This is the first column in a series by SBA Administrator Karen Mills for On Small Business. Check back to the site each Monday for the latest entry.
Who are America’s job creators?
The answer to that question is critical to building on our nation’s economic momentum and ensuring America’s long-term global competitiveness.
Today, there are more than 28 million small businesses in the United States, and those firms create two out of every three net new jobs and employ half of America’s workforce.
But when you dive into the data you see that not all small businesses are the same.
Some are start-ups that are poised to revolutionize their industries. Others are innovative small suppliers that make large corporations more productive. There also are the Main Street businesses that are critical to our communities and the sole proprietors who have used their experiences to launch their own firms.
Each of these types of companies has specific needs and motivations, and every one impacts our economy in different ways.
At the U.S. Small Business Administration (SBA), we have worked to crack the small business code—and to develop more robust data about who these job creators are and what they need to succeed. This allows us to make sure that small business programs across the federal government are tailored, targeted and effective.
We’ve identified four distinct types of U.S. small businesses:
Sole Proprietorships: The vast majority of U.S. small businesses are sole proprietorships, which are responsible for 23 million American jobs and reflect a diverse and important array of professions from consultants and IT specialists to painters and roofers. Recent research shows that sole proprietorships are achieving record profit margins—and the number of these businesses will continue to grow as technology allows more geographic flexibility and baby boomers look to open their own firms.
Main Street: Of the remaining small businesses, approximately 4.5 million are Main Street small businesses. These are the dry cleaners, mechanics and medical clinics that form the fabric of our communities. Main Street businesses make up nearly 70 percent of the jobs in our country. The SBA is a lifeline for these businesses, particularly when it comes to loans and advice.
High Growth: A small set of approximately 350,000 start-ups and high-growth firms punch above their weight when it comes to job creation. For example, start-ups account for just three percent of U.S. employment, but they are responsible for 20 percent of gross job creation. In addition, a study by the Bureau of Labor Statistics (BLS) showed that over a recent three year period, fewer than 80,000 high growth firms created 34 percent of all private sector jobs.
We continue to ask the question: How can we help these high-growth entrepreneurs transform their innovative ideas into businesses that create more American jobs?
Suppliers: One of the most interesting segments we identified is the approximately 250,000 to 750,000 small businesses that are part of commercial and government supply chains. Studies show that being part of a supply chain can help take a business to that next level. In fact, suppliers reported revenue growth of more than 250 percent just a few years after selling their products to a large corporation and employment increased by more than 150 percent on average.
A robust network of small suppliers also is important to the long-term competitiveness of large U.S. corporations. As Harvard Business School’s Michael Porter and Jan Rivkin noted in Fortune Magazine, strong supply chains bring “low logistical costs, rapid problem solving and easier joint innovation.” A dynamic U.S. supply chain also can be a determining factor when companies are considering moving production back to the United States and using particular regions of the country as export hubs.
Starting on Monday, we will post a series of blogs on On Small Business laying out a comprehensive plan to support and grow each segment of America’s small businesses, and we will be exploring how a robust emphasis on entrepreneurship can fuel economic growth and create more jobs. Our goal is to ensure that more entrepreneurs in more regions of the country have the access and opportunity they need to start a business, grow their operations and hire more workers.
Check back to the site each Monday through the beginning of May for the latest entries in our series.
Karen G. Mills is the Adminstrator of the U.S. Small Business Administration. Mills was appointed by President Obama in 2009 and has served on his cabinet since 2012.