As National Small Business Week is this week, it might be time for Americans to rethink how we define “small businesses” altogether.
Small- and medium-sized businesses have become synonymous with Main Street mom-and-pops, and we’ve celebrated them as a source of optimism, woven into the fabric of our country. Every U.S. President since Reagan has praised small businesses during the State of the Union Address as the “backbone of our economy.” Neighborhood SMBs have been featured in mayoral photo-ops, and continue to be the subject of glowing advertising campaigns. However, what defines a successful small business today—particularly one that is an engine of sustainable job growth—is something entirely different than the Norman Rockwell images of the past.
The linchpin of our beliefs about SMBs stems from Small Business Administration data about how small firms employ more than half of the private-sector workforce and make up 99% of U.S. employers. This methodology behind this data—now widely repeated by politicians and pundits alike—dates back decades ago, when MIT researcher David Birch, in his book The Job Generation Process, disproved the once-unassailable notion that large firms were at the heart of the American economy. From 1969 to 1976, Birch wrote, companies with 100 or fewer employees created more than 80% of all new employment. This was shocking information at a time, when corporations were king.
Today, what’s more shocking is that this monolithic view of small business persists. As technology increasingly powers and transforms our economy, why do we put the local laundromat and the software startup in the same category? Yet, that’s how many mainstream experts still count SMBs in this era of smartphones, cloud computing, and online marketplaces. Business looks very different in 2018 than it did when Birch wrote his pioneering paper; for one thing, we’re doing a lot more of it online, in real-time, and on smaller screens.
At Stripe—a technology company that builds economic infrastructure for the internet—we work with hundreds of thousands of businesses around the world, most of them high-growth startups. And while there are many versions of these incredible growth engines, three emerging business models are worth pointing out: microplatforms, enablers, and adopters. These models are exciting not only because of the new jobs they create using technology, but also because of how they enable traditional businesses to tap into the internet economy as well.
Let’s start with microplatforms. Much has been written about ride-sharing companies like Lyft, e-commerce marketplaces like Amazon, or travel companies like Airbnb. But outside of these large tech platforms, a host of smaller marketplaces are cropping up in local markets and niche industries. These businesses get-to-market quickly and provide exceptional experiences for their sellers and service providers, who can often be traditional SMBs themselves. Examples include Imperfect Produce, delivering “ugly food” to customers for 30-50% less than grocery stores; artcloud, where artists and galleries can sell beyond their foot traffic to more than 4,000 online art collectors globally; and GeSoo, a Chinese-language restaurant delivery app that connects 90% of family-owned Chinese restaurants in LA to mobile-first, on-demand customers.
Then we have the enablers. These upstarts provide technology infrastructure and tools so that traditional SMBs can better compete with much larger, entrenched market players. Amplicare helps mom-and-pop pharmacies better navigate healthcare regulations and automate cumbersome paperwork, saving them $363 million last year alone. Freightview builds software that analyzes big data to help small business manufacturers find the best deals on mass shipping options, saving them an average of 10-15% on every shipment. And Rentalutions provides software to help more than 60,000 landlords nationwide find, screen, and keep tenants—fostering more responsible communities.
And, finally, the adopters: These are classic offline businesses who have pivoted their business models and moved online, either into ecommerce, marketplaces, or subscription-based business models. Take the Missouri Quilt Company. What started as a small quilting supply store in Hamilton, Mo., has grown into the Amazon of quilting. While 90% of its multimillion-dollar business is now online, Missouri Quilt remains the largest employer in Caldwell County, with hundreds of employees, physical stores, and even restaurants.
In reality, all businesses start small.
But it’s important not to forget the real question: Are all small businesses the same? The answer, ironically, brings us back to Professor Birch. In 1994, realizing that he had lumped SMBs of all ages and maturities together, he revised his thesis. In isolating the job-creating companies that we know today as startups, Birch called them “gazelles”—not because of their small size, but because of their expansionary quality; their sales doubled every four years. By his estimates, these firms, roughly 4% of all U.S. companies, were responsible for 70% of all new jobs.
We need to reframe the conversation about SMBs and make sure we’re deploying the right sorts of policies and incentives in our cities—and in our country—to help these gazelles grow, thrive, and create jobs. With the technology age upon us, we should laud the microplatforms, enablers, and adopters, as much as we do the mom-and-pops. And we should have an honest discussion about economic policy in the United States that goes beyond the platitudes of the past.
You might think this cause for alarm, but redefining what small business means could redefine how new jobs are created and sustained in the United States for years to come. The “backbone of our economy” may mean something different these days, and I think that’s a reason for optimism.
Claire Hughes Johnson is the chief operating officer of Stripe and a board member at Hallmark Cards. Previously, she was a vice president and the director for online sales and operations at Google.
Johnson holds a bachelor’s degree in English literature from Brown University and master’s degree in strategy and marketing from Yale School of Management.
Johnson lives in San Francisco, California, United States.