In business, size does matter, especially if that size is small. Independent businesses with fewer than 500 employees represent 99.7% of all employer firms, according to the SBA’s Office of Advocacy. They employ about half of all private sector employees, which make up about 43% of the country’s private payroll. And more than half are based out of an owner’s home. Incidentally, don’t knock the domicile as a business incubator. After all, that’s where Apple, Hershey’s, Mary Kay Cosmetics, and Ford started.
With numbers like that, it’s not hard to see why small businesses are often called the “backbone” of the U.S. economy. But did you know that these “little” companies are also responsible for hiring 43% of high-tech workers and produce 16.5 times more patents per employee than large firms? Or that small business accounted for 65% of the 15 million new jobs created between 1993 and 2009? No wonder President Obama is leaning on Congress to pass legislation that would give income tax credits and allow deductions on the full value of investments made this year.
Staggering stats aside, there are plenty of great ideas that don’t ever make it off the table or shutter just beyond the starting gate. Bureau of Labor Statistics data indicates that only about half of small business survive past the five-year mark.
So in the spirit of helping more startups and growing enterprises succeed, Fast Company is kicking off National Small Business Week with a compendium of wisdom we've gleaned over the years.
Take a Risk
Though his signature style is rife with cynical wit and wry wisdom, novelist Mark Twain offered this tidbit which is helpful for anyone pondering the leap to entrepreneurism: "Twenty years from now you will be more disappointed by the things you didn't do than by the ones you did do. So throw off the bowlines. Sail away from the safe harbor. Catch the trade winds in your sails. Explore. Dream. Discover."
Kim Jordan, cofounder of New Belgium Brewing Company, says taking the plunge is fine--after you’ve assessed the market.
Is Your Idea Good Enough?
Adam Goldstein, the 22-year-old founder of Hipmunk’s online air travel booking platform, boldly claimed he was out to build the best travel site on the web. "And by 'best,' I mean the site that helps people find what they're looking for with a minimum of agony." Goldstein had a simple litmus test for launching: "The way that I knew it was good enough to build a company around was that it was built around a problem that I actually had.”
And If It Isn’t, Can You Pivot?
When airlines started cutting commissions, Hipmunk fearlessly took a hard turn toward hotels. All this iterating happened in just two years. That’s the small business advantage, says Bonin Bough, global head of digital at PepsiCo.
“Their ability to launch a product, rapid prototyping, understanding whether it is working or not, and then move directions, but realize they have a great core asset. And so they are not afraid to fail and they are not afraid to change.”
Ditch the Strategic Plan
To stay nimble (and use it as a competitive advantage), Kaihan Krippendorff says new businesses in growth mode need to move away from strategic planning and concentrate on strategic thinking. There isn't enough time or resources for such a small payoff. “This doesn’t mean small-growth companies should fly blind. It means they should adopt an adaptive opportunistic approach to strategy. They should plan in the hallway, not the boardroom.”
Focus on What Matters
Instead of buying a computer to track sales, Jim Koch, founder of Sam Adams Brewing Company, learned it was smarter to spend time making sales calls so he’d have something to track. In an interview with Shawn Parr, Koch said, “When you start a business, you have to do everything and it’s important to focus on the activities that provide the best return on time invested. Yes, our bookkeeping was a mess in our first year, but I decided that if we failed, the IRS wouldn’t care about us, and if we succeeded, we would be able to afford lawyers and accountants to straighten things out. So we focused on the things that did matter: making great beer and working hard to sell it.”
Tap the Wisdom (and Funds) of the Crowd
Platforms such as Kickstarter and Indiegogo have made it possible for small businesses to raise capital for their ideas. They are especially helpful for first-time entrepreneurs who don’t have a track record, professional network, or collateral to get a traditional bank loan or attract venture capital or angel investments.
But crowdfunding isn’t free money, warns Eric Migicovsky, founder of Pebble. The concept watch that talks to your smartphone raised a record $10.2 million in 30 days, but Migicovsky explains that the company’s success was four years in the making and during that time, he learned some important lessons. Namely, that entrepreneurs need to be wary of “windfalls” and be sure to factor in taxes, cuts for the platform (Kickstarter takes 5%), manufacturing costs, fulfillment and shipping costs, and attorney’s fees and business licensing fees, which vary by city and state.
Stick to Your Principles
Now that he’s led Facebook through a successful IPO, Mark Zuckerberg’s leadership skills are going to be under closer scrutiny than ever. So far, though, the boy CEO, whose mammoth company started in a dorm room, has demonstrated nearly a decade of unwavering dedication to his overall personal philosophy, which is not just about making money.
Don’t Be Afraid to Fail
Ziad Dalal is currently at the helm of Nestle Toll House Cafe By Chip, but the founder of the global dessert franchise had to rise from the ashes of a previous failure. His smoothie chain Frullati got caught in the real estate crash of 1987. “I lost my shirt. I was too young and too stupid,” he confesses.
Leveraging the two remaining locations and a lot of sweat equity, Dalal eventually created the Nestle Toll House Cafe concept. “When I was young my dad used to tell me a story about Napoleon burning his ships so his men couldn’t retreat from the enemy. They won. I have nowhere to go but realize my goal to be the premier global dessert cafe. I want to make history and I think we can do it.”
Think You Don't Need a Website? Think Again
Even if the competition is bigger, small businesses shouldn’t be afraid to use available resources to grab market share. That starts with a web presence. Almost all consumers (97%) check the web before buying a product or service, according to a BIA/Kelsey study. So get online to get noticed. That's particularly easy thanks to search giant Google's initiative to go after small businesses websites that are just as slick as the big guys.
Good Things Come to Those Who Wait
Even Steve Jobs started small (think his garage) but he understood the value of perseverance. He likened building a company to a marathon, rather than a sprint. "To do anything of magnitude takes at least five years, more likely seven or eight."
Keep on Truckin’
Not everything Thomas Edison invented turned into gold (or light, or phonographs, etc.). Concepts like concrete didn’t take off because of the expense. But Edison’s company was eventually called to build Yankee Stadium. His words of encouragement to those ready to throw in the towel (or the balance sheet): "Many of life's failures are people who did not realize how close they were to success when they gave up."