Before you can create a program to improve North Carolina’s economic outlook and employment woes, a thorough understanding of the state’s business demographics is critical.
Today we're going to try to put you "in the seat" of running a small business, in an attempt to expose some of the roadblocks to economic recovery. Scoot your chair up to the desk, and let's get to work.
According to a 2006 report produced by the NC Career Resource Network, which drew from data compiled by the NC Employment Security Commission and the US Department of Labor, the following statistics demonstrate the necessity of focusing on small business as a key to recovery:
97.9% of North Carolina’s employers have fewer than 100 employees.
74% of North Carolina’s employers have fewer than 10 employees.
Take a few seconds and let those statistics sink in. Now consider all those businesses as people dotting the shore of an "old country", who need to be transported to the new. Do you pick and choose a handful of them and leave the rest behind, possibly condemning the new colony to languish under a lack of human resources, or do you try to figure out a way to transport them all?
While it should be noted that larger companies inhabiting that remaining 2.1% category employ 14.9 percent of the state’s workforce, there is little doubt that true, sustainable economic growth must come from the small business sector. But considering the wide range of products and services involved in this sector, how do you fashion an approach to stimulate said growth? Again, a deeper understanding of the dynamics of small business is the first step to formulating policy.
These businesses are not merely smaller versions of the big guys, with smaller payrolls and smaller revenues to match. The model is much more complex than that. Many have painstakingly developed their clientele through years of dependable service, and their reputations are critical. Adding a new employee is a big step for them, and not just due to the added drain on labor costs. The training-up period for a new employee also entails a level of client-specific familiarization that is rarely required in larger organizations, and many of the skills a new employee must develop to become productive in a small company simply can’t be taught in a school or brought with them from previous jobs.
This on-the-job training requirement carries additional burdens for small companies that are more easily absorbed in larger companies: loss of production capacity. The new employee requires tutelage that draws the attentions of experienced employees, adversely impacting their ability to produce. As mentioned previously, the reputation of a small company is incredibly important, and failure to serve clients at the level they have come to expect can be disastrous. Even when a small business is experiencing moderate growth and bringing in new clients, the lost production time associated with increasing their workforce is a factor that often discourages them from hiring, even when they know they need to.
Let's take a moment to talk about growth. As a child grows into an adult, the physical changes are often painful and difficult to adapt to. But there are psychological issues as well, and these have a much more profound impact on our future. How we develop goals and pursue them, our resiliency to adversity, the ability to objectively assess our own strengths and weaknesses, etc.
Businesses face psychological barriers as well, especially those in the majority that have 10 or less employees. When faced with the conundrum above, to grow the workforce or not, the aura of compromise can dog the footsteps of an owner or manager. If we can no longer service all our clients, which ones do we value the most, and which ones can we do without?
The resulting evaluations are often subjective in nature and not in the best interests of the company itself. And so the slow march toward stagnation and dissolution begins. The old adage "grow or die" was not created in a vacuum, but its wisdom is often ignored by those who have started down the road of compromise.
I don't want to leave you wallowing in negativity, so here's the direction we'll be heading next time we meet:
Understanding these barriers to hiring is important if we want to provide methods for overcoming them, allowing these companies to grow to their potential. Recognizing the burdens of training new employees, and shouldering part of that burden, is one way the state can accomplish this. And tying this effort to “green” behavior will produce benefits above and beyond economic and employment gains.