Economic Impact of Entrepreneurial Firms

For two reasons, entrepreneurial behavior has a strong impact on an
economy’s strength and stability.
Innovation Innovation is the process of creating something new, which is central to the entrepreneurial process.55
According to a 2010 Small Business Administration report, small firms (fewer than 500 employees) are providers of a significant share of the innovations that take place in the United States. In addition, several studies funded by the Office of Advocacy for the Small Business Administration have found that small businesses outperform their larger counterparts in terms of patent activity (issuance).56 Job Creation Small businesses are the creators of most new jobs in the United States, and employ more than half of all private sector employees.57
Small business is held in high regard in this area. According to a Kauffman Foundation survey, 92 percent of Americans say entrepreneurs are critically important to job creation. A total of 75 percent believe that the United States cannot have a sustained economic recovery without another burst of entrepreneurial activity.58
The statistics are persuasive regarding the importance of small business to job growth. From 1980 to 2005, firms less than five years old accounted for all net job growth in the United States.59 Collectively, new firms add an average of 3 million jobs to the U.S. economy during their first year, while older companies lose 1 million jobs annually.