Author: Don Iannone

IEDC: The growth of businesses with no desire to grow

One particular sector of U.S. manufacturing is making a dramatic comeback, but they’re not hiring. Firms with no employees other than the owner have seen strong growth since the Great Recession (Wall Street Journal). But many intend to stay small, as they are typically run by craftspeople driven less by profit and more by lifestyle.

Their growth is not just a blip on the radar screen, but a very real trend. From 2004 to 2014:

  • The number of no-employee manufacturers grew by 17 percent and now stands at about 350,000 firms
  • Food manufacturers in this sector nearly doubled
  • Beverage and tobacco makers grew 150 percent
  • Chemical manufacturers, such as soap makers, grew nearly 70 percent.

In fact, 80 percent of all U.S. firms are sole proprietorships. Also surprising is this sector’s resilience, at least when compared to firms with employees, the number of which declined by 12 percent over the same period above. The biggest boon to this sector has been access to quality, high-speed Internet, enabling them to sell their products far and wide.

Economic developers, of course, are intent on helping businesses expand, but their efforts may be frustrated when engaging these outfits, since many have no desire to grow. Many sole proprietors often are content to be their own bosses and focus on their craft. Some would like to grow but are intimidated by the paperwork, accounting, and tax issues involved in hiring even one employee, an area where EDOs certainly can help through small business support services.

Study: Banks, accountants critical to rural business succession

This article speaks to an important issue that Growth Partnership and others are working on in Ashtabula County.

Small business owners are the lifeblood of the U.S. economy, but they are getting old. In fact, two-thirds of small businesses are owned by baby boomers, many of whom will soon retire. To help ensure rural companies don’t go out of business with the retirement of their founders, the University of Minnesota surveyed succeeding business owners in small communities to identify their challenges and what they need to thrive.

The survey found that banks/credit unions and accountants were the most important resources to new owners, even more so than support from the previous owner. Still, many reported a persistent challenge accessing credit.

Local government was not widely viewed as helpful, with just 27 percent reporting their city as very or moderately helpful. Economic development organizations can fill this void by helping proprietors create a succession plan, a document many business owners lack, the study found.

Benefits: The study reveals that new blood is often just what a small business needs, underscoring the value of retention and expansion efforts. The report found that 87 percent of businesses with new owners maintained or increased the number of employees and 68 percent grew sales and their customer bases.

Federal support for employee ownership: The U.S. Department of Agriculture has revamped its Business and Industry (B&I) Guarantee Loan Program to better finance ownership succession. Specifically, new rules make it easier for a business’s employees to take over under cooperative ownership. Now, the selling owner may remain partially involved in the business, thus lessening the financial burden on employee owners. The B&I program also provides loan guarantees that allow community members and local businesses to purchase preferred stock in cooperative businesses.

Employee ownership is an especially useful model for businesses that don’t have children or whose children are uninterested in taking over.

“There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things.”

~Niccolo Machiavelli, The Prince (1532)