While entrepreneurship is not new, efforts to study the dynamics of this critically important sector of our economy are very recent. In fact, it was not until the middle of the 20th century that academicians and economists truly began to explore small business and entrepreneurship in a meaningful way.
Researchers are now catching up with the impact that small business has in keeping the U.S. economy dynamic. Small businesses employ more than half of the private-sector workers in the United States. They produce more than half of the nation’s non-farm gross domestic product, and they create nearly 75 percent of all new private- sector jobs. In coming years, the impact of small business will only continue to grow. Two recent studies reveal some interesting facts and predictions about entrepreneurship.
The first, “Chasing Cheetahs: Six Lessons from Missouri’s Fast-Growth Firms,” was conducted by the Missouri Economic Research and Information Center within the Missouri Department of Economic Development. The study defines “cheetah firms” as those establishments with at least 100 percent employment growth from 2001 to 2006. The purpose of the research is to provide economic development professionals with information to help them nurture the existence of fast-growth firms in their regions.
Some of the lessons learned:
1. Cheetah firms can be found in all parts of Missouri. When considering the number of fast-growth firms in relation to total businesses in a region, St. Louis, Kansas City and the balance of the state are nearly equal.
2. When asked what they hold responsible for their firms’ rapid growth, owners indicated that a strong economy and high demand for their products and services were first on the list, followed by outstanding customer service, maintaining focus on business goals, worker and staff support, and strong local support. 3. Cheetah firms report that finding qualified and reliable workers is their No. 1 challenge. Having time to manage growth and production costs were followed by regulatory burdens and employee health benefits in the list of barriers to continued business success.
4. Missouri’s high-growth firms are dominated by building and construction enterprises. Also high on the list are department stores, insurance-related firms, legal and medical services and restaurants.
5. Firms participating in the survey generally indicated a preference for economic developers to cultivate home-grown businesses rather than spend time and resources attracting companies to the state.
6. Finally, fast-growth firms are concerned about governmental regulation, the need for tax reform and affordable healthcare, the availability of tax credits and financial incentives, and workforce development efforts as some of the issues that have the greatest impact on their sustained success. A second study, the “Intuit Future of Small Business Report,” examines the re-emergence of an artisan economy among small business.
Before the Industrial Revolution and the advent of mass production on an assembly line, artisans used their craftsmanship, talent and knowledge to assemble finished products using suppliers, distributors and customers to guide their design and development. When large factories started producing mass quantities of standardized goods, artisans faded from the scene, and large corporations dominated the marketplace.
Now, according to the Intuit study, a new generation of artisans—equipped with advanced technology, capable of playing on a global platform and more agile than their medieval counterparts— will participate in several emerging trends.
• Small businesses will be better positioned than their large counterparts to provide customized and relevant products to customers. Technology makes it easier to create products and opens up a global market that can be reached in an efficient and cost-effective manner. The agility of small business makes it possible for them to rapidly create products to meet the demands of narrow niche markets.
• The outsourcing needs of large business will create more opportunities for small business. Instead of focusing on internal research and development, more corporations are looking outside for innovation.
• With advances in production technology, small business will reclaim a large share of the manufacturing in this country, particularly of on-demand, made-to-order goods, creating once again opportunity for artisans and craftspeople to expand their markets. When large-scale production infrastructures are needed, small business will make contract agreements with such facilities to avail themselves of so-called “plug-and-play” access to their production capabilities.
Finally, the Intuit study proposes that almost half of all small business will be involved in international trade by 2018. The growth in global commerce will be driven by the growing influx of immigrant entrepreneurs and the burgeoning global social networks they bring with them to the U.S. marketplace.
These studies, and many more like them,confirm the continuing prominence of entrepreneurship not only as a driver of job and wealth creation but also as a viable strategy to encourage economic development and enhance overall community development. While the globalization of the economy makes the world seem smaller, the vitality of small business ensures economic diversity and strength on a truly international platform.
Mary Paulsell is the director of the University Center for Innovation and Entrepreneurship at the University of Missouri. Contact her at [email protected] missouri.edu.