Small Business: Small businesses are still innovative, study finds

Sam Jones is the Region VII SBA administrator.

At the Small Business Administration, we are proud to say American small businesses are the world's greatest innovators, and are responsible for the majority of new inventions over the last two decades. We prove this not only by noting examples of innovation found in every household the mousetrap, the light bulb and the toaster but by counting and attributing the patents taken out to protect new products.

But the focus of innovation is changing. Over the last 50 years we have witnessed a shift from the industrial age to a new, technology age. It seems just yesterday we were awed by the invention of the computer, and then, along came the computer chip. Today, gaining the technological edge appears to be a key factor to efficient and effective production for both companies and our country. Technological invention is growing at a greater pace than other types of invention and a race of sorts is on to keep us on the cutting edge.

But developing in the technology field presents a different set of challenges on the innovation showground. It's easy to see how some would speculate that small business often stereotyped as being service- rather than tech-oriented might not be able to play in the new ballpark. Another phenomenon shapes this opinion. As we flip open the cell phone or pick up the digital television remote, the names we associate with technology invention are usually those of large corporations.

So, we can see why some may wonder whether small businesses are participating in the challenge of inventing for technology. Since the answer will possibly shape both government expenditures and private capitalization and acquisitions impacting small businesses in the future, SBA has decided to find out.

SBA's Office of Advocacy funded a study conducted by CHI Research Inc. to determine whether small businesses were innovating more or less than in the past, and the extent to which large firms rely on small firms and their achievements in developing new technologies. The research, released last month, finds that small firms are indeed a vital element of new technology in many industries. It notes they are integral to the innovation process even when they are not responsible for the final or breakthrough technology. It concluded that the influence of small firms in technology is increasing.

Small firms represented 40 percent of the highly innovative firms in the study sample in 2002 as opposed to 33 percent in 2000. Further, the study indicated that small-business participation in research is even higher than expected in high-technology industries, such as biotechnology, medical electronics, medical equipment, semiconductors and telecommunications. Large firms frequently rely on small firms' discoveries and inventions in these fields at a higher-than-expected rate. Statistically, CHI found a 7 percent increase in the influence of small firms between the years of 2000 and 2002.

The study even researched where elite inventors (those with at least 10 patents in a two-year period) work for small businesses or large corporations and if they are shifting between the two. It found that the share of those employed by small firms rose from 12 percent to 16 percent between the years 2000 and 2002 while those employed by large firms fell from 79 percent to 72 percent in the same time period.

Clearly, the research indicates small firms are contributing viable innovations and inventions in many technological fields. It's a first step to proving that small business is now and will probably continue to support and build new technology. But then, should anyone really be surprised? Small business has always embraced the idea that if you build a better mousetrap, the world will beat a path to your door. To read the full report, visit SBA's Web site at www.sba.gov/advo.