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Small businesses play an important and growing role in the U.S. and global economies, employing more tha half the private U.S. and European workforces. Over the past few decades, small businesses have created more than 60 percent of new European and American jobs. While data for the rest of the world is harder to come by, it is clear that small businesses are crucial components of most economies.
According to findings from the Intuit Future of Small Business research project, the next decade will see continued growth in the number of small businesses and their economic importance. Assisted by technology, small businesses will network with global and local business partners and customers. They will be agile and flexible, competing and partnering with larger firms to accomplish their business goals, and participating across all industries.
According to data from the Bureau of Labor Statistics as well as the Small Business Administration the vast majority of these new small businesses will be personal (one-person) and micro (fewer than five employees) businesses. Today, more than 20 percent of U.S. workers own or work for personal or micro businesses. By 2020, it is expected that roughly 30 percent of U.S. workers will.
As part of the broader, ongoing Intuit Future of Small Business research project, we’ve identified three trends that are driving the growth of small businesses.
1. The changing nature of jobs, work and corporations
In the 1930s, Nobel Prize-winning economist Ronald Coase argued that the economy would consist of many small, independent firms if not for the “transaction costs” associated with coordinating and collaborating with suppliers and partners. Because of these costs, large, vertically integrated firms were more efficient than smaller firms. These efficiencies of scale resulted in the emergence and growth of large corporations during the 20th century.
Since Coase’s observations, information and transportation technologies have greatly reduced the transaction costs of working with suppliers and partners. Corporations have responded to these changes by unbundling their operations through outsourcing and partnering with growing networks of suppliers. They have also expanded their use of contingent workers—freelancers, contractors, part-timers, etc.—to reduce costs and increase flexibility.
The next decade will see a continuation of these trends, which are creating many new opportunities for small businesses to take over these unbundled and outsourced tasks. These shifts are also driving the growth of personal businesses to meet the growing demand for contingent workers.
2. The democratization of technology
Technology has been a major driver of the growth of small businesses over the past few decades. The growing digital infrastructure has reduced the costs of starting and running a small business, lowered competitive barriers, opened new markets and industries to small businesses, and led to the creation of new and often disruptive business models.
The next decade will see digital infrastructure mature and become even more widespread. Small businesses will have cost-effective access to advanced technologies that until recently were only available to large corporations. This democratization of technology will create a new wave of highly customized products and services that will enable niche small businesses to flourish.
3. The changing face of small business
Small business owners in the next decade will be far more diverse than their predecessors in age, origin and gender. Driving this shift are the lower costs required to start and operate a small business, increasing interest in work/life balance, and growing dissatisfaction with or unavailability of traditional employment options.
Baby Boomers approaching and entering retirement age will turn to entrepreneurship both by choice and out of financial necessity. Women, seeking to escape the glass ceiling or looking for increased work flexibility, are also expected to start small businesses in growing numbers. According to the Kauffman Index of Entrepreneurial Activity, immigrants will continue to be the most entrepreneurial U.S. demographic cohort and, based on our own study, Generation Yers (currently aged 10 to 30), are likely to be one of the most entrepreneurial generations in recent history.
The next decade will see entrepreneurs no longer just coming from the middle of the age and demographic spectrums, but increasingly from the edges. This shift will also result in increased numbers of small businesses, due to the expanded pool of potential small business owners.
The Intuit Future of Small Business
Series is an ongoing research study that looks at the significant trends affecting small business and entrepreneurship over the next decade. Reports and related resources can be found on their web site.
Steve King is a partner at Emergent Research, a senior fellow at the Society for New Communications Research and a co-author of the Intuit Future of Small Business research reports.
Cassie Divine is on the corporate communication team at Intuit and is the lucky person who drives the Future of Small Business project. Last year she launched a little online shop and has been enjoying the wild ride of starting a business.
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