From the February 2008 issue of Entrepreneur

For Ronny Bell, 2007 was a year to catch his breath and absorb the effects of a big move and a major capacity expansion at Pioneer Organics Inc., his 60-employee Seattle-based food delivery service.

Meanwhile, the year urged its previous swell of strong fundamental growth for Patrick Kruse's 17-employee Bend, Oregon-based pet products business, Ruff Wear. For both entrepreneurs, 2007 meant active hiring: Bell added 15 people, and Kruse added four.

Those results place them squarely on trend among entrepreneurs, according to a study of small-business hiring by ADP Small Business Services, a provider of outsourced business solutions, and Macroeconomic Advisers, an economic consulting firm. Drawing on pay data from about 400,000 companies with one to 49 employees, "The ADP Small Business Report" found that small businesses increased their employment growth rates toward the end of 2007: They added 77,000 jobs in November and averaged 65,000 new hires in September, October and November combined. That was a steep climb from the average 41,000 new jobs they added in the fourth quarter of the fiscal year.

A look at ADP's data archives from the past five years reveals long-term strength in entrepreneurial employment. "Small businesses have added positively to the U.S. economy every month since December 2002," says Don McLoughlin, vice president of marketing for ADP. "If you add those numbers up, that's 4.5 million new jobs--more than twice the number of new jobs contributed by larger businesses. Small business really is the engine of job growth."

The impact of entrepreneurship on the economy was especially marked during the job-growth slowdown in 2007, says Joel Prakken, chair of Macroeconomic Advisers. Breaking the jobs picture down between service- and goods-producing companies reveals that manufacturers had a rougher time in small business as well. Only service companies had uninterrupted growth in 2007, McLoughlin notes: "The goods-producing number has been significantly smaller, and it's had some positive and negative months," notably in November, when 75,000 of the 77,000 new small-employer jobs came from service companies. Small businesses are concentrated in the less-cyclical service industries, Prakken notes, and that may explain why they've grown more than larger companies. He also says that big firms, which are more likely to compete internationally, may have suffered from exposure to stiff global competition.

At Pioneer Organics, Bell, 35, says 2007 was actually somewhat slower in terms of growth than the 10-year-old company's typical year. "We definitely are running a bigger staff," he says. "But it's not necessarily coming from growth. It's catching up to growth we've had in the past." In late 2006, the company began moving from a 4,000-square-foot warehouse into a 21,000-square-foot facility. That relocation, which wasn't complete until early 2007, absorbed a large share of management attention and the company's capital resources. But Pioneer did see a 10 percent sales growth in 2007 while it was digesting the infrastructure improvement. Now Bell hopes to focus more on generating growth by expanding sales of home-delivered produce and other organic foods. "Organic foods are becoming more available through conventional grocery stores," Bell says. "That's forcing us to niche even further."

Ruff Wear manufactures its line of dog apparel and products in various Asian locations, and its latest hiring has been in sales and marketing and product design. The 13-year-old company had about $5 million in sales for 2007, and Kruse, 46, credits the success to continued growth in the pet industry coupled with his company's focus on canine performance wear. "Right product, right time, right place," he says. Ruff Wear plans to add three more employees in 2008 with the help of a government grant to fund work force training. The grant is intended to help the company become a leaner and more effective competitor, and Kruse hopes it will allow them to further expand their employment in Bend.

Oregon isn't the only place where the entrepreneurial impact on the economy is getting attention. Prakken, who has taught at several top universities and worked as an economist for the Federal Reserve Board, IBM and other large organizations, finds it interesting that small companies were showing such broad resilience while bigger employers faltered. But the data is compelling, he says, and clearly shows that entrepreneurs have been sustaining the economy for years and are likely to keep it up in 2008. "Until we work our way through this correction in the housing sector," he says, "it's not going to surprise me at all to see employment in small business lead the way."