Big dogs boast but the underdog has bite!
If you follow the news lately, you will continuously hear about companies that are “too big to fail”. I’ve got to tell you, I don’t understand this. Obviously, they are not too big to fail because that is exactly what they did. You and I had to bail them out! What happened to the consequences of making bad business decisions? In a small business, a bad business management decision means that consequences will ensue. In fact, as many small business owners can attest to today, we often suffer the consequences of the bad decisions made by companies that are “too big to fail” as well as many government regulations and laws that were written to prevent and/or redress wrongdoing by big companies. So what businesses are not too big to fail? Best as I can tell, it must be small businesses. And why should we worry if small businesses fail? Let’s take a look at the numbers.
A recent study by the U.S. Small Business Administration’s (SBA) Office of Advocacy counted 26.8 million businesses in the United States. Of those, 99.9% have fewer than 500 employees and as such are considered small businesses. This means that only one-tenth of one percent have more than 500 employees. Yet, more notable is the fact that according to the U.S. Census Bureau, 98.2% have fewer than 100 employees. And if you are impressed with that number, you may be amazed to learn that in the same report it states that 89.3% of the businesses in America have fewer than 20 employees! Bear with me for just a moment more as I drive this point home. Even more amazing is the fact that 78.6% have fewer than 10 employees and 60.8% have fewer than 5 employees.
“Are small businesses just an overflow of the work of big business or do small businesses carry their own weight?”
According to Census Bureau data on high-patent industries, 98% of the companies patenting telecommunications technology employ fewer than 500 people. In aerospace products and parts manufacturing, the percentage is 92%. In pharmaceuticals and medical manufacturing, it is 90%. In semiconductor machinery manufacturing, 87% of the companies that patent technology employ fewer than 500 people. It appears self-evident that small business carries most of the weight when it comes to American innovation and job creation. So, why do we allow so many to fail?
Maybe because failure often times leads to innovation. According to Wall street Journal guru, Clayton Christensen, the road to innovation is paved with failure. Nearly 93% of all innovation starts off in the wrong direction. Almost everyone knows that the failure rate of small business is legendary. However, after failure, the most successful entrepreneurs keep picking themselves up and starting over until they get it right. Many big businesses keep throwing resources at failing initiatives instead of giving up and going in a different direction. Most small businesses, classically strapped for cash tend to respond quickly to failure by changing directions. Perhaps another reason small businesses lead the way in innovation relates to the hard wiring of entrepreneurs. Many creative people aren’t comfortable within the rigid structure of a large company. Consequently, they either quit or they are fired. So, the impetus for starting their own business is; you guessed it; failure.
Yes, America truly runs on small business. I believe it is small business and innovation that will breathe new life into our economy; not businesses that are too big to fail. The big question is what kind of impact it would have on the American economy if the billions of dollars currently given to the automobile manufacturers that are “too big to fail” were made available to our small businesses? Sure there might be a lot more business that start and fail. But, there would also be a lot more innovation. With more available funds, government contracts slanted toward small business, or less red tape, could the small business community create as many jobs as would have been lost by GM and Chrysler if they had just shut down? Perhaps this is a quandary that may never truly be answered since the powers that be have evidently decided to stick with the big dogs……for now.