When thinking of the word ‘business,’ what comes to your mind? Big offices? People in suits? Conferences?
Our brains tend to be drawn toward the corporate world with its big companies and cutthroat competition.
As business magnate Richard Branson once said, “A big business starts small.”
What Is a Small Business?
A small business works on a small scale, with few employees and fewer capital investments and generates revenue on a relatively smaller scale than big businesses.
Several criteria come into play when determining what is considered a small business, such as the number of goods and services produced, profit earned, investment, number of employees, size of the firm/company and much more.
Furthermore, these parameters depend on the business, industry or field. A business considered large in one sector may be considered small in a different sector or economy.
Why Are Small Businesses Important?
Both big and small companies, firms and industries have functions that they carry out according to the nature of their respective businesses. What is different is only the scale at which they operate.
The importance of small business is undeniable. Although small businesses are smaller, as the name suggests, they serve several important purposes.
But, it is not good enough to agree with the fact that small businesses are important. Taking a closer look at their impact and influence is necessary to truly understand the ‘WHY‘ in the question ‘Why are small businesses important?’
1. A Foundation for Large Businesses
Most things start small and are built upon. The same goes for businesses. The goal for any business owner is to have their goods and services reach as many people as possible.
A small business is a starting point for the company to grow eventually. Once the foundation is laid, the sky is the limit!
2. Resources for Large Businesses
Small businesses benefit from larger ones because they provide goods, services, raw materials and resources needed by the big companies, firms, factories, and industries to further carry on with their work.
Small businesses also help in outsourcing. When large companies or firms outsource services, they often look to small businesses or industries for the same.
One of the reasons for this is cost efficiency. The outsourcing services provided by smaller companies also the larger businesses to hire them to take on small jobs or tasks in an overall project.
Small businesses provide independence to their owners. Small business owners can make their own decisions with little to no interference from others.
Such autonomy allows for flexibility in decision-making, the number of working hours and risk-taking. It also allows for rapidity in any changes and improvements that need to be made.
For example, a small business owner selling baked goods from home can bring about a change in her menu when she feels the need for it without having to go through tedious paperwork and several approvals at various stages.
This independence and autonomy are also why people often choose to start their own business rather than work a job.
4. A New Beginning
For young, ambitious entrepreneurs, a small business is a new beginning. Those with special talents or innovative products and ideas can apply them in an entrepreneurial setting to create a business that allows them to apply their skill and earn an income through it.
Social media has become a great platform to advertise products and gain more publicity and customers. The past two decades have seen great progress in technology and innovation.
Social media apps such as Facebook and Instagram allow small businesses to reach millions of people rapidly, making marketing a lot easier, especially for those with limited resources.
Establishing a small business from home is a great way for one to step into the business world, understand business functions and learn what it takes to play the money game.
5. Employment Opportunities
5.1. Percentage of Employment
Small businesses help create new jobs. According to the International Labour Organisation (an agency of the United Nations), small businesses account for over two-thirds of the jobs worldwide. This means that they are responsible for the majority of job creation.
In India, small businesses fall under the regulation of the Ministry of Micro, Small and Medium Enterprises. Micro, Small and Medium Enterprises (MSME) make up around 40 percent of jobs.
According to the latest National Service Scheme Report (73rd NSS Report), around 11.10 people work in the MSME sector.
In the United States, a small business has less than 500 employees. According to this parameter, the employment percentage of small businesses in the US is around 62-64 percent.
Thus it is safe to say that although small businesses may be smaller in scale, their contribution to job creation is quite large.
5.2. Creating Meaningful Jobs
Small businesses not only provide job opportunities but rather create meaningful jobs. Meaningful jobs go beyond just making money. They allow the employees to feel value and a sense of purpose in what they do.
Meaningful jobs created by small businesses have positive real-world impacts. These jobs range from health care to education. This impact also incentivizes employees to take on further meaningful work and motivates them to perform better.
Creating meaningful work, known as ‘Good Work,’ has been an important area of study for Industrial and Organisational Psychologists for many years.
Small firms and companies make communication among employees easier. Due to the small number of employees, employee-to-boss and employee-to-employee communication are quicker, unlike in large businesses.
Quick communication helps the company make faster decisions and make necessary improvements which ultimately prevent any future losses that might have taken place due to miscommunication and mismanagement.
A positive and healthy work environment is of utter importance for companies if they wish to keep their employees happy, productive and motivated. This has been a major goal for both small and large businesses.
There has been a positive trend of small businesses and large corporations focusing beyond the monetary benefits of their paid employees on other non-monetary incentives, such as job growth, extra leaves, and flexible working hours.
In the case of small businesses, the less number of employees proves to be an added benefit. Small businesses can easily foster a sense of community due to their small size, making their employees feel like they are part of something larger and more meaningful than their work and salaries.
8. Importance to the Local Economy
A local economy is an economy that relates to a particular geographical area, often used in the residential area we are a part of.
A small business set up in a certain area is referred to as a local business of that area as it becomes linked to the people and the economy there in several ways.
A small business set up in a local area benefits the people and economy of that place both directly and indirectly.
8.1. Local Taxes
Small businesses pay local taxes to the government to carry out their economic activities and earn profits. The government uses the tax dollars for the growth and development of the local area and the community members.
With an increase in revenue of a business, it will pay taxes at higher rates, and thus the government will be able to spend even more money. In this way, local businesses indirectly spend money on local communities.
8.2. Local Employment
A direct way small businesses tend to impact the local economy is by creating employment for the local community members.
When small companies, local restaurants and small-scale industries are established in an area, the demand for employees and workers is generated. Often, employers look to the locals of the area for employees.
Local workers are the people that live in that area. A small business firm may not have the extra money to spare on the additional cost of the transportation of labour and raw materials. So, the company can save on transportation costs of the labour force by hiring locals.
Hence, this becomes a two-way street where the company gets cheap labour, and the people of the local community receive employment opportunities.
Financial success in the global economy and its cut-throat competition depends on several things. One of these is innovation. Originality and innovation in the goods and services businesses provide set them apart.
Such innovation is often dependent on the local community itself and is something the big corporations and their employees may be unable to provide.
For example, someone looking to start a small business of traditional Rajasthani handloom and cloth would ideally set up their business in Rajasthan. This is because producing such an authentic and intricate handloom and cloth requires a community of workers who are experts at the craft.
Hence, many small businesses tend to be set up not only based on convenience or the presence of raw materials but also on how easily the right workforce can be obtained to enable innovative ideas to be executed in the best way possible.
9. Healthy Competition
Small businesses are important in fostering a sense of healthy competition among companies.
When a small business is set up in a particular area, other small businesses and companies view this as a source of competition.
Competition among businesses and companies acts as motivation for improvement. Improvement in relations with current buyers, connecting with potential customers, studying other businesses to formulate their marketing strategies, improvement in the small business administration, and quality control are just some of the measures taken by small businesses in a competitive environment.
10. Economic Growth
Economic growth is the increase in the value of the goods and services produced in an economy. The increase in the value of these goods and services increases the country’s overall wealth.
The economic growth of a country is generally measured in terms of its GDP, the Gross Domestic Product. A country’s GDP is the total value of all goods and services produced over a given period, usually one year.
10.1. So How Do Small Businesses Help Economic Growth?
The Small Business Association (SBA) report claims that small businesses account for almost 44 percent of the GDP of the United States.
Although a single large business may generate higher revenue through its business functions and production, small businesses continue to contribute in large amounts to the total GDP of a country as well.
As revenue generated by small businesses contributes directly to the economic growth of a nation, factors such as the creation of new jobs, a focus on local communities, payment of taxes, and gradual expansion all indirectly help the small business achieve financial success on an individual level and help the economy grow as a whole.
Supporting Small Business Owners
We now know that small businesses are vital for local economies and global markets. Hence, to ensure that they don’t lose their essence, lost in the shadows of larger companies, and get the due attention they deserve, it is important that we, as consumers support small businesses and small business owners.
How can this be done?
Identify The Small Businesses In Your Community
Take a closer look around your community. Small businesses are everywhere!
Local restaurants, the grocery store beside your house, your friend running her home bakery, and so on all count as small businesses, and the people that own them are small business owners.
Social media has made it possible to discover small businesses outside our communities. We see advertisements, posts, stories and reels all the time of people sharing their small businesses with the world.
Your Role As a Consumer
The best and most direct way to support any business is by becoming a consumer. Especially for a small business, each customer is very valuable. Smaller businesses thrive by building strong relations with their customers, and small business owners take customer feedback and loyalty very seriously.
Thus, look for small firms and companies in and around your locality when in need of a particular good or service. In this way, you support not only a single small business but also your community.
A Perfect Harmony
Whether big corporations or small businesses, they all have significant roles and places in the economy.
While big businesses facilitate foreign trade, attract tourists, and influence the world economy, small businesses create platforms for innovation, provide job opportunities, and support local economies and other local businesses.
Both these kinds of businesses also work together in many areas, such as creating new jobs, providing services and goods, balancing the demand and supply, and much more.
As consumers, employees and members of the economy, we must ensure that we understand the importance of small businesses and that they can work in harmony with the big businesses for maximum economic growth and development.