded by individuals in the age group 50-59 followed by 25% from the age group 40-49 years old. Startups were only 4% in the age group 18-29 (Small Business Trends). So despite a high failure rate, startups are more attractive than ever and 12% of founders say they started their companies out of dissatisfaction with corporate America (Small Business Trends).
Small businesses create jobs but they also lose jobs due to business failures. While I am not disputing the impact of big businesses on net job gains, small businesses create numerous jobs. Between 2000 and 2017, small businesses created almost 66% of net new jobs in America (fitsmallbusiness).
Small businesses are more innovative than big businesses, which is why increasingly, big corporations look to startups for new innovations. Startups bring agility and new ideas and can pivot quickly to position their products and services to take advantage of a market opportunity.
Big businesses are focused on productivity to drive quarterly earnings which comes largely from cutting costs, hiring more skilled employees and scaling technologies. Big businesses by virtue of their size and financial strength can scale more quickly than small companies so it stands to reason that big corporations consistently drive productivity gains in the U.S. economy. However, big corporations are burdened by bureaucracy and lengthy decision-making processes which stifle innovation.
Recent big innovations have come from startups. Uber, DoorDash, WhatsApp, ZipRecruiter, Soundhound are just some examples. However, one cannot ignore the tremendous resources that big companies have in leveraging people and technology to innovate and create productivity gains. Remember it was Google that developed the Android operating system, probably the biggest tech innovation of the last 10 years.
So while big businesses’ impact on productivity is great, I submit that small businesses are the more significant drivers of innovation, particularly in technology.
Big businesses can afford to pay their employees more but money is not everything.
According to fitssmallbusiness.com, “more than half of small business employees say they feel happy about their jobs.” They continue to say that small business employees tend to be happier with their company leadership, are able to achieve a better work-life balance and have a bigger say in what is happening in their companies.
Also, in a recent survey by INC, “64% of millennial’s would rather make $40,000 a year in a job they love than $100,000 a year at a job they think is boring.”
Finally, In the 2018 Small Business Happiness Survey, 87% of small business employees somewhat or strongly agree that working for a small business is more fun than working at a large business (Small Business Trends).
Perhaps employees are happier because in small businesses, they know their co-workers, there’s a larger sense of community and accountability because employees are not as “anonymous” as they might be in a big corporation. The modern small business is very much a culture of passion, but also of work-life balance. Many small businesses offer unlimited vacation, flexible hours and work at home benefits.
I spend some time mentoring at start-up incubators 1871 and mHUB, both located in Chicago. Not one founder or employee I interfaced with wanted to willingly leave their start-up for a large corporation.
Small businesses are also great for the entrepreneur who wants to chase their dreams or the worker who is willing to work for possibly less pay and benefits but have an opportunity to visibly contribute to an organization where positive change can happen quickly. The difference between big businesses and small businesses for me is that big businesses avoid failure while small companies rush to fail fast.
Small businesses also provide a huge opportunity for women and minority-owned businesses. Over 42% of US owned firms are owned by women and 29.3% by minorities.
Minority business ownership has been on the rise in recent years for many reasons. According to CNBC, reasons for increased minority ownership include buying out retiring baby boomer owners, the fact that we have more minorities in our economy, increased immigration and overall population growth. Not mentioned is that immigrants may be hungrier to succeed than native-born Americans and the normal big company career path is just not as available to minorities.
As for women, the talent has always existed and while it has historically been more difficult for women, the environment today is less hostile, with more resources and opportunities are available. As a result of wanting to control their own destiny, many women have been motivated to owning their own businesses. From this they gain more flexibility and ability manage their personal lives. All the while, earning what they are worth based on pay gaps experienced in a previous job. Women now make up 40% of new entrepreneurs (Forbes).
In summary, I have worked with both large and small organizations. I can say that while executives in large companies generally make more money, they are not necessarily happier. In my small practice in the River West section of Chicago, where I interact with over 400 clients, every one of my owner/entrepreneur clients is 100% energized about their business and the direction they are taking. And you know what? As an owner of my own small business, I feel exactly the same.
09/23/3019
By: Stanley N. Logan, Quality Back Office LLC
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