By Jonathan McCormack
Sprinkled across the gilded facade of corporate industrialism is a myriad of independently owned businesses. In 2025, 36.2 million small businesses make up 99% of all businesses in the United States, yet they are probably not what first comes to mind when we hear the word “business.” Not only are they overshadowed by corporate giants, but the 35% of small businesses that survive for 10 years are usually “dull normal,” monotonous services, safe private investments.
However, small businesses are an essential component of the commercial economy. In 2025, small businesses employed 62.3 million people, making up 45.9% of all U.S. employees; they also make up about 43.9% of the country’s GDP. Apart from the quantifiable metrics, small businesses are also the heart of many communities throughout the United States. In New York City, for instance, there are 220,000 small businesses, many of which are concentrated in culturally significant neighborhoods like Chinatown in lower Manhattan and Williamsburg, Brooklyn. In communities like these, small businesses are vehicles of character that bridge people through shared culture and value.
On a national level as well, small businesses encapsulate the American culture of self-reliance and independence. These are self-evident philosophies from the framing of The Constitution and perpetuated through popular culture, literature, and political forums. Gatsby, an iconic character in American literature, was a self-made bootlegger and entrepreneur in the 20th century. Real-life examples include John D. Rockefeller, Cornelius Vanderbilt, Andrew Carnegie, and Henry Ford, prominent entrepreneurs to whom we dedicate an entire chapter of American History. Of course, the minute scale of individual small businesses does not compare to these historically significant giants, but it comes to show that the country’s cultural identity is connected to the idea of entrepreneurship.
Small businesses may seem small in comparison to the entirety of the U.S. economy, but they are significant on the microeconomic scale. Approximately, 88% of millionaires are business owners, and 61% of self-made millionaires are small business owners. Businesses are substantial investments that can yield life-altering returns. Commonly, people will credit Wall Street and higher education as pipelines to financial success; however, entrepreneurship and professions that depend on capital accumulation make up a majority of the most financially successful individuals.
Small businesses with between one to four employees average about $387,000 in profit each year, and small businesses where the only employee is also the entrepreneur profit an eighth of that. Considering these figures, an individual would be better off financially if they were to search for a high-paying corporate job in an urban-industrial center like New York or California, where salaries for corporate positions can average $145,000.
Of course, the real value of a small business is not found in the salary that employees take home but rather the stake they have in the business itself. The value of a small business is related to its capital accumulation and future cash flows; therefore, even though profit margins are slim (around 5-12 percent), small businesses and their owners accumulate worth over time through the value of their business.
The average salary of a small business owner is only about 16% more than the average salary of the national average wage, yet the median net worth of self-employed families was four times that of families of workers. Accordingly, 45% of families in the top 10% of net worth are small business owners.
Through these statistics, it becomes clear that business ownership yields exponentially greater financial returns through the accumulation of wealth and stock even though short-run salaries are similar.
This is significant when you consider both that the racial wealth gap in America grew 38% from 2019 to 2022, and that only 3% of businesses in America are owned by Black Americans. Business ownership is a vehicle for economic transcendence that yields substantial long-run returns through wealth accumulation.
The economic opportunity presented by small businesses should also be put into perspective where risk and improbability are also considered. Only about half of small businesses survive through their fifth year, and in 2024, 35% of small businesses were operating at a loss while many more experienced declining profits (mostly due to inflation).
Most small business owners actually experience non-pecuniary returns from ownership. Most business owners reported that they enjoy being self-employed and having more freedom. One statistic was that an individual would have to make 2.5 times as much money in order to be as happy as someone who is self-employed. The true value of a small business is, thus, also in its non-pecuniary advantages as well as wealth accumulation.
Success for a small business does not just come from the product or service, entrepreneurial qualities, location, or market. Instead, the recipe for success calls for each of these items, coupled with any number of abstract, non-tangible qualities, which leads many experts to draw the line between success and failure according to “luck.”
An example of “luck” is seen when we consider the New York Pizza market. Pizza in New York is famous because of its cultural significance and accessibility in an always bustling city with historical roots to Italian immigrants coming to the country’s east coast. The city has nearly 2,000 pizza restaurants, yet only a few of these are known above the others. Aside from market giants like Domino’s and Papa John’s, which are national chains, Joe’s Pizza is a New York-based business started in New York City in 1975. As recently as 2019, they expanded to Michigan, California, and Massachusetts, but for 44 of Joe’s 50 years, they were only located in New York.
Joe’s pizza may rise above the rest for any number of reasons, according to critics, like better ingredients, authenticity, or prices. However, it was also featured in numerous popular culture works like Spiderman 2, Sex and the City, and Keeping up With the Kardashians. These unique appearances led to it becoming a staple in one of the most competitive restaurant markets in the world, contributing to its popularity, success, and existence 50 years later.
This is a unique case, and most small businesses will not be name-dropped in blockbuster franchise films. However, it comes to show that within the unpredictability of what makes a small business “lucky,” there are definitely factors that can be attributed to success.
Some industries produce more success stories than others. Unlike the example of Joe’s Pizza, restaurants and bakeries are among the least successful small businesses because they require high fixed costs, marketing strategy, and have time-sensitive inventories. A successful restaurant is dependent on location (which can be expensive) and reputation all the while inventories cannot accumulate.
Successful businesses are ones that face lower overhead costs and are capable of holding capital stock – for example, real estate, rental companies, construction, and payroll services. These industries make up the largest share of successful small businesses. While the overhead costs of entering real estate, rental, and construction businesses are actually quite high, all of these industries deal with goods and services that can be stored over time. Thus, they receive the privilege of being able to have low day-to-day operational costs, receiving maximum profits for their inventories, and cutting losses when business slows.
It is also important to consider that most small businesses orient themselves to provide an existing service to an already existing market. Without immense starting capital, most are forced into this role; however, it is ultimately "entrepreneurial talent" that turns this condition into a profitable business opportunity. Successful entrepreneurs promote a unique value that resonates with their community, take risks, and remain flexible, all the while investing their time and money and ignoring the idea of growing too big.
Small businesses are concentrated, and thus sustained, by their communities, so acquiring and maintaining a good reputation by promoting a unique value is a keystone feature of successful businesses. Risk-taking and flexibility are also essential because profits will inevitably fluctuate, or sometimes even be negative, requiring entrepreneurs to remain resilient in order to achieve long-run success. Finally, refusing to grow too big is also an important feature of "entrepreneurial talent,” since growing businesses also run higher costs that jeopardize future returns. Entrepreneurs need to strike a balance in their scaling.
The COVID-19 pandemic exposed just how vulnerable small businesses are when forced to endure macroeconomic challenges. The pandemic disproportionately impacted small businesses. In 2020Q2, more than 700,000 small businesses closed, and almost 100,000 of them closed permanently, taking with them more than 3 million jobs.
High post-pandemic inflation also continues to damage the financial health of small businesses. Inflation disproportionately impacts small businesses that must balance higher operating costs with competitive pricing alongside restricted cash flows. The small business model is built upon providing a niche service in a convenient way, so when operating costs rise, it becomes difficult to stay competitive compared to larger businesses that can take on short-run revenue losses. Increasing prices to offset this might drive customers to larger market competitors. Thus, many business owners cite inflation as their biggest concern for the coming year.
Larger market competitors continue to threaten the niches that small entrepreneurs occupy by undermining prices and employment benefits, or holding market influence. Large corporations force small businesses to adjust or even close. For example, small restaurants are strong-armed into joining Uber Eats and Grubhub in order to remain competitive. What’s more is that small businesses often lie at the mercy of larger firms, so when Home Depot closes a location, it might take with it several small businesses that relied on its service.
By their very nature, small businesses are economic punching bags—they survive by rolling with the punches, but the damage that they take on can appear to threaten their longevity. So what exactly is in store for the future of the small business model?
Firstly, when individual small businesses close, it does not necessarily threaten the small business model. As mentioned earlier, most small businesses actually fail just a few years after they begin. They close all the time, and this is actually an important fact for the macroeconomy. Small business closures are offset by new business applications: in 2020Q3, just after the surge of 700,000 business closures, there was also a surge of 370,000 small business openings. In 2025, more than 430,000 new business applications were filed per month.
Small businesses are constantly closing, reopening, or being supplanted. This is simply the nature of business models that are optimized by low overhead costs and volatile operational costs, coupled with their scale and the fact that they usually only hold a few weeks of cash flows in reserve. When short-run profits are damaged, it only makes sense to shut down because, alternatively, they can only stay afloat for a short while more. The cyclic closing and opening of businesses is actually an important process for the macroeconomy: job growth is negatively correlated with a firm’s age; thus, it is important to maintain many young businesses in order to create more employment opportunities.
Even though small businesses are individually insignificant, they are substantial in the aggregate. As mentioned before, small businesses make up 99% of businesses in America and also employ nearly 50% of workers and 44% of the country’s GDP. They contribute to 40% of the value added, and are socioeconomic vehicles scattered across the country. Simply, small businesses are too vital.
Hence, the federal government spends billions of dollars in financial support – loans, grants, tax cuts, contracts, and counseling – to uphold them. In 2024, for example, the government spent a record-high $183 billion on federal contracts, and during the COVID-19 pandemic nearly $600 billion on CARES, which helped small businesses survive.
Therefore, while individual small businesses might close and restructure, the overarching small business model is not likely to go anywhere.