BusinessWeek (July 3, 2006)

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Definition of Small Business

This is certainly not anything new, but you might not know it. These market measures provide an insight into what is going on in Wall Street.

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However, they are clearly biased to not only large firms but also huge firms. It fails to recognize that small businesses are the overwhelming majority of all businesses in America; not only are the majority of jobs in small businesses, but small businesses have also been the major driving force in new job creation and innovation. Small business is the dynamo of innovation in our economy. In , Thomas M. They are nimble, creative, and a vital part of every community across the country. This text is devoted to small business, not entrepreneurship. There has always been a challenge to distinguish—correctly—between the small business owner and the entrepreneur.

Some argue that there is no difference between the two terms. However, this interpretation is too broad and is pointless as a means of distinguishing between the two. Some have tried to find differences based on background, education, or age. Often one finds the argument that entrepreneurs have a different orientation toward risk than small business owners. Others try to make the distinction based on the issue of innovation or the degree of innovation.

Given this focus, entrepreneurs need not even work for small business because they can come up with innovative products, services, production, or marketing processes in large organizations. Does It Matter? Perhaps the most common interpretation of the entrepreneur is an individual involved in a high-tech start-up who becomes a billionaire. That is not the focus of this text. This chapter gives a brief history of small business in the United States, the critical importance of small business to the American economy, the challenges facing small business owners as they struggle to survive and prosper, the requisite skills to be an effective small business owner, the critical importance of ethical behavior, and how these businesses may evolve over time.

In addition, three critical success factors for the twenty-first-century small business are threaded through the text: 1 identifying and providing customer value , 2 being able to exploit digital technologies with an emphasis on e-business and e-commerce , and 3 properly managing your cash flow.

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These three threads are essential to the successful decision making of any contemporary small business and should be considered of paramount importance. They are everyday considerations. It would not be an exaggeration to say that the small businessperson has always held an important—even exalted—position in American life. Americans in the early republic were as suspicious of large economic enterprises as threats to their liberty as they were of large government. The historian James L. Knopf, , So great was the fear of the large aggregation of wealth that the colonies and the early republic placed severe restrictions on the creation of corporate forms.

In the first decades of the nineteenth century, state governments restricted the corporate form by limiting its duration, geographic scope, size, and even profits. This was done because of the concern that corporations had the potential of becoming monopolies that would drive entrepreneurs out of business. Eventually, however, some businesses grew in size and power. Their growth and size necessitated the development of a professional management class that was distinct from entrepreneurs who started and ran their own businesses.

However, not until the post—Civil War period did America see the true explosion in big businesses. This was brought about by several factors: the development of the mass market facilitated by the railroads ; increased capital requirement for mass production; and the Supreme Court case of Santa Clara County v.

The growth of corporations evoked several responses that were designed to protect small businesses from their larger competitors. The Interstate Commerce Act was a federal law designed to regulate the rates charged by railroads to protect small farmers and businesses. Other federal laws—the Sherman Act and the Clayton Act —were passed with the initial intent of restricting the unfair trading practices of trusts.

In the early years, however, the Sherman Act was used more frequently against small business alliances and unions than against large businesses.

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Congress continued to support small businesses through the passage of legislation. The Robinson-Patman Act of and the Miller-Tydings Act of were designed to protect small retailers from large chain retailers. The Depression and the post—World War II environments posed special challenges to small business operations. The Hoover and Roosevelt administrations created organizations the Reconstruction Finance Corporation in and the Small War Plants Corporation in to assist small firms.

The functions of several government agencies were subsumed into the Small Business Administration The government agency that is charged with aiding, counseling, assisting, and protecting the interests of small business. The SBA functions to ensure that small businesses have a fair chance at securing government contracts.

It also has the responsibility of defining what constitutes a small business. The SBA definition of a small business has evolved over time and is dependent on the particular industry. In the s, the SBA defined a small business A firm that is independently owned and operated and not dominant in its field of operation. There are variations across industries with respect to competitiveness, entry and exit costs, distribution by size, growth rates, and technological change. This is still part of their definition.

At that time, the SBA classified a small firm as being limited to employees for industrial organizations. The SBA recognizes that there are significant differences, across industries, with respect to competitiveness, entry and exit costs, distribution by size, growth rates, and technological change. Table 1. The SBA definition of what constitutes a small business has practical significance.

Small businesses have access to an extensive support network provided by the SBA. It runs the SCORE program, which has more than 12, volunteers who assist small firms with counseling and training. These centers provide comprehensive assistance to small firms. There can be significant economic support for small firms from the SBA. It offers a variety of guaranteed loan programs to start-ups and small firms. It assists small firms in acquiring access to nearly half a trillion dollars in federal contracts. In fact, legislation attempts to target 23 percent of this value for small firms.

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