Small business has big impact on economy

By DAVID MOON, Moon Capital Management, LLC
March 23, 2014

After 30 years of working as a florist in a large grocery store, Leonard Pallandino decided to start his own business. Leonard is an excellent florist, but a lousy economist.

He opened his doors just months before the worst US recession since the Great Depression.

Despite flowers being almost the definition of an optional, luxury expenditure, Always in Bloom is still there, on Sutherland Avenue, employing three people and competing very successfully against much larger and older rivals.

Leonard and his partner never did a focus group study. They didn’t try to predict GDP or the actions of next month’s Fed meeting. They didn’t fixate on whether they hated Barack Obama or Tea Partiers.

They simply thought they had a service and product they could sell profitably, then weighed that against the cost of entering the business. That’s what entrepreneurs do.

It’s also what all good investors do.

Three employees doesn’t sound very big, but it is.

In 2013, the U.S. economy added 2.2 million new jobs. More than 25 percent of those jobs were in businesses that employ fewer than 20 people. If we expand the group to include companies with up to 49 employees, small businesses accounted for 45 percent of the newly created jobs last year.

That’s 961 thousand new small business employees.

If all of the businesses in the United States with 19 or fewer employees were combined into a single entity, that company would have 14 times the number of employees of Walmart, the largest single employer in the US.

That theoretical micro-business conglomerate employs more people than the 50 largest US employers combined—by a factor of three.

Recent research questions whether job growth is fueled more by small businesses or new businesses. While not all new businesses are small, all small businesses were once new.

Whether large or small, there is no debate that the engine of America’s employment growth cannot rest solely on large employers.

Before Jennifer Johnsey became a mother, she had never paid much attention to toy stores. She was busy hosting a mid-day, then morning, radio show in Knoxville.

But four years ago toy shopping took on unfamiliar meaning to her, as she looked for a place where her new child could “test drive” entertaining, educational toys, without the constraints of packaging.

She never found quite what she was looking for.

So on April 12 Jennifer will open the Imagination Forest store in Powell. I’ve only met her once, but I am so happy for her. She’s excited, motivated and scared. She also has two employees, albeit part time.

I don’t expect Imagination Forest to ever rival Toys R Us or Walmart, but I’m guessing that at one time Sam Walton only had two employees. And he was likely excited, motivated and scared.

If you have kids or know any, go visit Jennifer and see if she can earn your business. Or try a new florist. Or the small restaurant on the corner. The economy depends on it.

David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).

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