Chapter 6: Entrepreneurship and the Economy
Small Business Defined
Because small businesses are typically the entry point for entrepreneurs as they develop their ideas and build a customer base (Business Employment Dynamic, 2016), we will look deeper into the economic impact that small businesses have on our economy and communities (OpenStax, 2020).
In Chapter 1 we defined a small business owner as someone who starts a business that already has an existing business model. The Small Business Administration (SBA) established size standards to define whether a business entity is small and, therefore, eligible for government programs and preferences that are reserved for “small businesses.” Size standards are based on the types of economic activity or industry, generally matched to the North American Industry Classification System (NAICS) (U.S. Small Business Administration, 2024). For purposes of this chapter, we will use the simplified Small Business Administration (SBA) definition: A for-profit entity with fewer than 500 employees (U.S. Small Business Administration, 2021).
So, how do small businesses impact our economy?
Small Business Impact
Today, there are over 33.2 million small businesses in the United States, making up 99.9% of all firms (U.S. Small Business Administration, 2023). Figure 6.1 shows the breakdown of small businesses by their employee size(OpenStax, 2020). There are 20,868 large businesses, a number much smaller than the total amount of small businesses in the US (U.S. Small Business Administration, 2024). Figure 6.1 shows the breakdown of small businesses by their size. According to the Bureau of Labor Statistics, entrepreneurs started 1,054,052 new businesses in the year ending March 2023 (Table 5. Number of Private Sector Establishments by age, n.d.).
From 1995 to 2021, small businesses created 17.3 million net new jobs while large businesses created 10.3 million. Even though the majority of small businesses operate without any employees, there is still a sizable number of small businesses that do employ staff (Main, 2024). Small businesses have accounted for 62.7% of net new job creation since 1995. These statistics were volatile in 2020, with a loss of over 15 million jobs in in the second quarter of 2020. Over 8.6 million of these job losses were small business job losses. However, small business employment grew quickly after the COVID-19 recession (U.S. Small Business Administration, 2023).
Small businesses not only create jobs but also contribute to local economies by reinvesting paychecks and taxes, supporting new businesses, and improving public services. Even with a few employees, a small business can transform a community by generating economic growth where there was none before (Rowinski, 2022).
On average, small businesses offer competitive wages, averaging $30.42 per hour, translating to an annual income of $63,000 (Ferguson, 2024).
Small Business Demographics
Despite males still owning most small businesses, fem