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Economies of Small – Small Business Is Better

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By: Shane Bender

Most of us have heard and cling to the idea that bigger is better.  In the corporate world, companies merge to get bigger and be competitive. In accounting, there used to be the Big 8 accounting firms, then it was the Big 6, and now the Big 4.  We shop in Super Walmart and Super Target, which have in many cases squashed the little guy.  Is bigger really better?  Is it more efficient?  Is it more innovative?

Although there are examples of innovative companies such as Google and Apple, I firmly believe that bigger is not usually better for three reasons.

Reason 1:  Inspiration

Small companies have an entrepreneurial spirit. Small businesses inspire their employees. You can get everyone in one room more easily and motivate everyone toward success.

I had the to privilege to work as a Controller of a small startup digital marketing company starting in 2005. Looking back, the company was made up of strong leaders, entrepreneurs, and visionaries. I remember one time in 2007 when we had lost 5 of the top 10 clients and we needed to make up the revenue. The President spoke to everyone and let them know the revenue shortfall that was needed in order to hit the annual goal and get bonuses. This was discussed in September. The employees were inspired and were nimble and flexible to make quick adjustments by offering new services and innovative ideas to existing clients. How could a large business do this? Most likely they would have just laid off employees and uninspired everyone.  This happened a few years later after we were acquired by a large holding company. Many of the smart innovative people I worked with left and started their own businesses or went to work for another inspirational small business.

Small businesses inspire employees in the following ways while big companies tend to struggle with these same issues.

  • Empowerment – Employees are empowered to come up with new ideas and figure out ways to help generate revenue and make a significant impact. Employees feel the satisfaction of knowing their work is making a difference and will work harder.
  • Compensation – Employees in small companies are many times compensated with equity and bonuses that are directly tied to their performance.
  • Recognition – Fellow colleagues can be easily recognized in staff meetings, which is very effective.

In an interview I heard from Gary Kelly, CEO of Southwest, he said they still have the small company feel they had when he started working there over 30 years ago. They strive to keep their business seemingly small even though they are big. They call employees “family members” and recognize and invest in everyone. This is not the norm.

Reason 2: Intelligence

In a small business, you have to wear many hats and keep learning. Everyone looks for ways to be efficient to survive, leading to a culture of continuous learning.  There are new technologies, books, and ideas coming out all the time. A large business tends to rely on processes and name recognition, but this can lead to complacency.

Complacency makes us all stupid. Small businesses do not have time for stupidity. Don’t get me wrong, there are small businesses that get stuck, too, and don’t grow to the next level. In this case, they may struggle to last long unless they make needed adjustments. A fast growing small business is continually learning so they can be more efficient and provide new services and products to the market that are of higher quality while offering more flexible customer service.

Large companies have economies of scale, which can create an assembly line specialization. Theoretically, this should make everyone faster. Although this worked in manufacturing and in the industrial age, does it work in today’s fast moving information age? I don’t think so. Processes have to change as information and technologies change at a fast moving pace. Today, business can be done anywhere through Go-To-Meeting, Skype, cloud-based software, smart phones, wi-fi, and mobile hotspots. Think how much has changed in 10 years. I use a software call EverNote that allows me to keep track of all information in one place and can be easily accessed on my phone, MacBook, or iPad. It is so powerful and all businesses should use this technology. I have seen businesses use Google documents for collaboration and spreadsheets. Google almost replaces Microsoft Office in many cases.

Reason 3: Innovation

Innovation leads to more jobs.

A Forbes article states that in the last 25 years, almost all private sector jobs have been created by businesses less than 5 years old.  Between 1988 to 2011, companies older than 5 years destroyed more jobs than they created in all but 8 of those years.

  • Over 50% of the working population works in a small business. (<500 employees)
  • Small businesses have generated over 65% of the net new jobs since 1995.

Why do small businesses generate more jobs? They can make adjustments to the economy and competition more quickly. They are flexible and adaptive. Have you heard the phrase “Large Crowds move slowly”? This applies to businesses also.

One argument for the value of small businesses is that big marketing holding companies or giants like Google, Facebook, and Apple will buy small companies to stay innovative. They are really just buying innovation.


Bigger is not better. In fact, bigger is rarely better when considering all the side effects.  Small businesses are more inspirational, intelligent, and innovative.  Why does this matter?  It matters because we need to keep investing in small business no matter their size. We need to keep being entrepreneurial and innovative as a nation. When more small businesses survive and grow, we as a nation win, create more jobs, and secure better lifestyles.  Let’s invest in the economies of small business in this new fast moving technological age.