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Updated Oct 20, 2023

Small Businesses’ Importance to the Economy & Big Business

Small businesses significantly impact big businesses. As a small business owner, learn how to use that influence to your advantage.

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Skye Schooley, Business Operations Insider and Senior Lead Analyst
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This guide was reviewed by a Business News Daily editor to ensure it provides comprehensive and accurate information to aid your buying decision.

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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

Why are small businesses important?

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.

Did You Know?Did you know
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.

Why is the presence of small businesses important for large businesses?

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.

  1. Vendors: Small businesses may provide solutions to specific needs or edge cases that larger vendors do not offer — yet. This is often true when a rising tech startup closes a deal with a Fortune 500 company.
  2. Customers: The U.S. is home to more than 30 million small businesses, so it’s no surprise that they represent a significant chunk of many large businesses’ total addressable market or significant growth potential.
  3. Competitors: Small businesses can signal emerging trends and needs to large businesses.
  4. Partners: Small businesses can offer synergies to large businesses by combining their respective offerings and delivering unique value to customers.
  5. Acquisitions: In some cases, a small business complements the existing offer of a large business so well that it makes business sense for the latter to acquire the former.

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.

How do small businesses influence big businesses?

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.”

Key TakeawayKey takeaway
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.

What advantages do small businesses have over large businesses?

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.

How can small businesses successfully work with big businesses?

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.

  • Adaptability: Small businesses need to be able to tweak products and services to meet the specs their larger partners require.
  • Legal expertise: To limit liability and protect their interests, small business owners need to consult legal experts before signing contracts.
  • Runway: To account for the longer sales cycles and payment schedules that big businesses often have, small businesses may need access to additional working capital to keep them afloat while they wait to be paid. [Read related article: Small Business Financing Options That Bypass Traditional Banks]

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 make a large impact

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. 

author image
Skye Schooley, Business Operations Insider and Senior Lead Analyst
Skye Schooley is a business expert with a passion for all things human resources and digital marketing. She's spent 10 years working with clients on employee recruitment and customer acquisition, ensuring companies and small business owners are equipped with the information they need to find the right talent and market their services. In recent years, Schooley has largely focused on analyzing HR software products and other human resources solutions to lead businesses to the right tools for managing personnel responsibilities and maintaining strong company cultures. Schooley, who holds a degree in business communications, excels at breaking down complex topics into reader-friendly guides and enjoys interviewing business consultants for new insights. Her work has appeared in a variety of formats, including long-form videos, YouTube Shorts and newsletter segments.
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