And why Smallnand Local Business Does.
We’re addicted to big, and part of that addiction is the assumption that big corporations are the answer to job creation. But if jobs are created, it’s going to be almost exclusively by small and local businesses. Here’s why.
In July 2010, The Kauffman Foundation for entrepreneurship released the findings of their research on job growth, titled, The Importance of Startups in Job Creation. They reported a stunning fact:
“All net job growth in the United States comes from firms less than one year old, formally defined as startups.
All other ages of firms, including companies in their first full years of existence up to firms established two centuries ago, are net job destroyers, losing 1 million jobs net combined per year.
Startups (businesses under one year old) aren’t everything when it comes to job growth. They’re the only thing.”
Only Small and Local Business Creates Jobs
This proves what many have said for decades, that small and local business is the engine of job creation in America. 98% of all companies using an Employee Identification Number (EIN) have 19 or fewer employees. If you include companies using the owner’s Social Security Number instead of an EIN, it’s closer to 99.9%.
Approximately 600,000 new businesses are established each year with EIN numbers, and probably a million more with the owner using their Social Security number. 99.9% of EIN and SSN startups will always be small, and since all net new job creation is in the first year of business, we should be doing everything we can to promote the establishment of small and local businesses.
Local Government Should Court Small Businesses, Not Big
The Kauffman report goes on to say that local governments should never court giant corporations to their towns because they are net job destroyers and will do more damage than good over their life cycle. The emphasis should be on encouraging new startups.
If we want job growth in America, we need to focus on helping small and local business owners in their first year of business. But that’s not something the government or big business wants to do.
Startup America is not for Startups
Startup America is a White House initiative that includes a venture capitalist based corporate counterpart, Startup America Partnership. Although it uses the word “startup” in its title, it is not about startups at all. Their stated focus is existing 3-12 year old (not startup) businesses, what they call “speedups”, that want to become giant corporations.
Scott Case, the CEO of Startup America, the White House press releases, and the mission statement of Startup America all say repeatedly that Startup America is not focused on small business in any way. Scott Case says Startup America is focused solely on “giant businesses that just haven’t scaled yet.” And they go on to describe them as companies that are up to 12 years old that want to be giant corporations. These are not startups by any definition.
Sadly, Startup America and Case have a demeaning view of small business owners who actually create the jobs. Case says, “Small business owners, if they fail at their first attempt, they’ll immediately go take a job in their industry.” After saying they’ll fold like a cheap suit when under pressure, he also labels them all “mom and pops”, a belittling description.
This contempt and disregard for small business owners isn’t new. Politicians on both the left and the right are largely addicted to big and have no regard for the small and local businesses that are the engine of job creation in America. No one in Washington on either side is a true advocate for the small and local business owner.
It is always “big” (big business and/or big government) that gets us into economic messes, and small and local businesses and local government who get us out of them. Kauffman has put the full weight of their research behind this fact.
Small is Bigger than Big
Small and local business is the engine of our economy and the source of 99% of job creation. It’s too bad that both sides in Washington are addicted to big, because the biggest thing we have in America to solve our problems is 28 million small businesses.