It's pretty firmly established that small businesses are the nation's innovators.
We know this because of the research that find small patent-holding firms are roughly 13 times more innovative per employee than large patent-holding firms, according to a 2009 research report published by the U.S. Small Business Administration, Office of Advocacy.
They tend to be more technically important and otherwise outperform large firm patents on a variety of different metrics. This is another reason why small businesses are so critical to the U.S. economy, which thrives on new and disruptive technologies.
It's pretty easy to get carried away with images of small business laboratories around the country, full of brilliant employees beetling away in search of the Next Big Thing. The only problem is that the Thomas Edison model of R&D may well be a little out of date. Not only that, but the number of patents awarded per employee may not be the best proxy for innovation in a 21st century economy.
As a matter of fact, I would submit to you that the most important sort of small firm innovation might very well turn out to be the most common sort — so common that it does not usually occur to us to get it patented.
Small businesses (and especially very small businesses) operate in an economy that is fundamentally structured to be big-business friendly. Conversely, we operate in an economy that is fundamentally structured so that it is not small business friendly. What's more, small businesses are trending smaller, which means that our economy is getting increasingly less small business friendly.
What I'm talking about here is our economic infrastructure. That means the distribution systems, the laws and the courts, the contractual conventions, the regulatory regimes, the political constructs, the paper trails and the administrative tasks attached to every sort of transaction available.
Here's a no-brainer of an example for you: the reason why small business procurement is a continuing issue is that the (gigantic) federal government has arranged matters so that it is easy to purchase from (equally gigantic) corporations. It is a system that small firms must jump through amazing hoops to fit into because there is nothing in it that was constructed to be a natural fit for them.
Under the circumstances, it is no wonder that we've spent generations telling small business owners that the biggest favor they can do for themselves is to grow to the point that they are not small anymore. It's also no wonder that the failure rate for small businesses is as high as it is.
What we really need is an economy that fits.
Over the last ten years, we've been making one ... and that is the Next Big Innovation to emerge from the small business economy, even if almost nobody has noticed.
You wouldn't think small businesses would be able to invent a whole new economy without somebody picking up on it. But that's what happens when the folks you might expect to notice — people like economists and researchers and policy makers and other economy watchers — watch the economy from the rarefied heights they generally occupy.
They seem to have missed the significance of the way that small and microbusiness owners have been getting together on a global stage, enabled by technologies that make it easy for us to collaborate. We've been figuring out ways to do business that are easier and more comfortable for firms that lack mountains of personnel to deal with mountains of paperwork. In our economy, things move fast (and so do we) and networks are king.
Out of the rubble of the "Great Recession" will be a new American economy. The question to be answered now is whether it will be modeled on the old, 20th century Economy of Giants or whether the powers that be will yield to the evolution of a faster, collaborative, networked system that is a much better fit for a 21st century Knowledge Economy.
Either way, I suspect that we will keep on doing business in the ways we have found to work for us. But I also suspect that a lot of small and microbusinesses out there will not be able to reach their full earnings potential until our economy is the economy.
That will not only be bad for us, it will be bad for whichever economy we happen to share.
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Dawn Rivers Baker, an award-winning small business journalist, regularly reports and analyzes small business policy and research as the Publisher of the MicroEnterprise Journal, where the nation’s business meets microbusiness. She also publishes the Journal Blog.