PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

NEW SBA STUDY: Today’s Big Businesses Were Once Small Businesses

By at 24 June, 2024, 10:07 am

SMALL BUSINESS INSIDER 

by Raymond J. Keating – 

Bashing big businesses is all the rage in political circles.

At the same time, nearly all politicians say they love small businesses. Of course, the glaring contradiction here is that today’s big businesses turn out to be yesterday’s small businesses.

Rather than railing against such firms, shouldn’t we be celebrating those small businesses that grew to become market leaders?

A new report from the Small Business Administration offers further evidence that small businesses are central to the U.S. economy – in the case of this report, to job creation – and that a good chunk of these small business job creators grow to become large businesses.

As noted in the report:

“Small businesses are the primary driver of employment growth in the United States. According to the U.S. Census Bureau’s Business Dynamics Statistics (BDS), the U.S. has added 14.1 million net jobs since 2011. Of these jobs, 11.25 million (79.8%) were created by small firms employing fewer than 500 employees.”

The report goes on to note:

“When comparing the 2011 small business job stock to the 2021 stock, data indicates that small business employment only increased by 3.38 million over the same period. At a difference of 7.87 million net jobs, the question arises: Where did 69.9 percent of all new jobs at small businesses go?”

The obvious answer is that small businesses went on to grow into large businesses. And this SBA report explains how that’s been the case, and the point is illustrated in the following chart from the report.

Source: U.S. Small Business Administration, “All Grown Up: How Small Business Jobs Transition through the Economy”

This leads to an interesting question: What would the employment breakdown look like without accounting for the transition of these small business job creators to large businesses?

The SBA found the following:

“In 2011, employment at small businesses was 55.71 million and represented 49.4 percent of the total. With transitions, the share of total employment steadily declined reaching 46.6 percent in 2021. The total number of jobs at small businesses rose through 2019 but then declined ending at 59.09 million in 2021 because of the COVID-19 pandemic… If all transitions were prevented, small businesses’ share of total employment would rise steadily ending at 52.8 percent in 2021… This would push small business employment to 66.96 million in 2021.”

In the end, this phenomenon is nicely summed up in the SBA report:

“While small businesses are the primary driver of employment growth in the United States, the jobs they create do not all remain at small businesses. Many of the jobs transition to large businesses, either through a small business naturally growing large, or a large business acquiring a small one. In general, the jobs created at small businesses that later transition to large businesses are part of an innovative and competitive economy.”

And this, again, provides a much-needed reminder that Americans, including politicians, should appreciate all small businesses, including those that have grown (and doing so by serving customers well) to become large businesses.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest books on the economy are The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist, The Weekly Economist II: 52 More Quick Reads to Help You Think Like an Economist and The Weekly Economist III: Another 52 Quick Reads to Help You Think Like an Economist.

 

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