I learned two shocking new things about our industry this week. The first came from our MakingChips featured manufacturing news article from Industry Week which focused on newly released data by SCORE, mentors to America’s small business.
This data showed the majority (98.6%) of American manufacturing companies are small businesses, and 75.3% of those businesses have fewer than 20 employees. I am no statistician, but my husband, who is very good with numbers, tells me that, based on this data a whopping 74.2% of all companies within our industry have fewer than 20 employees. That is three quarters of our industry! This fact was mind-blowing to me, and not at all what I would have guessed.
The second thing I learned is that the US Small Business Administration (SBA) has established size standards which define the largest size a business can be to participate in government contracting programs and compete for contracts reserved or set aside for small businesses. You can find small business size regulations in Title 13 Part 121 of the Electronic Code of Federal Regulations (eCFR).
According to the SBA, a small business is defined as:
- Independently owned and operated
- Exerting little influence in its industry
- Having fewer than five hundred employees
Yes, you read that right: less than 500 employees. Wow - if a company with 499 employees is called a “small business”, what would a company with 19 employees be called? It certainly doesn’t seem fair, to me, to put these businesses in the same category.
Setting my objections aside, I started wondering what exactly it means to be a US small business? I suppose the first thought is that “small” possibly means “inconsequential”. I mean, the SBA says small businesses “exert little influence” in their industry. That seems discouraging.
But what about all those small business owners who, over time, have shaped the world as we know it today: Henry Ford and Thomas Edison; Bill Gates, Sam Walton, Steve Jobs and Michael Dell; Steve Case (AOL), Pierre Omidyar (eBay), and Larry Page and Sergey Brin (Google)? These founders and others have had so much influence on their respective industries that they’ve not only changed the way business is done, but they’ve personally changed the way people live.
Outside of the revolutionary, millions of other small business owners have collectively contributed to our standard of living in the US. Did you know the majority of US workers first enter the workforce through small businesses? Or, that half of all adults in the US are either self-employed or work for businesses with fewer than five hundred employees?
According to Brian Headd, SBA Office of Advocacy, although the split between those working in small companies and those working in big companies is about even, small firms hire more frequently and fire more frequently than big companies. Fortunately, over time more jobs are added by small firms than are taken away, which results in a net increase in the number of workers.
Small businesses in the US are not just known for creating jobs but also for sparking innovation and providing opportunities for women and minorities to achieve financial success and independence.
According to Anthony Breitzman and Diana Hicks, SBA Office of Advocacy, small companies develop more patents per employee than do larger companies. For example, during a recent four-year period, large firms generated 1.7 patents per hundred employees, whereas small firms generated 26.5 patents per employee. That is pretty incredible and it certainly makes me wonder how much the culture of small versus large business influences creativity.
The list of important innovations by small businesses includes the airplane and air-conditioning, the defibrillator, DNA fingerprinting, oral contraceptives, overnight national delivery, the safety razor, strobe lights, and the zipper.
If all this data has your head swimming, I apologize. The data nerd side of me ran a little wild with all this new information. However, here is something slightly more practical that you, as a manufacturing business leader, can latch on to:
The SBA report found a few reasons why small businesses are so successful at innovation:
- They tend to offer environments that encourage talented individuals to invent new products or improve the way things are done.
- They tend to encourage fast decision making, adhere to focused research programs, and reward top performers with compensation.
Overall, the supportive environments of small businesses are found to be roughly thirteen times more innovative per employee than large businesses environments. So ask yourself:
How are you fostering innovation within your company?
How are you encouraging and rewarding performance among your employees?
Many times we look to the large, successful companies to teach us how to be more productive, increase our input, output, or bottom line, and dole out incentives, increases, and other benefits. But what if we are paying too much attention to those large businesses or giving them too much credit? Would it surprise you to know many medium and large businesses are either downsizing to act more like small businesses or creating separate work units whose purpose is to spark innovation?
When I first discovered that roughly three-fourths of our industry consists of businesses with less than 20 employees, I felt bewildered and even slightly worried. However, the more I looked into what it means to be a small business in the US, I changed my position. Today, I am thinking maybe being small is way more powerful than I ever imagined.
One final note: the SBA regularly puts out data related to small businesses and it is worth following them on Twitter @SBAgov or signing up for their email newsletter at https://www.sba.gov. This is one more valuable data resource you can use to evaluate and improve your current culture and structure.
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