Learn It 8.1.3: Small Business, Big Impact

Small Business and the Economy

When the Small Business & Entrepreneurship Council states that “American business is overwhelmingly small business,” it’s not just hype. According to the SBA, there are over 30 million small businesses in the United States, with small business accounting for 99.9% of all businesses. Small businesses play a crucial role in the U.S. economy, responsible for roughly half of new job creation and economic activity, measured by GDP or Gross Domestic Product. Small businesses employ approximately 60 million Americans, or 47.5% of all U.S. employees. Embedded in the community, small businesses also drive local economic growth and vitality. There’s a multiplier effect, an additional economic benefit, when people spend locally. For example, If you spend $100 at a locally-owned business, $68 stays in the community. If you spend $100 at a national chain, only $43 stays in the community.

woman sitting on the floor holding a sign with a drawing of a light bulb in front of a wall covered with drawings and diagrams
Figure 1. Small businesses innovate and drive the economy.

Small businesses are not only economic engines, they represent a source of innovation. In an article for Inc., Babson College entrepreneurship professor Patricia Greene refers to small businesses as “the innovators of the world.” In research done with Goldman Sachs 10,000 Small Business Program participants, Green found that the small business owners were actively engaged in pursuing opportunities that met one or more of the innovation criteria established by economist and author Joseph Schumpeter:

  1. new products
  2. new methods
  3. new markets
  4. new sources of supply
  5. new market structures

Entrepreneurs have invented or developed many of our most beloved products, including beer, chocolate chip cookies, the board game Monopoly, and personal computers. More recent innovations include a 3D printer for fabricating living cells, charitable crowdfunding, and disinfectant light fixtures.

Small businesses are as unique as the individuals who start them. Starting your own business allows you to develop a business concept and future vision that achieves your specific definition of “success.” And different entrepreneurs will pursue different paths in achieving that vision.