Posted by: John Tozzi on February 2, 2012
Small businesses have increased their share of exports in the two years since President Obama set a goal to double U.S. sales abroad by 2015, according to new federal data.
Companies with fewer than 500 employees accounted for 35 percent of exports in the third quarter of 2011, according to preliminary figures from the Census Bureau, up from about 32.8 percent in 2009. The figure, from a report set to be released in April, refers only to sales of goods, not services.
"Ninety-eight percent of U.S. exporters are small and medium-sized enterprises but these exporters have historically represented only 30 percent of U.S. export value," Tim Truman, a spokesman for the Commerce Department's International Trade Administration, said in an email.
The increase follows a two-year government effort to expand the reach of American companies by increasing trade financing and technical help to businesses that want to export.
Still, the results of those efforts are modest, says Laurel Delaney, president of GlobeTrade, a Chicago-based consultant to exporters. "It's like the needle isn't really moving much for the small business market," she says. Delaney says measuring service exports might show greater growth among small businesses because of the ease of doing business online. The government doesn't track service exports by company size.
One federal initiative that could help: loosening export controls, or restrictions on selling components of military technology that may have other commercial uses. "A U.S. company can't sell that particular part...even though it may be used on a conveyor belt in Germany," says Todd McCracken, president of the National Small Business Association, a Washington, D.C., trade group. "We think there's a lot of potential there to both increase exports and increase the competitiveness [of small business] in other countries."
The National Export Initiative aims to increase U.S. exports to $3.14 trillion in 2015, double the level of 2009. Last year, total exports (of goods and services) reached $1.9 trillion through November, up from $1.4 trillion in the same period in 2009. Obama said last week in the State of the Union that the U.S. was on track to meet that goal ahead of schedule. Full year data for 2011 will be released Feb. 10.
Photograph by Ken James/Bloomberg
Posted by: John Tozzi on January 31, 2012
It's no secret that the years since the financial crisis have been tough on small business. What's more surprising, though, is that their role in the U.S. economy had already been diminishing for years before the Great Recession. Small companies' contribution to America's total economic activity and job growth has dropped significantly in the last decade, according to a new paper from the Small Business Administration's Office of Advocacy.
Companies with fewer than 500 employees were long thought to make up half of private non-farm gross domestic product and create 65 percent of net new jobs, according to widely cited government research. In fact, their share of GDP dropped from 48 percent in 2002 to 46 percent in 2008, and probably weakened further in the next two years, according to a new analysis for the SBA by economist Kathryn Kobe.
And even though small businesses are widely hailed as job creators, over the last three quarters in 2010 they were responsible for just over half of net new jobs, the paper suggests, compared to two-thirds in earlier periods. Kobe cautions against drawing too many conclusions from such a short period, however. "During different parts of the business cycle, there's different things going on in small and large businesses," she said in an interview.
As the report notes, corporate profits (which are dominated by large businesses) rebounded faster than other business income (from sole proprietors, partnerships, etc.) after the 2001 recession, and we saw a similar pattern in this recovery. Construction is a big part of the reason. Small businesses employed 84 percent of construction workers in 2008. That industry took the biggest hit from the housing collapse and has been the slowest to recover.
In other industries, such as wholesale and retail trade and professional services, the small business share of GDP declined as the industries consolidated and small companies employed fewer workers than before. "It's a combination of how small businesses are doing within these sectors but also how important these sectors are to the overall economy," Kobe says.
Her analysis also uses new data to more precisely determine what counts as a small business. Starting in 2002, the paper counts large companies that are not incorporated (such as big law firms still organized as partnerships, or big LLCs) as large businesses. Before that, these were automatically counted as small companies (the data to discern larger entities wasn't available).
That change in methodology helped take two points out of small businesses' contribution to the economy, measured at 50.3 percent in 2001 and, with the new method, 48.3 percent in 2002. After that, however, the decline is fairly consistent. And though the numbers for the last two years in the paper were based on trends rather than complete data, Kobe's research suggests that by 2010 small business accounted for less than 44.6 percent of private non-farm GDP -- a meaningful drop from the start of the decade.
Posted by: John Tozzi on January 31, 2012
The White House called for making it easier for small companies to raise money by selling shares to the public as part of a package of proposals intended to aid small businesses.
For some small companies going public, the change would delay some requirements of Sarbanes-Oxley that have to do with internal controls.
"We define a new kind of company that we call an emerging growth company," says Mary Miller, the Treasury Department's assistant secretary for financial markets. "We are trying to loosen up some of the requirements that make it difficult for a company to price an IPO," she said on a conference call with reporters today.
Specifically, the change would apply to companies with revenue under $1 billion that have issued less than $1 billion in debt and are floating less than $700 million in publicly-held shares, according to an outline provided by the White House (PDF). The so-called "IPO on-ramp" period would last up to five years. Businesses would still be subject to the other reporting requirements that apply to public companies.
(Some more background on the piece of SarbOx, the post-Enron law designed to prevent financial fraud, that would be loosened for small companies is here.)
Startups and venture capitalists have long complained that the high costs of complying with regulations discourage startups from going public. The National Venture Capital Association backed the IPO on-ramp idea in testimony in December (PDF) and suggests that it would apply to less than 15 percent of companies now trading on U.S. exchanges.
White House officials on the conference call, including Small Business Administration chief Karen Mills, kept repeating that the president's small business proposals today are intended to get bipartisan support in Congress. That may seem unlikely in an election year and a Congress in gridlock with bitter divisions. But easing rules for small businesses raising capital was one issue both parties in the House, at least, could get behind last year.
Posted by: John Tozzi on January 30, 2012
Banks reported the greatest increase in demand for loans from small companies since 2005, the according to the Federal Reserve's survey of senior loan officers out today. That may be good news for job growth later in the year. From Bloomberg News:
While business demand for borrowing increased, banks reported "little change in standards on commercial and industrial loans but a continued easing of pricing terms," the survey said. The pickup in business lending was a reversal of the previous survey, released in November, in which more banks reported a drop than an increase in demand.
Banks and businesses may be "moving away from the 'buckle down' approach," said Drew Matus, senior economist at UBS Securities LLC in Stamford, Connecticut.
"If a firm wants to expand they typically need to borrow money to do it," Matus said. "So at a minimum this suggests we should still be looking for decent job growth over the next three to six months."
Small firms in this case are defined as companies with less than $50 million in annual sales. Of 53 banks that answered the question, 14 said they saw stronger demand from small firms and six said they saw weaker demand. In the last survey, released in October, only four banks said demand from small companies was stronger, and 13 banks said it was weaker.
Posted by: John Tozzi on January 27, 2012
Since Hurricane Katrina, New Orleans has reinvented itself as a bit of an entrepreneurial hub, replete with incubators and accelerators and an Entrepreneur Week now in its fourth year that draws visitors from Google, Stanford, and venture capital firms. It has homegrown success stories like the Receivables Exchange and Naked Pizza that now have national profiles.
The groundwork for building a startup community in the Crescent City began long before Katrina put it in the spotlight. Part of the effort originated in 1999, when New Orleans native Tim Williamson met at a bar with four other entrepreneurs to discuss ways to counter the brain drain that began in the city in the 1980s. The tech boom of the 1990s had largely missed New Orleans, Williamson says, and most people with good business ideas left the city because they encountered an insular business community with little support for new entrepreneurs. Williams soon co-founded the Idea Village, a decade-old nonprofit intended to change that. His question: "How do you make entrepreneurship part of your culture?"
It's a question cities across the country are trying to answer. From New York to Detroit to Cleveland, business and political leaders see high-growth entrepreneurship as a salve for unemployment and decay, especially in areas where manufacturing or other industry has disappeared. Smaller cities are seduced by the prospect of becoming the next Boulder or Austin, centers of technology and growing industries that draw young, educated workers and high-paying jobs.
"I believe this can happen anywhere," Williamson said in an interview yesterday. That's not to say it's easy, or that every plan to make Akron or Omaha into a startup center is going to work. Williamson says that cities plunk down big sums and try to orchestrate entrepreneurial revivals from the top down are likely to fail. Local entrepreneurs need to lead the effort and build relationships in different networks throughout the city. "It takes time. It doesn't take money," he says. "Lack of money is good, in a sense." That forces communities to develop local support for entrepreneurs organically, rather than, for example, building a shiny new incubator building.
The job's not done. New Orleans still doesn't have the sophisticated investors that help make Boulder and Austin attractive places to start companies. Williamson says no venture capital firm has an office in the city, and many of the angel investors are funding companies for the first time. But more than a decade's work has created an environment more welcoming to innovators and entrepreneurs. It's welcoming enough that iSeatz, a homegrown tech company that left for New York after Katrina, moved its headquarters back to NOLA in 2007. "There's a belief now that New Orleans is a great, supportive environment," Williamson says. "People don't leave when they get funded."
