There’s mom. There’s apple pie. And there’s small business. As the US economy struggles to go on climbing out of the downturn and create jobs, no hero stands taller in the nation’s political and business psyche than the small-business owner. With good reason. Small businesses, defined as companies with fewer than 500 employees, account for almost two-thirds of all net new job creation. They also contribute disproportionately to innovation, generating 13 times as many patents, per employee, as large companies do.
Sadly, small-business optimism is at its lowest levels in almost 20 years. After crashing in the recession, confidence remains below any level recorded since the early 1990s, because the recovery has been so anemic. Had small business come out of the recession maintaining just the rate of start-ups generated in 2007, the US economy would today have almost 2.5 million more jobs than it does.
What’s particularly disturbing is that the greatest decline in entrepreneurial activity occurred in the 18–24-year-old cohort. While older entrepreneurs bring more experience and a higher likelihood of success to their business building, the shortage of young business founders means that the US economy is currently not producing enough of its next generation of serial entrepreneurs.
The recent US presidential campaign made much of the need to restart the US small-business engine, which won’t be easy. But one place to begin, is to focus more sharply than usual in today’s economic debate on two things: precisely how small business contributes to growth and job creation, and the ways the private sector—not just government—can support that job creation dynamic.