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Why the U.S. Economy Needs Small Businesses to Hire More

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About one in five U.S. small businesses has more than one employee. This might lead you to believe that running a successful small business can be a lonely, one-person affair. But nothing could be farther from the truth. Surrounding yourself with people who have the right know-how is the key to a successful company.

Mike Blake/Reuters

In my last blog post, I looked at access to capital as a key factor in successful entrepreneurial ecosystems. This week I will examine a second equally important component: people.

As the head of the U.S. Small Business Administration, I spent the last four years travelling the country and visiting small businesses. In each place I would ask small business owners "what do you need to make your business grow so you can hire more people?" To my surprise, the most common answer, especially for small manufacturers was access to skilled workers.

Take Victor and Sarah Lytvinenko, founders of Raleigh Denim, who make American-manufactured jeans. They had a strong business plan, knew where to get the materials and even had the skills to sew a pair or two themselves. They started in their living room, but then the orders started rolling in. To get skilled fabric cutters and sewing machine operators, they opened a small factory in Raleigh, which has a rich history in the textile industry and a wealth of underemployed highly-skilled textile workers. 

North Carolina was at the center of America's textile industry throughout the twentieth century. But as manufacturing moved overseas, so did the textile jobs. Now with innovation in the form of new technical fabrics and new styling, entrepreneurs like Victor and Sarah are reinventing the American textile industry and the skilled workers of North Carolina are an asset in the local entrepreneurial ecosystem. 

Similarly, Cleveland, Pittsburgh and other Rust Belt cities across the Midwest are turning around their manufacturing centers as entrepreneurs and small business owners are taking advantage of a strong manufacturing workforce, adding skills and training where needed. These successes send a strong signal to policy makers to invest in building workforce skills that match the needs of high-growth businesses and the strengths of the region.

The second place to invest in people is with yourself as an entrepreneur. You may have strong sales, financing and a plan for expansion, but are you prepared to handle the challenges of a larger business? The demands on business owners change as businesses grows. But there is no need to learn by trial and error.

One of my top pieces of advice for the small-business owners I met around the country was always: get a mentor. Mentors help entrepreneurs adopt best practices without having to reinvent the wheel. That means better outcomes for businesses. Mentoring may sound like a "soft science," but SBA data shows that entrepreneurs who receive counseling and training are more likely to start a business that survives over the years. They are also more likely to seek financing to help that business grow in the future. 

For the small but fast-growing company, sometimes a more intensive entrepreneurial education program is needed. But many entrepreneurs don't have the time or money that an MBA requires. The answer might be one of my favorite SBA initiatives, the Emerging Leaders program. Located in 27 cities, this seven-month part-time highly tailored "mini-MBA" program provides both classroom time and the opportunity to learn from successful business leaders. By the end of the program, participants develop a multi-year business strategy and have strengthened their business ecosystem. 

The private sector has embraced similar models as well. One example is Goldman Sachs' 10,000 Small Businesses initiative, which demonstrated strong employment increases from helping existing owners take their business to the next level.

Both Goldman's initiative and the SBA's Emerging Leaders program report more than 50 percent of graduates adding net new jobs and 75 percent growing revenue within the first year of completing the program. These models, in addition to ones like Kauffman's FastTrac Growth Ventures and other similar initiatives, collaborate with community colleges and state and local governments to provide the intensive education businesses need to expand and create jobs. 

Despite the proven results of the entrepreneurial education approach, these programs reach only a tiny percentage of small business owners. And, more businesses need to jump in and work within their own communities to help the next generation of entrepreneurs. With clear and compelling results, the ecosystem approach is an obvious place to expand public and private investment. Investing in America's entrepreneurs and their skilled workers will pay big dividends in new U.S. jobs and a faster growing economy.

Karen Mills

Written By

Karen Mills is a Resident Fellow at Harvard’s Institute of Politics. She served in President Barack Obama’s cabinet as the Administrator of the U.S. Small Business Administration and a member the National Economic Council from 2009 until August 2013. Previously, Mills held a variety of leadership positions in the private sector, including serving as a partner in several venture capital and private equity firms.