In 1994, for example, a young computer-science graduate working on Wall Street came up with the novel idea of selling books over the Internet. People who own and run small businesses are a critical part of the communities where they have established their ventures. They help improve competition in areas that may be stale in innovation and growth, and offer greater diversity in the economy. Nielsen’s report said that the peer-to-peer rental market had now grown to $26 billion. Multinationals tend to standardise service and types of goods. Describe some of the ways in which small companies work with big ones. Small firms complement large firms in a number of ways. Individuals working in these units can focus their attention on creating new products that can then be developed by the company. U.S. Small Business Administration, “How Important Are Small Businesses to the U.S. Economy?,” U.S. Small Business Administration, Office of Advocacy, http://www.sba.gov/advocacy/7495/8420, (accessed August 28, 2011). Exploring Business by University of Minnesota is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License, except where otherwise noted. In particular, small businesses do the following: How “small” is a small business? 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The majority of U.S. workers first entered the business world working for small businesses. During the first year of operations, sales at Jeff Bezos’s new company—Amazon.com—reached half a million dollars. Creativity. Why Growth Matters. 24.3 million small business are classified as Non-employer Firms or businesses without paid employees (self-employed) making up 80.5% of all small businesses. That’s why global investment banks such as Goldman Sachs do their part to support small business. Over the years, the list of important innovations by small firms has included the airplane and air-conditioning, the defibrillator and DNA fingerprinting, oral contraceptives and overnight national delivery, the safety razor, strobe lights, and the zipper (Baumol, 2005). Some large organizations now have separate work units whose purpose is to spark innovation. 3. Local sporting goods stores sell athletic shoes made by industry giants, such as Adidas and Nike. ‘Small businesses make a huge contribution to national prosperity and supporting … Business ownership allows individuals, including women and minorities, to achieve financial success, as well as pride in their accomplishments. New and young companies are the primary source of job creation in the American economy. Small business is the hero of modern capitalism. In fact, … They tend to be nimble and excel at finding their niche, regardless of the field. Headd, B., “An Analysis of Small Business and Jobs,” U.S. Small Business Administration, Office of Advocacy, http://archive.sba.gov/advo/research/rs359tot.pdf (accessed August 30, 2011). A weak economy does just the opposite: discourages start-ups and expansions, which decreases the workforce through layoffs. In 2015, small businesses employed 58.9 million people or roughly 47.5% of the private workforce—meaning large businesses accounted for approximately 65.1 million private employees. At some point, businesses need to raise outside capital if they want to expand. Small business is the portal through which many people enter the economic mainstream. Currently, there are 28 million American small businesses, which account for 54% of all U.S. sales. Let’s take a closer look at each of these contributions. Baumol, W. J., “Small Firms: Why Market-Driven Innovation Can’t Get Along without Them” (U.S. Small Business Administration, Office of Advocacy, December 2005), table 8.1, 186, http://www.sba.gov/advo/research/sbe_05_ch08.pdf (accessed October 10, 2008). Still millions of others have collectively contributed to our standard of living. More importantly, they contribute to the improvement of society. If a … While many of the suppliers are large, there are hundreds of smaller companies that provide a substantial portion of the 8,000 to 12,000 parts that go into each vehicle (Canis & Yacobucci, 2011). Helping Small Businesses Succeed Governments and corporations are tuned in to the role small businesses play in the U.S. economy. Operating a small business has some challenges but also some advantages for savvy business owners and managers. The millions of individuals who have started businesses in the United States have shaped the business world as we know it today. People need a lot of things, including food, clothing, and other luxuries that make their lives better. Big businesses provide some local jobs, but it’s really the small businesses in the area … That's down from 65% in 1999. Companies like Facebook and Coca-Cola were previously unknown until they become large. Additionally, financial institutions such as banks do not feel comfortable lending small businesses. 3. It’s obvious that larger company’s lack satisfactory customer service. Small companies tend to have business plans progressive enough that they can succeed regardless of how the economy is doing. In a small company, it is less likely that difficult customer … Therefore, their living standards are elevated. Small businesses can win through creativity. Because the small businesses cannot cope with the huge price reduction, they are forced to terminate their services. Small businesses have a lot to gain from the sharing economy, which is a fast growing industry. Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License. Motivation can come in the form of reducing the processes that one has to go through in a bid to establish such businesses. Most people feel that businesses are difficult to begin because they do not see people who have established a successful business from the start. A strong economy encourages individuals to start small businesses and expand existing small companies, which adds to the workforce. Although the split between those working in small companies and those working in big companies is about even, small firms hire more frequently and fire more frequently than do big companies (Headd, 2011). Despite the benefits of operating on a large scale, independent and non-subsidiary small and medium sized firms (SMEs) still survive, and indeed make up the vast majority of firms. Table 5.1 “Small Firm Job Gains and Losses, 1993–2008 (in millions of jobs)” reports the job gains from start-ups and expansions and job losses from business closings and contractions. Individuality. Small businesses also have more flexibility, and can be started by almost anyone. They also provide large firms with such services as accounting, legal, and insurance, and many provide. These small companies need workers and so hiring takes place. Fortunately, small businesses employ locals. Small businesses are an important piece of the American economy, but in evaluating sources of growth, it’s new businesses rather than small businesses per se that matter. Aside from contributions to our general economic well-being, founders of small businesses also contribute to growth and vitality in specific areas of economic and socioeconomic development. Some advantages of having these businesses in the economy include: Provide Employment to the Local Citizens Unemployment is a problem that most economies suffer from. Small businesses tend to foster environments that appeal to individuals with the talent to invent new products or improve the way things are done. Economic growth also plays a role in reducing debt to GDP ratios. As a result, customers opt for firms where they spend less. To assess the value of small businesses to the U.S. economy, we first need to know what constitutes a small business. 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