The small business ripple

We often forget how important the small business sector is to the economy. According to the Small Business Administration, small firms represent 99.7% of all employer firms here in the US and small businesses have been responsible for 65% of all net new jobs over the past 17 years.

Businesses everywhere

The actual numbers are staggering. Roughly 500,000 small businesses open up shop every year. Six million small businesses employ people. In short, small businesses make up such a large portion of the economy that small business success quickly affects the overall employment rate. We’re all hitched to the small business wagon.

The US unemployment rate is at 8.3 percent. That’s around 13 million people looking for work. I don’t pretend to have a silver bullet for this problem, but my involvement in the small business world has definitely given me some thoughts.

Let’s say 10 percent of the six million small business employers start using Xero. With a better view of their cashflow they identify their strengths and weaknesses. After making a few small changes, revenue rises and they each have the resources to hire two new people.

That’s more than a million new jobs.

Giving them staying power

Of the 500,000 new small businesses that open each year, only a third or so (166,000) last for five years or more. What if some of them are able to stick around longer? What if 200,000 out of that 500,000 are still around after 5 years? That’s more than 30,000 more businesses a year hiring people, exporting products and creating wealth for everyone.

This is what makes what we do so exciting. Using accounting software like Xero can unlock growth opportunities for small businesses.  Once the domino effect kicks in the ripples might be felt across the entire economy.

What will you do to grow your small business this year?

5 Comments

Gayle Buchanan
March 24, 2012 at 5:03 pm

complete and utter tunnel vision on the target – GET those export dollars into NZ through a global product – xero and all the add-ons. Go the kiwis

Kevin Cullis
March 24, 2012 at 5:07 pm

You have parroted the same figures about “failed” businesses as others, but fail to see the “big picture” about those businesses, which I divulge in my book “How to Start a Business: Mac Version.” The fact comes from John C. Maxwell’s book “Failing Forward” in the most millionaires fail over 5 times before they become successful.

The takeaway: Entrepreneurs don’t quit. They keep going until they are successful. Or, in other words, what do you call a failed entrepreneur? Experienced.

So, update your info and pass along. We’ll all be successful, just don’t stop trying.

Kevin

Nick Bird
March 27, 2012 at 5:41 am

I think the odds of small businesses succeeding at a higher rate can be accomplished through connecting small businesses with good information. Xero has done a fantastic job of that by seeking for automation and integrations between cloud systems. This allows the “bookkeeping” cost to go down, which can give small businesses some budget space to get a great financial adviser that can interpret their data and provide useful advice going forward.

The small business armed with large business tools and information will help them to succeed and grow. I think Jamie has a good point on how this can have echo effects into the economy. I’m not sure what jobs will be replaced, but the paradigm shift to the cloud for the accounting industry will save costs for small businesses and allow them to be smarter. As for my small business, I’ll reach toward helping this paradigm shift to smarter small businesses move forward!

Jamie Sutherland
March 28, 2012 at 5:42 am

@Kevin – Completely agree with your passion for entrepreneurs. We share the very same enthusiasm at Xero. Many entrepreneurs after starting business and failing will start another business. It is in their DNA.

My post supposes that a better understanding of your business finances may increase the likelihood of growing your business and hiring a new employee. From your post it appears that you disagree, but it’s not entirely clear. We hear from our accountants and our small business users that having a good handle on their books will not only help them adapt to adverse change, but also offer insight on when the time is right to hire employees when things are humming. Both are good for the economy and jobs.

@Nick alludes to this in his post when her refers to the odds of succeeding are higher when a small business has good information.

Richard Francis
April 6, 2012 at 12:36 pm

Fab post Jamie. I’ve advised SME and high-growth businesses for 20 years and seen so much innovation and nimbleness at that level. Many SME owners have more than 1 venture too – some work, others don’t.

I’ve seen financial clarity and understanding as a key ‘success lever’ for SME owners. That’s why Xero – and add-ons that provide analysis and context – are game-changers.

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