The New Entrepreneurial Economy

The American economy is becoming more entrepreneurial. The ranks of small businesses, entrepreneurs and self-employed indviduals are growing at a fast clip.

Interestingly, this issue has become a hot political potato during this election year. Debate is swirling around the government’s “Payroll” numbers and the “Household” numbers. Some are suggesting that the Payroll jobs numbers are understated because they do not reflect the large numbers of self-employed and entrepreneurs. People who are far more schooled in economics than I are debating the issue, so I won’t attempt to argue the numbers.

But, setting aside economic theory and election year politics, it seems pretty clear from where I sit that the American business landscape is more entrepreneurial, as this commentator notes:

“Every one of us … knows that our economy is changing. More and more, it is being driven by small business and entrepreneurial activity. The nature of employment is changing dramatically as well, spawned by a huge shift toward self-employment, contracting, and consulting.

Contracting is an interesting phenomenon in employment. As firms responded to the recession by restructuring, they frequently replaced employees with contract workers — often the same people doing the same job, just not on the official payroll. Or these highly trained workers took other work, again not as employees but as consultants.

For example, my brother was laid off two years ago from Reuters. He now “works” for Disney as a consultant with better wages and better terms. He gets a check from Disney; it’s just not a paycheck. The significance of this is that this phenomenon is increasing dramatically….”

Why is this happening? I think there is no single reason you can point to, but a combination of factors:

  • Large corporations want to be leaner and meaner, and so they are outsourcing functions rather than staffing them in-house. The rising cost of benefits, especially health insurance, is part of what’s driving this trend. Other factors include the difficulty and expense of terminating employees in our litigious society, and the lack of flexibility to reduce costs during lean times. And then there is the increasing complexity of business, requiring pockets of expertise that would be difficult or inefficient to staff internally.
  • It’s easier than ever to start your own company. Just about anyone who can afford the filing fee can become the CEO of their own limited liability company, thanks to the Internet. You can check whether a company name is available online, download the LLC forms, spend a few minutes filling them out, mail them in with a check and — voila! You own a company. Blogger Bill Hobbs has been tracking the increase in LLC filings by state, and the numbers show record LLC filings in most states during 2003.
  • An aging baby-boomer population is finding itself better situated to be self-employed or business owners. We could call the new millennium “the age of the consultant.” As our population ages, many are at a stage in their lives when they value being their own bosses more than regular paychecks. And they have the financial wherewithal to become business owners rather than employees.
  • Even small businesses are outsourcing. Think a one-person business is too small to outsource? Not so — many small businesses are “virtual companies.” Nearly every entrepreneur and small business that I know (and I know dozens) outsources something — usually to another small business, consultant or entrepreneur. My own business is no exception. Last year my company outsourced to more than 11 small businesses/consultants. You can even find advice on how to outsource if you are a very small business.

The American business landscape is changing. It’s very much related to this concept of the business ecosystem: businesses that rely on a network of partners, suppliers, consultants, and others.

Anita Campbell Anita Campbell is the Founder, CEO and Publisher of Small Business Trends and has been following trends in small businesses since 2003. She is the owner of BizSugar, a social media site for small businesses.