If you listen to your favorite news sources on a regular basis, it sure sounds like we have just a handful of important companies worth discussing in the US. From the Magnificent 7, Dow Jones 30 to the Fortune 500, with the lowest performer of the group with $7 billion in annual top-line sales. Earning reports are almost exclusively discussed in the context of these large companies or high flying growth stocks, press coverage of the economy can narrowly focus on public companies, and often the analysis of inflation, interest rates and other topical subjects analyzed in the context of big business impacts.
It almost feels like the news ignores a significant and vitally important engine of the US economy: small businesses, typically defined as firms with less than 500 employees.
It is true, small business are harder to understand. Many small businesses, as much as 80%, have no employees. Of the entities with employees, virtually all are privately held, and thus information is not as readily available. For these reasons, there is a gap in terms of the amount of news coverage, and more importantly, a clear perception gap in terms of their relevance and importance to the overall economy.
And yet, it is hard to underestimate the impact of small enterprises if you consider how much they contribute to all aspects of the economy. According to Forbes and SBA statistics, US small businesses:
- Represent 99.9% of all firms, which translates to 31.7 million businesses (Forbes).
- Employ 46.4% of total US employees (SBA).
- Pay 44% of total private payroll (Forbes).
- Generated 64% of net new jobs over the past 25 years (SBA).
- Create more than half of the nonfarm private gross domestic product (SBA).
- Hire 40% of high tech workers, such as scientists, engineers, and computer programmers (SBA).
- Produce 14 times more patents per employee than large firms or Universities (US Senate).
The facts are clear: small businesses are the quiet engine of growth, innovation and employment. The impact of small enterprises is clear, and more significant than many recognize.
Why does this public perception gap matter? It is important to remember that Apple, Facebook, and Microsoft were once small businesses, and thus the small firms of today could be the largest companies of tomorrow. Our policies at the local, state and Federal level need to support small businesses to help them grow and thrive, especially around access to capital, affordable healthcare, hiring a talented and skilled workforce, investment and growth opportunities, among other things.
In order to help our small enterprises, and avoid the small size trap, we need to invest in the economy, and the businesses, of tomorrow, with a clear focus on small businesses.
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