According to a recent article in Slate, “Why Small Businesses Aren’t Innovative,” as world governments have reacted to the recession, significant focus has been placed on job creation and how to best support the so-called small business owner. Indeed, the small business owner has long been considered a central force behind the world’s free economies. At Endeavor, we too have long championed SMEs, but with a caveat. Our focus has been on scalable or “high impact” SMEs — businesses that have significant growth potential and can therefore play a disproportionate role in emerging market development.
The article goes on to discuss how in their scramble to find ways to motivate entrepreneurs to invest, expand, and hire, academics and policy makers have uncovered some interesting outcomes. In particular, in their paper “What Do Small Businesses Do?,” University of Chicago economists Erik Hurst and Benjamin Pugsley have shed light on the importance of identifying businesses truly capable of significant expansion. According to Hurst and Pugsley, the growth-seeking and innovative entrepreneur is truly a rare thing; and most small business owners lack both the desire and the innovative idea necessary to foster significant growth.
Inasmuch as this is the case, there are significant implications in terms of public policy. Rather than create programs designed to stimulate small businesses en masse, perhaps it would be more efficient to focus on those rare entrepreneurs capable of creating the kind of growth that we so desperately need. In other words, when seeking scale, stimulate the scalable.
A new Ernst and Young sponsored report released by Endeavor and the Global Entrepreneurship Monitor (GEM) provides a similar perspective, validating that a powerful answer to job creation lies in high-impact entrepreneurship. Endeavor has long held this view — and the increased focus on business solutions to employment in light to today’s economic climate seems to have lent it further credence.