How Startups Are Key To The Economic Recovery

Editor's Note: This guest post is written by Justin Moore, the co-founder and CEO at Axcient, a data backup, disaster recovery and business continuity platform.

Despite the promise brought by the latest round of successful IPOs and rallying public markets, the news continues to be filled with headlines around the possibility of a "false recovery." Europe's continent-wide recession and expanding debt issues, rising oil and gasoline prices, an only-modest improvement in the unemployment rate, and the "moderate" growth predicted by the Fed continue to leave people feeling uneasy about the state of the economy. With the underlying and systemic issues still present in the financial sector, some even believe that we could see something akin to the recession of 2008 happen all over again.

But there is one segment that remains very bullish about the future of the economy and where signs of improved growth and economic stability can be found. This "hope" for our economy is in the entrepreneurs who start small businesses — the innovators and dreamers who believe that against all odds they can build something better — create something from nothing, and drive change in
the world.

A 2011 study by Forrester showed that "78% percent of very small businesses in the U.S. (VSBs) expect their businesses to grow in the next two years, and 39% of those expect that growth, by number of employees, to be double." But this really isn't surprising. Small businesses, in a variety of industries, are the job creators of the United States and have been for some time; according to the U.S. Small Business Administration, small businesses represent 99.7% of employers firms and have created 64% of the net new jobs over the past 15 years.

Often times, SMBs have been referred to as "Davids" challenging the larger, less nimble, "Goliaths" of enterprise, and to an extent that is true. But in reality, most SMBs would much rather work with enterprises, building synergies through partnership and deriving mutual benefit from each other. As much fun as it is to take on Goliath, I would posit that by working together, SMBs and enterprises can help change the trajectory of our economy and build a stronger future for the U.S.

SMBs are in a unique position today, especially as it relates to the tech sector — the present and future of the United States and the world. One need only look at Silicon Valley's recent explosion of startups to see that the scrappy small business sector is fueling the growth and innovation in the tech market. These small businesses operate with an understanding that continued, fast-paced innovation and agility will not only help grow their business, but ensure it stays relevant in an ever-changing landscape.

After all, small tech businesses create 13-times more patents per employee than their larger counterparts. However, it's not only tech SMBs that are driving innovation and the economy; other fast-growing markets in 2012 include accounting, biotech, healthcare, and others. Here are a few of the reasons why small businesses in all industries, the new "Davids," will succeed in the years to come.

Resource-Savvy

Small businesses tend to adopt bleeding-edge technology earlier, especially if it means increased efficiencies, streamlined operations, and cost reductions. Whether it's adopting web-based voice services like Skype to reduce phone expenses or deploying collaboration software like Yammer to make distributed workforces more productive and efficient, SMBs often find themselves on the leading-edge of technology adoption. With the evolution and increasing adoption of Software as a Service solutions (SaaS), SMBs no longer need to make major infrastructure investments and can pay for services based on usage and over time, rather than upfront. The SaaS business model combined with the improved efficiencies gained by cutting-edge technologies means less resources are required to start and build a business. This in turn means that more businesses will be, and are already being, created.

Power In Numbers

Individually, SMBs are but drops in the nation's economic bucket, but in aggregate, these powerhouse innovators are actually responsible for a vast majority of economic power and influence nation-wide. According to the U.S. Small Business Administration (SBA) the SMB segment is responsible for nearly 65% of global GDP.

Part Visionaries, Part Realists

The greatest power of SMBs in today's market is their uncompromising vision. Small businesses are born out of passion and are lead by people who want to address a distinct problem, often one they themselves faced. As a result, SMBs tend to have a more ruthless focus, more dedication, and will more passionately pursue a solution regardless of the barriers they encounter. And this is not to be underestimated because, to quote Winston Churchill, "success consists of going from failure to failure without loss of enthusiasm."

While maintaining their fervent desire to solve a problem, SMBs are also realists and understand the need to maintain their business and operate on small cash reserves. SMBs are skilled at figuring out how to gain leverage where possible through trade associations, partnerships, and referral networks. However, the "Holy Grail" for a small business is a partnership with a larger company whose brand, channel, sales force or distribution can be leveraged; David working with Goliath to the benefit of both parties. Smaller, more agile companies are where real innovation happens and it is this innovation that larger companies need to stay on top of their own legacy programs. Look at history and you'll see a long tradition of smaller and larger companies working together to mutual benefit; Microsoft and IBM, Genentech and Eli Lily, etc.

David and Goliath Working Together

Unfortunately, a NBH (Not Built Here) mentality is forming in larger companies these days. As an example, I can think of one particularly large company that insists on using its own homegrown CRM system when there are far better systems out there like Salesforce.com. The NBH mentality is detrimental to larger companies, smaller companies and the economy at large. Enterprises should be looking to SMBs for the next generation of technology as it is in their best interests as well. Microsoft has done a great job of this with their BizSpark program which provides startups with Microsoft software, tools and resources to leverage in starting a new business, and which in turn encourages small businesses to use and develop on Microsoft platforms; a true symbiotic relationship. The reality is, when enterprises and SMBs collaborate, both parties win.

Now is the time to address the needs of the six million innovative and savvy sub-1,000 employee companies pouring their passion into the economy. But, it's not just up to the government to provide support and incentives for SMBs, it's up to the broader business ecosystem. If enterprises and small businesses collaborate together, they will empower job creation, and can help fuel the new wave of American business and innovation, with smaller companies becoming the new Goliaths to reckon with.

Excerpt image from ArtMarketBlog.com