Erik Hurst and Benjamin Pugsley of the University of Chicago conducted a detailed study of small businesses. Their findings will probably surprise you.
Here’s what they learned:
Most small business owners do not want to grow. Nearly 75 percent of owners reported that they wanted to keep their business small. Roughly 50 percent of these businesses work in industries with low overall productivity.
Most small businesses do not grow or innovate. Sixty percent of the small businesses surveyed did not add a single employee during a four-year observation period. Ninety percent added fewer than five employees, and 97 percent added fewer than 10. In addition, only 6 to 8 percent of small businesses reported engaging in innovation activities, such as developing new technologies or proprietary business practices.
These findings suggest that small business support is likely to be more effective when encouraging the growth of existing businesses rather than the launch of new startups. Overly broad small business subsidies are likely to go to businesses with relatively low growth potential.
Hurst and Pugsley conducted their study among small business owners based in the United States, but it is likely that their results are representative of small business entrepreneurs in other countries as well. To read more about their research, you can check out their full paper here.
Contributed by Coby Joseph.