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Small Businesses are the Backbone of Lehigh Valley Economy

By Colin McEvoy on March 21, 2016

 

This column, written by LVEDC President and CEO Don Cunningham, originally appeared in The Morning Call‘s Outlook 2016 section on March 19, 2016. (Click here to read Cunningham’s previous columns.)

Don Cunningham

Don Cunningham

Small business is business today in the Lehigh Valley.

There are 14,645 establishments in the Lehigh Valley with employees. Just 114 of those locations have more than 250 employees.

By the Small Business Administration’s definition, 99.2 percent of people employed in the Lehigh Valley work at small business locations.

This is the reason nearly every candidate for president, or any political office for that matter, talks about small business being the backbone of America, the state, the county, fill in the blank. If the measure is employment, there is not much large business left. In the Lehigh Valley, there are just 13 employers with 1,000 or more employees, only another 32 with 500 to 999 workers.

This is not your grandfather’s Lehigh Valley.

At the Lehigh Valley Economic Development Corp. (LVEDC), the organization I lead, we use a more traditional small business definition, those with 20 employees or less. Those numbers are still likely to surprise you.

Eighty-four percent of employee locations in the Lehigh Valley have fewer than 20 workers.  So, even by a more conservative definition, only 16 percent of our employers are not small business.

What does all this mean?

Well, first of all, there is no doubt that the Lehigh Valley is a small business region. More importantly, however, it’s a region with a widely diversified business base and an economy much less susceptible to the rise and fall of one company or one sector. In short, there are not a lot of eggs in one particular basket.

This is why the Lehigh Valley as a whole weathered the storm of the Great Recession much better than many others in the country.  Several years ago, the region recovered the number of jobs lost in 2008-2009 and has grown by another 15,000.

Why the new phenomenon of more employers and fewer employees at each location? There are numerous factors, but the leading one is automation and technology. The technological revolution that launched with the introduction of the I-phone has forever changed the workplace and employment size of businesses.

Technology is the lead reason for increased productivity and output while at the same time reducing job growth. The Lehigh Valley’s Gross Domestic Product, (GDP), the combined measure of all goods and services generated, reached a historic high last year, surpassing $35 billion.  That’s more economic output than the state of Vermont and 94 countries in the world.

In essence, technology has helped to create the small business revolution, and not just through increasing productivity with fewer workers. It’s also making it possible for more businesses to develop and

Think about what it took to be an entrepreneur or launch a small business prior to the Internet and age of technology. It was a scary proposition. You needed to either have the money to hire experts or consultants or research everything yourself from tax laws, real estate advice, market intelligence, access to capital, and product development expertise. Today, with a laptop computer or smart phone everyone is an expert, with access to information that would have taken numerous people, a lot of startup money and time.

Technology doesn’t guarantee success but it does make it easier to foster innovation and entrepreneurship. Today, there is a very healthy and growing start up community in the Lehigh Valley taking advantage of our universities and economic support mechanisms like Lehigh’s Ben Franklin TechVentures, Allentown’s Bridgeworks Enterprise Center, and Bethlehem’s Keystone Innovation Zone.

Technology has created the e-commerce revolution that has found a home in the Lehigh Valley. Online purchasing and delivery technology has also helped to grow small business. In a different era, it was nearly impossible for a small business to find customers outside of its market. Today, a small retail store or supplier can sell as much product on-line as in a retail location.

Interestingly, manufacturing is flourishing in the Lehigh Valley, primarily as small business. The typical Lehigh Valley manufacturer today has about 25 to 75 employees and operates in from 5,000 to 40,000 square feet of space. There are 677 manufacturers in Lehigh and Northampton counties; only six of them employ more than 500 workers. But, in total, these small manufacturers remain a cornerstone of the region’s economy. Manufacturing and its $5 billion of annual GDP is our third largest sector.

The small business sector in the Lehigh Valley – regardless of how it’s defined – will continue to grow. And, just listen to anyone running for office, it will long be the backbone of our new, diversified economy.

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