Most of the statistics taken recently have conquered that small businesses are driving economic growth. However, it helps to know the overall performance and relationship of micro-businesses and economic growth in different cities. And with the contribution small firms are making in the economy, should local governments pay more attention to supporting start-ups?
According to Schumpeter, entrepreneurship is the primary driver of economic development. Coming up with innovations that challenge existing companies, entrepreneurship fosters ‘creative destruction’ and the momentum to rise above stagnation. Apart from the post World War II blip that led to the change of ownership business, small businesses have practically driven a big part of the economy throughout America’s history. And while it may look like a piratical outlook of the economy, it all seems to sum up our present-day economy.
As we speak, startups, freelancing, co-working and disruptive innovation have become a day to day trend. Not even the best efforts state and federal governments who would rather procure from well-known large suppliers have matched up to the performance of micro-business. For instance, in 2016 99.3 percent of companies in the private sector businesses were startups. 99.9 percent of these firms were small or medium-sized. According to the Market inspector, SMEs (with less than 250 employees) make up 60 percent of employment in the United Kingdom and 65-80 percent of jobs in the U.S.
Digging deeper, we realize that micro businesses are playing a more central role. Micro-business Research Portal disclosed 5 million of such entities in 2015, and they make up 96 percent of the entire U.K. business sector. Freelancers have also been on the rise with the U.K recording almost two million entrepreneurs freelancing as their core job. In fact, IPSE reported a 43 percent rise in the percentage of freelancers between 2008 and 2016. On the same line, by 2005 freelancers had made a third (42.6 percent) of United States’ workforce. Predictions by Guardian point out that by 2020 they will make up 40 percent U.S. workforce.
However, is the much celebrated micro-business growth about economic dynamism or is it a sign of a shaky market?
The fact is; the smaller an entity, the less the turnover. Even with the increase in micro businesses they only account for 18 percent of the total private sector revenue. And according to PayPal, most U.S-based freelancers earn less than $30,000, and it has become a necessity; not a choice! According to IPSE, working mothers form one in seven of U.K freelancers, a fraction that rose by 79 percent between 2008 and 2016.
We can therefore say that small businesses are rising against all the odds. Despite recognition of larger entities, micro-business are the real drivers of the economy.
Author Bio:As an account executive, Michael Hollis has funded millions by using alternative fundingsolutions. His experience and extensive knowledge of the industry has made him a change of ownership business expert at First American Merchant.