“Growth” is always in the news as the key to business success, but three-quarters of small businesses are single proprietorships that have no need or intention of growing, which means the message of growth is directed at a very specific subset of small-business owners. Experts say the way to expansion for this minority of businesses could use more help from local and state business organizations like the Small Business Association, as well as more collaboration with larger businesses by way of contracting and partnership. For more on this continue reading the following article from TheStreet.
The concept of "growth" seems to underlie almost every discussion of the American economy, and it's a constant topic of discussion in all the New Year forecasting.
How much will the economy grow this year? How can we help it grow more? Will tax cuts stimulate growth? Will the next debt-ceiling drama quash it?
Small-business growth is a crucial element in the overall health of the U.S. economy. As politicians never tire of telling us, small companies create more jobs than large ones, and start-ups are often the engines of innovation that drive industries into new, profitable directions.
But just as small businesses are founded for many different reasons and fail for many different reasons, they also grow for different reasons. It's impossible to talk about small-business "growth" as a single, monolithic phenomenon.
First of all, many small businesses simply don't want or need to grow. And -- brace yourself -- that's just fine.
According to Census data, about three-quarters of all U.S. businesses have no employees. These businesses encompass the people who are doing some consulting between full-time jobs, or the parents who work from home part-time so they can pick their kids up from school. They serve a specific purpose and provide income, but very few were ever founded with the intent of expanding.
Small-business growth rests, then, with a very small subset of companies that want to grow. What qualities do these companies share? And how can they be nurtured along?
In an article published recently in McKinsey Quarterly, two analysts examined the common attributes of high-growth firms (defined as those that double their revenue and employment every four years). One striking similarity is age: Three-quarters of the companies that are growing the fastest are less than five years old.
But that was about the only common ground. In other respects, high-growth firms are a strikingly diverse group. Contrary to stereotypes, high-growth firms can be found in all regions. (Silicon Valley, it turns out, doesn't have a monopoly on entrepreneurial drive.) Companies with high potential for growth can be found in big cities, suburbs and rural areas, so geography alone doesn't seem to be a deciding factor.
And contrary to the all the tech and green-energy hype, no particular industry has a monopoly on growth, either. Studies have found that high-growth start-ups have made up a slightly higher percentage of companies in fields such as oil and gas extraction, industrial instrumentation and social services in recent years. But the opportunities for growth exist almost everywhere. Promoting growth in only a few key industries means missing out on possible success stories elsewhere.
According to a research paper published by the SBA, High-Impact Firms: Gazelles Revisited, many state and regional economic programs don't address directly the needs of companies with high growth potential. State economic-development offices focus instead on appealing to large corporations, hoping to attract a manufacturing plant or corporate headquarters. Many states also do a good job of encouraging would-be entrepreneurs to get started by sponsoring education programs.
But such initiatives miss an important middle step: support and guidance for the small businesses that are already up and running but need an extra boost of funding or mentorship to keep growing. The companies that want to expand should have be able to get ready access to the tools they need, whether it's legal advice, assistance with exports and imports or financing options.
The McKinsey paper also notes that it shouldn't be up to state and local governments alone to promote small-business growth. Larger, established businesses also can play an important role, by working with start-ups that have potential as suppliers and by mentoring young leaders. Too often, managers in large corporations look at entrepreneurs as potential competitors rather than potential partners. By looking the relationship in a different way -- what problem can this new, young company help me solve? -- large businesses can be part of the ecosystem that encourages growth.
"Growth" may be a generic, catch-all term. But there are very specific ways business leaders, economic-development boosters and local politicians can help make it happen for promising start-ups.
This article was republished with permission from TheStreet.