[Solution] Entrepreneurship and Society

Starting a new business is a high-risk endeavor, as many new ventures soon fail. Some, however, become extremely successful. Every long-established business was new once upon a time. Despite the challenges involved in starting and running a small business, these enterprises play a large role in the economy.

Small Businesses as Employers

Figure (a) shows that over 85 percent of U.S. businesses employ fewer than 20 people. Figure (b) shows that about a fourth of U.S. employees work for firms with fewer than 20 workers and slightly more than half of all U.S. employees work for firms with fewer than 100 workers.

Jobs are created by entrepreneurial companies of all sizes. Hiring at small firms is more volatile than at larger firms. For example, small firms are usually the first to hire during economic recoveries, but they are often the first to let employees go during economic downturns.

Small Businesses as Innovators, Suppliers, and Purchasers

Small businesses play several important roles in the economy beyond employment:

• Innovation: Small businesses often develop new products, services, and business models that larger companies may later adopt or acquire.
• Supply Chain: They frequently serve as suppliers to larger businesses, providing specialized components, services, or expertise.
• Local Economic Support: Small businesses tend to purchase from other local businesses, creating economic multiplier effects in communities.
• Niche Markets: They often serve market segments that are too small to be profitable for larger companies.