small business is the economy

Main Street Ventures is new to WordPress, so we're manually posting some recent musings to add to our library until we have an opportunity to import our existing blog onto this platform.  Thanks for reading!

April 30, 2009
jack speranza

Being based in Massachusetts, we tend to pay attention to developments, facts and trends that reflect our local environment.  Though it's somewhat old news at this point, the SBA released an updated Small Business profile for Massachusetts earlier this year that contains information most will find surprising.  For a state that boasts a big number of large companies (think EMC, Fidelity, Gillette, Raytheon, and Bose to name just a few), it's small businesses (counted at almost 142,000 strong) that employ 98% of our entire workforce.  98% -- that number is truly staggering.

Now here's some even more impressive statistics:

  • small businesses created 34.7% of the state's net new jobs from 2004 to 2005 (the latest available data).
  • microbusinesses (self-employed persons and businesses with five or fewer employees) make up over 80% of all business in the state and employ almost one-fifth of our total workforce (both private & public sector).
  • we're pretty much a reflection of the national economy :: the U.S. has slightly more than 6 million small employers (99.7% of all employers) who collectively provide 50.4% of all private sector employment.  These companies created 78.9% of the nation's net new jobs from 2004 to 2005, and generated more than half of our private gross domestic product (non-farm).

 Now, the not so good news :: creating a sustainable small business is a tough row to hoe.

  • while 66% of new businesses survive past 2 years, only 44% make it past 4 years, and only 31% past 7 years. Various studies reflect:
    • 80% of these businesses failed because of poor management, poor marketing, or lack of capital.
    • critical economies of scale are never achieved. For example, firms with less than 20 employees spend 45 percent more per employee to comply with governmental regulations.

Sources:  U.S. Small Business Administration Office of Advocacy, September 2008
                        University of Maine School of Economics (microbusiness statistics compiled by Prof. J. McConnon, Jr.)
                        American Express

the realities of main street 

Angel investors, venture capitalists, and similar sources of private capital only invest in companies with high revenue potential. If a significant return isn’t possible at the end of the day, there is simply no incentive for the investment to be made. Because of the risk / reward potential, most portfolio companies are supported by significant services to enhance their chances of success.

Similarly, communities will often devote substantial resources and effort to attracting large companies. While landing the “big fish” creates a splash that grabs headlines, the total economic impact to the community is probably far less than if the same resources were diverted to supporting the creation and sustainable
operations of 20 microbusinesses.

Most of the businesses we see along main street don’t fit the “investment” profile of these organizations.  With most destined to build a business that will be lucky to generate revenues of $1-2 million annually, this backbone of our local and national economies are essentially left to fend for themselves.

Being a resourceful bunch, most new entrepreneurs and small business owners make good use of the resources that are available:

  • 52% seek advice from individual mentors;
  • 51% solicit help through social networks;
  • 44% from trade associations;
  • 36% from business advisors;
  • 31% from the Internet; and
  • 27% from Chambers of Commerce.

Source: American Express

Unfortunately, while these resources bring the ability to create solid business strategies within the reach of main street businesses, there are scant resources available to help the entrepreneur or business owner with actually executing against those strategies. Thus 80% of all businesses failures get tracked back to poor management, poor marketing, or lack of capital.

For the past several weeks we've been working with local businesses, organizations and a few academic institutions to create a truly innovative program that just might bring some much needed help to "main street."   Right now, we're looking for input from small business owners -- what help do you think you need most?  Let us know.

2 Comments

  1. Chad May 4, 2009 at 11:39 am

    This was a very interesting read – I was not surprised about the fact that small businesses play such a huge role. I did, however, find incredibly concerning the stats about how few small businesses last over after the first handful of years. This is especially disturbing as this creates instability, which is never a good thing. It is extremely important that programs be set in that can help small business owners overcome the hurdles involved with making their business a lasting success. I think that it is also important for business owners to stay in-tune with the latest innovative technology and trends to remain relevant and keep up with the times. There are solutions that many people are not aware of, especially online technology. An example of this is the printing company I’ve been working with (http://www.digitallizard.com/small-medium-business.php) where you are provided with an online portal to order prints from. I’ve found it saves a great deal of my time and money – which is crucial with the economy as it is.

  2. mainstventures May 4, 2009 at 12:11 pm

    Hi Chad, and thanks for your comments. Ironically enough, I was importing a second blog entry onto WordPress when you posted and it’s main topic is about exactly what you suggest — taking advantage of online solutions. I guess great minds must think alike 😉

    Though I have yet to muse about the instability caused by the low success rates of small businesses, it is definitely an area we hope to focus on in greater detail over the coming months. It sounds like you are an entrepreneur / small business owner yourself. If you could get help with any aspect of your business over the next 6 months, what would that be?


Sorry, the comment form is closed at this time.

s2Member®