Small businesses drive our economy — and yet, they’ve gone missing. Historically, we’ve come to expect the creation of around 600,000 new businesses a year. While the Great Recession took those numbers down, economists anticipated we’d grow back to those previous figures. Instead, we’ve hovered around the 400,000s. Only a fraction of those new businesses end up surviving beyond a year or two.
This is a problem. Though the number has fluctuated, the percentage of new jobs created by small businesses has hovered around 40 to 60 percent for a couple decades. Startups and small businesses also tend to be more agile, enabling them to innovate more. And the turnover rate is actually a good thing — it keeps fresh ideas and fresh talent in circulation. Also, well, every new big business has to first start as a small business.
Small businesses aren’t facing a major crisis — at least not yet — but there’s definitely something stopping us from creating and nurturing more small businesses. Here are some of the major contributing factors:
1. Exaggerated fears. Have you heard that 60 percent of restaurants close within their first year of opening? It’s easy to believe, especially with anecdotal evidence: You see a lot of restaurants opening and closing in your area, confirmation bias takes hold, and you end up believing that restaurants are an exceptionally risky business venture.
The real number, however, is closer to 20 percent. Yes, 60 percent actually close within three years of business. But one of the biggest problems is banks refuse to lend money to restaurants because they perceive more risk than there is, which leads to an ongoing cycle of limited capital, which leads to business failure.
This same principle applies to a number of different industries, and even to entrepreneurial experience. New entrepreneurs are inexperienced, and are less likely to get funding. But because they never get funding, they never have the chance to gain entrepreneurial experience.
2. Walmartization. Americans are increasingly favoring chains and big businesses over small and local businesses, in a process known colloquially as Walmartization. Large chains…