The small business sector in the United States has faced significant challenges, posing a barrier to the country's economic recovery. Small businesses have long been the engine of the U.S. economy, contributing substantially to employment and generating considerable economic activity (Small Business Administration, 2020). However, the COVID-19 pandemic had a devastating impact on these businesses, with widespread closures and job losses. So far, recovery efforts have largely overlooked the small business sector, reflected in the ongoing difficulties they face in staying solvent and accessing capital (Cowles, 2021). While not exclusive to them, addressing small business issues is crucial for transforming an economy experiencing slow recovery into one achieving sustained economic growth, health, and competitiveness (Engidaw, 2022; Depken and Zeman, 2018).

The genesis of the small business sector in the United States

Since the early days of the nation, small businesses have played a significant role in the United States, often being the primary drivers of innovation and job creation. These businesses constitute an unyielding gear that generates income not only for organizations but also for individuals employed in the areas where they operate, contributing to the tax base. As the United States began to grow and expand in the 19th century, local small shops emerged, providing necessary goods and services to communities in a familiar, owner-operated fashion, dedicated to meeting the needs of residents.

The Small Business Administration of the United States defines a small business as an independently owned and operated entity, organized for profit, and not dominant in its field.

In 2020, amid the spread of the virus and hospitals reaching capacity, Americans submitted paperwork to the Internal Revenue Service to establish 4.4 million new businesses—a 24% surge compared to the preceding year.

In 2023, 5.5 million new businesses were created, marking the highest number since the government commenced data collection in 2004.

In January 2024, registrations were recorded for 450,078 new businesses, just 1% less than in December 2023.

The failure rate of small businesses

According to data from the Bureau of Labor Statistics, as reported by Fundera, approximately 20 percent of small businesses fail during the first year. By the end of the second year, 30 percent of businesses will have failed. By the end of the fifth year, roughly half will have failed. And by the end of the decade, only 30 percent of businesses will remain—a failure rate of 70 percent.

This means that 1.1 million new small businesses created in 2023 will fall in 2024.

Now, it is essential to explore some of the reasons behind these alarming statistics:

  • Lack of planning: many small businesses may face issues due to a lack of proper planning. The absence of a solid business plan, effective marketing strategies, or a clear understanding of the market can contribute to failure.

  • Financial issues: inefficient financial management or a lack of access to capital can be significant factors. Small businesses often have limited resources and struggle to maintain strong financial health, impacting their ability to operate and grow.

  • Competition and adaptability: in a dynamic business environment, the inability to adapt to market changes and competition can be detrimental. Companies that cannot adjust to changing demands may struggle to stay afloat.

  • Management problems: lack of experience in managing a business, including decision-making, employee management, and problem-solving, can contribute to business failure.

Challenges in driving success

Investing in and supporting small businesses is essential for the well-being of the U.S. economy. They play a crucial role in stimulating economic growth and creating employment. The economic recovery of the United States requires policymakers to create various programs and policies offering training, access to credit, and financial assistance to help small businesses shake off the dust, adapt, and succeed. Building stronger bridges for small businesses can enhance a more robust and sustainable recovery. While public support is undeniably crucial, it is also imperative for businesses to actively participate in overcoming the challenges posed by the current economic climate. The recovery of the American economy requires a comprehensive approach from policymakers, including the development of diverse plans and policies. These initiatives should not only provide training, access to credit, and financial assistance but also encourage small businesses to take an active role in adaptation and innovation.

Strategies promoting not only competition but also collaboration among small businesses are required. They can use their limited resources to their best advantage by developing shared supply chains with nearby small businesses when possible and maximizing the benefits of new programs for small businesses that allow them to combine purchasing power and directly compare costs with other small businesses.

It is true that the United States is a place where people from all over come to pursue the "American dream," also known as the land of opportunities. People aspire to start their own businesses and become financially independent; however, many of these businesses never manage to get beyond the starting gates and ultimately fail.

As we saw earlier, one of the main causes is the inadequate formulation of an initial business plan. Therefore, it is imperative to design strategies to ensure that small businesses start with a concrete plan that provides a foundation for future growth. For example, inadequate market research is a common mistake entrepreneurs make when drafting a business plan. A well-researched market analysis should be conducted before drafting a business plan. This will help them understand market trends and the target audience of the business. It will also help understand business competition and how to face it. Understanding market dynamics will help decide if the business concept is viable.

For these and other reasons, this basic level of business resources should be the focus of investment by governments and organizations with vested interests in the success of small businesses. Market research tools, financial forecasting software, and opportunities to seek mentorship would enable entrepreneurs to develop a solid and comprehensive business plan and make informed decisions. Additionally, small businesses, in collaboration with their mentors and industry associations, for example, should create a system for more continuous assessment and feedback as they implement their business plans. Regular review of industry trends and direction, along with feedback from peers, mentors, or industry experts, can help entrepreneurs better diagnose issues in executing their plans and iterate in the right direction. This kind of collaboration and networking provides access to resources and knowledge that the entrepreneur may not have on their own, as well as the support of others who may have faced and resolved similar challenges in the past.

Personally, I believe that the ineffective formulation of initial business plans is a considerable factor in the struggles and failures of small businesses in the U.S.

So once businesses start, the only way to steer them towards success depends on incorporating elements of improvement into business plans, even if it involves rebuilding the business plans themselves. Organizations of all kinds invest in refining and executing market research, financial projections, strategic planning, leadership, and marketing strategies, and sources of feedback and accountability could significantly enhance the chances of a new business making a meaningful contribution to the country's economic recovery.

Another significant challenge facing small businesses in the United States is a lack of access to adequate training and credit. Business training is essential to equipping entrepreneurs with the necessary skills to efficiently manage their businesses. Many small business owners may lack knowledge in key areas such as accounting, marketing, human resources management, and technology. Therefore, it is crucial for support programs to include comprehensive training initiatives that address these deficiencies and strengthen business skills.

Furthermore, access to credit remains a significant obstacle for many small businesses. The lack of a strong credit history and the difficulty of meeting traditional loan requirements can leave many businesses without the necessary funding to grow and thrive. Policymakers must work closely with financial institutions to develop programs that provide affordable credit tailored to the needs of small businesses. The creation of government guarantees and microfinance programs can be crucial to overcoming this challenge and providing the necessary financial boost for the long-term success of small businesses.

Similarly, addressing the digital divide affecting many small businesses, especially after the pandemic, is essential. Technology plays a fundamental role in operational efficiency and business expansion today. Providing access to digital tools, e-commerce programs, and technology training can be key to improving the resilience and competitiveness of small businesses in an increasingly digitized business environment.

In this regard, collaboration between the public and private sectors is essential. Strategic partnerships with large companies can facilitate access to resources, technologies, and mentorship that benefit small businesses. Additionally, large companies can play an active role in seeking suppliers and partners among local small businesses, thereby encouraging collaboration and joint growth.

In conclusion, the need to address the issues facing small businesses in the United States is urgent and vital for the country's economic health. The formulation of comprehensive policies that include training, access to credit, technological support, and business collaboration is essential to strengthening these businesses and ensuring their long-term success. Furthermore, the active involvement of businesses themselves in continuously improving their business plans, adapting to changing market conditions, and collaborating with other small businesses are crucial steps toward a more robust and resilient business landscape in the United States.