Back to School

Small businesses are integral to the economy. And that’s straight from Harvard.

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As the school year begins once again, many of us find ourselves hitting the reset button. It’s often the perfect time to reorganize, reassess, and retool. Although it’s wishful thinking to apply that to a business plan (the quarterly structure being what it is), that’s not to say there aren’t useful takeaways from the classroom, especially for small businesses. In an article last week emphasizing the importance of how small businesses help drive the economy, Nitin Nohria of the Wall Street Journal wrote:

“On Labor Day weekend it’s worth reminding the candidates how much of America’s workforce and economic growth depend on small firms. “Half the people who work in this country either own or are employed by businesses with fewer than 500 employees,” Karen Mills, former head of the Small Business Administration, wrote last year in the Harvard Business Review. These companies produce 46% of private economic output and 33% of the value of U.S. exports, SBA data show.”

One example to focus on: a small business course offered at Harvard University. This course not only helps graduate students devise their financial business approach, but also attempts to focus on some of the more overlooked aspects of small businesses. It also doesn’t discriminate when it comes to industry, so a lot of the following could be applied to anything from a motor shop to a tech startup.

The educational objectives of the course, taught by professors Richard Ruback and Royce Yudkoff, cover more than just surface dimensions. There’s the obviously integral aspects of buying, growing, and selling a small business. However, interesting to EA readers are the way these Harvard professors address the subtle nuances, such as operating without a “meaningful chief financial officer” during privately-owned operations, and readying the small business for likely offers for acquisition or ownership by individuals (instead of bigger companies, institutions, or families). These are scenarios familiar to many small electric motor shop owners, who constantly have to deal with the decision to continue their own operation or be tempted to sell.

Small businesses are an integral part of the economy. So an operation such as a motor repair shop with a few workers, pictured here, even has relevance to the logo shown above.

Small businesses are an integral part of the economy. So an operation such as a motor repair shop with a few workers, pictured here, even bears relevance to the logo shown above.

For practical learning within the course, Ruback and Yudkoff construct cases which present situations where students will have to manage a small business, solve consultation or financial services to it, and even invest in one. This facilitates the real-life experience, preparing them for the decisions like having to “produce a service or product for which a current profitable business model exists (as distinct from many VC-backed developmental businesses)”, as well as coping with roadblocks such as lack of liquidity and the difficulty of attracting and deploying capital. Lastly, the course appears to delve into the subject without losing sight of the individual pursuing it. Part of the course specifically addresses the pros and cons of the career choice itself, demonstrating what the long term of small business ownership can be like by bringing in guest speakers who have both successfully, and unsuccessfully, given it a try.

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