Letter to House Small Business Committee on “Competition and the Small Business Landscape”

By SBE Council at 1 March, 2022, 12:18 pm

The Honorable Blaine Luetkemeyer

Ranking Member

Committee on Small Business

U.S. House of Representatives

Washington, D.C.   20515

Dear Ranking Member Luetkemeyer:

I am writing to express the views of the Small Business & Entrepreneurship Council (SBE Council) with regard to today’s Committee on Small Business hearing, “Competition and the Small Business Landscape: Fair Competition and a Level Playing Field.”

For 28 years, SBE Council has worked on a range of policy initiatives to strengthen the environment for strong startup activity and small business success, and we believe intrusive government policy is what gets in the way of healthy entrepreneurship and business entry. When government, at any level, makes it difficult and costly to start and grow a business then entrepreneurship and competition suffer. Rather than look at ways that government should micromanage the economy or certain sectors to bolster competition, elected officials and policy makers need to be looking at ways to bring down government-imposed barriers like regulation and high taxes that dissuade entrepreneurial activity and therefore competition.

Entrepreneurs See Opportunity

As noted by the majority in a memo about today’s hearing, there is a strong uptick in entrepreneurial intention as embodied by the higher number of new business registrations in 2020 and 2021.

The actual data belies the premise that markets are inaccessible and that a few big companies monopolize key sectors, which is the rationale behind President Biden’s Executive Order on Competition and the legislative activity on Capitol Hill aimed, for example, at reining in ‘big tech.’

According to the U.S. Census Bureau, 5.4 million people filed business applications to start new businesses in 2021, an increase of 53% from 2019 and the most of any year on record.

This upsurge began in 2020, and there seems to be no slowing down, as more than 430,000 individuals applied for business applications in January 2022.

Moreover, sectors identified in business applications are broad-based – across all major industries – with the top five being transportation and warehousing; retail trade; accommodation and food services; administrative and support; and other services.

It is vitally important that government leaders understand why this entrepreneurial upsurge is happening, and more importantly encourage it to unfold. After all, applying for a business application is merely the first step in launching a business and missteps by government that discourage the new entrepreneurs will undermine U.S. economic recovery and a vibrant, competitive economy.

Only a fraction of those applying for business applications will move forward, according to Census Bureau data.

Out of the total business applications filed in January 2022 (430,411), it is estimated that only 31,287 businesses will actually form over the course of a year, and 40,433 will form over two years. So, government actions need to focus on encouraging new businesses to fully form, not dissuading entrepreneurs from launching their businesses by erecting new and costly regulatory barriers or higher taxes.

Our economy needs these new risk-takers to succeed to help replenish the countless number of businesses that closed or shrank during the pandemic shutdowns. These new entrepreneurs are seeing vast opportunities in the transformed economy – a vibrant and competitive one – which is quite different than the inaccessible and restricted business environment described by President Biden or members of Congress who are working to advance intrusive government regulation and punishing actions in the name of promoting competition.

Technology and Digital Tools are a Dynamic Force for Entrepreneurship

New entrepreneurs are seeing opportunity due to the widespread adoption of innovative technologies, and they are tapping into free or affordable digital tools to access the massive consumer marketplace.

The transformation in retail, for example, a sector where we see high levels of business entry, driven by online engagement and the transformation to digital are requiring small and large businesses alike to methodically evolve in order to cater to the wide mix of shopping preferences and consumer needs. Most consumers have increased their use of digital tools – honed during the pandemic – to fully support (not replace) their physical shopping trips.

New studies by Deloitte for the Computer and Communications Industry Association (CCIA) on small and mid-size businesses (SMBs) reveal the reality and positives of this evolving dynamic. The reports are must reading for Members of Congress who are working to impose new regulations on America’s technology leaders, as the legislation being pushed will actually harm the SMBs that are using an array of tech tools and platforms to reach and serve consumers. These various bills will harm consumers and small businesses by disallowing conveniences they enjoy and have come to depend on. If that isn’t enough, legislation would also undermine America’s startup ecosystem, and the investment and innovation that leads to more beneficial products and services for consumers. This is not what our economy needs as it works to recover from the pandemic and navigate the crushing impact of inflation.

As noted by CCIA in a press release about the studies:

“The rapid growth of omnichannel retail has allowed both SMBs and large national retailers to find synergies between their physical and digital channels, adding further value to physical stores. The survey finds that consumers are seamlessly using both digital and in-person retail options, more often than not within the same journey, to find the products they want, at the best price, and with a fulfillment method most convenient to them. The research supports the idea that consumers don’t think of shopping in segmented terms of online and offline.”

For example, according to the key takeaways provided by CCIA, SMBs have positively responded and are continually innovating to meet consumers where they are, how they want to be served, and are able to do so because of tech tools:

● SMBs are taking advantage of the omnichannel fulfillment option and leveraging their physical stores: 61% offer buy online, pick up in-store, and 50% offer buy online, same-day curbside pickup.

● 99% of SMB retailers use at least one digital tool or marketplace, including retailers who only sell via physical stores. Digital tools have lowered barriers to entry, allowing SMBs to reach consumers far beyond their physical location or hometown.

● Among the SMB retailers who are currently selling online, they’re using a variety of digital touchpoints; 70% are using more than one: 39% are using two and 31% use three or more.

● 27% of online sales were fulfilled at the physical store in 2021, up from 21.7% in 2020, demonstrating the importance of physical retail.

Especially over the past 10-15 years, retail has dramatically evolved. It will continue to do so because of innovative entrepreneurs and technology. Again, consumers and entrepreneurs are greatly benefiting in this dynamic sector. Some in Congress see boogeymen, while consumers and small business owners see efficiencies, conveniences, competition and opportunity.

Sound Policy, Not More Government

If the Administration and Congress want to help small businesses compete, and for entrepreneurs to launch and succeed in their new business endeavors, legislation and policies must address their pain points: inflationary pressures, supply chain disruptions, labor shortages, high health care costs, and an uncertain economy in general. As we’ve seen over the past year, the more government intervenes through increased regulation or the threat of higher taxes, the worse these problems have become.

Small businesses and entrepreneurs need policy stability and less government, and SBE Council urges the pursuit of the following simple principles by the Administration and Congress:

● Lower taxes and tax simplification.

● Emphasize regulatory relief, not imposing additional regulatory burdens.

● Strengthen access to global markets through trade agreements.

● Address high health coverage costs and lack of access through more affordable options, which means regulatory modernization (not more regulation or price controls.)

● Smart monetary policy is critical.

● Encourage workforce entry and training and address immigration reform.

SBE Council looks forward to our work with the Committee and all members of Congress in pursuing these sound policy objectives.  Again, strong entrepreneurship and business growth hinge on pro-small business policies, and that means government restraint and modernizing the systems or regulations that prevent businesses from starting or successfully launching in the first place.

Thank you for the opportunity to provide comments today, and for your strong support of America’s small businesses and entrepreneurs.

Sincerely,

Karen Kerrigan, President & CEO

cc:  Chairwoman Nydia Velazquez

Members of the Committee on Small Business