It's a line you've heard a million times, and maybe even said yourself. It's in nearly every politician's stump speech about "the value of Main Street." It's the lead of almost every blog article you've ever read about small businesses and startups. "Small Businesses are the backbone of the U.S. Economy." Yes. We know. Or do we?
We hear this vague statement all the time, but have you ever actually looked into the facts that back it up? Let's take a look at the numbers behind every politician's favorite line.
Small Business by the Numbers
As of the 2010 Census, there were 27.9 million small businesses registered in the United States, compared to just 18,500 companies of 500 employees or more. Included in that total figure are sole proprietorships (73.2 percent), corporations (19.5 percent), and franchises (2 percent). 52 percent of small businesses are home-based. The most important thing to note? 99.7 percent of U.S. employer firms are small businesses.
We hear all the time that "small businesses create jobs," and it really is true. Although just 21.5 percent of all small businesses are employers, almost half of the nation's private sector workforce (49.2 percent) is employed by small business--that's 120 million people! And since 1995, small businesses have been responsible for creating two out of every three--or 64 percent-- of net new jobs in our country. Accounting for 42.9 percent of U.S. payroll dollars, small businesses drive a ton of consumer spending into the U.S. economy, as well as income tax dollars into our government's budget.
Small businesses also lead the way in terms of tech and new product innovation. In an evaluation of all "high patenting firms," or firms with 15 or more patents in a four year period--a study conducted by the Small Business Administration found that small businesses produced 16 times more patents per employee compared to larger patenting firms. Considering that small businesses account for 43 percent of high tech employment, it's not surprising to note that tech startups account for a significant portion of that innovation.
Reflecting America's Diversity
More and more, small business ownership is reflecting the diversity of the United States. As of 2012, 14.6 percent of small business owners were minorities, compared with 11.5 percent in 2007. This includes 2.3 million Hispanic-American-owned businesses, 1.9 million African-American-owned businesses, and 1.6 million Asian-owned businesses.
This diversity is also reflected in the 36 percent women business owners, and the 9 percent of small businesses owned by veterans. Although we're a long way from small business ownership being equally representative of the American population, this is evidence of the value and potential of the small business economy for minority groups.
Small Businesses Become Big Business
In a conversation about the value of small business for the U.S. economy, we can't leave out this truth--all businesses start small. All of the 18,500 businesses in the United States with 500 or more employees once began as a part of the small business sector. Apple started in Steve Jobs's garage. Facebook got its start in Mark Zuckerberg's dorm room. Home-based, non-employing small businesses become small employers, which in turn become big businesses. So, in a way, one could argue that the American small business economy is the American economy. It's where the U.S. economy begins.
As a caveat, let's keep in mind that the majority of these numbers come from the 2010 Census, or from the Office of Economic Research's 2012 study--which are considered the most accurate numbers reflecting the state of jobs and business in the country. Being that we're coming up on 2015, it's likely that these numbers have undergone some adjustment since then.
However, the Small Business Administration indicates that America's small business economy is growing along with the rest of the recession recovery. Although small businesses may be growing at a slower pace due to lending challenges, that disparity has not been enough to tip the scales. Facts are still facts, and small businesses are still the backbone of the U.S. Economy.