Ep. 54: Small Business Fun Facts: What to Know Before Starting a Small Business

00:00:00

Andrea Marquez: We are constantly hearing that small businesses are important. They contribute so much to the economy and they give people jobs. It's why I love working on this podcast. I get to elevate their stories and give you tips and key lessons on how to start, build and grow your business. We've covered a lot on how to get into entrepreneurship, but we barely scratched the surface on why you should do it, and since sometimes it can feel like you don't have access to the same resources as other people, is it really a good idea to start a business?

Hi, I am Andrea Marquez, and This is Small Business, a podcast brought to you by Amazon. Today we'll be digging into the importance of small business, some of the challenges to expect and how to navigate them. So whether you're already starting a business and need a quick refresher on why the work you're doing is important, or if you're considering starting one but feel like the odds are stacked against you, then this episode is for you. But first, let's start with the basics. What is entrepreneurship?

00:01:14

Kylie Hwang: I define it as a labor market status, which is distinct from paid employment. So working for an employer, which essentially means that it's individuals who start their own businesses, and I think it will include small businesses, even businesses that aren't incorporated or don't have employees. So it's a pretty broad definition that I think about.

00:01:32

Andrea Marquez: That's Kylie Hwang, an Assistant Professor at the Northwestern University, Kellogg School of Management. Kylie says that entrepreneurship is important in many different ways. The first is job creation.

00:01:45

Kylie Hwang: So according to the Small Business Administration, small businesses actually generated 1. 5 million jobs and account for around 64% of new jobs in the US.

00:01:54

Andrea Marquez: And they don't just stop at providing jobs. Karen Kerrigan, the President and CEO of the Small Business and Entrepreneurship Council says that most small business owners also like to focus on providing quality work life to their employees.

00:02:10

Karen Kerrigan: They want to pay them well, they want to provide them with healthcare. They want to provide them with the best benefits that they can to retain their workers. Sometimes it's just very, very difficult, costly and expensive. That's why we're working on solutions to bring down the cost of healthcare and other benefits and making it much easier for these employers to provide the benefits that their employees deserve.

00:02:34

Andrea Marquez: When thinking about entrepreneurship, the word innovation also comes up. Karen says that 80% to 90% of patents are actually filed by small businesses.

00:02:44

Karen Kerrigan: When you look at the innovation and the competition and all the vibrancy, it is coming from individual entrepreneurs who have these great dreams and they're taking them to the marketplace.

00:02:55

Andrea Marquez: This is something that Kylie also points out.

00:02:58

Kylie Hwang: Entrepreneurial firms, and you're probably thinking about your typical Silicon Valley type of tech startups, have been really at the forefront of innovation and technological developments. They're the ones doing creative destruction. So that's also been a reason why entrepreneurship has been seen as so important to the economy and the society in general.

00:03:17

Andrea Marquez: And that leads us to another point, economic growth.

00:03:21

Karen Kerrigan: When you look at every sector of our economy, whether it's technology, agriculture, manufacturing, biopharmaceutical, energy, retail, it's all dominated by small businesses and the entrepreneurs behind those firms that are really helping to make our economy more vibrant and more competitive and viable.

00:03:41

Andrea Marquez: Kylie says that there's one more reason why entrepreneurship is important.

00:03:45

Kylie Hwang: Entrepreneurship in small businesses really provides opportunities for marginalized group members to actually find jobs and gain employment that would otherwise not have been possible for them and actually work and achieve financial success and independence.

00:04:03

Andrea Marquez: I'm really excited to dig into that. We've talked about this on previous episodes of This is Small Business, but when you see people who look like you succeed in something you want to achieve, like starting a business, it makes it seem more achievable. And Kylie says that marginalized individuals are increasingly becoming entrepreneurs because of two reasons. The first is because the barrier to entry is low.

00:04:27

Kylie Hwang: There are a lot of platforms that provide ways to become an entrepreneur more easily, a lot of online things that you could do, for example. So that's making marginalized individuals more likely to become entrepreneurs because it just lowers the barrier to go into entrepreneurship, compared to the old ages where you actually had to have more financial capital, social capital, et cetera.

00:04:48

Andrea Marquez: And the second reason is because becoming an entrepreneur is sometimes easier than finding a job.

00:04:54

Kylie Hwang: I think this can be generalized to a lot of populations. So research has found that immigrants or racial minorities or even mothers who face the motherhood penalty are more likely to become entrepreneurs because they find that traditional employment is hard to get or because the jobs that they get aren't satisfactory in a certain way.

00:05:14

Andrea Marquez: Kylie has done a lot of research on this. She mainly looks at how and why formerly incarcerated individuals become entrepreneurs.

00:05:22

Kylie Hwang: And the main reason behind this, there could be other reasons that are going on as well, but the main reason is really that it's difficult for them to find work. So they're going into entrepreneurship as an alternative way to overcome this discrimination that they face in the labor market.

00:05:36

Andrea Marquez: But it's not just formerly incarcerated individuals who turn to entrepreneurship to overcome discrimination.

00:05:42

Kylie Hwang: Other cases, which I mentioned like the motherhood penalty, recent research, which I haven't done myself, so I can't really speak to that research, but they've found that mothers who are more likely to face penalties, for example, in countries that have more biases towards women, they're more likely to engage in entrepreneurship as almost a plan B to employment. So I think, and this generalizes to immigrants and other marginalized populations. So it does seem to be that entrepreneurship is many times the route that people tap on when it's very difficult for them to find traditional work.

00:06:16

Andrea Marquez: And these entrepreneurs could end up benefiting their communities as well.

00:06:20

Kylie Hwang: So some of them were specifically working on products or services that were serving their communities or their local communities, and they also had some initiative going on within the company that was something about having more social impact. So I think that beyond job creation or beyond helping the focal individual who's the entrepreneur, there seems to be this spillover effect from having these marginalized group entrepreneurs who may be more likely to be open to hiring others and also being more socially impactful in their businesses as well.

00:06:56

Andrea Marquez: Okay, so clearly there's a lot of benefits to entrepreneurship. You get to create job opportunities for yourself and for your community, and you help the economy grow. And it doesn't hurt that it's becoming a lot easier to start a business because of all the resources out there. But if you want to get into entrepreneurship, it's also important to be aware of the challenges you might face so you're prepared to face them. Karen says that an ongoing challenge that a lot of small business owners face is inflation.

00:07:23

Karen Kerrigan: Many have not kept pace with inflation. So inflation was a very big concern of business owners over the last year or more. And hand in hand to that is just economic uncertainty. What is going to be happening in the economy? Is there going to be a recession? Is there going to be an economic slowdown or not? That uncertainty really affects confidence and their willingness to invest in their businesses.

00:07:48

Andrea Marquez: Karen also says that recently, a lot of small business owners have been struggling to find the labor they need to operate smoothly.

00:07:54

Karen Kerrigan: I think in our last survey, our small business checkup survey that we did, and business owners say the lack of skilled labor or labor was affecting their operating capacity.

00:08:05

Andrea Marquez: Another challenge is getting access to capital or finding funding.

00:08:08

Karen Kerrigan: And that is one of the other issues that has really been an increasing pain point for small business owners, particularly during the last year as interest rates were rising. So with higher interest rates, the cost of capital goes higher and makes it much more difficult for business owners to access the credit and the capital that they need to invest in their businesses, to scale their businesses, to operate their businesses.

00:08:35

Andrea Marquez: Another challenge that Kylie says could affect entrepreneurs is access to social networks.

00:08:40

Kylie Hwang: They lack the social networks to gain financial capital, gain ideas, et cetera, that are really important to be successful as an entrepreneur. So I think for this, and also connectedly, they also lack the human capital to actually found and succeed in a business, which can be really little things like general business knowledge, like bookkeeping, how to incorporate your company. But these things are things that they also lack in human capital, which also hinder them from being successful in founding or even after founding, that they are more likely to exit out because they were unsuccessful. So I think for social capital or human capital, I think things that could be done is that increases in perhaps training or incubators.

00:09:24

Andrea Marquez: Getting proper training is important for anyone who's trying to start a business. Karen says that a lack of preparation and training before jumping into entrepreneurship is the reason why some businesses fail.

00:09:35

Karen Kerrigan: Going into that endeavor with as much information as possible in order to succeed. So really, lack of preparation, lack of education, and I don't mean education in terms of college degree or a master's. I'm just saying educating yourself, right? Accessing the type of training and the skills that you need, financial management particularly, to grow that business.

00:09:59

Andrea Marquez: But Karen also says that small business owners have also been turning to technology to find solutions.

00:10:04

Karen Kerrigan: So we've seen small businesses really embracing technology. In fact, artificial intelligence, AI. It's really the fastest that I've ever seen small businesses embrace any type of technology. AI has just been extraordinary in what it has meant for many small businesses in terms of resolving some of these challenges that we just talked about.  

There's been technology and tools that have come along to support entrepreneurs in their dreams, and the risk has become far less because of that technology and the barriers to entry and the costs have been greatly lowered because of technology, being able to find customers quicker, being able to advertise them more affordably, being able to launch the business without having to have a storefront or a brick and mortar, being able to do it on your own or with independent contractors.

So again, technology really has been an enabler of entrepreneurship, which given the reasons why people start businesses, has pushed them and encouraged them and allowed them to pursue these dreams.

00:11:12

Andrea Marquez: The digitization was really accelerated because of the pandemic. The pandemic also had other effects on small businesses.

00:11:21

Karen Kerrigan: In 2020, there was a massive boost in individuals that filed business applications. A lot happened during the pandemic that is driving this interest in starting businesses. Obviously digitization, people wanting more flexibility. There's more opportunity in the economy. There's been disruption in business models. Obviously the different types of technology that are coming online now, AI, AR, VR, they're all driving new business models and driving new entrepreneurship. So there's been a massive increase in people that are interested in starting businesses, and the business models has shifted as well. It's really an exciting time to be a business owner.

00:12:05

Andrea Marquez: So one of the things that I end up talking to a lot of entrepreneurs on the show is the drive behind wanting to do this because it's risky, but there's also a reward, right? So in your words, why do you think people should do it?

00:12:20

Karen Kerrigan: We've asked startup entrepreneurs this question over time, and for many, it's they want to be their own boss. The number one reason why most people start businesses is they want to be their own boss. They want control over their time. They do like the flexibility, particularly for many women entrepreneurs, they like that flexibility. That doesn't mean that they're working less. They might be working at 2:00 in the morning as opposed to three o'clock in the afternoon, but having that flexibility is very important. And then for many, they believe there's an opportunity in the marketplace and they can fill a need. They have a solution. They found a niche, and they're very passionate about that and wanting to make it happen.

00:13:09

Andrea Marquez: So if you've been considering starting a business...

00:13:11

Karen Kerrigan: I would say do it, but go into it with preparation, with the right information, with a sounding board. It could be friends, it could be family, it could be people who've started businesses themselves to check your ideas, help you check those ideas against market realities, really do your homework. And there's people that are out there that are willing to help you. The local business owner, local entrepreneurs, people online, organizations that have mentoring programs. You don't have to do this alone, and you shouldn't do it alone. Do it prepared and knowledgeable and knowing that it's going to be a grind, but also knowing that when you succeed, it's going to be well worth the risk and well worth the time and worth everything that you put into it.

00:13:58

Andrea Marquez: So being prepared and aware of the risks before you start a business is key.

00:14:02

Kylie Hwang: So I think for our marginalized group members who are seeking entrepreneurship, I do think that they have to spend some time to think really about what the business that they can actually be successful is, not just follow the crowd of who's going into entrepreneurship. And also seek out. I think there actually is a lot of non-profits and also policy help for marginalized group members these days. So I think they have to extend their networks to think more about how to get help specifically from non-profits that target marginalized entrepreneurs and try to go in with a bit more knowledge.

00:14:38

Andrea Marquez: I think that's an important piece of advice to end on regardless of your background, because a lot of the time, I think we romanticize entrepreneurship. And even though you do learn as you go, it's important to know what you're getting yourself into.

We covered a lot in this episode. If you missed anything, don't worry. We've taken notes for you. You can find them at smallbusiness. amazon/ podcasts.  

That's it for today's episode of This is Small Business, brought to you by Amazon. Reach out to us at thisismallbusiness.amazon.com to tell us what you're up to, or let me know what you think of this episode by leaving a review on Apple Podcasts. It's easier if you do it through your phone. And if you liked what you heard, I hope you'll share us with anyone else who needs to hear this. If you're an aspiring entrepreneur or maybe you already have your small business up and running and you're ready for the next step, a super valuable resource that can help you is the Amazon Small Business Academy. Take the free Self-assessment on the Amazon Small Business Academy site at www. smallbusiness. amazon.  

Until next time, I'm your host, Andrea Marquez. Hasta Luego, and thanks for listening. This is Small Business is brought to you by Amazon with technical and story production by JAR Audio.