As the country grinds through the long run-up to a national election staked on job creation and the economy perhaps more than any other issue, a new study from the Technology CEO Council (TCC) concludes that the companies that best leverage information technology will account for the lion's share of new jobs and propel the next wave of economic growth.
New technologies such as the ever-growing litany of cloud applications and remotely managed computing infrastructure options have lowered the entry barriers for innovative young startups to get off the ground and compete in a global economy, according to the report from TCC. High-speed broadband connectivity, low-cost, high-capacity storage and on-demand computing resources together have facilitated a new breed of startup business that can far more easily compete with and even dislodge its more established rivals.
"It is a lot easier to start a business today than ever before," Dell Chairman and CEO Michael Dell, who also chairs the TCC, said here at an event marking the release of the report. "Now these tools are enabling great businesses to become much larger and much faster."
Small Businesses Spur Growth
Surveying employment rates over the past decade, the authors of the study found that small services firms with fewer than 100 workers that rely heavily on IT to run their business accounted for only a small share of overall employment, but a significantly larger proportion of job growth. From 2002 through 2008, those small, IT-intensive businesses employed between 5 percent and 6 percent of all U.S. workers, but accounted for 34 percent of the new jobs created over that time, according to the report.
The TCC analysis dismissed the pessimistic view that would consign U.S. innovation and entrepreneurship to the history books amid the collapses of the real estate and financial markets, recalling previous recessions that inspired similar doomsday predictions that did not bear out.
At the same time, the authors noted that the few businesses that will emerge as high-growth, transformative companies -- what they call the "gazelles" of the economy -- are a rare breed, representing only a scant minority of the aggregate small business segment.
But those rare few will be the ones that tap into new Web-based tools for launching startups and securing financing, such as the so-called "crowd-funding" platforms like Kickstarter. Once up and running, the successful companies will leverage technology throughout their business operations, lowering the cost of back-office operations such as payroll and procurement, driving into new markets, and making better-informed, data-driven decisions, according to the report.
Big Business Isn't Bad
The study also pointed out the important role that larger, established companies play in helping start-ups flourish, providing inspiration, services, support and, at times, funding. That relationship adds a measure of nuance to the casual populist rhetoric that often tends to vilify big, institutional businesses by casting them as the enemy of the little guy, noted Sam Palmisano, the chairman and former CEO of IBM.
"It's not just small is good and big is bad," Palmisano said. "Small needs us."
The report identified several areas that policymakers can address to improve the regulatory climate for small businesses and ensure that entrepreneurs have access to top talent, high-growth global markets and capital.
The financial downturn has particularly curbed the ability of entrepreneurs to secure funding for their businesses. Moody's Analytics economist Mark Zandi estimates that small-business owners poured $75 billion from their homes into their businesses in 2006. By 2011, that figure had fallen to $20 billion. Many banks have dried up as a source of funding, as well. According to a recent Pepperdine University study, 64 percent of startups were declined by their bank when seeking a businesses loan.
Don't Expect Banks to Help
"I think access to capital is a big problem," said Doug Mellinger, a managing director with Palm Ventures. "The idea of a bank loan is a joke."
The authors of the study highlighted the connection between tax rates and entrepreneurial activity, arguing for lower corporate and capital gains tax rates.
The report also calls for policies to enhance STEM education and college graduation rates, while relaxing the immigration restrictions on skilled foreign workers.
To expand access to global markets, the TCC is calling on policymakers to reform outdated export controls, extend existing trade agreements and negotiate new ones to address issues such as cross-border data flows, and to enact tougher rules for protecting U.S. companies' intellectual property and other rights.
Kenneth Corbin is a Washington, D.C.-based writer who covers government and regulatory issues for CIO.com.
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