Restarting the US small-business growth engine

posted Nov 15, 2012, 5:40 PM by Unknown user

Reinvigorating small business starts with identifying the high-growth firms that disproportionately drive economic activity and jobs. In an accompanying video, AOL cofounder Steve Case explains how big businesses can benefit too.

There’s mom. There’s apple pie. And there’s small business. As the US economy struggles to go on climbing out of the downturn and create jobs, no hero stands taller in the nation’s political and business psyche than the small-business owner. With good reason. Small businesses, defined as companies with fewer than 500 employees, account for almost two-thirds of all net new job creation. They also contribute disproportionately to innovation, generating 13 times as many patents, per employee, as large companies do.1

Sadly, small-business optimism is at its lowest levels in almost 20 years.2 After crashing in the recession, confidence remains below any level recorded since the early 1990s, because the recovery has been so anemic. Had small business come out of the recession maintaining just the rate of start-ups generated in 2007, the US economy would today have almost 2.5 million more jobs than it does.

What’s particularly disturbing is that the greatest decline in entrepreneurial activity occurred in the 18–24-year-old cohort. While older entrepreneurs bring more experience and a higher likelihood of success to their business building, the shortage of young business founders means that the US economy is currently not producing enough of its next generation of serial entrepreneurs.

The recent US presidential campaign made much of the need to restart the US small-business engine, which won’t be easy. But one place to begin, our research suggests, is to focus more sharply than usual in today’s economic debate on two things: precisely how small business contributes to growth and job creation, and the ways the private sector—not just government—can support that job creation dynamic. (For more, view this video interview with Steve Case, chairman and CEO of Revolution and cofounder of America Online, or download a PDF of the edited transcript.)

On entrepreneurship: A conversation with Steve Case
The chairman and CEO of Revolution and cofounder of AOL explains why small, high-growth companies are the secret to economic vitality and job creation and how large companies could benefit from them.
A vast universe

While the small-business universe is vast, its real economic impact comes disproportionately from a much smaller subset of high-growth firms. These firms, our research shows, can more or less double their revenues and employment every four years. And they are everywhere, in every industry sector (exhibit) and in far more geographies than is commonly thought.