THE BLOG

Micro-Business Is the Backbone of the U.S.

11/06/2013 10:56 am ET | Updated Jan 23, 2014

President Obama declared November is National Entrepreneurship Month. I want to recognize a special subset of entrepreneurs who may or may not be inventing the next big technological advancement, but who are taking risks and are the backbone of our economy -- micro-business owners.

Very small businesses create the jobs. Period. Firms with one to four employees, known as micro-businesses, are stronger than other sized businesses when it comes to job creation. Yet most, if not all, of our job creation efforts are focused on incentives that help large businesses create jobs. In a time when income inequality is at its highest level since 1923 and labor force participation is on the decline and is at the same level as in 1978, we need to support efforts that truly create jobs. What we're doing now to drive job creation is not working.

Our leaders say they support small business. Here's their chance to be heroes. Forget a government shutdown and support new innovative investments and policies that support business formation, self-employment and the start up of lots of very small businesses.

We recently crunched some numbers from the Small Business Administration. What we found astounded us and confirmed what we knew from 25 years of experience in the micro enterprise field. When business is broken down by firm sizes as measured by employees (1-4, 5-9, 10-19, 20-99, 100-499, 500+) the job creation numbers tell us that micro-businesses create all the jobs. From 2004 to 2010, the smallest of the small U.S. businesses created a net of 5.5 million jobs, while the largest businesses lost 1.8 million jobs during the same period. Very small businesses created jobs every year and mostly created more jobs than any other firm size. During 2009 and 2010, micro-businesses were the only firm size that created jobs.

'Micro-businesses as job creators' also holds true across states. Micro-businesses were net job creators in all 50 states and the District of Columbia, the only firm size to claim that. In California, micro-businesses created 720,000 jobs and big businesses lost about 300,000 jobs over the time period. In 48 states, very small firms created more jobs than any other firm size; Alaska and New Hampshire were the only two states in which micro-businesses created fewer jobs than large businesses. For most states, other firm sizes lost jobs. If there had been no net jobs created by micro-businesses, 16 states would have had worse job losses than they experienced and 31 states would have had net job losses instead of positive job creation.

So it's not just small business that's the backbone of the economy, micro-business is the backbone. It's the 25.5 million micro-businesses or 88 percent of the country's businesses that are the backbone.

But that backbone receives little to no institutional support.

Investment in the micro-business field is less than 3 percent of what's invested by venture capitalists. Most efforts to help entrepreneurs are focused on high growth businesses. Everyone wants to be the next Facebook, but only 1 percent of those businesses will actually scale and employ more than 10 people. Budgets for programs that are proven to create jobs have been slashed at a time when they are needed the most.

And policies for small business rarely help micro-businesses. They don't hire another person because of a tax credit or a visa, they hire another person because they have more business, more customers, more demand.

Start-ups and very small businesses need three basic things to succeed -- business coaching and training, connections to customers and small amounts of capital. Everyone understands money, so I will emphasize the training.

Business assistance programs teach business owners to create a viable business model, write a well thought out business plan, identify target markets, create a marketing plan and find new customers. When business owners receive business assistance, they have an 80 percent success rate and create two jobs on average over three-to-five years. According to Association for Enterprise Opportunity, these businesses generate $2.4 trillion in receipts and account for 17 percent of GDP and employ more than 31 million people.

Imagine how much stronger our economy could be if we doubled, or tripled our investment in micro-business development programs. We wouldn't be limping through an economic recovery; we'd be jumping into a stable future for everyone.

Claudia Viek is chief executive officer of San Francisco-based CAMEO - California Association for Micro Enterprise Opportunity, a statewide network of organizations that promotes economic opportunity through entrepreneurial training and microloans.