When you think of businesses, perhaps big corporations come to mind first. But in truth, 99.9% of businesses in the US are small. There are 34.7 million small businesses in the US, compared to fewer than 20,000 large companies.
Entrepreneurs and small businesses are critical for economic progress, driving the American economy and job market. They spur innovation and competition that gives customers more choice, while also having a positive economic ripple effect on local communities. Learn more about the importance of entrepreneurship and why it’s such a critical feature of the US business and economic landscape.
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What is entrepreneurship?
An entrepreneur is a person who builds or operates their own business. In some cases, they start with an idea for a new product or a twist on a business model that taps a unique opportunity in their target market. But that alone doesn’t specifically define entrepreneurship—it can also include other kinds of self-employment, like a freelance video editor, independent artist, or data-systems consultant.
Many ecommerce companies qualify as both entrepreneurships and small businesses. The US Small Business Administration (SBA) defines a small business as an independent company with 500 or fewer employees. And if you’re an intrepid entrepreneur on your own, you’re in good company: As of July 2024, 82% of small businesses had no employees, and of these “nonemployer firms” more than 86% were sole proprietorships, according to recent data from the SBA.
Although both entrepreneurs and small business owners operate companies, several nuances differentiate the two.
Aspiring entrepreneurs often focus on new innovations—whether it’s an entirely new product, a twist on a traditional business model, or a lower price point for customers—and they often take more risk in launching new businesses focused on novel ideas. Business owners, by contrast, might employ a tried-and-true business model or take over an existing business or franchise. Whether the business venture is new or existing, they often manage their companies with an eye toward stability, steady growth, and operational efficiency rather than market breakthroughs.
Reasons entrepreneurship is important
Why is entrepreneurship important? On both a macro and micro scale, entrepreneurs can have a huge impact on their local communities and the wider society. They are of great importance for:
Economic growth and community impact
Small businesses have a significant impact on the nation’s economy. Economic research by the SBA shows that small businesses account for 43.5% of total US gross domestic product and pay out 39% of all private-sector wages ($3.2 trillion).
The macro impact of small businesses, then, is clear. But in some ways, the real story is even more apparent when looking on a micro, individual scale. Within their communities, entrepreneurs sometimes end up creating not only a company—but also an ecosystem that has a positive effect on neighbors, clients, suppliers, and even the environment.
For example, when Brian Linton founded Philadelphia-based apparel company United By Blue, he was passionate about finding a way to use his successful business to help clean up the world’s water. For every product purchased, United By Blue removes one pound of trash from oceans and waterways. It began with local rivers and now has organized cleanups in all 50 states and in other countries such as the Philippines. United by Blue has removed more than 3.5 million pounds of trash.
The company created hundreds of local jobs through its Philadelphia retail locations, where it also sells coffee sourced from neighbor and fellow Shopify merchant ReAnimator Coffee Roasters. In addition to fostering local economic prosperity, United By Blue also created an entirely new industry: The company uses bison fiber, a layer of the animal’s coat that was typically shorn and thrown away, as an insulation material in its cold-weather clothing. Because of United By Blue’s decision, an item that previously had no use is now a multimillion-dollar industry that reduces waste, provides income for ranchers, and supplies a fully sustainable and regenerative fiber.
Job creation
Small businesses comprise 99.7% of US companies with paid employees, and many workers depend on these new job opportunities: They employ about 59 million people, which is 46% of the workforce.
In fact, small businesses accounted for more than 65% of net-new jobs from January 2000 to June 2023, according to recent SBA data. For many entrepreneurs, job creation is one of the goals and a source of deep pride. Becca Millstein, cofounder and CEO of premium tinned seafood company Fishwife, says it’s one of her favorite aspects of entrepreneurship.
“I’m so grateful to be responsible for employing people and hopefully providing an impactful, wonderful work experience for them,” Becca says. “It’s a true privilege.”
Fishwife has also played a direct role in job creation at other companies. Several fisheries and canneries in the Pacific Northwest thrived thanks to their contracts with Fishwife. “For some of them, Fishwife is a huge percentage of their business,” Becca adds. “They can hire more people and grow their own companies, which feels awesome.”
Innovation
Huge companies serve huge markets. They have lots of overhead, vast workforces, and plenty of stakeholders to keep happy. To justify the high operating costs, they often must offer a wide array of products and services to achieve economies of scale and reach the largest audience possible.
Startups, by contrast, are much more nimble. It’s easier for them to experiment with new ideas. They can choose to focus on a smaller audience or niche need. Plus, their existence often depends on offering something innovative and different that benefits customers.
One example is Nerdwax, a company that’s passionate about eyewear, even though it doesn’t actually sell glasses. Instead, its product line focuses on making wearing glasses more enjoyable: the signature Nerdwax beeswax stick stops glasses from sliding down one’s nose, drops keep lenses from fogging up, and a highly effective lens-cleaning solution.
Founder and CEO Don Hejny said on Shopify Masters that he developed the idea for Nerdwax’s flagship anti-slip stick while on the road as an audio engineer for musicians. A woman onstage kept trying to push her aviator sunglasses up while simultaneously playing acoustic guitar.
“I thought, there needs to be a solution for this that somebody who’s on stage could wear—and they wouldn’t be ashamed to wear,’” Don says. “I grew up around board sports. Surfers use wax in the water to keep friction on their surfboards. I thought, ‘Man, if I could make something like a surf wax for your glasses, that would be really cool.’”
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Competition
Innovation doesn’t necessarily have to come in the form of a brand-new product category. Successful entrepreneurs can upend a market with a better version of a product, a more efficient business model, or a lower price point.
After all, imagine if one company’s product was the only option in the market. Why would it bother improving the product or keeping prices down if people had no other choice? It could simply rest on its laurels and watch the money flow in. Startups have the power to disrupt industries, shake up the status quo, and shock legacy brands out of complacency. That competition results in more choice, more innovative solutions, and lower customer prices.
Case in point: Enrico Casati and Jacopo Sebastio founded Velasca in 2013 to bring handcrafted Italian leather shoes direct to consumers (DTC). “We wanted to connect these craftsmen in Italy that are really good at making products with people who love Italian design and quality around the world,” Enrico says on Shopify Masters.
Although the traditional business model worked because customers were willing to pay premium prices for these artisanal goods, Velasca’s cofounders recognized an opportunity. Those high prices were largely because of the industry’s reliance on intermediaries such as distributors, agents, resellers, and retailers.
“We bet our company on being direct-to-consumer, which brings about a competitive advantage in terms of pricing,” Enrico says. “You make the same products from the same factories using the same materials as the famous brands. But you’re able to sell them at half the price of comparable products.”
Ultimately, Velasca ended up helping to pioneer the DTC model in Europe—not only changing its corner of the market with Italian leather shoes and clothing, but also clearing a new path for startups of all kinds to disrupt incumbent industries.
Importance of entrepreneurship FAQ
What are the economic effects of entrepreneurship?
American entrepreneurship has major effects on economic development and growth, including creating jobs, contributing to national gross domestic product, driving innovation, and fostering competition.
What is one major advantage of being an entrepreneur?
Many entrepreneurs enjoy the freedom to control their work, career, and business direction. They can pursue their passions, build a company from the ground up, and set their own benchmarks for success.
What is a social entrepreneur?
Social entrepreneurship is the organization of a business around specific social impact and environmental causes, and can include both nonprofit organizations and charities and for-profit ventures. A social entrepreneur differs from a traditional entrepreneur in that their main drive is to make a difference.
