Small Businesses Will Be Key For The Economic Recovery

I'm an eternal optimist when it comes to the ability of people to create innovations – especially when we find ourselves at our greatest need.   This drive to solve problems is a prime catalyst for entrepreneurs who are the ones behind small businesses.

So are entrepreneurs better at innovating than large enterprises with all of their resources?

In simple terms …. yes!

A Chi Research report prepared for the Small Business Administration (SBA) highlights the innovation output from small businesses.  Specifically:

• Small firms produce more highly cited patents than large firms on average. Small firm patents are twice as likely as large firm patents to be among the 1% most cited patents.  That is, small firm patents are on average more technically important than large firm patents.
• Small patenting firms produce 13-14 times more patents per employee as large firms.
• Small firm innovation is more extensively linked to outside technology while large firms build more on their own technology.

Small businesses patents are twice as likely as those from large firm to be among the 1% most cited.

Phil McKinney

This is confirmed by examining the patents with the highest citation indices. Small firms account for 6% of the patents issued to the 1,071 most innovative firms. But when these patents are ranked by citation index, we find that small firms account for:

• 8% of the top 10%,
• 9% of the top 5%,
• 14% of the top 1%.

Thus, a patent from a small firm is more than twice as likely to be found among the top 1% highest impact patents than is a patent from a large firm.

In addition to the ability of small businesses to generate innovations, they also are the leading creator of jobs. According to a recent report released by the Office of Advocacy of the U.S. Small Business Administration (SBA), small businesses created 1.9 million jobs in 2004, – the most recent year for which job creation was studied.

Other notable statistics from the report include:

• In 2006, the nation had an estimated 26.8 million small businesses, of which 6.1 million were employer firms which means 20 million small businesses in the country have no employees (self-employed).
• Small businesses employed 50.9 percent of the nation’s non-farm private workforce in 2004.
• Women-owned firms totaled 6.5 million and generated $940.8 billion in revenues in 2002 (latest data).

Go small businesses!!  We are depending on you to be a key catalyst for the economic recovery.

Note:  I know that this is clearly a US centric view.  I would welcome comments from non-US readers and how this view does or does not apply to their country/region.

Source: SBA Research Report