Big corporations and small businesses have an uneasy relationship. We've all heard the stories about Wal-Mart pushing mom and pop stores out of business, or the local bookshops that have been forced to close because they can't compete with the prices on Amazon.
It's true: Corporate giants love to take market share away from the little guys. But, the uneasy fact they don't like to consider is that they need these small businesses to succeed. Especially in our current economic environment, small business growth will help corporate America reap higher profits in many different ways.
Small Businesses Create Jobs
Big corporations need lots of customers. Those customers need to have money and, more often than not, that money comes from jobs at small businesses. Small businesses (defined as companies with less than 500 employees) create 64 percent of new private sector jobs.
The United States economy has been in recovery for almost six years and, while we're in better shape now than we were in 2008, economic growth and employment is still sluggish (and maybe for a long time). Some of that can be blamed on declining entrepreneurship and the fact that fewer job-creating businesses are being started.
If the Apples of the world want to keep their impressive growth trajectories going, to at least some extent they better hope more small businesses spring up and start paying employees enough to buy iPhones.
Small Businesses Drive Innovation
As the rate of technological advancement increases, our economy is more and more dependent on innovation to fuel growth. Innovative businesses increase productivity, solve pressing problems and create valuable new products that enrich our lives and stimulate consumption.
Many of us think of research laboratories at massive corporations as being the home of innovation, but, again, it turns out that small businesses often do it better. In fact, they produce 16 times more patents per employee than large companies.
Small Businesses Are Important Suppliers
Not only does corporate America rely on small businesses to create new consumers and technologies, it often relies upon these small businesses for its supply chain. Even the biggest companies are usually counting on several different smaller businesses for important components.
For instance, take a look at consumer staples giant Procter and Gamble's list of top suppliers. On the list, you'll find small businesses with about 200 employees like Pennsylvania printing company Superpac, Inc. and even startups with less than 50 employees such as digital coupon supplier Cellfire Inc.
The global economy is a vast and complicated network and, while the corporate giants out there serve as major hubs, they depend on the vast army of small businesses to connect them to the technologies and resources they need.
Small Businesses Are Key Customers
In addition to playing a key role in helping big corporations get their products to customers, small businesses often end up being an important part of corporate America's customer base. They use computers from Apple or Dell, rent construction equipment from Caterpillar or Deere, buy software from SAP or Oracle and pay for it all with credit cards from Visa or MasterCard.
Recent data suggests that up to 60 percent of small business owners are making outlays on capital spending, the highest number since the recession. With that increase in spending, it's no wonder that big financial institutions like J.P. Morgan are targeting small businesses as a priority.
Corporate America needs small business. They need it to keep growing so that it can hire more employees, push the pace of innovation, supply new materials and products and increase its rate of capital spending. Big companies might try to push out the little guys in certain cases, but more often they thrive on working together.