by Terry L. Besser
Assistant professor and extension sociologist
Iowa State University Extension to Communities
Small businesses often do not receive the respect they deserve for their contributions to community quality of life and economic security. In spite of the attention given to big business, the overwhelming majority of all Iowa businesses (98 percent) are small, meaning they employ fewer than 500 workers. In non-metropolitan towns, the proportion of small businesses is even greater.
A recent study called "Doing Business in Small Iowa Towns" conducted by Iowa State University revealed that in the average small Iowa town of 500 to 10,000 in population, less than one out of every 200 businesses employs more than 100 people. Nineteen percent have no employees and 25 percent have only one or two.
Another way to measure the size of businesses is by considering their gross sales. In 1994, 50 percent of the random sample of small town businesses in ISU's study had gross sales of $288,500 or less. Compare this to General Motors which in 1993 was number one in sales volume at almost $134 billion dollars and Eastman Kodak which came in 20th with $20 billion dollars. From the ISU research, we also learned that 96 percent of small town businesses are locally owned and that the average business age is 27 years. Fourteen percent are less than 5 years old.
There are a number of benefits realized by communities that are populated exclusively by small businesses. Small business operators (most of whom own their business) know their customers and can personalize their services to the customers' needs. Both customer and owner know the extent to which the other can be trusted. A hardware store, beauty shop or auto repair business that cheats its customers in a small town will not be in business long. Word spreads quickly among residents. This may raise the standards of fairness and quality offered by local merchants.
However, more than that is involved. Small business owners are likely to live in the community in which they do business. How they conduct their business influences how their neighbors, friends and relatives view them. Poor quality products or service, or failure to honor a guarantee are likely to jeopardize friendships as well as diminish the business' customer base. For residents of small towns, this translates into being able to give your house key to the carpet store to install your carpet while you're gone and knowing that the lumber yard will replace the fencing you bought if it is defective. They can trust that you are not lying about how the fencing got damaged. You can trust that they will not steal your VCR while installing your carpet.
The advantage to business operators is that they are more likely to know which businesses in town would make good suppliers or partners, which town residents are good credit risks and which residents would make good employees. Small businesses are more likely to have their roots in the community in contrast to their mega-corporate cousins. Thus, they will be more reluctant to pull up stakes and move to another town, state or country. This is true because, for many, their main business is providing customer services (making them dependent upon the community), and also because small business operators are more likely to see the community as their home and not just as a place to do business. They know how moving their business will impact the community.
In fact, according to the ISU study mentioned above, filling a need in the community is an important reason why some small town business owners started their business in the first place. It is in this way that a base of diverse, strong small businesses in a town can increase the economic security of the town.
A community with a mix of strong small businesses is shielded from the effects of domination by one or a couple of large companies. The heightened insecurity resulting from dependence on only one major employer is obvious. Less apparent effects stem from the inordinate amount of power possessed by the dominant firm in influencing local affairs. It can discourage other businesses from locating in the community either because other firms cannot pay the high wage scale of the big employer, or because the big employer uses its influence to keep out higher paying businesses that would raise the prevailing wage scale. A large employer in a community of small employers can negotiate special tax, employee training, utility and transportation arrangements unavailable to others.
Finally, a big business transforms the character of a town. Small towns which have "landed" or grown a big business, for example Forest City (Winnebago), Princeton, Mo., (Premium Standard Farms), and Marysville, Ohio, (Honda Motor Manufacturing), are dramatically changed by the event. In the long run, they may be equally good or better places to live, but they will never be the same. Communities involved in these situations should analyze the costs as well as the benefits involved in the transformation.
The morals of this article (trite as they may seem) are that smaller is often better and the grass is usually greener at home -- at least when it comes to business. In other words, strategies that support local small businesses may provide greater rewards to the community than efforts aimed at attracting medium or large businesses.
Contacts:
Terry L. Besser, ISU
Extension Sociology, (515) 294-6508
Del Marks, ISU Extension
Communication Systems, (515) 294-9807
