November 29, 2014

It’s Not a Recovery for Small Business

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Although the overall economy has been in recovery for more than 16 months, the small business sector hasn’t been included. Since the recession ended in the summer of 2009, measures of the health of small business have either stagnated or weakened.

Consider first what small business owners think about the effect of the economy on their businesses. In July 2009, 29 percent of respondents to the Discover Card Small Business Watch said their business’s economic situation was improving. In October 2010, the figure was 28 percent.

Similar numbers can be seen from the twice-a-year American Express Open Survey of small business owners. In September 2010, 17 percent of those surveyed said that their business risked going under because of the economic climate, up from 11 percent in March 2009, shortly before the recovery began.

It’s not just small business owners’ perceptions that are more negative now than when the recovery began. The government’s numbers show the same pattern. Bureau of Labor Statistics (BLS) figures show that the number of people self-employed outside of agriculture has not come back since the recovery began. A seasonally adjusted 50,000 fewer people were self-employed in September 2010 than in the first month of the recovery.

Business start-up rates among those out of work continue to decline. According to a survey by outplacement firm Challenger, Grey and Christmas, only 3.9 percent of job seekers started businesses in the second quarter of 2010, a much lower percentage than in the first quarter of the recovery, when 11.8 percent sought to found companies.

Small business job loss also didn’t stop with the end of the Great Recession. According to the ADP Employment Report, 560,000 fewer people worked in non-agricultural private sector businesses less than 500 employees in September 2010 than in July 2009.

Small business owners are also investing less now than at the end of the recession. In July 2009, 23 percent of the respondents to the Discover Small Business Watch survey said that they were increasing spending on business development. In October, the figure was 22 percent. In September 2010, only 40 percent of the respondents to the American Express Open survey of small business owners said they planned to increase investment in their businesses, down 7 percentage points from March 2009.

Hiring plans are also headed in the wrong direction. In September 2010, 59 percent of small businesses responding to the American Express Open survey said that they were planning not to hire or cut back over the next six months, while only 48 percent said the same thing in March of 2009, in the last quarter of the recession.

Small business accounts for half of the private sector in the United States. Without a recovery in this part of the economy, growth in the overall economy will be tepid at best. That’s why these numbers have me worried. It is one thing to have seen a worsening small business sector during the recession, but it’s quite another to see backtracking in the recovery.

If economic conditions are getting worse in the small business sector, that’s not a recovery. Another R-word is used to refer to that situation. And I think all of you know what that word is.

13 Comments ▼

Scott Shane


Scott Shane Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool's Gold: The Truth Behind Angel Investing in America ; Illusions of Entrepreneurship: and The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By.

13 Reactions

  1. While I would agree that ‘times aren’t great’ for many, I have to add that the small businesses that I work with, and engage with are not all ‘failing’.
    In fact, many are thriving, many are seeing the best months they have seen in 2 years, and indicating a ‘definite turn for the better’.
    Many are fearful of the political climate, the costs of healthcare, losing tax cuts, etc, but are doing well at this point in time.
    There are a few things that seem to make a big difference however:

    1. They have embraced social media and jumped in to learn how to use it are thriving.

    2. They have refused to sit around and ‘wait for the economy to turn around’.

    3. They have evolved, and adjusted their products and services to adapt to and be relevant in a changing marketplace (this includes more than just pricing).

    More than the economy has changed. The world has changed. The way that people feel about businesses has changed, trust has changed, where people go to choose who to do business with has changed, and how they choose who to do business with has changed. Those who change with it always have and always will do better than those who don’t. I have written more on this here http://su.pr/2XkQft

  2. I like how the Discover Card Small Business Watch and American Express Open Survey are actually talking to small business owners instead of just sifting through mountains of financial data and “declaring” a recovery. Are there any surveys of large business executives that attempt to gauge the recovery more like these small business surveys?

  3. When do you think the economy is fully recovered? Have you seen that small businesses are increasing their efforts to export goods and services to other markets?

  4. Scott,

    I’m in total agreement with you.

    While others say that folks that talk about the small business climate NOT improving are just being “Negative Nancy’s,” I’m with the reality-based school of thought;

    It is what it is.

    Our economy needs help!

    The Franchise King

  5. Hi Scott,
    So what are action steps would you recommend to keep small biz on the right path?
    TJ

  6. I’m still ticked about the big corporate bailouts to help them compete with small businesses on the move… What’s up with that!

    Innovation is threatened and it hurts small businesses when the message, it’s ok to fail because the gov’t will bail you out…

    jake

  7. Good article!
    I see a huge dichotomy in the businesses I talk to – half seem to be in “sit and wait” mode and are afraid to really take any gambles on new growth initiatives. The other half have realized that “the cheese has been moved” and are looking for ways to embrace the internet in every possible way to get in front of a dwindling customer base.
    I truly believe this second group will survive through education and we are actively trying to help them. My team spends a lot of time these days helping companies understand how their business model and customer demographic aligns with various internet marketing strategies.

  8. I wonder why small businesses are treated like untouchables these days when every big thing you see today started being – small. I guess, many are missing the chance of having the next innovation that can improve lives simply because no one took the risk on an idea that can really work. Perhaps, there’s a conspiracy theory somewhere? Maybe, it’s all in the name of preserving big brands out there who are in a constant threat from an idea formed in someone’s garage. Strange.

  9. Can small business owners think “out of the box”? If a company is involved in the Internet, it’s not a problem, they know what to do. For other small businesses it’s a problem. Let’s face it, the Internet is what is driving business success today. Many businesses don’t have the knowledge or resources and do nothing.

    Drachsi

  10. As a small business owner this article is right on target. I feel like we have been hanging on to the end of a rope for a very long time. I actually had to speak with a bank rep about getting some help with my business’ financial situation and was asked if I had any colleagues who could ‘help me out’. I had to stifle a laugh with that one!! We are all in the same boat, and it is sinking!

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