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In 2006, Thomas M. Sullivan, the chief counsel for advocacy of theSmall Business Administration (SBA), said, Small business is a majorpart of our economysmall businesses innovate and create newjobs at a faster rate than their larger competitors. They are nimble,

This text is devoted to small business, not entrepreneurship.Therehasalwaysbeenachallengetodistinguishcorrectlybetween the small business owner and theentrepreneur. Some argue that there is no difference between thetwo terms. The word entrepreneuris derived from a French word forto undertake, which might indicate that entrepreneurs should beidentified as those who start businesses. That is not the focus of thistext. We will instead focus on running a small business.

1. "Small Business by the Numbers, National SmallBusiness Administration, accessed October 7, 2011,www.nsba.biz/docs/bythenumbers.pdf.

The Small Business Administration (SBA)definition of a smallbusinesshas evolved over time and is dependent on the particularindustry. In the 1950s, the SBA defined a small business firm asindependently owned and operatedand not dominant in its field

the SBA classified a small firm as being limited to 250 employeesfor industrial organizations. Currently, this definition depends onthe North American Industry Classification System (NAICS) for abusiness. The SBA recognizes that there are significant differences,across industries, with respect to competitiveness, entry and exitcosts, distribution by size, growth rates, and technological change.Although the SBA defines 500 employees as the limit for themajority of industrial firms and receipts of $7 million for themajority of service, retail, and construction firms, there aredifferent values for some industries.

The SBA definition of what constitutes a small business has practicalsignificance. Small businesses have access to an extensive supportnetwork provided by the SBA. It runs the SCORE program, which hasmore than 12,000 volunteers who assist small firms with counselingand training. The SBA also operates Small Business DevelopmentCenters, Export Assistance Centers, and Womens Business Centers.These centers provide comprehensive assistance to small firms.There can be significant economic support for small firms from theSBA. It offers a variety of guaranteed loan programs to start-upsand small firms. It assists small firms in acquiring access to nearlyhalf a trillion dollars in federal contracts. In fact, legislation attempts

2. Mansel Blackford, The History of Small Business inAmerica, 2nd ed. (Chapel Hill, NC: University of NorthCarolina Press, 2003), 4.

In 1958, small businesses contributed 57 percent of the nationsgross domestic product (GDP). This value dropped to 50 percentby 1980. What is remarkable is that this 50 percent figure hasessentially held steady for the last thirty years.3

Few people realize that the overwhelming majority of businesses inthe United States are small businesses with fewer than five hundredemployees. The SBA puts the number of small businesses at 99.7percent of the total number of businesses in the United States.However, most of the businesses are nonemployee businesses (i.e.,no paid employees) and are home-based.

3. Katherine Kobe, The Small Business Share of GDP,19982004, Small Business Research Summary, April2007, accessed October 7, 2011, http://archive.sba.gov/advo/research/rs299tot.pdf.

40 percent of Americas scientific and engineering talent isemployed by small businesses. The same study found that smallbusinesses that pursue patents produce thirteen to fourteen timesas many patents per employee as their larger counterparts. Further,it has been found that these patents are twice as likely to be in the

It is possible that small size might pose anadvantagewith respectto being more innovative. The reasons for this have been attributedto several factors:

Passion.Small-business owners are interested in makingbusinesses successful and are more open to new concepts andideas to achieve that end.
Customer connection.Being small, these firms better knowtheir customers needs and therefore are better positioned tomeet them.
Agility.Being small, these firms can adapt more readily tochanging environment.

4. Zoltan J. Acs and David B. Audretsch. Innovation inLarge and Small Firms: An Empirical Analysis, AmericanEconomic Review 78, no. 4 (1988): 67890.

Willingness to experiment.Small-business owners are willingto risk failure on some experiments.
Resource limitation.Having fewer resources, small businessesbecome adept at doing more with less.
Information sharing.Smaller size may mean that there is a

Regardless of the reasons, small businesses, particularly inhigh-tech industries, play a critical role in preserving Americanglobal competitiveness.

The majorityapproximately 50.2 percent in 2006of privatesector employees work for small businesses. For 2006, slightlymore than 18 percent of the entire private sector workforcewas employed by firms with fewer than twenty employees. It isinteresting to note that there can be significant difference inthe percentage of employment by small business across states.Although the national average was 50.2 percent in 2006, thestate with the lowest percentage working for small businesseswas Florida with 44.0 percent, while the state with the highest

6. Jeff Cornwall, Innovation in Small Business, TheEntrepreneurial Mind, March 16, 2009, accessed June 1,2012, http://www.drjeffcornwall.com/2009/03/16/innovation _in_small_business/.

1988 5.70%6.90%%8.26%19.16%14.53%45.45%
1991 5.58%6.69%8.00%18.58%14.24%46.91%
1994 5.50%6.55%7.80%18.29%14.60%47.26%
1997 5.20%4.95%6.36%16.23%13.73%53.54%
2000 4.90%5.88%7.26%17.78%14.26%49.92%
2003 5.09%5.94%7.35%17.80%14.49%49.34%
2006 4.97%5.82%7.24%17.58%14.62%49.78%