Is Support for Small Business Misplaced?

Summing Up Is small business overhyped as a panacea for our economic troubles? Jim Heskett's readers don't think so.
by James Heskett

Summing Up

Do Concerns About Job Creation By Small Businesses Miss The Point?

Judging from responses to this month's column, there appears to be a visceral reaction to any suggestion that small business fails to live up to the many promises that have been attributed to it, including job creation.

In fact, job creation appeared not to be a major concern of most respondents. For example, Jade Chang Sheppard said "Small business … is where society's culture, motivation and inspiration come from. It is the American Dream" Other comments suggest that the dream is not confined to America, but also includes Finland (according to Nina Rautiainen), the UK (Andrew Swayne), and India (Kamil Kumar Sopory). Ravindra Edirisooriya put it succinctly: "These 'small' businesses did not go into business with the idea of creating (jobs) …" Ajay Kumar Gupta suggested that, "(small businesses) … help in reducing unemployment, illiteracy, poverty, and unsocial practices."

Several responses delved more deeply into issues associated with bigness and smallness. Edware Hare commented that "Better we should understand when and where 'bigness' actually really matters. Small businesses often answer unmet wants and needs that they see on a local level." Gopal Padinjaruveetil asked "… where is the wealth … created? In the case of small business the wealth is created in the local economy." Gerald Nanninga commented that "… it is no longer big business versus small business. (Because of outsourcing) It is big networks made up of small partners. And the way to make this type of enterprise thrive does not really follow either model (big or small). It is a third way."

The importance of small business for innovation, in spite of relatively small investments in research and development, was emphasized by several respondents. Mark Hopkinson remarked that "most big companies … rely for their tech pipeline of new products on the innovation that comes from small business, acquiring companies, products or rights to market as their lifeline to continued survival." Mark Gomulka, found the question of whether or not it is "time to recognize the advantages of bigness when it comes to employment," posed in the column, as "literally infuriating," He added that "If we want innovation, free thinking, and the spirit to win then the obvious answer (to the question) … is NO!"

Other comments emphasized values of small business for management development. David Lindsay commented that "… managers evolve their wisdom through responsibility and decision-making which is far more empiric with a small business …" Tom Dolembo said, "Many small businesses are learning machines, every day creating a new lesson, or crisis with opportunity."

Responses were quick to point out many perceived benefits of small business while only occasionally mentioning job creation. They raise several questions: Are efforts to point out possible misconceptions about job creation by small businesses off the mark? Do they miss the point? What do you think?

Original Article

In the late 1990s, a group of faculty at the Harvard Business School proposed a new approach to the teaching of a subject for which the School had been well known for decades: general management. The old way, centered around cases involving the leadership of large corporations, was not working. (I can speak from experience, because I led one of the unsuccessful efforts.) Student interests had shifted to the world of startups and self-employment. So a required course called The Entrepreneurial Manager was created.

TEM focused on financing and development of new ventures, with a few cases dealing with entrepreneurial managers in large organizations included. The course quickly rose from one of the lowest-rated in the required curriculum to the highest.

The course orientation fits with popular conceptions of the world of small business, offering visions of highly energized individuals passionate about doing their own thing developing new ideas and creating most of the jobs in an economy. This vision extends back in history, at least to the farms of Europe and the US. It helps explain laws to protect small business from the ravages of the A&Ps and Walmarts. It increasingly drives politics as well as government policy. It is especially attractive at times of low growth and low employment, because this ideal of small business as the center of economic development can be held up as a possible antidote to macroeconomic stagnation. That's why a recent article by Charles Kenny caught my eye.

Kenny, a fellow at the Center for Global Development and the New America Foundation, cites a growing body of evidence that suggests that a reassessment may be in order. Consider the conclusions from some recent research: Small businesses may not be a strong source of prosperity. Not only are they less productive than their larger counterparts, they have, according to a World Bank study, a lower rate of productivity growth because they invest only a small proportion of total R&D money. They therefore charge higher prices and pay lower average wages.

An analysis of census data by economists Erik Hurst and Benjamin Pugsley found that companies employing fewer than 20 people made up 90 percent of the six million businesses with one or more employees in the US in 2007. Most were small entrepreneurs creating what might be considered "lifestyle" jobs for themselves, intending to stay small and avoid employing many others. Eighty percent that were studied in detail didn't create a single job between the years of 2000 and 2003. Another study, The Illusions of Entrepreneurship: The Costly Myths That Entrepreneurs, Investors, and Policy Makers Live By, by Scott Shane, found that while small businesses create more jobs than their larger counterparts, they also destroy more jobs. While they created jobs in the year of their founding, they netted out destroying jobs in years two through five as most of them failed, suggesting less job security than in larger organizations.

At the international level, economists Rafael La Porta and Andrei Schleifer conclude that a nation's wealth is inversely proportional to the share of jobs provided by small businesses. Again, this is due in part to the lower productivity of such jobs.

They conclude, as have some others, that a better strategy for job creation would be to attract large multinational corporations with better-educated managers and more stable financing. In fact, large global companies to which jobs were formerly outsourced have begun setting up operations in the US and United Kingdom.

Is it time to recognize the advantages of bigness when it comes to employment and economic development? If so, what does this mean for government policy? Are tax policies and other support for small businesses misguided? Does it suggest a return to an emphasis on big business management by pioneers in MBA training such as Wharton and Harvard? What do you think?

To Read More:

Erik Hurst and Benjamin Pugsley, What Do Small Businesses Do?, Brookings Conference on Economic Activity, Fall, 2011.

Charles Kenny, Rethinking the Boosterism About Small Business, Bloomberg BusinessWeek, October 2011.

Rafael La Porta and Andrei Schleifer, The Unofficial Economy and Economic Development, National Bureau of Economic Research Paper No. 14520, December, 2008.

Scott Shane, Case Western Reserve University, The Illusions of Entrepreneurship: The Costly Myths That Entrepreneurs, Investors, and Policy Makers Live By , 2009.

    • Jade Chang Sheppard
    • President, Gideon Contracting
    Small business will always be the backbone on the economy. It is where society's culture, motivation and inspiration come from. It is the American Dream. Yes, most small businesses fail within 5 years, but many try again. Finally, all large corporations were once a small business, so unless we continue to wholly support small businesses, you won't get any more large multinationals. I would never have made it this far if small businesses in the US didn't have the support of the local and federal government. I am so grateful to be an entrepreneur in the USA.
    • Jody Holtzman
    • SVP, Thought Leadership, AARP
    I think this article confuses several things and uses terminology loosely. First - there is no "panacea" for our economic challenges. Second - it is important to distinguish entrepreneurs from small business, and small business America from high-growth companies. Clearly there is overlap and no solid "Chinese Wall" separating each from the other. However, all businesses start "small." But, some like Google, Facebook and their older tech bretheren are high growth companies that have contributed a significant net increase in jobs, as compared with a new bed and breakfast, a new McDonalds franchise, and even small industrial companies. You may conclude that this illustrates that large companies add more to the economy. However, the Kaufman Foundation attributes ALL net job growth over the past 10 or so years to these "high-growth" companies. The important thing to remember is that they all start
    ed "small" - and not that long ago. They, not the GEs, GMs and older large companies contributed the net job growth. But although these high-growth companies started small, there is a difference with small business of the type that joins the NFIB.

    That said - with the new low cost/low overhead opportunities presented by e-commerce and the Internet, even traditional small business America has the potential to scale in ways never before experienced. Most won't. But some will - and it is essential that the business environment is enabling of this potential.

    Lastly, the economy simply does need more self-employment, more small business, AND more entrepreneurial and venture backed high-growth companies. Do they have the same level of productivity? Clearly not. However, for the communities in which they are created and grow, and for the individuals that gain a paycheck, this represents an important additive for the economy overall, and a larger important addititve for that community.

    So - where does that leave us with regard to policy and legislation? There is a need to stimulate all of it.
    • Margie
    • Lecturer, BK School of Business Management
    "while small businesses create more jobs than their larger counterparts, they also destroy more jobs".. I think that statements such as these are broad and we do not know about their reliability. Moreover, even if they destroy the jobs, isn't that is required to happen when un-learning and re-learning is happening? Or when competencies and dynamic capabilities are being built? I would not rely on such limited research and come to such fast conclusions.

    How about recalling some of the lessons of Schumacher, as in "small is beautiful"?
    • Anonymous
    With all due respect, it seems that if academia feels that they have shifted to supporting and studying small businesses AND there is an interest in the market AND the small businesses are failing, then perhaps academia should look at their effectiveness. Please don't desert the small business. This country pulsl many economic and political levers to make sure most can get an education. Can't we put creating a business in the category of "commitments of our citizens for personal gain that benefit the good of all"? Consequently we then have a position to commit a resonable amount of resources to support such individuals. I further recommend reviewing why academia switched gears when they felt the centralized management felt out of fashion. Can not our universities support the further good of both? Anxiety is a proper reaction when HBR published such items because of the problem that arises when someone says " Harvard says the power of the small business is a myth." No you may not have said it, but the position can be presummed. This is a very large country and the failure of some - like the failure of many to make good on getting a good ROI on their university eduction - is not a reason to abandon providing the opportunity for all.
    • Mrs. Nina Rautiainen
    • Expertise Manager, Central Finland Chamber of Commerce
    On the interesting topic "Is Support for Small Business Misplaced?", my comment comes from Finland. Finland is a economy of Northern Europe with 5,4 million inhabitants and around 265.000 companies. Only 0,2% of all businesses employ more than 250 people.
    My work is to give hands on support in growth to small and medium sized companies in Central Finland. Due to my role I have hands on knowledge on how the Finnish entrepreneurial mind works and what might inhibit people to take the necessary steps towards growth in their businesses. In my opinion it has a lot to do with the ecosystem, the entrepreneurial personality and the opportunities made to happen as they come along.
    As a country Finland is known for "giving birth" to globally recognized brands such as Nokia and one of the latest new-comers Rovio, the company behind Angry Birds. Rovio announced last November 500 million total downloads of Angry Birds games across various platforms. This remarkable milestone makes Angry Birds one of the most downloaded games in the history of gaming, with no signs of slowing down. Rovio has attracted 42 million dollars in new investments and has grown up to 230 employees in no time. There are plans of rapid growth and expansion to other fields of business in the near future.
    In the light of this example it is difficult to agree overall with the presented arguments of small businesses having lower rate of productivity growth or investing only a small proportion of total R&D money. And at the same time it makes me wonder if the Finnish ecosystem composed of "venture garages" and incubators from Helsinki to Oulu is indeed a well-organized chain of support available for newly founded start ups. Who knows which one of them is the next Rovio in line? And when they make it, new economics of scale is born.
    • Tom Dolembo
    • Founder, NewNorth Institute
    I took Jordan Baruch's class in Business Innovation at HBS in 1971, which anticipated the growth in small technology companies and which was useful to me. I failed repeatedly to be a compliant and good employee of larger corporations, and the result was a serial career of many, many hard benefit-free lessons learned. I am not sure if those lessons can be taught at HBS or anywhere else. In my gear company, my NW Indiana shop class in welding came in handier than anything I learned at Harvard. When I wore a suit for the bankers, rarely, Harvard mattered. On the floor, in the oil and heat, not so much. Many small businesses are learning machines, every day creating a new lesson, or crisis with opportunity. When my group built the eight company consolidation of medical molding companies in the late 1990's, creating a common technology interface involved using brain cells that had never been touched and technologies we invented as we
    went along. Harvard is a legacy teacher, cases are history lessons. My classmate Mike Porter totally passed on technology in his landmark work, Competitive Strategy,skipping the one bright spot in the 1980's. His principles stand, it's just that he couldn't have written about something that was so new. Harvard taught me how to learn, how to read a case in five minutes (if at all), how to work in groups and appreciate visualizing structure where it doesn't exist. I don't begrudge HBS for not knowing much about the future.
    HBS, the experience at least, deserves to be re-experienced.
    The Harvard MBA should be a five year asset, renewable on returning for a solid exchange of experience and ideas with current students and faculty. Each of us alumni have claimed we learned more from our fellow students than we did in class. Renewing would allow every five year class to build a new degree experience, with many new people.
    You are suggesting HBS can initiate a process from within to fix its parochial issues. Stop making buggy whips. Your alumni (if they can afford the time and huge costs) are a resource you have consistently underutilized. We may not bring answers, but we are living cases for small business that cannot be generated from within HBS. What we would learn from each other would benefit everyone. As much as we treasure HBS, or the memory of it, I at least yearn for relevance. It is really lonely out here. West of the Appalachians, HBS is simply not on the radar.
    • Jim Elder
    • Assistant Professor, Lindenwood University
    The underlying proposition is flawed. It presumes that meaningful government resources of some type are being diverted from large to small businesses. The questions at the end are silly in their error:
    - Economic development programs ignore small businesses and instead focus on large businesses.
    - Tax policies across the board favor large businesses as they are the ones employing lobbyists and making substantial political contributions. Politicians only pay attention to those that provide money which excludes small business owners.

    As for Harvard's curriculum, is that relevant as it applies to the nation?
    • koryang
    • Chief operating officer, Deyatale-Group
    I am a strong believer of small businesses, especially those built around ethical entrepreuership . Small businesses helps individvals shape their own destiny and brings in self satisfaction and self worth . Like even corporates , Entrepreneurial businesses are not abed of rosses . it require absolute conviction that will at the end affect some of your social life But it worth it . since you ill look back in your late years and say , " i lived my life and its best and God will have aproper accountability on you with you were on Earth.
    • M-Said Oukil
    • Visiting Professor, King Fahd University of Petroleum and Minerals
    There is also something important to mention; that is that the number of small businesses is bigger and increasing every year. So, if one big firm creates 100 jobs, a few SMEs could create more than that. This trends stems from a general observation in the Middle East and Noprth Africa Region.
    • Dr. Phil Harris
    • Founder and Principal, APG Academy of Entrepreneurship
    I recently read a study that confirmed net job creation stems from small business and large companies over the last decade have had a negative contribution to net job creation. Net means small companies created more jobs than they destroyed. Why is it that small business has to justify its existence with scholarly studies, but multinational firms can impose their will with no evidence. Show me the evidence supporting this claim!
    • David Lindsay
    • Lecturer/Tutor, Napier Business School
    Interesting that academia cannot "focus" on the broad church of commerce rather than what is "in fashion" right now -sure we all know that economics and business follow cycles [Mullineux, Dickinson & Peng 1993] and that the winner is usually the venture whose leader/entreprenuer has a "vision" -eg Steve Jobs/Apple Corps. et al and that most of the multi-nationals and globals corps. started out in someone's back yard or garage -Hewlett Packard/Virgin/Facebook ad surely it is the leader-visionary of the small company who will determine whether this outfit remains "local" or becomes "global" and therefore employs is merely business following its organic journey ..the lesson for Business Schools is simple - stage the modules to reflect "real" life not a formulaic intellectualised perception -even Carnegie/Hughes started s.m.a.l.l. -the lear
    ning should start at the bottom -not the top -managers evolve their wisdom throughresponsiblitiy and decision-making which is far more empiric with a small business and therefore implicit given the range of skills required to get off the ground. More and more large corporations now seek "entreprenurial " managers to add the x-factor to planning, organising, controlling and leading [Fayol 1949] which has been the foundation for effective management for over half a century .
    • Gerald Nanninga
    • Principal, Planninga from Nanninga
    The whole notion of "big business" vs. "small business" is becoming incapable of describing current trends. It used to be that a business was a relatively complete package--the vast majority of what was needed to run the business was self-contained within a single corporate entity. Very little was farmed out.

    The current trend is towards the opposite--farming out almost everything into a broad network of separately owned businesses. By the time one farms out production, distribution, and sales, there isn't much left directly within the core. And now, with social media, even more of the business function is being outsourced to the customer.

    As a result, one ends up with large, complex structures which in many ways resemble the large business entities of old. The difference is that all of the pieces of that structure are owned separately by smaller, more entrepreneurial enterprises. You end up with companies like Nike--a huge enterprise, but the core corporation is little more than a handful of designers and partnership developers.

    Therefore, it is no longer big business versus small business. It is big networks made up of small partners. And the way to make this type of enterprise thrive does not really follow either model (big or small). It is a third way.

    I'm not sure the business schools (or governments) have caught up with this third way to the extent they should.
    • Ravindra Edirisooriya
    • P/T Accountant, Midwestern Small Business
    The comprehensive question is support for small, medium or big business for what? Most if not all recent high net worth businesses started small (development) probably in somebody's garage or dorm room with a delightfully innovative (creative) idea before it hit the external environment of its competitors who were already in similar businesses. When competitors discover the new idea, the originating small business has become a first to market on the way to scaling up production and leaving established competitors to play catch up. Competitors were sometimes able to mount a challenge and other times waste resources trying to keep up with the "Wunder Kind" on the block.

    These "small" businesses did not go into business with the idea of creating (jobs) employment but they do because they need to deliver goods and services and expand (application, launch and grow) their businesses. These businesses reach the take off velocity and become profitable for all pursuant businesses to emulate (mature) and at some future point of time "take the foot of the gas" because that is in the business DNA (resistance to change: decline) while compactors' successfully launch their own versions of the product or service at which point of time the entrepreneurs may have moved on to other projects.

    At start up venture capitalists (or savings /friends) provide the seed money for these businesses. These successful businesses are becoming more environmentally conscious (but not always) since it is good business to be socially responsible and imperative to be more operationally efficient. Hence, the role of the government in highly innovative businesses is minimal at best except to facilitate the union and exchange of ideas among the potential entrepreneurs (fertilization and cross fertilization). However, the government has to set up a reasonable (what is reasonable?) regulatory frame work to establish checks and balances against the business frailties of being self servant at the expense of the (externalities) society and environment. (If climate change is manmade as evident say 99% chance then we need to reduce the carbon foot print of all activities. If climate change is not manmade say 1% chance still we need to reduce the carbon foot print of all activities to mitiga
    te the effects of climate change.)

    The new product or service marketed by a new business may be a unique piece of infrastructure, technology or personal /industrial tool that may lead to growth in the broader economy. A limited tax holiday may help these businesses to establish (breakeven) faster but it may not be necessary to reduce taxes on all corporations /businesses. The world inventory of jobs (current and future) will decline with the expanding technology frontier and no amount of new business formations will be sufficient to keep up with the population growth and demand for jobs. Hence, new businesses solving the unemployment problem is a myth.

    The businesses do have an alternative to decline and death: perhaps they could convert gradually from for profit to non-profit for the greater public good of the humanity. The government may provide an "end of life" tax holiday for corporations who may pursue for profit to non-profit conversion. It will give the "99%" some hope and make the income inequality more tolerable! It may preempt the clamor to take back the Wall Street!
    • Shaiful
    I agree partially small business apparently destroy job given the business environment condition right now; unhealthy competition among businesses and from within the organization, particularly vested interest starting to emerge at every level even at development stage.

    So I think it depends what is the value of the society involved.
    • Kapil Kumar Sopory
    • Company Secretary, SMEC(India) Private Limited
    In India,small scale industry(SSI) and small business enterprise(SBE) play a notable developmental role and the Central and State governments pay special attention thereto by providing various incentives like land at cheaper/concessional rates, prioritised provision of water, power and other basic necessaries, tax concessions, etc. Being a country composed of small rural and backward pockets, setting up large enterprises there would neither be prudent nor feasible and hence small units are more workable and do go a long way in poverty alleviation.
    Yes, employment generation by such small entities is low but even self-employment serves this role as the paucity of jobs in private and public sector is taken care of to a great extent considering that the number of such units is large.
    Hence, at least in the less developed countries, support for small business is not misplaced. In due course, some of these are expected to grow into bigger ones and serve the economy of their countries still better.
    • Rogers Kimbrough
    • Doctorate of Business Administration Student, Northcentral University
    The biggest dilemma that any person face that seeks to beome a "entrepreneur" is whether what they have to offer fit the needs of their potential customers long term. It's important for any business to know if what they offer can sustain itself long term due to the demand. If the need is high enough it does not matter as much what state the economy is in. The business should be able to sustain itself through tough times. I am currently seeking to become a successful entrepreneur. This is my opinion based on somethings I have learned over the last 5 to 10 years of study and experience.
    • Mark Hopkinson MBA'75
    • President, Aqua Vectors Inc
    The level and sophistication of thoughtful responses is impressive and covers the topic pretty well. However, from personal experience as a serial start-up/small-biz guy, there's one aspect of the "food chain" I don't see addressed. The big businesses rely for growth on new products that meet ever evolving needs and desires in the consuming public or industry. Yet most big companies are not good at creating new products efficiently or timely. So they rely for their tech pipeline of new products on the innovation that comes from small business, acquiring companies, products or rights to market as their lifeline to continued survival. Historically, they have turned to the VC world as the well from which to draw this new energy. But most VCs have morphed (courtesy of the finance-guy approach they take) away from taking tech risk and towards a model of taking on market introduction risk, which actuially encroaches on th
    e turf of the larger companies. So the big guys have been forced to move towards a model of creating incubators to nurture small risk-takers in exchange for exclusive access to the results. My particular playground is industrial in nature, so I recuse myself from judging what is happening in the vapor-world of apps, social media, and non-tangibles, but I see example after example where those bringing value-adding improvements or new technologies into the market are indeed adding jobs and vitality to the economy. To generalize about small business and lump these ventures in with the pizza shop is ludicrous; and policy makers can surely differentiate. It would starve the big companies to kill off support for small business, and it would stifle the re-emerging competitive spirit in the US. But the support could certainly use more focus, and national policy could use a little less averaging out in drawing conclusions and establishing how to wield public funds.
    • Edward Hare
    • Retired Director...Strategy and Planning, Fortune 250 Manufacturer
    Better we should understand when and where "bigness" actually really matters. Small businesses often answer unmet wants and needs that they see on a local level. Often they're ones that "bigness" ignores or serves poorly.

    If "bigger is better", GM would rule the world instead of having become a ward of the state. It may also be a good example that corporate bigness can promote a quagmire of inside politics and personal agendas that can kill their goose that lays the golden eggs. Just look at CEO compensation levels over the past few decades. They're bigger too, much bigger. Who's benefitted when the average employee has become as disposable as a Bic pen?

    America just seems to adore bigness....and its associated excesses. It's time it re-examined its values....and recognized that small can be wonderful when managed properly.
    • Bob Pavey
    • Partner and HBS '67, Morgenthaler
    By focusing on size only (i.e. small vs large), it seems to me that the article neglects the very important dimension of growth. As we have just seen, large companies like Kodak are no longer contributing as they once did to our economic strength, and small companies that do not grow are at best life style companies. It is growth companies, whether large or small, that create jobs and many of the exciting new products.

    I would guess that the interest at HBS in small companies is not in small companies that will stay small. It is instead in small companies which can grow - creating excitement and economic rewards.
    • Dr Per Lind
    • Professor, Gotland University, Sweden
    Very relevant comments about SMEs!
    I wish to announce the same basic views in my book Small Business Management in Cross-Cultural Environments (Routledge, UK, January 2012)
    • Mark A. Gomulka
    • GM, Nypro
    Small business in the US by definition has fewer than 500 employees. With all due respect I feel that it is high time for academia to start being part of a solution again that is very much needed. Let's for a moment look back to 2007 and identify how many job producing "small businesses" went under due to the banking industry! The manufacturers, the store owners, the skilled wood workers, mold and die makers, engineers, the very same people that create not abuse, the same people that through generations were able to pass businesses down to their children. They all now face extinction! While we were all busy saving Wall Street and bailing out the banks they were busy pulling and closing all lines of credit that small businesses needed to survive. They have literally cut the flow of money (Life Lines) that was critical in making payroll possible, financing the large corporations' requirements for net 90-120 terms, dealing
    with higher healthcare costs, and not to mention all the added regulation that is killing small business still today. Let's us as educators and responsible business professionals dig deep and study how we as a nation have lost our way, we as a society are breeding compliance at all costs while losing touch with what truly matters. What will it take to challenge our kids to be the next entrepreneurs? Be the next Bill Gates, Steve Jobs, Ray Krock or H. Ross Perot? If we do not change what we study and what we publish we will parish as inventors, as engineers, as the next great solution and innovation providers.

    Does the current environment support small business and growth? I say definitely no! Let's turn back the time and make our "great lending institutions", give back what they have taken away from small business! Ultimately it is small business that keeps America and the banks running. It is definitely not credit default swaps or betting on subprime mortgages! Let's revert to the earlier times and see what we did right and make sure 2007-2012 does not happen again!

    To suggest "that a better strategy for job creation would be to attract large multinational corporations with better-educated managers and more stable financing" is in my opinion irresponsible. To even ask the question "Is it time to recognize the advantages of bigness when it comes to employment and economic development?" is literally infuriating. If all we want is cubicles, compliance, systems, and robots then I guess the answers would be yes! If we want innovation, free thinking, and the spirit to win then the obvious answer without a question is NO!

    It is time to get back to the basics, make the right decisions and set a course for our nation in a direction of innovation, engineering, entrepreneurship, and out of the box thinking. If we do not change course today we will be a nation of lawyers, environmentalists, followers, and people that are thought to believe that entitlement is what made us great and not hard work and innovation.

    Let's start creating again!
    • Dennis Nelson
    • Quality Lead, SFS
    Absent customers for their products, the businesses sizes and sources of support are irrelevent. Too few media and column discussions center on the pros and cons of options for helping Americans once again become customers.
    • Clifford Francis Baker
    • Chair, Neffel Corporation
    My reading of M. Yunus' book , Banker to the Poor, which addresses the motivations and mechanics of micro-lending, in part caused me to consider a possible explanation for the high rate of failure and the extended difficulties of small businesses from start up to the five year failure mark (my focus being on those businesses which seek to increase in size and economic impact), as being a by-product of the current practices of both debt and equity financing, along with a number of the common business practices in the commercial reality sector.

    The cause of the varied negative observations and conclusions drawn and mentioned in the article regarding small businesses , I conclude to be, at least in part, the derivative of an excessive demand on the part of the principles I've presented for unrealistic profit gains demanded too quickly (I see this as pertaining to financial lending institutions in particular, when the current practice of fractional lending extended to these institutions by the Fed and the low cost of capital are both taken into consideration).

    Since brevity is indeed the soul of wit, I am being brief in my list of potential culprits and business sectors. I can only speculate in my conclusions, for the subject is to my mind far too complex, and any over simplification of the subject is, I sincerely believe, an unwise venture; a venture which I believe the article has perhaps undertaken.
    • CJ Cullinane
    The management programs of the large well know universities, such as Harvard, should focus on larger more complex organizations. Small business is critical to the health of the economy but they (small business) have different needs and these are often different from industry to industry and also size (how small is small?).

    The schools like Harvard are great for teaching the more static educational needs of large corporations and organizations but cannot do 'justice' to the numerous variations of small business.

    I have a bias towards Harvard's program because I have been in a program and loved it. It was effective on many levels and was effective for both large and small companies. But for many small growing businesses the focus may not be specific enough. Tax policies, regulations, and management are complex and different for all companies and a 'one size fits all' may not work. Even business programs have to evolve.
    • S K Kotwani
    • Dy Vice President (Procurement), IndusInd Bank Ltd.
    Large businesses have a tendency to create monopolistic environment. The focus shifts to cartel forming and rise in prices leading to higher profits. Part of the profits where invested in R & D is good for the economy and the Government policies should support investment in R &D.

    Small business support innovation and creativity but often not compensated in cases where large business dominates. Small business are often individualist dominated where fruits of creativity belong to the owner / innovator and hence lower payouts for the support staff.
    • Phil Clark
    • Clark & Associates
    The biggest threat to small business is not the's Wall Street. They gobble up innovation and throw it on the boardroom table and turn it into a monopoly board. When investors, especially big investors, started buying companies as commodities and not to preserve the business and innovation...they destroyed what made this country great. Investors should remain investors...they should never have a say in the operation of a company. If they do not like what is happening...then sell your investment. If by choice a small company owner "wants" and investor to be part of the operation, that is fine. But, an investor should not be invited to the table just because he has money. Let small companies live and die by the merits of their product or service, not by who chips in the money.

    I agree with Mark (21) in a different way. Don't blame the failures of small business on the government. Blame it on the "bigger financial fish - banks and Wall Street that did not protect the financial well-being of the nation and keep the capital secure for small business to flourish. Their job is to keep the economy health, capital flowing, and protect the economic well-being of the nation, not suck the capital out of the economy.
    • Gopal Padinjaruveetil
    • Enterprise Governance Risk and Compliance, Capgemini
    "Small businesses may not be a strong source of prosperity. Not only are they less productive than their larger counterparts, they have, according to a World Bank study, a lower rate of productivity growth because they invest only a small proportion of total R&D money. They therefore charge higher prices and pay lower average wages."

    I am not sure if I can agree with this view in its entirety.. While small businesses MAY be less productive (because they may spend less on R&D and automation etc), the "larger" firms drive inefficiency.. Please refer to the HBR article on "First, Let's Fire All the Managers" Management is the least efficient activity in your organization- larger the business, bigger the Management and higher inefficiency.. and inefficiency and bureaucracy drives cost up too

    Also what about the

    1) Risks of "Too Big to Fail" I have heard many say that the failure of one company Lehman brothers had a catastrophic effect on the whole economy..

    2) In the case of Big where is the wealth that is created? in the case of small businesses the wealth is created in the local economy.. but in the case of big companies is the wealth created here or outside the country.. and ultimately who benefits in this low cost models the CEOs ? ( the salaries of top executive in the last 15 years have gone up by 15 times and the wages of others have remained same..)

    3) I am not convinced that big businesses are "Engines of Innovation". Innovation typically comes from small entrepreneurs.

    4) I am concerned about the risks and social implications of large corporations in our daily lives..

    In the book "Life Inc: How Corporatism Conquered the World, and How We Can Take It Back" Douglas Rushkoff traces corporations went from being convenient legal fictions to being the dominant fact of contemporary life. The resulting ideology, corporatism, has infiltrated all aspects of civics, commerce, and culture..

    we are seeing the effects of this from the now famous Citizen United supreme court ruling and the superPACs are reshaping the political landscape which will have a big impact on every citizen of this country..

    End of the day I think we need to look not only at the economic impact of big vs small but also the social and political impact, we need to arrive at a right mix of "support" we need big business as they promote small business in the region.. but we also need to promote innovative entrepreneurship in small businesses..
    • Ajay Kumar Gupta
    • Doctoral Researcher and Faculty (ITM), Tata Institute of Social Sciences, India
    The founders of some most successful fortune 500 companies are school/college dropouts, for examples, Wal-Mart, Apple, Microsoft etc. Bangladesh Grameen Bank was started with one visionary person without any external support. Mumbai Dabbawalas and Meru cabs, Dosa Plaza, Zumbo Pada Pav (India) are some of the classic example that created business and employment. They started with their own experience and without any external support. They had passion and vision. I do agree that small businesses are not sustainable business model but they support horizontal growth for society and business, one get successful. Small businesses help more equitable distribution of wealth in the society. I agree that support for small business has been misplaced. Even though Government has passed bill to support financing small business (in India), banks hesitate and avoid financing small business. They do not reject proposal out rightly, but delay the p
    rocess by asking to fulfill so many paper requirements. Entrepreneurs fed up with the practices and withdraw silently. Now who is responsible for this? Regulatory body or banks? Answer to this question has potential to help small businesses.
    I think job security is more of illusion and less of reality. Recent examples of huge lay off and retrenchment are enough to understand industry dynamics. All the established and big companies have laid- off. So, who will provide job security? Concept of job security is our own created self satisfying belief. Those who believe in job security are most likely to compromise in the system. I say this from my two decade experience in industry. I think, this is the time to realize the need to support small business and recognize their contribution to people and society. They help in reducing unemployment, illiteracy, poverty and unsocial practices. I think Government should create mechanisms that support small business, encourages entrepreneurs to start new startups. Government should ensure proper execution of polices and provide tax exemption or some kind of subsidy to encourage budding entrepreneurs.
    • Anonymous
    The greatest danger in economic policy making for businesses is economic policy making. Institutions outside of the business community do not share the values or objectives of business. Frankly, most businesses don't share each others' goals or objectives. The ones that do are most likely competitors and their intention is to put their competitors out of business- or at least out of the business where they do compete.

    No self-sustaining business exists to create jobs. Businesses that successfully meet the demands of their customers may increase by adding jobs to fill the demand. But it is not a policy requirement of business that they do so. A business can choose to stay small as a lifestyle choice. Others may choose to grow larger. That's the free market based on freedom of choice.

    If economic policy makers were committed to policies that stimulate freedom of choice (and responsibility for bad choices), that would interest me. But the argument that we should pick big over small business winners (or vice versa) is about decreasing choice which will decrease business. So my recommendation is that no policy is better than any policy.
    • kent mollohan
    • sole proprietor, KM Designs!
    I see small business as an extension of one's schooling, so that it can be employment for one or more people over time. Big business should always pay more, provide more and surely give back community benefits as they are designed to be "scaled" up for both income and profits. It's the aspiration of some small businesses, too. Others want small and less complicated schemes for income and security. Promote small for what is wanted by those who enter.
    • Andrew Swayne
    • Chair, Adur and Worthing Business Partnership
    In UK small busiensses are a signiifcant part of the total employment base.

    Supporting small business is impartant as they can become larger businesses. The business I work for was founded bearly 100 years ago and now employs over 1600 staff world wide.

    What is important is that focused support is for economic regeneration is not just based on business size or location. new starts are important as are incubation and enterprise hubs. Business go through phases of growth - I often see the more challenging areas being the second and third pases of growth witehr teh owner manager starts to need support function but doe snot need whole roles to run the business.
    • Forrest Peck
    • Executive Director, Microenterprise Resources, Initiatives & Training
    On the other hand, the waffle-iron wisdom of Phil Knight selling tennis shoes from the trunk of his car, and the garage antics of Steve Jobs and Wozniak have also led to the creation of "large multi-national" businesses. When comparing impacts of large corporations versus small businesses which category do you place them in?
    • David Physick
    • Consultant, Glowinkowski International
    Interesting to not the introspective nature of the commentary to the US. In the developing world, the emphasis on funding and development is the smaller business; providing the means to families to become self-sufficient. That will drive those economies and give them the means to buy from the big US corps. As an ex-banker, I received comprehensive training in manually evaluating risk, which skill I think has been lost to the automated credit scoring techniques. Consider some of the comments about the characters mentioned across various people's comments and it was something they possessed that only another human could discern that would get them the funding to realise their vision. James Dyson, the guy behind the eponymously named bagless vacuum cleaner produced 5,000 variants before he perfected his invention. It is rare to find a big business tolerant of such endeavour unless as part of its strategy it sets a goal to raise
    20% of revenue from stuff it didn't make 2 years ago. The word make is key. There is a growing movement in the UK that schools need to bring back 'Design and Technology' (I am old enough to remember that being called woodwork, metal work, cookery) so people acquire the skills and cognitive abilities to work out how things work. In an age where sustainability will become critical this knowledge will provide the means by which all business can innovate a movement from the linear 'take, make, waste' approach to one that replicates nature's ability to re-cycle and re-use everything. It is down to leaders to create the environment in their workplaces to foster such innovation.
    • Rajen Kumar
    • Chief Editor, SME WORLD
    It is a needless exercise evaluating the health of small businesses. The fact remains that any economy is complete in the absence of the small businesses. Most of the large corporate have the back up of small businesses most of which in turn survive because of the big businesses. In a country like India where per capita income is yet very low, it is the small businesses which run its every day economy. It is also a wishful comment to say that most small businesses die down in the initial years. Big businesses fail big while small survive humbly.
    • Ravindra Edirisooriya
    • P/T Accountant (2/28/12), Midwestern Small Business
    Running a business (big, medium and small) for economic profit is not the same as running a business (mostly small) for "bread and butter". It is not to say that all small businesses are run for "bread and butter". When a business is run for "bread and butter", the objective is "bread and butter" and no more or no less. You live, breathe and die with your (small) business. Economic profit is secondary (not aimed for) because you may have time that may be wasted otherwise, legacy equipment with minimal operational cost and minimal tax burden on the (small) business. These small business owners pour their sole possessions and heart into their (small) business and they live and die with it. Economic theory does not strictly apply to these (small) businesses!