Reality Policymakers Must Acknowledge and Support
Anyone interested in economic policy should regularly listen to the insights and experiences of America’s entrepreneurs. Repeated research has demonstrated that startups are disproportionately responsible for the innovations that drive productivity growth and economic growth and account for virtually all net new job creation.
Since February, the Center for American Entrepreneurship (CAE) – a nonpartisan Washington-DC-based policy and advocacy organization – has conducted roundtables with entrepreneurs in three cities in America’s heartland – Iowa City, Cincinnati, and Minneapolis. Over a dozen entrepreneurs participated in each roundtable across a wide range of industry sectors, including software, digital marketing, medical technology, manufacturing, commercial real estate, material sciences, and consulting.
The purpose of the events was to better understand the impacts of e-commerce and digital tools on new and small businesses in the post-COVID era, and they revealed two major policy recommendations.
First, in the wake of the COVID-19 pandemic, America’s prosperity now depends in large part on new and small businesses operating, selling, growing, and thriving online. As they continue to debate important issues associated with large technology companies, policymakers should move deliberately to avoid damaging or impeding access to the digital marketplaces and tools that are clearly benefitting so many of America’s new and small businesses.
Second, to help new and small businesses become more informed, competent, and effective online, Congress should immediately pass the Small Business Technological Advancement Act, bipartisan legislation introduced by Senators Todd Young (R-IN), Jacky Rosen (D-NV), Ted Budd (R-NC), and Jeanne Shaheen (D-NH) that will make clear that small businesses can use loans backed by the Small Business Administration (SBA) to pay for digital tools, software, apps, and training.
The trend toward the digitalization of small businesses has been underway for years, but the COVID-19 pandemic accelerated the transition by as much as a decade, according to an analysis by McKinsey. Roundtable participants agreed that during the pandemic, new and small businesses turned to digital marketplaces and tools in unprecedented ways. Small businesses now extensively use Facebook, Google, Amazon, and Shopify to open digital storefronts, social media sites like Instagram and Twitter to market to customers, video conferencing platforms like Zoom and Microsoft Teams to interact with suppliers and pitch potential investors, and digital payment tools like PayPal, Venmo, and Square to facilitate sales. E-commerce capabilities are no longer novelty complements to businesses’ principal identity – they are core operations.
The accelerated transition to e-commerce is also permanent. Participants agreed that “brick and mortar” is now only one aspect of small business – “technology is essential to business growth,” and “there’s no going back.” In fact, e-commerce sales as a percentage of total business sales jumped from 10 percent in 2019 to more than 15 percent by the summer of 2020 – a level that has persisted and is expected to increase.
Several roundtable participants even commented that they would now advise entrepreneurs to launch their new business digitally first before perhaps expanding to a physical storefront.
Participants also noted that AI will be – and already is – both an immensely important tool for new and small businesses and a major challenge. While AI will help automate many time- and energy-consuming aspects of running a business, the technology is developing so quickly that business owners struggle to keep up. As one participant stated: “Even for technology companies, AI is overwhelming.”
Small business owners face other technology challenges. For example, opportunities associated with e-commerce are so far-reaching that many business owners feel overwhelmed by the “flood” of digital tools and applications developed and marketed since the pandemic, and many others feel “behind the curve.” E-commerce also means navigating significant regulatory and compliance challenges, such as inconsistent sales tax regimes and other obligations across states. For many, the importance of digital marketplaces and tools has also underscored the urgency of data quality and security, consistency of data privacy regimes across states, and cybersecurity protection.
To meet the challenges of the COVID-19 pandemic, America’s entrepreneurs did what entrepreneurs always do – they innovated and adapted, leveraging the opportunities provided by digital marketplaces and tools. As a result, e-commerce is the new reality. Small businesses now know they need to be more digitally active and savvy, but they need help. Policymakers can provide that help by preserving continued access to digital marketplaces and tools and by passing the Small Business Technological Advancement Act.
John R. Dearie is the president of the Center for American Entrepreneurship, a nonpartisan Washington-DC-based research, policy, and advocacy organization.
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