Photo from the College of Business
In times of economic hardship, small businesses often are the ones that survive and even thrive, due to size, efficiency and innovation.
“When small companies go out of business they don’t lay off thousands of employees – maybe dozens – and it’s easier for them to start up again. Small businesses are more nimble,” said faculty member Jerman Rose in the most recent issue of the College of Business’s online magazine Dividend.
Rose returned to the classroom last fall after spending three years as associate dean for undergraduate programs and director of international initiatives.
“In a challenging economic environment like this, there is going to continue to be a lot of job creation,” he said. “Small and medium companies are being created, and those surviving are going to expand.”
Small biz stats
According to the U.S. Small Business Administration (SBA), in most industries a small business is one with fewer than 500 employees, though most fall well below this mark. More than half are home-based, and three out of four are one-person firms. The most recent U.S. Census Bureau data show that 95 percent of small businesses have fewer than 10 employees.
When small businesses succeed, they create jobs at an amazing rate – the latest figures from the SBA show that small businesses create 75 percent of the net new jobs in the U.S. economy and make up 99.7 percent of all employers. Many small firms do succeed, despite harsh times; four years after startup, half of all small businesses with employees remain open.
More nimble innovation
Though innovation may help to fuel an economic recovery, “The problem is that innovation takes a long time to develop,” said Rose.
“Small firms are more efficient than large firms – they produce 42 percent of all innovations even though they represent only a very small part of total employment,” he said. “It’s a well established fact that small companies account for 20 percent of research and development investments while generating technologies on a more efficient basis.”
According to the SBA, small patenting firms produce 13 to 14 times more patents per employee than large firms.
“Small business entrepreneurs represent the new innovation and new values in this economy,” said Len Jessup, Markin Endowed Chair in Business Leadership and director of the Center for Entrepreneurial Studies.
“Decagon Devices and Schweitzer Engineering are two examples in Pullman of local companies led by entrepreneurs,” he said. “They are thriving and hiring. Nobody is bailing them out. They are doing it on their own.”
Faculty examples
Two veteran entrepreneurship faculty members, Rose and Joe Harris, played critical roles in Decagon and other successful startups – experiences that allow them to offer invaluable lessons and advice to their students.
After earning an MBA from WSU in 1982, Harris started Decagon Devices Inc., a Pullman-based manufacturer of agricultural research instrumentation, with brother-in-law Gaylon Campbell, a WSU professor of soil physics who retired in 1998.
When Harris left Decagon in 1990, the firm had just surpassed $1 million in sales. Today, Decagon is a world leader in biophysical research and was named one of the Wall Street Journal’s “Best Small Workplaces” of 2008.
More recently, Harris became part-owner of Sentinel Online, a company created by his former student Casey Brazil (’03 entrepreneurship and real estate) to allow universities to send transcripts securely online. Brazil came up with the idea after delays in the traditional transcript mailing process left him unable to obtain an Idaho real estate license in time to close a big sale.
At WSU, Brazil learned to expect the unexpected – a lesson that has served him well as he navigates the winding path of a startup.
“The professors in the program gave me a road map,” he said.
Longtime entrepreneurship instructor Rose draws on his experience as co-founder of the Maids Home Services, a company he helped build from the ground up. Based in Nebraska, the company ranks in the top 50 franchises in the country.
Thriving in bad times
Rose said that times of economic crises can be rich with opportunity for small businesses.
“When we were starting up in the early 1980s, that was another time of economic turmoil,” he said. “We provided business opportunities for people who were being laid off by bigger companies and wanted to get into their own business. That was one of the advantages we had in creating our company then.”
If necessity is the mother of invention, as the saying goes, then economic hardship may be the birthplace of opportunity – as small businesses continue to adapt, expand, hire and thrive.