On Small Business

     So one thing I have been reading as of late in some publications on small business that I hadn't thought of before, and that I think many don't take into consideration, is that the definition for "small business" in our nation is over-simplified. Now I was well-aware of this regarding the term "entrepreneur" from the author Michael Gerber. Gerber writes in his book "The E-Myth" about how most small businesses in America are not started by people who could truly be called entrepreneurs, as they aren't started for entrepreneurial reasons by most people.

     The average person starting a gas station, opening up a small store, opening up a restaurant, opening a dry cleaners, etc...isn't starting said business for entrepreneurial reasons, i.e. identifying a need in the marketplace, then seeking to fullfill that need in a very efficient and effective way. Instead, for most such people, generally starting a business is about just being able to make a decent living for themselves or because they just want to work for themselves and get away from their jerk of a boss. It isn't necessarilly about whether or not an actual "need" exists for such a business in the marketplace.

     But just as many people misunderstand the term entrepreneur and what it really means, we also as a result misunderstand small business in America as well. For example, it is often stated about how small business is the major, or at least one of the major, job creation engines for our economy, how small business is a major source of innovation for our economy, how tax credits should be aimed at small business to incentivize them to hire more people and grow, and so forth.

     The problem with this argument is that it completely misses that not all small businesses are started/owned/operated by people who could be defined as entrepreneurs. For a great many small businesses, maybe even most small businesses, things like innovation and growth are not what the owners are after. The average store owner or gas station owner, for example, is not out to completely shake up and re-form their industry. IF ANYTHING, change is something they fear, as it could mess up their business. They don't want change, they want security. They want the ability to have a decent retirement, send their children to college, and live an okay lifestyle. So the idea that small businesses are responsible for a lot of innovation, well that would likely be only a small portion of the total number of small businesses that exist in the country. Probably your various technology startups, certain franchise startups, and so such.

     On job creation, it also means a problem. When new small businesses are started, yes it can mean job creation for the economy from those businesses that are successful, but this job creation will be limited as the business is not likely going to grow that much. The owner only needs to hire an adequate number of employees to be able to run the business. So when it comes to something like tax cuts, this creates a problem. Because small businesses that already have an adequate number of employees are not going to hire more than they need, no matter what the tax cut. If a restaurant needs ten employees, the owner isn't going to hire additional employees that aren't even needed just because they get a tax cut. This is something that policymakers seem to miss however, due to the oversimplification of the term "small business" in trying to create ways to incentivize economic growth.