By Vidhan Rana

In the past year or so, you may have heard a lot of talk about how small businesses are providing the fuel for the American economy. You read about how startups are creating jobs for those laid off by large corporations. You can see it in your community where young college graduates are teaming up to launch their own companies rather than joining an investment bank or a multinational consulting company. However, for economic development professionals, numbers that they need to convince their boards that more attention needs to be provided to these small businesses and young entrepreneurs are hard to come by. is one website that can help you in this cause. Though 2008 is the most recent set of records they have in their database, you can use its website to look up your city (MSA), county, or state and track levels of employment and establishments by company size. Edward Lowe Foundation, which developed this interactive website, has separated establishments into five different categories by employment size as follows:

• Self-employed (1 employee)

• Stage 1 (2-9 employees)

• Stage 2 (10-99 employees)

• Stage 3 (10-499 employees)

• Stage 4 (500+ employees)

According to the Edward Lowe Foundation, “Stages…provide a different framework for understanding the needs of businesses and supporting their growth – one that could help communities better leverage resources. Regardless of their industry sector, companies in the same developmental stage experience similar challenges. And, as companies move through these stages, not only do their internal needs change, but their external needs—what they need from the community—also change.”

As far as the numbers, I briefly looked at the employment numbers by each category (or establishment size) in the United States over the last 15 years approximately, and I noticed what everyone has been talking about. The pie chart below shows how the employment scenario in the United States has changed between 1992 and 2008. The total number of self-employed workers increased by 280% in the period, and Stage 1 company employment increased by 57%. However, there was only a 7% percent increase in Stage 3 employment and a 15% decline in Stage 4 company employment. Overall, the share of employment population for self-employed increased from 3% in 1992 to 7% in 2008. Similarly, the share of Stage 1 employment increased from 26% in 1992 to 32% in 2008. On the other hand, Stage 3 and Stage 4 employment level decreased from 17% each in 1992 to 14% and 12% each, respectively.

Comparison of U.S employment level by company size from 1992 to 2008

At a local level, there were some communities that catered to their smaller companies while others focused mostly on the larger companies. Raleigh, NC and Detroit, MI provide very contrasting examples of this scenario. Raleigh prospered with the Research Triangle Park as a hub for innovation, whereas Detroit suffered deeply due to the contraction in the auto industry. Structural economic issues aside, Raleigh, due to the nature of its economy, focused on the smaller innovative companies while Detroit did the opposite. The results are fairly obvious now as Raleigh appears in the list of top cities to live and do business while Detroit usually features in the opposite list.

The few slides below show how dramatically things have changed in these two metro areas.

What you see in these slides indicate that the economy in Detroit was very dependent on its larger corporations, mainly in the automotive sector. The first two slides show the contrast between Raleigh and Detroit in terms of overall employment by establishment size over the last 15 years. The difference in the charts is quite dramatic. Where Detroit’s Stage 1 and Stage 2 companies have witnessed very little growth in total employment, Raleigh has a dramatic rise in employment in the Stage 1 and Stage 2 companies.

This changing trend is captured well in the next three slides which show the snapshot of the employment by establishment size in the two cities in three different years (1992, 2000, and 2008). While the charts in 1992 are identical for the two cities, you can easily see the difference in the distribution of employees by company size in the last two slides. Especially in the last slide (or in 2008), Stage 1 represents 35% of the employed labor force in Raleigh while it only represents 26% percent in Detroit. With Stage 4 companies, the situation reverses with Detroit having 19% of the employed labor force while Raleigh has just 10% of its labor force dependent on these large companies.

With the changing nature of the American economy, it is important for communities to focus on smaller companies, especially those that have grown within your own community. These small companies, that may have very little economic impact in the short-term, may grow and become the Google or Facebook of the future. Or at least these companies will provide jobs to talented, young individuals who may leave to find better opportunities in other cities or states.