From Local to Global - The power of small businesses

Small businesses are everywhere: the corner café that remembers your name, the plumber who answers at short notice, the tech startup in a co-working space or the crafts maker who sells on a weekend market. Taken individually they’re intimate and local; taken together small businesses are the backbone of modern economies. 

Policymakers, researchers and the public increasingly recognise that small businesses do much more than sell goods and services, they create jobs, circulate income, anchor communities, and act as engines of innovation. Below I set out the evidence, the social and economic roles small firms play, the headwinds they face and why supporting them matters for both prosperity and social cohesion.

Small businesses by the numbers

The scale of small-business activity is impressive. Worldwide, small and medium enterprises (SMEs) make up roughly nine out of ten businesses and account for more than half of employment in many countries, a pattern repeated across low, middle and high-income economies. This concentration means that small firms are a primary source of work for hundreds of millions of people globally.

Recent government estimates show SMEs account for about 60% of employment and make a significant share of turnover, with small businesses (under 50 employees) employing around 47% of people in the private sector.

In short: across major economies, small firms are not niche actors, they are the economic mainstream.

What small businesses do — four key roles:

1. Create and sustain jobs. Because they are numerous and often labour-intensive, small businesses collectively create a substantial portion of new jobs. During economic recoveries they are often a net source of employment growth, absorbing workers who might otherwise be excluded from the labour market.

2. Keep money local. Small, local businesses tend to re-spend a higher share of their revenue within their communities, on local suppliers, wages, and services which multiplies the local economic impact. High streets and town centres rely on small traders to maintain vibrancy, footfall, and the informal social ties that underpin neighbourhood life.

3. Drive innovation and competition. Many innovations begin in small firms. Their agility lets them experiment with new business models, niche products and personalised services. Even when large firms commercialise those innovations, the original R&D, prototypes and pilot markets are frequently incubated by small operators.

4. Offer social and civic value. Beyond employment and output, small businesses contribute to social cohesion. Independent shops, community cafés and tradespeople are places of social exchange; they create identity and belonging in ways that anonymous online platforms or national chains cannot replicate. Public trust surveys show people consistently view small businesses favourably, trust and affection that translates into political goodwill and consumer loyalty.

Public attitudes: people like small businesses

There’s a political and cultural dimension to the small-business story. Polling in the U.S. shows very high levels of public approval for small firms: about 86% of adults say small businesses have a positive effect on the country’s well-being, a higher approval rating than many other institutions. That goodwill matters: it influences policy choices, consumer behaviour and the willingness of communities to support local firms through crises.

The challenges they face

Despite their importance, small businesses face structural constraints:

• Access to finance. Smaller firms have less collateral and thinner credit histories, so they often pay higher borrowing costs or get rejected for loans altogether. Globally, a persistent finance gap constrains the ability of micro and small firms to scale.

• Regulatory burden and fixed costs. Compliance, tax administration, and rising input costs (energy, rent, wages) hit small margins hard. Regulatory complexity that is manageable for a multinational can be a material obstacle for a micro-enterprise.

• Digital and skills gaps. The move to digital commerce, automation and data-driven marketing favours firms that can invest in technology and training, areas where many small operators lag.

• Market power and supply chains. Large platforms and retailers can capture distribution channels or impose terms that reduce small suppliers’ margins, while global supply chain shocks can be more destabilising for firms without diversified suppliers.

Policy levers that make a difference

The bulk of employment and turnover sits with small firms, even modest policy shifts can have outsized benefits. The evidence suggests several practical approaches:

• Improve access to affordable finance. Loan guarantees, targeted credit lines and blended finance can reduce the cost and risk of lending to small businesses. Banks and alternative lenders also play a role in reaching local entrepreneurs.

• Reduce unnecessary regulatory friction. Simplifying tax filings, aligning compliance deadlines, and offering digital one-stop shops for permits help free up owners’ time to run and grow their businesses.

• Support digital adoption and skills. Subsidies for training, vouchers for digital tools, and local mentoring programs (from chambers of commerce or business networks) help small firms modernise without prohibitive upfront costs.

• Strengthen local procurement and supply chains. Public purchasing set-asides and supplier development programs can open larger markets to small vendors.

• Targeted tax and incentive design for scale-ups. For firms with high growth potential, tax incentives and equity programs (e.g., share options schemes) can help retain talent and capital to scale domestically rather than relocating abroad. Recent policy debates in the UK and elsewhere illustrate the political appetite for schemes that make scaling easier.

How Small Businesses Differ

Small businesses are not a “one-size-fits-all” bunch—they run the gamut when it comes to size, ambitions, and how they go about their day-to-day. Some remain cozy neighborhood shops serving locals, while others have their sights set on ambitious growth, perhaps one day forging new markets like BrewDog or going global via Etsy.

Their internal setup is just as varied. One business might be a tight-knit team sharing duties in a single room, while another evolves into a more layered organization, dividing roles and responsibilities. There’s also no mold for management—some owners prefer a hands-on, personal touch, which sparks a family-like atmosphere. Others may structure things more traditionally, delegating tasks and adopting a more formal hierarchy.

This diversity is part of the charm: whether you stumble upon a corner bakery with a sole proprietor or a fast-growing digital startup with a rotating cast of specialists, each small business maps its own path, driven by its people’s vision, goals, and way of working.

Why does resilience matter now?

Recent economic turbulence, post-pandemic recovery, inflationary pressure, and supply chain shocks has shown how fragile local ecosystems can be. Because small businesses cluster in high streets and neighbourhood hubs, a wave of closures can accelerate urban decay, reduce local employment, and shrink civic life. That makes small business resilience a social as much as an economic priority.

The bottom line

Small businesses are not a quaint relic of a bygone era: they are central to how modern economies function. Small businesses are still important.  They provide jobs to significant shares of the workforce, circulate income locally, foster innovation, and sustain social infrastructure. Public approval for small firms is high, reflecting deep cultural appreciation as well as pragmatic recognition of their economic role. Yet they face persistent obstacles in finance, regulation and digital readiness, problems that can be addressed by smart, targeted policies.

Investing in small businesses is therefore not a niche policy choice: it’s an investment in employment, community resilience and the diverse, competitive markets that make economies healthy. For politicians, policymakers and citizens alike, supporting small firms is both an economic imperative and a civic duty.

Why Is It Difficult to Classify Small Business Challenges?

It turns out, trying to neatly sort out the hurdles and growth paths of small businesses is a bit like herding cats—never straightforward. Small businesses are a wildly diverse bunch. Some are run out of garden sheds, others are bustling high-street shops, and a few are tech startups in co-working spaces with bean bags and questionable coffee.

This diversity brings some real headaches for anyone attempting to pigeonhole their problems and growth stages:

• Size really does matter: From solo freelancers to teams of fifty, their needs—and headaches—change dramatically.

• Management styles are all over the map: Whether it’s a family-run bakery making decisions over Sunday roast or a team of friends who brainstorm via Slack from three time zones, how these companies operate can be worlds apart.

• Independence rules: With no two business owners reacting the same way to risk, expansion, or even hiring an extra pair of hands, scripts just don’t work here.

So, when you try to put these businesses in tidy little boxes, you quickly realise: it’s not just apples and oranges. Sometimes it's apples, oranges, and the odd pineapple for good measure.

Quick FAQ: Why are Small Businesses important?

1. What’s a small biz?

Your favourite local café, boutique, or startup, independently owned, community-driven, and full of heart. 

2. Why are they important?

They power the economy, create jobs, and keep our communities vibrant. Small businesses are the backbone of our economy.

3. How do they help locally?

They hire local, support local, and give back through events and partnerships. 

4. Do they spark innovation?

Yes! Small businesses move fast, test new ideas, and bring creative solutions. 

5. What challenges do they face?

Limited funding, big-brand competition, and red tape but they keep pushing forward. 

6. How can YOU help?

Shop local. Leave a review and tell a friend. Every little bit helps! 

Why has the earliest period of a business's development not been explored in detail before?

It's a bit curious, isn’t it? For all the chatter about unicorns and elevator pitches, the very first breaths of a business—before the first sale, before the business card order—have remained a rather shadowy corner.

There are a few reasons for this. The earliest days of a business are often messy, informal, and undocumented. Founders might scribble ideas in a pub, hash out plans over WhatsApp, or pivot three times before telling their own families. There’s rarely a paper trail, and even less that researchers can neatly box up and analyze.

Plus, compared to funding rounds or product launches, those initial steps are easy to overlook. They happen behind the scenes, swirling with uncertainty. Many entrepreneurs don’t keep notes—they’re too busy reacting to new challenges, making quick decisions, and learning as they go.

Yet, these humble beginnings are precisely where the DNA of a small business—its grit, creativity, and quirks—take shape. Pulling back the curtain on this stage finally gives us a full picture of what it really takes to get a business off the ground.

Love this, Tahzeem! Really strong piece. Clear, well-structured, and packed with substance. You’ve nailed the mix of stats and storytelling - it reads like something straight out of a government white paper but with actual warmth!!

Thanks James