Should economic developers take small businesses off their pedestal – to help them?
This may be heresy for many government agencies and politicians who need to shift their focus on small business if they want to create jobs and wealth – and help small businesses.
There are 3 main business strategies to create jobs in a region and have an impact on wealth creation:
· Job catalysts–Wealth importers: These are mostly medium to large sized businesses that sell to regional, national and global markets and import wealth into a region. But often they don’t create a lot of jobs because they have to be very productive and efficient if they want to be globally competitive.
· Job creators–Wealth circulators: These are mostly small businesses, often retail or service, that cater to local consumers who circulate the wealth generated by job catalysts. They need wealth importers and are generally more labor intensive than capital intensive.
· Job Destroyers – Wealth Exporters: They are mainly importers of products or services likely to create jobs, but to export the territorial wealth generated by job catalysts. These companies need employment catalysts to generate wealth.
Yes, small businesses can create jobs. But small businesses do not create jobs in a vacuum. They mostly sell locally. They circulate money that is already in the area. To create jobs, they need increased purchasing power in the territory, which needs someone to import the wealth. This increased wealth of the region can come from employment catalysts that sell outside the region or from government spending, including transfer payments. Small businesses benefit from this wealth that has been brought to the region – by others.
In the 1970s and 1980s, many large American manufacturers began to outsource to reduce costs. They were paying expensive benefits and huge salaries to their own employees, and they found they could outsource to smaller contractors who would hire employees at lower wages and no benefits. The myth that small businesses create jobs has taken hold and has been actively promoted by some government agencies that have benefited from this hype, and it has never relinquished its position in our collective minds.
The reality is that small businesses create jobs if someone else is importing wealth, i.e. they need the increase in direct and indirect purchasing power created by exporting company.
To create or attract export businesses, zones can focus on attracting company branches or develop their own unicorn entrepreneurs who can develop export giants:
· Multinationals and large corporations can set up factories anywhere – will they choose yours?
· What remains of the local entrepreneurs? Can regions develop entrepreneurs who can develop export unicorns, compete with regional, national or global competitors and import wealth?
Venture capitalists do not fund companies until there is proof of potential, ie after Aha! This is because funding before Aha leads to many misses and few home runs, which is not a good recipe for VC success. Entrepreneurs need to know how to go from Idea to Aha with smart financial skills and strategies – and without a VC. This means resource constrained areas should focus on developing unicorn entrepreneurs who can bridge the gap between Idea and Aha without VC.
By focusing on developing globally competitive unicorn entrepreneurs to build more unicorns, regions can import wealth and help small businesses thrive. They can do more for small businesses by doing less.
MY OPINION: Developers in the region can help small businesses by importing more wealth and purchasing power. To do this, they must focus their resources on entrepreneurs who export from the region and import wealth. These exporting companies need more sophisticated leaders who can compete successfully with larger competitors in other areas. Zones can gain more benefits by prioritizing unicorn entrepreneurs who import wealth into the zone. They increase local purchasing power and allow small businesses to create jobs.