Economy
Some relevant local statistics about SMBs from the Economic Development Collaborative of Ventura County
In Ventura County there are 20,159 firms with 49 or fewer employees.
These businesses represent ninety five percent of all private-sector businesses reporting payroll employment and they account for nearly half of the county’s private sector jobs.
Among these businesses, 76 percent - or more than 16,000 firms - have fewer than 10 employees.
Our nation faces serious economic challenges as wecontinue to dig our way out from the Great Recession. And even though our political leaders often seem incapable of reaching common ground on how to solve even the simplest problems — let alone the big ones — they do agree on at least one thing. They agree that in order to maintain a sustainable economic recovery and concurrently deal with our growing fiscal and deficit problems, it is mandatory that we start creating new jobs — in a big way — and in a hurry.
Predictably though, when these leaders start talking about how to actually solve the jobs challenge, it seems they get right back to not being able to agree on much of anything. The jobs problem does seem baffling at times. We are constantly bombarded with random news stories and statistical reports about job creation and unemployment; normally stand-alone items that are attention grabbing or politically charged, yet rarely offer any substantive insight into really understanding the problem. There is one recurring theme that stands out, however. It is that most job creation occurs in the private sector, in small- to medium-sized businesses (SMBs).
It turns out that this viewpoint is well-founded, with credible research to support it. According to Census Bureau data, in the prior three economic recoveries, SMBs accounted for the vast majority of new jobs, the bulk of them coming from businesses with fewer than 20 employees. In the new book, “Endgame”, author John Mauldin shares data sets from respected sources that help us further refine the discussion of where jobs are really created. The data focuses mainly on new business start-ups. One study indicates that in the United States, start-ups have created most of the net new jobs over the last 20 years. In fact, the data indicates that from 1977 to 2005, existing companies lost one million jobs per year while new business start-ups in their first year added an average of three million jobs per year. Yet another study indicated that start-ups had been the engine that drove net job creation while, on average, large firms had been net job destroyers. This viewpoint does not overlook the fact that many well known, large companies are indeed growing and creating new jobs (i.e. Google, Facebook, Apple). It just acknowledges the reality that in recent years large companies, when aggregated as a group, have actually been a source of job reduction.
If we look back with the benefit of 20/20 hindsight, it all starts to make a lot of sense. Large, established companies, especially large public companies or companies that are planning to go public, are constantly driven to search for ways to improve near term earnings in order to grow their stock price; both of which are admirable business goals. They employ sophisticated strategies like offshoring, outsourcing, globalization, business restructuring, and industry consolidation/rationalization to reduce headcount and pump up profits. They invest heavily in technology and infrastructure improvements that deliver productivity gains to better leverage their human capital. And for good reason, investing to improve productivity is a sound, laudable business practice that increases profitability and improves competitiveness – but tragically, often at the expense of job creation. On the positive side, however, these large companies, through their supply chains, are often key B2B customers for SMBs and entrepreneurial start-ups and when they are prospering they do provide smaller companies with needed business.
An example of this large public company economic reality manifested itself here locally in late 2007. Amgen, responding to financial and economic realities at the time, found it necessary to reduce its workforce. A large portion of that reduction hit here locally in Ventura County. And as is always the case with occurrences like this, both those inside the company and in the local community felt the pain, economically and socially.
But there is another side to this story, a better side, an entrepreneurial side. Some of the affected employees had valuable skills, skills that crossed many competencies. Some of them got the entrepreneurial inspiration to start a new business on their own instead of looking for another “corporate” position. They started to network and brainstorm with other like-minded people; people with scientific and technical expertise, people with managerial skills, venture funding and legal professionals, and more evolved into more formal networking groups like the BioTech Forum, founded by Brent A. Reinke and John P. Dilts for the purpose of creating an active local eco system within the biotech/life science sector. New entrepreneurial start-ups were formed and funded. Several have already gained market traction and are growing. Local jobs are being created.
So to put it all in perspective, if our goal is to start creating new jobs in a big way, credible research clearly indicates we need to create and support more effective methods to build a vibrant base of private sector small to medium-sized businesses and concurrently foster the creation of innovative entrepreneurial start-ups. This is not to say we do not need to support existing large companies. It is critical that large companies prosper in order to avoid further job destruction in that sector.