Small businesses rebound more quickly

June 25, 2012
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Post-economic crisis of 2009, a used book store may not seem like the safest bet for a new business venture. Steve Howells, founder of Icapsa Used Books, would beg to differ.

Stepping outside his new retail space in Eastown’s Kingsley Building, Howells can see two other well-established book stores less than half a block away. This doesn’t concern him, however: It’s one of the reasons he moved to the neighborhood.

“Small businesses are coming back,” said Bonnie Roede, manager of Icapsa. “People are trying to make a living, they have something they can offer, and Eastown is a great place for that.”

The small-business boom is not unique to Grand Rapids. According to a 2011 economic report from the U.S. Small Business Administration’s Office of Advocacy, small firms accounted for 9.8 million of the 15 million net new private sector jobs from 1993 to 2009, constituting nearly two out of every three net new jobs.

Dan Giedeman, Ph.D., associate professor of economics at Grand Valley State University, noted that credit constraint — one of the biggest challenges facing small businesses — has been particularly difficult, as the median household wealth decreased by 40 percent during the recession.

On the other hand, some forces play to the small businessperson’s advantage during a recession.

“In recessions and the overall business cycle, there has been evidence that (small businesses) are less cyclical than large businesses. They’re not as negatively affected when there is a downturn,” said Giedeman.

At a time when many highly skilled and educated individuals are finding themselves out of work, the impetus for starting a small business is stronger for many than it was when the job market was less competitive. The freelance sector also has experienced huge growth in recent years. Giedeman noted that, so far, it isn’t clear if this shift in the work force is permanent.

“If owners of large corporations can effectively run their businesses by using more and more freelance workers, they’ll probably find it profitable to do so. The question is, will that be the case? Competition among employers for talent may force them to go back to a more traditional model.”

During the economic downturn when big corporations had to cut an exorbitant number of jobs, small businesses were better equipped to weather the crisis, losing fewer jobs and recovering faster than their larger counterparts.

Dante Villarreal, regional director of Michigan Small Business & Technology Development Center, offers some reasons for this.

“One of the advantages of small businesses is the ability to react quicker to changes in the marketplace,” said Villarreal. “If they are in an industry that has been adversely affected in some way or if there is a new opportunity, a small business can have more of a pulse on their community and the market conditions.”

Villarreal also pointed out that these entrepreneurs are often much more tied to their businesses, both financially and emotionally.

“When an owner is very involved in their business, they still have that passion and drive, even when things aren’t as good. They’ll continue to work harder at their business,” he said.

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