Chapter 2

APPRECIATING THE POWER OF SMALL ENTERPRISE

WE LIVE IN A CULTURE that engages in what E. F. Schumacher, in his book Small Is Beautiful, referred to as the “idolatry of large size.” Despite this, many enterprise owners still opt to keep their organizations small in size and big in vision and craftsmanship. Others, however, succumb to the myth that adding locations, employees, and revenues is the only route to growth and success, even if such a course conflicts with other lifestyle goals or the founding vision of the enterprise. Many even pursue quantitative growth, though it ultimately results not just in the erosion of their vision but in the failure of their company as well. Why? And what choices exist to help make growth-related decisions more deliberate and thoughtful?

One problem is rooted, again, in our assumptions. We assume that, because politicians talk about “helping small business” and large corporations create advertisements extolling the virtues of small business, we have a culture in which people actually demonstrate appreciation for the challenges and contributions of individual small enterprises. We too easily mistake the talk about small business being the engine of the economy, or the buzz about how the smallest businesses consistently create more jobs than their colossal brethren, or that woman-owned companies alone employ more people than the Fortune 500, or the enormous richness of the small-business market, for actual appreciation of small business.

The reality is that small businesses—and I’m not talking about the proliferation (and even more recent demise) of many dot-com Internet startup companies—make an enormous contribution to our neighborhoods, our cities, and our nations. Collectively, the smallest businesses form a force to be recognized and reckoned with. Individually, small businesses offer ideas, innovations, practices, and lifestyle options that larger companies increasingly and unsuccessfully attempt to imitate. But small businesses are what they are and contribute what they contribute because of their size. Similarly, many little, low-budget independent movies that have generated a big grassroots following in the past decade have taken the film industry by storm because they are not products of the large corporate studios. The larger studios can more easily create blockbuster epics and marketing juggernauts, while the greater degree of originality and creativity—both in the art of film and grassroots marketing—more often comes from the budget-challenged independents.

“Growth for the sake of growth is the ideology of the cancer cell.”

EDWARD ABBEY

The issue is not so much that large corporations are overappreciated but rather that the smallest enterprises are underestimated and underappreciated. Given that small organizations make such a significant contribution to the economy and the communities in which they’re located and provide a wonderful vehicle for creating a good quality of life and being of service, the problem is that so few people fully understand and appreciate these very real contributions. To a degree, rhetoric is mistaken for action. The bottom line is that we have work to do in raising the awareness of the true merits of small-size big-impact enterprises. Big-vision small-business owners—whether by example or overt advocacy—promote the virtues and possibilities of a vision- and integrity-driven small enterprise.

A true appreciation will mean that the organizations that lobby on behalf of small enterprise must focus on the vast majority of their constituency—the smallest enterprises, not the larger-scale operations. Heightened awareness will mean that their lobbying should result in policies that better support the small office/home office (SOHO) demographic of enterprises that have fewer than 20 people. It will also mean that local officials won’t blindly welcome big-box retailers into the community without simultaneously creating plans to ensure a robust small-business community and that small-business owners won’t let their assumptions regarding growth dictate their decisions and the quality of both business and life.

What Is a Small Business?

Before looking at some of the contributions small enterprises make, you may be asking, “What exactly constitutes a small business?” It’s a good question and a necessary one if we’re to discern the general contributions of small business or discuss the unique merits of big-vision small business. Unfortunately, relying on current data or definitions yields more than one answer.

We’ve seen that U.S. agencies such as the Small Business Administration often categorize a small business as any enterprise with 500 or fewer employees, though in other cases they define a small business as having fewer than 100 employees and a microenterprise as having 19 or fewer people. Chambers of Commerce report that the majority of their members—70 to 90 percent—are enterprises with 20 or fewer, which is the range used by Working Solo, Inc., a SOHO-market consulting firm, to define a SOHO enterprise.³ In the United Kingdom, most small-business advocates use a standard of up to nine people for a microenterprise, 49 or fewer for small business, 50 to 249 employees for a medium-size firm, and 250-plus for a large company. The European Union defines microenterprises as having fewer than 10 employees, small businesses as those with up to 50.⁴ Other organizations use a variety of measures, recognizing that industry plays some role in defining what a small business is, since “small” in manufacturing might be 50 while that number might constitute a large enterprise if applied to a florist, printer, or typical consultancy.

While the lack of common, contemporary definitions for small business is troublesome, perhaps worse still is the fact that, according to the U.S. Census Bureau, the single-person enterprises that make up close to 75 percent of all U.S. businesses aren’t even included in many statistical surveys.⁵ Why? Because most have lower overhead and no one but the owner on payroll and thus comprise only 3 percent of business tax receipts. So despite their sheer number and despite their overall economic and cultural importance, this group of SOHOs is invisible to the government, at least for the purposes of having access to business-supportive policies and resources that stem from statistical prominence.

The multitude of definitions of small business and the exclusion of most self-employed or single-person enterprises from many statistical surveys and reports create problems in discussing and meeting the needs of the majority of small-business owners. The U.S. government hasn’t yet caught up to the reality of solo or SOHO entrepreneurship. According to the SBA Office of Advocacy’s 1998 State of Small Business report to the president, “static data cannot be used to measure dynamic change.”⁶ While SOHOs are increasingly recognized for their economic and cultural importance in other countries, SOHO-supportive policy making consistently lags in all countries, particularly the United States. Yet even while imperfect, the existing data can be pieced together and mined for clues as to why small business—and particularly big-vision small business—is so vitally important from both economic and cultural perspectives.

I’ve elected to rely upon the SBA microenterprise or SOHO definition of 20 or fewer people, since many of the big-vision business tenets can be more deeply explored and adopted in groups of this size or smaller, for reasons I share throughout this book. Since most statisticians rely on a variety of numerical definitions for small business or are altogether vague about what measure they’re using, it’s not always possible to include breakdowns of statistics as they relate specifically to SOHOs.

The Contributions of Small Business to Society

The good news is that the value and increasing visibility of microenterprises and SOHOs is resulting in additional research to quantify the contributions made by this particular group of enterprises. Even people who readily quip, “Small businesses are the engine of the economy,” are often very surprised when presented with the specific reasons that underscore the truth of this statement, including the fact that the majority of those small businesses are, indeed, very small in size. Do you have doubts about the clout of the smallest companies, particularly those that are both aware of and intent upon leveraging these potential strengths? Consider the following:⁷

THE SMALLEST BUSINESSES ARE NUMEROUS

Nearly three-quarters of all U.S. businesses are self-employed individuals with no one else on payroll and are responsible for $580 billion in sales. SOHOs, those small enterprises with 20 or fewer employees, comprise one of the fastest-growing market segments, with more than 31 million SOHO enterprises in the United States as of 2001, spending an average of $103 billion each year. According to the Entrepreneurial Research Consortium, another 7 million people are considering business ownership or self-employment. All of these sectors—self-employed persons, home-based offices, small offices—are expected to grow in number and strength in the coming years. These statistics make clear that the vast majority of businesses are not just small businesses but very small businesses, and they’re an increasingly relevant group economically and culturally.

THE SMALLEST BUSINESSES CREATE JOBS

In fact, small enterprises don’t just create a few jobs, they create the majority of jobs, representing 99.7 percent of all employers in the United States. Between 1992 and 1998, small U.S. firms created nearly all of the 12 million net new jobs. The smallest of those, businesses with fewer than 20 employees, generated more than two-thirds of the new jobs. Firms with fewer than five employees generated just over half of those new jobs. The Office of Advocacy also reports that small enterprises are more likely to employ inexperienced and older workers; offer greater opportunities for women, minorities, and immigrants; and provide welfare-to-work or other opportunities for financial self-sufficiency. Since home-based and small-office businesses are both numerous and resilient, they create jobs directly through their own hiring, and also their spending. After all, SOHOs purchase office furniture, supplies, telephones, computers, bank services, and all of the other products and services necessary to run a business—products that often come from larger companies and whose purchase stimulates the creation of jobs to support manufacturing, shipping, and sales.

THE SMALLEST BUSINESSES FOSTER ECONOMIC DIVERSITY

Small businesses help create a more diverse, resilient economy, allowing a greater variety of products, industries, and participants. Unlike one-company or single-industry towns, communities with a healthy contingent of small, locally owned enterprises are less vulnerable to a recession or an economic downturn that affects a particular industry. In this way, economic diversity fosters a greater degree of local self-reliance than would be the case when a locality relies too heavily on a small number of large corporations whose fortunes are tied to the fickleness of Wall Street analysts or global market shifts and whose investors and decision makers may live far from (and thus care little about) that community. And as the Office of Advocacy’s State of Small Business report emphasized, the smallest enterprises contribute to diversity through innovation and creativity and offer opportunity for both self-sufficiency in financially disadvantaged communities and advancement for minorities, women, and immigrants.

THE SMALLEST BUSINESSES CONTRIBUTE UNIQUENESS

In addition to featuring an environment defined by the personality of an individual business owner, small enterprises offer a more unique array of merchandise and a more personalized buyer-seller connection or service level that augments the products and services offered by large corporations or chain stores. If you visited five cities that had only chain stores, the stores of each chain would differ little from one another, but you’d know what to expect regarding the atmosphere, merchandise, and service. When you add local boutiques, bakeries, restaurants, and bookstores to the mix, the places take on a more unique flavor that makes each more of an adventure for the visitor, and more like home for those who live there.

THE SMALLEST BUSINESSES OFFER QUALITY OF LIFE

Small enterprises are personal enterprises, often focusing on the community or region and increasingly operating wholly or at least occasionally from a home-based office. A small-business owner has more control over decision making that affects the time he spends with his family or on other non-business interests, as well as over decisions that affect the quality of his own workday. If there is a schedule conflict, he can more easily choose to plan around it. If an ideal project or client profile crops up, she can choose to plant the seeds that will grow those opportunities in her business garden for the next season.

In addition, small businesses are often associated with community service and the quality of life of others. Examples of small business-dominated service industries include restaurants, retail services, outpatient care facilities, health care-provider offices, residential care facilities, special trade construction contractors, architectural and engineering services, computer and data-processing services, day care providers, job training, and counseling and rehabilitation services. Such industries accounted for about 64 percent of the 2.5 million new jobs created in 1996 alone. And that’s not the extent of small businesses’ contributions to local quality of life. Small businesses donate more in cash and in-kind services—$800 per employee—than do their large-organization counterparts.⁸

DAVID AND GOLIATH

This isn’t to say that big companies or even megacorporations are irrelevant or unnecessary. They have their place and the potential to make a positive contribution as well, particularly in areas requiring large-scale manufacturing, mass distribution. Even a company like Apple Computer, whose sales account for less than 5 percent of the computer market,⁹ requires a sizeable employee base to conceptualize, design, manufacture, and distribute its products in their competitive industry. The same could be said for larger companies that manufacture and distribute lifesaving medical equipment and medications, for example, and transportation and communications companies that help connect those in need with the people and products that can improve health, community, and quality of life. These examples demonstrate areas where a larger organization can be more effective than an informal network of small enterprises.

Proponents of large corporations also note, justifiably, that these companies also create jobs and provide employment and a sense of community for people who prefer being a part of a larger enterprise. While it is a myth that large firms create the majority of jobs or provide more-secure employment, given the regularity with which they swell their ranks only to lay employees off in droves, large corporations often have the greater financial resources necessary for such things as employer-matched retirement programs, subsidized health plans, on-site day care or cafeterias for workers, and funding for social-responsibility initiatives. These are benefits many employees find desirable in their search for some degree of perceived security. Yet not everyone agrees that such benefits ensure security, much less provide an indication of actual caring for the employee or other stakeholders.

This was evidenced by the collapse and ensuing ethical scandal involving Enron Corporation in 2002, where the crack in the company’s “good corporate citizen” veneer revealed a plethora of unethical practices and organizational culture norms that resulted in significant loss and pain for both employees and average investors. Big-vision small-business owners, while perhaps not having the economies of scale to offer such lucrative financial perks as Enron had, would not choose such unethical and deceptive practices. Nor would their small size and local visibility allow them to conceal such practices easily (or make them as immune to accountability afterwards).

“Never doubt that a small group of thoughtful, committed people can change the world. Indeed, it is the only thing that ever has.”

MARGARET MEAD

According to author, professor, and sustainable-business advocate David Korten, the corporation is a legal instrument created for the purposes of making money, rather than an entity concerned with community stewardship or quality of life. In a dialogue with Paul Hawken in Yes! A Journal of Positive Futures, Korten emphasizes that the greater contribution is made by more mindful, human-scale enterprises—such as local bakeries, small farms, boutiques, hardware and book stores, and cafes—whose owners live and work in the community and are therefore accountable for their effect on the local quality of life.¹⁰ While a large enterprise might itself provide an on-site day care, gym, dry cleaner, or cafeteria, for instance, a network of small businesses within a community can offer the same.

When considering the value contributed by large versus small organizations, one isn’t necessarily better than the other, but one or the other may be a better career and lifestyle choice, and organizational size does affect the organization’s ability to remain true to its vision. Such consideration most definitely challenges commonly held assumptions regarding both large and small business. Regardless, the smallest businesses—those place-based, human-scale organizations Mr. Korten describes—are able to make a significant positive contribution to sustaining the healthier workplaces and communities where most of us spend a good deal of time.

So small businesses contribute in both tangible and intangible ways to the communities in which they reside, a point reinforced by the renaissance in downtown revitalization and the trend toward new downtown centers under development in so-called soulless suburbia. According to journalist Craig Savoye of the Christian Science Monitor, 30 to 40 new downtowns are planned or completed in suburban communities, and about 6,000 cities have downtown renovations in progress. Why? According to Savoye and others, people have an increasing need for local community as the world becomes faster, more global, and technology-driven. Savoye dubs the trend “a civil war against the United States of Generica.”¹¹ What’s the typical vision of the quintessential downtown? Rows of Main Street-style small businesses offering personalized service, a sense of community, and a variety of nonhomogeneous shopping options and providing an array of high-quality services that also support the needs of an area’s larger corporations. In our “post-9/11” world, a higher degree of personalization, humanity, and connection—not to mention local self-reliance to help protect a bit against global shockwaves—become more important than ever.

Vision-inspired businesses aim to consciously make qualitative contributions, and these average-yet-extraordinary people invest their time, passion, energy, money, and other resources to create and sustain such businesses. The following chapters take a look at some pros and cons of operating a small versus large business and share real-world stories of how four big-vision small-business owners came face to face with choices regarding qualitative and quantitative growth.