Small and medium-sized businesses account for the vast majority of jobs in America--plus, a lot of political rhetoric about what's wrong with the stagnant economy. To get a fresh read on the state of this vital sector, I chatted recently with Brad Smith, CEO of Intuit, the software company whose products include QuickBooks, TurboTax, Quicken and the personal-finance site Mint.com.
Since Intuit's customer base includes millions of entrepreneurs and business owners, the company intently monitors small-business trends. Here are some excerpts from my conversation with Smith:
Politicians love to extol small business and claim they're doing everything to help. But the reality is that a lot of small businesses have gotten little direct help from Washington lately, and many have been struggling. How do you think small business is doing? I'd like to tell you the sun is out and shining but the truth is, many businesses don't have enough confidence to be hiring. They need to get customers actually shopping. They're hiring again, but it's up by maybe three percent, which is pretty modest. Credit-card charge volume is up a few percentage points. It's not roaring back.
What's holding back small businesses? Usually when there are a lot of layoffs, like in 2008 and 2009, business creation tends to spike. But that didn't happen right away, partly because people trying to start a business couldn't get credit. Now, there's a very scrappy entrepreneurial approach to how to make this happen. Technology has helped them get started. They're using cloud-based products. There are opportunities to leverage mobile devices for on-the-go payments. They can get up and running with less cash out of pocket.
Do you think a lot of "accidental entrepreneurs" want to return to bigger companies once they start hiring again? Or will we actually see a long-term boost in entrepreneurship? Fifteen years ago, 8 of 10 college grads wanted to work for G.E. or Microsoft or other big companies. Today, it's completely the inverse, with 81 percent wanting to be the next Mark Zuckerberg. We've got an entrepreneurial generation coming up. They're already developing mobile apps in high school. One of the other things is that new business starts among 45- to 54-year-olds includes a lot of people who don't have what it takes to retire and are taking their destiny in their own hands and starting a business. Some of them, if they had the choice, would probably go back to a big company, but another group is fulfilling a lifelong dream. Put together, there's an increasing trend toward a highly entrepreneurial economy.
Starting a business is notoriously risky. Are startups failing at the same rate as they used to? About 10 million people start a business each year, and about one out of two will make it. The average entrepreneur is often on his or her third startup. It's a great segment for us to be in because it's often less about succeeding the first time, and more about quick learners being able to adjust. Those are the ones who will be back around for a second try.
Will the trend be about the same in the future? Entrepreneurship will increase at a sustainable level, especially if you consider this with a global lens. There are no natural borders with Web- based products or mobile apps. As mobile develops, we expect to find many customers coming from outside the United States. We're beginning to modify some of our products, such as QuickBooks Online, into what you might call a United Nations version. About 70 percent of the product is the same as the U.S. version, but 30 percent will be localized. We used to require a U.S.-issued credit card to use Quickbooks. We removed that a few months ago. Now we have customers from 100 countries using it on a trial basis.
What are you learning about consumer spending habits through your Mint personal-finance service? About 53 percent of users access our ways-to-save section. Prior to the recession, Mint users were consuming about 2 percent more than they earned. That's coming down now. It could be because Mint offers tools such as the ability to compare your saving to what others are doing. We're seeing smarter shoppers. It could also be because of the showrooming phenomenon. People are making better decision based on information they now have at their fingertips.
People seem comfortable with new data-analysis tools? That's one big chapter looking ahead: Big data for the little guy. Transaction data, what you spent your money on, where you spent it.
What do small businesses need right now? It's pretty consistent. The number one thing small business needs is to get more customers. Spend more time serving existing customers and getting new ones. The challenge for small business is knowing where customers are and reaching them effectively.
There's a lot of talk in Washington about tax reform and other things that might help small business. Would that make much of a difference? Good intentions often get muddled with very complex execution. The last time the government tried to make taxes easier, it created a 1040 EZ form with a 52-page help booklet.
Are you optimistic about the future for small businesses? Yes, but I think a recovery will be like a Nike swoosh, long, slow and protracted. The good news is that small businesses have continued to get more savvy the longer the recession has gone on. Plus we've got a lot of digital natives coming out of college. I'm a big believer that we'll have strong entrepreneurial growth happening in the future. I think it will accelerate over the next few years as businesses adjust to a new reality. Strong growth is coming, but not for the next 24 months.
Rick Newman is the author of Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.