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ERIK HURST University of Chicago BENJAMIN WILD PUGSLEY University of Chicago What Do Small Businesses Do?

Methods for Searching Small Business Ideas

Entrepreneurs normally have a business idea before they start the business. What would be a good business idea for a small business in your local community?

Think about how you would go about researching for a small business idea in your local community. What resources are available to you? Is searching the Internet or Walden Library the only option to come up with a small business idea in your local community?

By Day 3, post the following:

  • Identify and evaluate at least three methods that entrepreneurs can use to search for small business ideas.
  • Select one of the methods you identified and use it to identify an idea that might be of interest to you. Describe the process you used and the extent to which you think the method helped you come up with your idea. Did you see value to following this method?
  • After looking at various methods and practicing one of them, do you think that using them leads to better ideas for aspiring entrepreneurs? Why or why not? What did you discover about identifying new entrepreneurial opportunities? Explain.

Discussion post will be 2–3 paragraphs in length

Please include references and citation

ERIK HURST University of Chicago BENJAMIN WILD PUGSLEY University of Chicago What Do Small Businesses Do? ABSTRACT We show that most small business owners are very different from the entrepreneurs that economic models and policymakers often have in mind. Using new data that sample entrepreneurs just before they start their businesses, we show that few small businesses intend to bring a new idea to market or to enter an unserved market. Instead, most intend to provide an exist- ing service to an existing market. Further, we find that most small businesses have little desire to grow big or to innovate in any observable way. We show that such behavior is consistent with the industry characteristics of the major- ity of small businesses, which are concentrated among skilled craftspeople, lawyers, real estate agents, health care providers, small shopkeepers, and res- taurateurs. Lastly, we show that nonpecuniary benefits (being one's own boss, having flexibility of hours, and tbe like) play a first-order role in the business formation decision. Our findings suggest that the importance of entrepreneurial talent, entrepreneurial luck, and financial frictions in explaining the firm size distribution may be overstated. We conclude by discussing the potential policy implications of our findings. E conomists and policymakers alike have long been interested in the effects of various economic policies on business ownership. In fact, the U.S. Small Business Administration is a federal agency whose main purpose, according to its mission statement, is to help Americans "start, build, and grow businesses." Researchers and policymakers often either explicitly or implicitly equate small business owners with entrepreneurs. Although this association could be tautological, we show in this paper that the typical small business owner is very different from the entrepreneur that economic models and policymakers have in mind. Eor example, eco- nomic theory usually considers entrepreneurs as individuals who innovate and render aging technologies obsolete (Schumpeter 1942), take economic 73
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74 Brookings Papers on Economic Activity, Fall 2011 risks (Knight 1921, Kihlstrom and Laffont 1979, and Kanbur 1979), or are jacks-of-all-trades in the sense of having a broad skill set (Lazear 2005). Policymakers often consider entrepreneurs to be job creators or the engines of economic growth. In this paper we shed light on what the vast majority of small businesses actually do and, further, what they report ex ante wanting to do. Section I highlights the industrial breakdown of small businesses within the United States. By "small businesses" we primarily mean firms with between 1 and 19 employees; firms in this size range employ roughly 20 percent of the private sector workforce. However, we also define altemative classifica- tions, such as firms with between 1 and 100 employees. We show that over two-thirds of all small businesses by our primary definition are confined to just 40 narrow industries, most of which provide a relatively standard- ized good or service to an existing customer base. These industries primar- ily include skilled craftspeople (such as plumbers, electricians, contractors, and painters), skilled professionals (such as lawyers, accountants, and archi- tects), insurance and real estate agents, physicians, dentists, mechanics, beauticians, restaurateurs, and small shopkeepers (for example, gas station and grocery store owners). We also show that although firms within these industries are heterogeneous in size, these industries account for a dispro- portionate share of all small businesses. This composition of small busi- nesses foreshadows our empirical results. In section II we study job creation and innovation at small firms, both established and new. First, using a variety of data sets, we show that most surviving small businesses do not grow by any significant margin. Rather, most start small and stay small throughout their entire life cycle.' Also, most surviving small firms do not innovate along any observable margin. Very few report spending resources on research and development, getting a patent, or even obtaining copyright or trademark protection for something related to the business, including the company's name. Furthermore, we show that between one-third and half of all new businesses report provid- ing an existing good or service to an existing market. This is not surpris- ing when one thinks of the most common types of small business. A new plumber or a new lawyer who opens up a practice often does so in an area where plumbers and lawyers already operate. 1. Haltiwanger, Jarmin, and Miranda (2010) show that, when one controls for firm age, there is no systematic relationship betweeti firm size and growth. They conclude that those small firms that tend to grow fast (relative to large firms) are newly established firms. We discuss in later sections how our results add to these findings. In particular, we show that most survivitig new firms also do not grow in any meaningful way.
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small business idea FOR enterprenures.docx

Running Header: SMALL BUSINESS IDEA Course Title:
Student’s Name:
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Due Date: 1 Running Header: SMALL BUSINESS IDEA One of the most tedious exercises in business is coming up...

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