What comes to mind when you think of small businesses? Maybe the family-run restaurant in town. Maybe your colleague has set up an Etsy shop that makes them an extra couple hundred a month. Surely the big-name brands dominate the marketplace, right?
Small businesses have a much bigger impact than you might initially think. Nearly half of U.S. employees work for small businesses and even the turbulence of recent years hasn’t slowed down the small business economy—last year alone, over 5 million new businesses were created. It’s undeniable that the US economy has a lot to thank small businesses for.
While economic uncertainty, mass redundancies, and the changes in priorities people experienced post-pandemic led to many people setting up on their own in recent years, digital transformation has also supported the rise in small businesses. Digital marketing, online shopping, remote working, and continued digital transformation have helped self-employed people and small businesses to operate successfully.
So, how important are small businesses to the economy?
3 Reasons Small Businesses are Essential to Our Economy
Small businesses are the lifeblood of the U.S. economy as they create new opportunities. That’s new opportunities for jobs, new opportunities for innovation, and new opportunities to serve niche communities. Operating with agility and the ability to adapt quickly, small businesses have an important role to play in society.
1. Small Businesses Drive Economic Growth
With the recent onset of a recession as a stark reminder of how important a growing economy is, small businesses play an essential role in keeping things running smoothly as they are responsible for 44% of U.S. economic activity. This economic success doesn’t only benefit business owners but also leads to team expansion and new roles. In fact, 62% of the new jobs created between 1995 and 2020 were created by small businesses—more than large enterprises!
That’s a staggering impact that benefits the people in the local community. As well as supporting the local community with the creation of jobs, small businesses often source their supplies from the local community, boosting the local economy once again. This is an easily traceable and low carbon footprint supply chain that larger businesses that operate on mass just can’t compete with.
Speaking of large enterprises, small businesses keep them on their toes. While well-known brands tend to have better brand awareness, recognition, and trust, small businesses are still strong competition. They have a unique perspective that drives innovation and are more personable, enabling them to build strong relationships with customers. Due to small businesses innovating, large enterprises have to innovate too if they want to maintain their market share. This produces better options for the target market all around.
2. Small Businesses Offer a Diverse Range of Products and Services
By nature, large enterprises operate on a large scale. So, they won’t implement changes unless it is appealing to a broad customer base and viable across area-wide, state-wide, nationwide, or even international locations. They are often limited to being generalists meaning they can’t appeal to the locals in the same way small businesses can. That’s a major pitfall as about 50% of customers have switched to a competitor that was more relevant and met their needs better.
Small businesses can leverage the power of niching by focusing on meeting the needs of, marketing to attract, and nurturing their relationship with a specific target audience. That could be a local community with specific needs that brand names aren’t meeting. Or they could leverage globalization and digital transformation by appealing to a niche market that doesn’t have large numbers locally but does on a wider scale and will interact with the business online.
A niche market that has grown in demand recently is eco-conscious shoppers. Big supermarkets tend to be slow in the uptake of new innovations like sustainable products. But by looking online these consumers can find plenty of options for making their home more eco-friendly such as Bee’s Wrap, which offers sustainable food storage options to cut down on plastic usage.
Specificity is profitable. You only have to look at the rise of personalized marketing, enabled by the technological development of data-driven segmentation, as evidence of this. In the age of information that can lead to marketing overwhelm, direct marketing that speaks to a certain niche cuts through the noise. By adding diversity to the products and services on the market, small businesses give consumers the power of choice.
3. Small Businesses are Resilient and Adaptive
Small businesses can use their small scale to their advantage. They can adapt to changes in the market, come up with an action plan for overcoming economic downturns, and meet new demands with speed and efficiency that isn’t possible in a large enterprise.
This agility was put to the test during the Covid-19 pandemic. While 9.1 million jobs were lost in the first two quarters of 2020, small businesses created 5.5 million jobs in the following four quarters, recovering 60% of jobs lost. That’s quite the bounce back, and it shows how well small businesses can adapt to new circumstances and return to serving their customers.
For example, Battery Watering Technologies only had 50 employees at the onset of the pandemic. They were able to keep all of them working by using the equipment they had to operate in the battery sector to start making face shields which they sold through an e-commerce website. It was a massive success that led to sales of 6,000 face shields a day.
Such adaptability leads to a high level of resilience. It’s not just once-in-a-lifetime pandemics that resilience protects the business against, but the fast pace of technological developments as well. To keep up with innovation and continue to meet customer expectations, digital transformation is a commitment all businesses need to make and small businesses have the advantage of implementing developments much faster.
There is no time like the present to be a small business owner. Thanks to digitalization, it’s possible to set up a venture with little investment, just a laptop. Potential clients are more responsive to working with small businesses with the rise of remote working and reliance on innovative digital tools, leading to a change in working styles and expectations.
Digital marketing is an accessible way to get customers and digital tools help businesses to deliver an excellent customer experience. For example, our text marketing tool. Globalization means small businesses can niche down to compete with large enterprises without losing out on numbers.
The bravery of entrepreneurs who are willing to set up on their own is very much needed as the U.S. economy relies on small businesses for jobs, economic growth, and competition to drive development maintaining the power of choice and high standards for consumers. Their adaptability positions small businesses as leaders in innovation and resilience against change.
Has all this got you tempted to start your own small business? We’ll teach you everything you need to know to turn your idea into a thriving business—a win for you and the economy. Explore our Beginners’ Guide to Starting a Business.
