October 01, 2009
Does our focus on the public corporation miss the mark?
Posted by Lisa Fairfax

Whenever I fly, at some point I generally find myself flipping through the airline's in-flight magazine.  During my last flight, the Southwest magazine had an "entrepreneur handbook", featuring a variety of stories and statistics about entrepreneurs that provide some important perspective about how we think about (and teach) business associations. 

As an initial matter, the handbook included some contrarian advice from founders, some of which challenged the profit-maximization norm, such as that from the Container store founder who said to forget the Milton Friedman notion that the only reason a corporation exists is to "maximize the return of the shareholder."  Instead, "Put the employee first, and that employee will take better care of the customer than anyone else."

Then too, the magazine had a host of statistics underscoring the fact that many American businesses are small.  Accordingly, one set of data revealed that small businesses represent 99.7 % of employers, and that there are an estimated 7 million new ventures each year.  These statistics suggest that to the extent our focus in corporations and business association is on the large public corporation, we may be missing the mark.  Or at the very least, that focus may leave many students ill-equipped to deal with the type of businesses that they are likely to create, advise, or otherwise interact with on a daily basis.  One interesting data point--apparently self-employed workers out-earn the rest of the population by 6%.  And yet, the number of uncompensated hours that entrepreneurs collectively spend on their businesses a year: 10,000,000,000. 

On a related note, some of the statistics illuminate the risky and short-term nature of small businesses.  Thus, less than 1% of small businesses receive venture capital, while some 46% of small businesses are financed with personal credit cards.  Then too, the average small business survives 11.2 years, and only 1/3 of entrepreneurs will still run their businesses in six years.  To be sure, the risky nature of a small business may be an obvious point. Moreover, as the current crisis painfully highlights, risk is not limited to small businesses. 

However, these kind of statistics remind us that many business issues, including those involving  risk, dissolution, personal liability, and financial responsibility, may be distinct and more acute in the small business setting.  To the extent discussions about businesses and corporations get dominated by large public corporations, we may overlook or otherwise fail to appreciate these distinctions--along with the very important fact that small businesses play a significant role in the American economy.

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