A Spotlight on the Enduring American Small Business Advantage

The History of Small Business America

America was built on small business, and small business remains the lifeblood of our economy. To celebrate Independence Day 2017, we took a look back at our history to explore the requisites for small business advantage throughout the ages and to see how it compares to today.

Small business advantage in the Medieval Age

Five hundred years ago, there was no “small business advantage” because virtually everyone ran a small business. There were no other forms of production to compete with. The medieval economy was a collection of farmers, apothecaries, bakers, blacksmiths, candle makers, carpenters, potters, tailors, and moneylenders to name just a few. Falling water, wind and animal labor were the only power sources in those days, so there was little reason to concentrate manufacturing processes into large workshops.

America’s early days were much the same. Still tied to wind, water and animal power, markets remained fragmented. Both the transportation options and the financial systems of the time were too slow and inefficient to support large-scale enterprise. It would take wide-scale energy production – steam, gas and electric motors – and a new banking system before this age old economic structure would be put to the test.

Small business challenges in the Industrial Age

The Industrial Revolution brought three significant changes to the American Economy:

  1. Efficient energy production on an unprecedented scale.
  2. Massive population growth (a vast supply of cheap labor).
  3. The rise of merchant banks.

Capital-intensive businesses fast became the norm. Rail, telegraph, the steam engine, a growing population and huge immigration were prime conditions for capital-intensive big businesses to thrive.

With access to investment capital, cheap power and cheap labor, factories could achieve such economies of scale (and therefore offer much more competitive pricing), small businesses in America began to dwindle.

In the 20th century, Calvin Coolidge famously said that “the business of America is business” as the American economy took a tremendous leap in scale and complexity.  Small businesses had trouble raising money to operate at a large enough scale to enjoy the same efficiencies as big business. The modern corporation began to dominate the economy.

Small business resurgence in the Entrepreneurial Age

It didn’t take too long for ‘Corporate America’ to become a dirty word – just sixty years or so. By the 1980s, massive social change, corporate mergers and layoffs, and the dispiriting nature of ‘cubicle life’ spawned a new interest in risk taking and a new surge in entrepreneurship. As the economy became increasingly globalized in the 80s and 90s, innovation, customization, and quick adaptation meant a significant edge. Nimble entrepreneurs and small business owners would now have a much greater ability to pivot and capitalize on new trends than their competitors in Corporate America.

Small business advantage in the Age of Technology

  1. Transportation and distribution costs have come down significantly in recent years, giving small businesses access to more markets than ever before.
  2. With the advent of cloud computing, the cost of information technology and data storage have plummeted.
  3. Any small business today can develop a global presence with a simple website, and there are a wide variety of inexpensive tools for building one.
  4. The internet makes it easy for small businesses to find and engage new customers, and to develop and maintain relationships with them.
  5. Tools like QuickBooks enable small business owners to become their own financial managers, apps like Expensify help track and manage expenses, and new payment technologies like Veem make international wire transfers simple and cost effective.

Because of technology, today’s entrepreneurs and small business owners have access to the same markets and the same powerful tools their big business competitors have. Small businesses are no longer hindered by limits on their ability to marshall resources. And because small businesses are more nimble and adaptable, they are now poised to go toe-to-toe with their big business competitors – and win.

Happy 241st birthday, America. Here’s to continued small business advantage in the years to come.


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