Why Small Business IS a Local & National Economic Stimulus

The most current LMCI numbers from Texas Workforce Commission for small business ownership in the Austin – Round Rock Metropolitan Statistical Area or MSA (which actually goes from Georgetown to San Marcos) are encouraging. As of the latest data (December  2017), there were over 47,800  firms. Of these these micro businesses, businesses under 20 employees, represent more than 41,000 firms  (about a 1/3 more than the 2009 number of 29,500 firms discussed in this original post) and the number continues to grow. (BTW, there are currently only 232 firms with over 500 employees in this same area.)

This is not unusual. When people get laid off sometimes their only option is to create a job for themselves by starting a business. And the Austin area has been extremely supportive of this. As a matter of fact, it has been used as a major way we have been able to work ourselves out of recessions – nine that I know of since we started in 1982.

Starting a business can be easy and tough. The success rate for small businesses surviving the first two years is at 66% according to the SBA and  according to the Bureau of Labor Statistics (2014) about half survive five years, and one third ten years or more. A good sign. It’s easy because the person knows how to make the product or provide the service. Tough because that isn’t all they have to do now that this is their business. When they had a job, there were others to take care of all areas of the business that were not “their job”. As an owner, now they are responsible for everything including areas they may or may not have experience with or like to do. And, it can be rough going. According to the SBA’s latest report  (FY    2016  released in 2o17)  most of the employment in small business is in firms under 100 employees.

In tough times, existing small businesses can also have tough times because owners are not running them right either. They just go from project to project. They look at their check book to see if they made any money and they don’t fix the problems. They are too busy “making the donuts” to stop, really look at what is happening to them, and make adjustments. Or, maybe they are afraid to look because of what they might find.

The result for both startups and existing businesses can be missteps, missed opportunities or disasters. Failure rate (defined as closing the doors owing money to others) currently is running about 10-15%, about the same as it has been over the years. Usually the causes are inadequate or incorrect financials and the negative impact  on marketing/sales. Not knowing the true total cost of overhead, not just the products and services you provide, means you under price and over promise. Or, worse you sell the wrong things to the wrong people. The last buggy-whip makers might have cornered the market when cars first became popular but they aren’t still around unless they watched and adjusted their financials as well as added other products or services.

Startups and existing small business owners must look at what they are doing and how. They must get and keep their financial house in order. Not just focus on getting more sales. Now more than ever, this is too important to let things go and just hope everything will turn out OK.

It is also too important to the entire community no matter where that business is located. Starting, retaining, and growing small businesses is the best economic stimulus for everyone.  Most new jobs come from those of us who own a small business. Most people returning to work or first time job seekers, start by getting a job with us. This is the way to create good wages for owners and employees. This is how yet undreamed of products and services are created. By the federal Small Business Administration‘s own research, small businesses are 10 times more innovative dollar per dollar than big business – why because we have to be. So, let’s get our act together. They represent 63% of the net new jobs; account for 48% of private sector  employees and 41% of the payroll. Our future depends on it.

As author, attorney and economist Michael Shuman suggests in his books, local economics matters.  If you took the money incentives that are offered to bring big firms, like Amazon, to a community and gave it equally to the existing local small businesses, the tax value and new employment opportunities would be significantly more. He also says if communities just took their recruiting money and gave it locally, the payback would still be higher.  For more on his approach to local economics, read The Local Economy Solution: How Innovative and Self-Financing Pollinator Enterprises Can Grow Jobs and Prosperity and Local Dollars, Local Sense: How to Shift Your Money from Wall Street to Main Street.

Share your experience. What are you doing in your business to keep an eye on your true costs? What adjustments have you made or are you planning to make? What suggestions do you have for other owners?

Take Action: Keep up with current business trends by subscribing to LCMI. It’s free because your taxes have already paid for it. To receive their data on Texas and any MSA, send an email to lmci@twc.state.tx.us. It has terrific information on all sizes of business as well as employment numbers and trends.

Flag photo by: jstephenconn