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Many small businesses are struggling to compete with corporate giants like Walmart or Costco. In a time when corporations are continuing to slash prices by taking advantage of outsourcing and ever-evolving technology, do small businesses still have a place in the US economy?
The numbers tell the story—small businesses are still relevant to the US economy, perhaps now more than ever. According to Gaebler.com, they accounted for 60% of GDP in 2010. In addition, numbers released by the SBA show that they employ half of private sector employees and created 64% of net new jobs in the last fifteen years. A 2011 article from the Advertising and Marketing Review reported that they beat out big business in producing over 50% of new technologies and innovations.
Small businesses still fill an important niche in the US economy. Compared to big businesses, small business customers and employees still highly value relationships and trust. For employees, small businesses provide an environment where positive contributions are more frequently recognized. The information and decision-making process of management in large corporations is also murky, which creates and environment where firing or evaluations are not clearly understood.
The public has also lost a lot of confidence in big business. According to a 2010 Gallup poll that sampled 1,020 adults, 66% of respondents voiced their confidence in small business compared with only 19% for big business. Over the course of the recession, this number grew by 7% for small business, whereas it remained the same for big business.
When considering the working environment for small business employees, this makes sense. Peter Bregman, a strategic advisor for CEO’s and corporate leader, said, “A small company gives its employees a sense of security and employees pass that feeling on to clients.” It is difficult for employees of large corporations to offer the same kind of customer service when they lack job security or have distant relationships with management.
This leads to the second advantage that small businesses will continue to hold, which is top-quality customer service and relationships with customers. As big businesses continue to expand their operations through outsourcing and cut costs using technology (i.e. replacing customer service with websites or automated answering services) customers will continue to feel even more distant from the companies with which they do business.
Small businesses carry an advantage because their employees can more easily establish personal relationships with friends and neighbors who frequent their business. With a small staff and local operations it is also easier for staff to be available for in-person help and phone calls to meet the needs of customers. There is the opportunity to establish relationships with people on a first-name basis instead of always speaking to someone different. It is this kind of recognition that produces customer loyalty, and is something that small businesses should recognize and expand upon in the future.
There are three things that the government can do to ensure that small businesses both survive the recession and expand in the future: ease regulations, offer tax benefits, and expand financial aid. Small businesses actually pay 36% more in regulatory costs per employee than big businesses. In order to create an even playing field for small businesses, the government should work to revise these regulations or subsidize regulation costs so that they don’t have to use such a large portion of their income to satisfy this requirement.
The government could also spur growth of small businesses by lowering taxes; they could look to European countries for examples of operating using lower rates. It could also offer financial aid, such as in the area of increasing exports to countries like China.
Small businesses may lack the glamour of Apple or the cash flow of Verizon, but they still comprise the backbone of the US economy. Small businesses must recognize their competitive advantages over big corporations and lobby for the financial aid, tax benefits, and cuts in regulation that will guarantee their long-term survival.
Sources:
1) Gallup: “Americans Three Times as Confident in Small vs. Big Business”
2) SBA: “How important are small businesses to the US Economy?”
3) Harvard Business Review: “Why Small Companies Will Win in This Economy”
4) Gaebler: “Fixing the Broken Economy”
5) Heritage Network: “Celebrate Small Businesses—They Do an Economy Good”
6) Advertising and Marketing Review: “Small Businesses Drive the Global Economy: Let’s Make it Easier for Small US Firms to Trade”