Small biz key to economy

Posted 1/21/13

Uncle Sam wanted to know: What kinds of companies are America’s true growth generators? Is it corporate giants like Apple, Amazon or GE? Is it startups? Is it relative newbies such as Facebook.

After some exhaustive research, the answer was clear: “None of the above.”

The real economic spark plugs in the U.S. are not big public companies. They are small, privately held, fast-growing firms that already exist. These “high-impact” businesses are defined as firms whose sales and employee count have at least doubled over a four-year period.

That’s about 350,000 businesses and the research shows they tend to be a bit younger (but still average 17 years old) and a whole lot more productive than others. And they’re not just a bunch of high-tech firms, either. They exist in relatively equal shares across all industries – and get this – even declining and stagnant ones! No single industry dominates.

Here’s another key finding of the U.S. Small Business Administration: This relatively small group (less than 10 percent of all U.S. companies) of privately held, small firms accounts for all (not most, but ALL) net job growth in the U.S. economy. These high-impact businesses are also largely immune to ups and downs of the business cycle.

But surely these must be the “bigger” small business, right? Wrong again. The vast majority (94 percent) of high-impact businesses have just one to 19 employees. Another 5.5 percent come in at between 20 and 499 employees, and a scant 0.5 percent have more.

Edward Hess, professor and executive-in-residence at the University of Virginia’s graduate business school, has studied high-impact businesses for years and has an insightful new book called “Grow to Greatness: Smart Growth for Entrepreneurial Businesses.” He offers these lessons:

• Don’t grow yourself into trouble. Many small businesses flame out when they try to grow too quickly, as growth outstrips people, processes and controls. Cash flow is critical. Growth requires investment ahead of cash receipts. “Entrepreneurs must understand they might not be able to afford all available growth,” said Darden. Avoid the “grow or die” myth. A better approach is “improve or die.”

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