I ran into a journalist colleague of mine today who expressed her frustration at what she sees as wannabe entrepreneurs that do own small businesses but haven’t really done anything, in her view, to earn the term ‘entrepreneur’. For her, an entrepreneur is someone building some really interesting company – and has achieved some measure of success – not just someone who hangs out a shingle.
We have discussed this a lot on these pages because I think it is an important economic development policy debate.
The BC Business Council makes a good distinction between what it calls ‘main street’ businesses and ‘gazelles’. This is a segment of the article:
In truth, the small business world can be divided into two types of firms: a huge number of “main street” businesses that don’t really grow but collectively employ lots of people and provide an array of needed goods and services; and a much smaller number of “gazelles” which expand quickly and are vital sources of job creation, increased productivity, and innovation. Main street businesses operate in many sectors of our economy but are ubiquitous in industries like retail, foodservices, dry-cleaning, car repair, construction, and personal/household services. They are a fundamental component of local economies but generally don’t generate much in the way of net job creation. That’s because there is a high level of “churn,” as many existing small firms disappear and new ones are created each year.
Rapid-growth businesses follow a different path. The entrepreneurs who form these companies are highly ambitious, tend to be innovative, and are crucial to the continuing growth and development of their ventures. Importantly, these “gazelles” are found in many industries (not just high-technology, software, etc).
The Oregon Business Plan talks about ‘traded industries’ to differentiate between those who service a local market and those who ‘trade’ beyond the borders of Oregon. I have called them ‘export-oriented’ industries to allow for exporters and those who have an exportable product or service.
But I think the Biz Council gets a bit closer to the nub of it because ‘gazelles’ are not just about export. Hakim Optical was likely once a single store selling glasses but the guy who started it turned it into a national franchise. The concept of a Gazelle, then, is more about ambition. The Fredericton-based engineering firm that acquires and builds a national company rather than getting acquired. The Moncton-based manufacturing firm that buys its competitor and builds a national company from a little east coast city. The IT company that is not looking to build a few million in sales and then selling out but one that builds a few million in sales, secures another tranche, and then goes looking to become a global player.
This issue, for some, will seem simplistic and not worthy of discussion but I think it matters because many in the public, most in the political realm and even many, many in the government and economic development circles don’t differentiate. They call for ‘support of small business’ and ‘the small business engine of the economy’ without realizing that of the 40,000 registered businesses in New Brunswick – the vast, vast majority are the Main Street businesses (somewhat coincidentially there are 43,000 persons classified as self-employed in the labour force survey).
So policies like a broad-based tax cut for small businesses, or a tax credit for small businesses to re-invest in their business or training programs for small business or whatever – all funded by the taxpayer – may not be fostering economic development at all just impacting that ‘churn’ that the BC Biz Council talks about above.
As always I have to disclaim my comment here because I am not saying that small business tax cuts are not good public policy per se – I’m just saying they may not be a driver of economic growth.
I realize from talking to politicians on this that it really isn’t about economic growth – it’s about the fact that those 43,000 self-employed persons tend to be politically connected and many of them give to political parties. Plus they have one of the most important lobby groups in Canada – the CFIB and also the support of most Chambers of Commerce in New Brunswick (again made up mostly of small businesses).
I think need to cut through the noise on this and get to facts. Canada needs more gazelles according to the BC Biz Council. I would argue New Brunswick also needs far more gazelles. It’s important to note, however; that I am not talking about a massive amount of gazelles. If we saw a couple of hundred entrepreneurs emerge with $50 million or more in annual revenues and with operations across Canada and beyond that would be a massive surge for the economy.
Instead of focusing on the 43,000, we should focus more on the couple of hundred. Problem is we don’t really know who and where they are.