Don’t be fooled: Entrepreneurship’s an important economic force

Most small businesses fail. And, of those that don’t, the majority stay small–really tiny, with no employees and less than $100,000 in revenues. That’s according to an analysis of data from the U.S. Census, the IRS, and the SBA’s annual publication, Small Business Economy, by small business expert Scott Shane in an article in Business Week.

To wit:

While it may be true that some entrepreneurs provide substantial economic benefits, our view of what the typical entrepreneur can—and wants to—accomplish is greatly overestimated. In large part, this is because the typical entrepreneur—out of about 12 million people trying to start businesses every year—has low aspirations.

via A Typical Entrepreneur’s Aspirations – BusinessWeek.

For Shane, the implication is that the typical entrepreneur  creates few jobs and, as a result, adds little in the way of new wealth to the economy. And that is meaningful for lawmakers who have what he considers to be the mistaken impression that entrepreneurship automatically leads to job creation and, therefore, is a boon to the economy.

To which I say: So what? There are many lens with which to evaluate the contributions entrepreneurship makes to the economy. And job creation is hardly the only meaningful one.  For example, one Business Week reader pointed out that, although he has no employees, he still pays the same income tax he used to when he was employed and pays a lot in sales and corporate tax. “I’m contributing twice as much in tax revenue as before, which can only be a good thing in view of the current deficit,” he writes.

In addition, even though only 9.4% of U.S. businesses have more than four employees, according to Shane,  that still means there’s a significant number of people who would be out of a job if it weren’t for those small firms.  That’s also true for those entrepreneurs who have no staff but, basically, are creating their own employment.

The bottom line is that, despite the low aspirations of most entrepreneurs, startup creation is an important economic force in the economy. And it should be treated that way by policymakers.