By Danna Albanyan - The American International School of Riyadh - NextGenVest Middle East Regional Director - Saudi Arabia
According to the U.S. Small Business Administration (SBA), a small business is any company that has less than 500 employees.
I wanted to explore how important small businesses are to an economy, especially in the US. How and why do they propel economic improvement?
Here are three areas I found where small businesses make a BIG impact.
According to Entrepreneur Magazine there are between 25 and 27 million small businesses in the U.S. that account for 60% - 80% of all U.S. jobs. In 1980, large corporations employed over 20% of the US workforce.
Today that percentage has dropped to less than 9%. Small businesses also provide employment opportunities to individuals who may not be employable by larger corporations, such as recent graduates or women returning to work after raising a family.
This is particularly important for women and minorities. Women-owned small businesses in the U.S. generate nearly a trillion dollars in revenues annually and employ more than 7 million workers.
Small businesses have been known to be more innovative and develop new products and processes compared to large corporations. A recent study by Paychex, a company that provides payroll and HR services to small and medium sized businesses, found that small businesses produce 13x more patents than larger firms.
This is because of less bureaucratic red tape, higher competition, and smaller businesses being more willing to take a chance on inventing something new, taking greater market risks due to their not having much to lose as compared to larger corporations.
Smaller firms tend to attract new talent who invent new products or those who create new solutions to existing issues, employing 39% of high-tech workers such as scientists, engineers, and information technology workers.
Supporting the Local Community
Small businesses usually utilize locally produced goods, crafts, and services. While a large supermarket chain, for example, may purchase all its oranges from Florida, a small farm would be able to sell their produce at the local market.
In addition, many large companies rely heavily on small businesses for outsourcing various functions that are time consuming or require specialized expertise. In this way, community businesses support and sustain each other.