In the U.S., there are more than 27 million small businesses with countless individuals working hard to grow their companies and create jobs in their communities. They are important to the economy for many reasons.
They tend to invest heavily in local services like contracting, advertising, and printing services, which have a multiplier effect on a local economy. Plus, they often provide job opportunities for friends, family members, and neighbors who may not have anywhere else to find work.
Everyone from politicians to employees knows that small businesses are important, but few see all the reasons why they are so important. In this article, we look at some of the benefits of operating a small business and how they help the economy as a whole.
Create Local Jobs
At the core of every thriving economy is job growth. Companies that have the capacity to hire will typically hire at least some of their employees from outside sources in the community. This is how companies expand into new areas and scale their operations. To expand, companies need more people to do the work and hire accordingly.
All of these employees are considered part of the business’s contribution to the economy. Having more people employed means that they can spend money on goods and services from other businesses. This cyclical nature keeps the economy functioning, and can even lead to economic growth as companies grow.
While larger corporations also hire employees, SMBs are more likely to hire people on a regular basis. This is because making the jump from one employee to 10 employees takes much less capital and resources then going from 500 to 10,000 employees. The more people involved, the harder it is to support the organization and expand.
While small companies have fewer employees on average, there are considerably more smaller businesses than large entities. The sheer number of small businesses can overcome the numbers of larger businesses in the same area.
For example, a large business with 500 employees is smaller than a community with 100 small businesses that have five employees each. It is far more likely that a community will have many small businesses with few employees than it will have a large number of large businesses with many employees.
With such a large percentage of people in a community working for SMBs, they have a much bigger impact in people’s daily lives and finances than their larger counterparts.
SMBs Help Advance Technology
Small businesses are also responsible for driving innovation in technology. When it comes to technology, many people imagine large companies pouring all of their funding into an idea to make it work. However, small businesses contribute more to technology innovation.
One way that SMBs contribute to the advancement of technology is by being a place for scientists and engineers to hone their skills. Many of the employees for these types of businesses have advanced degrees, but they may not have the right opportunity to use their expertise in a large company. They can provide the right environment for technologists to use their skills while working with a team of like-minded individuals.
Beyond this, SMBs often develop new technologies or new uses of existing technology. For example, a business that helps people find employment may use new technology to help find jobs faster and more efficiently. This can help people find work when they may have no other source of income.
In addition to using new technology to help advance society, small businesses are often the first to adopt new technology. They may be the first to use emerging tech in a new way or to implement it in their businesses in the first place.
For example, computers becoming widespread in business is largely due to the need for small businesses to have access to technology without the high costs. As a result, better computing options were created at more affordable prices so that companies could sell to small businesses. Those SMBs used computers to multiply their productivity in new ways, letting them grow and prosper in ways that were not possible before.
Now, every company uses computers to some extent. Furthermore, they won’t break the budget like they used to. Since small businesses adopted computers, business as a whole has changed in many ways.
Companies That Invest Locally
Unlike large businesses, small businesses generally focus on a small area where they can have some measure of influence. Companies that only operate in a small community are more likely to invest in that community.
This is the community that the store thrives on and needs to continue to exist. Improving conditions within that community make business both easier and more lucrative for small companies. More than that, the people that work for these companies live and work in these communities. There is a natural desire to use company resources to improve their lives in ways beyond providing work.
SMBs tend to spend more of their resources on services from other local businesses than larger companies do. This spending can have a multiplier effect as those smaller businesses use their own resources to provide goods and services to yet more businesses.
Small Businesses Strengthen the Local Economy
The types of industries that are common in SMB’s are often larger contributing industries. This includes industries like construction, health care, education, and child care. The money that people spend on these services goes directly towards paying employees or other bills that improve the community.
Large companies, on the other hand, often specialize in industries that do not contribute as much to the local economy. Industries like transportation, communication, and finance, while important, tend to be more global in nature. Many services provided by large companies are more transactional in nature and do less for the local economy.
Small businesses are the opposite of this, they focus on the local community since that is where they operate. They not only add revenue and resource flow to the community, they also provide stability and resilience to the economy. If a particular industry sees a reduction in business performance, the diverse group of other businesses involved in other parts of the economy can help keep the economy going. Small businesses provide diversity, which also provides stability to the economy overall.
SMBs Do Things Large Businesses Cannot
Smaller businesses often specialize in providing niche services that may not be provided by larger companies. For example, a small law firm might focus on patent law or intellectual property law, while a larger law firm may focus on many different areas of law.
A smaller business may also provide a service that would be burdensome or cost-prohibitive for a large business to provide. For example, a small business may provide IT services for a nearby school district because it is a cost-effective solution that a larger company could not provide.
Small Businesses Reach More People
Another way that SMBs help the economy is by reaching more people with their products and services. Smaller businesses operate in communities alongside the people who live there, making it easier to reach people.
Also, small businesses tend to offer goods and services at a more accessible price than larger businesses. For example, a small business might offer online training or an online course because it is less expensive and easier than holding seminars or hiring instructors. Large companies often lack the agility or flexibility to offer such services.
They Turn Over Projects Quickly
Many people regard large companies as more dependable, but large companies often take a long time to complete projects. In many cases, smaller businesses are able to complete projects more quickly.
Because they complete projects quickly, smaller businesses fuel improvements and business development. Companies need things to happen relatively quickly so that they can generate revenue and continue to improve. This is also true for local governments and other entities. Large businesses often take longer to do things, which can slow development.
Smaller Businesses Provide Specialized Services
Another way that SMBs help the economy is by providing specialized services that larger companies do not offer. For example, a smaller business may specialize in providing legal services in a field that does not see a lot of client work develop. A small business can run lean and keep costs down, so that it can exist on fewer sales. Larger businesses would avoid this type of legal practice entirely because they could not generate enough money to support themselves.
A larger law firm may not be able to provide the same level of service that a smaller business can. Smaller businesses focus on customer service and building relationships. Large companies may struggle to do this and start treating each client like a number more than a name.
Function Like a Larger Business With the Help of an Answering Service
Large corporations often benefit from economies of scale in terms of shipping, distribution, and production, but small businesses can often provide a more tailored and specialized service. Small businesses can also be nimble in the way that large companies cannot.
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