Small businesses are often seen as the little guys, but they actually make up the majority of the U.S. economy. Small businesses account for over 99 percent of American businesses and employ more than 46 percent of all private-sector employees, according to the U.S. Small Business Administration (SBA). With such a large footprint in the U.S. economy, it’s clear small businesses are the backbone of America.
As a small business owner, you should know the value of your business and how you impact those around you — including big companies. Read ahead to learn about the extensive influence small businesses have on the economy and large businesses.
>> Read next: The Problems That Can Kill Small Businesses
Small businesses are important for many reasons — such as job creation, exports and innovation — but perhaps their biggest impact is on their local communities. Leslie Hassler, a small business strategist, explained how successful small businesses leverage their resources within their communities.
“As small businesses continue to scale, their impact on the economy strengthens as they hire more people and build more connections with other small businesses and nonprofits, which knits an ecosystem of personal connections,” Hassler told Business News Daily. “Today’s small business owner is not only concerned with their personal success but the success of their team and their communities.”
In fact, every dollar spent at a small business is two to four times more likely to recirculate within the local community. This cycle stimulates the economy.
According to Civil Economics, roughly 53 percent of every purchase made with a small business is likely to recirculate in the local economy. In contrast, only 13.6 percent of a purchase from a large chain retailer is likely to recirculate in the local community.
Although it may seem like large companies hold the power in our economic society, the very existence of small businesses is a key element in their success. Thibaud Clement, former CEO of Loomly, shared with us five ways small businesses can represent significant opportunities for large businesses.
Without small businesses, large companies would not be able to thrive the way they do. Small businesses provide many essential opportunities that cannot be overlooked.
Small businesses influence big enterprises in several ways. For example, Hassler said that many large businesses learn from the ingenuity, innovation and agile management of a small business. Since big businesses are often bogged down by red tape, they watch small business trends to see what’s working efficiently in the market in real time. They then use those pivots to make quicker data-driven decisions.
“Because small businesses are more agile than big businesses, the decision-making process is much faster,” Hassler said. “That means smaller businesses can test new technologies, processes, systems and marketing methods much faster than big businesses.”
In addition to spearheading innovation, Angelique Rewers, CEO of business strategy company BoldHaus, said that small businesses act as competition to big businesses in the war for talent, which is impacting the standard for workplace culture and diversity.
“Smaller companies are able to more easily create workplace cultures and work-life integration programs that employees today are looking for,” Rewers said. “But I would argue this is good for big businesses because it’s pushing them to do better on diversity, leadership programs, wellness and more.”
Small businesses often lead the way in the overall business landscape. They tend to influence workplace cultures and debut new products and strategies before larger enterprises.
Due to their strength and resources, large corporations have many advantages over small businesses; however, the opposite statement can also be made. For example, small businesses benefit from a higher threshold for risk tolerance and speed. They can freely innovate and change as needed since they aren’t blocked by as many protocols, guidelines, office politics and management layers that hinder big businesses.
Additionally, Clement said small businesses typically benefit from fewer legal regulations.
“While all businesses must follow the law, some specific laws apply differently depending on the size of a business, usually with additional requirements for larger businesses compared to smaller businesses,” he said. “This is especially true when it comes to human resources, with specific responsibilities applying when a company grows over 20, 50 or 500 employees.” [See local legislative issues small businesses should be watching.]
Furthermore, since small businesses typically work closely within their local communities, they have the ability to better understand the needs of their customers.
“The biggest advantage — and the one we hear most often cited by corporate customers — is that small businesses are hyper-responsive to their needs,” Rewers said. “They can turn on a dime, and in today’s world, agility is everything.”
On top of keeping a finger on the pulse of what consumers want and adjusting their strategies accordingly, small businesses can better segment their customers and offer a more personalized experience. This is vital, as consumers are increasingly demanding personalized products and services.
Small business owners shouldn’t fear large corporations, and vice versa. The two can work together harmoniously. That said, small business owners should be aware of a few things when working with large enterprises.
Clement said big businesses have more internal processes and policies, which come with time frames to respect, rules to follow and requirements to meet. To combat this, he listed three strengths that small businesses need to succeed when working with big corporate entities.
Small companies have the potential to thrive alongside bigger businesses in today’s marketplace as long as they stay vigilant. They are the lifeblood of the U.S. economy and should use their resources and size to their advantage.
“There exist more opportunities today for both small and large businesses to thrive, even in a cooperatively competitive way,” Hassler said. “It will take continued intention from both sides to see that today’s symbiotic relationship continues to flourish.”
Small businesses are a critical part of thriving local economies, and their effects can be felt beyond their immediate geographic radius. With fewer regulatory limitations to consider than large companies, small businesses can more easily test new products and strategies that could become big trends and game changers across the national economic landscape. The innovations of small businesses today can easily influence the larger business community tomorrow.
Natalie Hamingson contributed to this article. Source interviews were conducted for a previous version of this article.