b. Patents and Copyrights
c. New Products, Services, Designs or Processes
Employees in Innovation
Producers, Users, and Avoiders of Technology
Innovation and its corollary, invention, are simply the first-time introduction of something that has been developed through the use of imagination, thought, and/or experiment. Its relevance here lies in the new and/or improved products, services, processes, and designs that are its byproducts. These in turn lead to greater wealth and higher standards of living, making innovation of particular interest to policy-makers. Small businesses produce a significant number of innovations. While their precise contribution to overall innovative activity is difficult to quantify, smaller enterprises appear particularly adept at major breakthroughs in contrast to more incremental or evolutionary changes. Conventional wisdom holds that innovation is the property of a relative handful of small ventures; most firms are not innovative in the least. But even if conventional wisdom is correct, a series of important questions remain regarding the participation of small businesses and their owners in the innovation process. As a result, this issue of the National Small Business Poll is devoted to Innovation.
back to top
Just over one in 10 (11%) small, employing business owners purposefully innovates or invents things with the intention of selling or licensing those innovations or inventions (Q#2). The relative size of the firm appears inconsequential as purposeful activity is almost equally distributed across all three employee-sizes of business that were examined. While the sample size of most industries is too small to provide meaningful results, it appears that those in manufacturing and some in the more knowledge-intensive service industries are substantially more likely to purposefully innovate than are others.
A substantial share of firm sales among these purposeful innovators come from their inventions and/or innovations. Forty-six (46) percent report more than half of their sales are generated from these products, services, processes, and designs (Q#2a). Just 15 percent say fewer than 10 percent of sales originate from them. Meanwhile, one in five (21%) indicates that all of their sales result from their creations. The upshot is that while most innovative businesses obtain an important share of sales from their innovations, most have other sales as well. The data do not reveal if those other sales are closely tied to or totally divorced from their innovation(s).
Almost twice as many small employers as the number who purposefully innovate, employ at least one person, including the owner(s), whose primary job is to develop new products, services, processes, or designs. Twenty (20) percent have one or more such people doing so, suggesting that owners do not necessarily have to purposefully innovate in order to consider a creative function valuable to the business (Q#7b).
Over the last three years, about 4 percent or just over 1 percent of all small businesses a year applied to a government agency for financial assistance to develop new products, services, processes or designs (Q#3).
back to top
Twenty-one (21) percent of small employers report that their businesses design things to be sold whether or not those designs can be copyrighted or patented (Q#6). Owners of larger, small ventures are more likely to engage in design activities than those with fewer than 10. Sales from design occur in between one-quarter and one-third of the 10 plus employee firms. An industry bias appears among the design-oriented enterprises. Those in knowledge-intensive service industries, such as information and professional, technical and scientific services appear more likely to use design than others as does manufacturing and construction. Small sample sizes, however, mean industry calculations are no more than suggestive.
Design is an important source of revenue for most who engage in it. Over half (57%) of the designers report a majority of their sales stem from things that they have designed (Q#6a). While 11 percent report them as less than 10 percent of total sales, 28 percent (or 6% of the population) report all of their sales originating from their designs. Thus, design capability is a critical factor in the sales of around 12 percent of all small, employing businesses.
The survey did not distinguish between designs that increase productivity, such as changed circuits on a computer chip or even a redesigned restaurant kitchen improving efficiency, and designs intended for other utilities, such as fashion. Subsequent data and industry distribution of those whose sales are tied to design suggest that elements of both are represented.
back to top
Patents and Copyrights
Patents and copyrights often proxy for innovation in businesses. About 5 percent of small-business owners have a patent in their name or the business’s name that they are actively exploiting (Q#4). Employee-size of business appears modestly related. The sample is too small to determine if industry is as well. However, one-third of all patents are held by manufacturers, though manufacturers constitute only 9 percent of the sample.
Copyrights are more common. Thirteen (13) percent hold at least one copyright (Q#5). Once the size of the firm reaches 10 employees, the propensity to hold one rises notably. Almost 20 percent of the latter group owns one or more. Owners of businesses in the knowledge-intensive service industries, such as information and professional, scientific and technical services, join those in manufacturing as being more frequent holders.
back to top
New Products, Services, Designs or Processes
Innovation or invention typically refers to those who are first - ever. But first can also be first in a particular market, or a negligible improvement, or even first use by an individual firm. From this vantage, a substantial share of small businesses place new products/services/ process and designs on the market.
Forty-two (42) percent of all small-business owners claim that they introduced at least one new, or significantly improved product, service, design or process into the market within the last year; 58 percent say that they did not (Q#1). While owners of the largest, small firms were somewhat more likely to do so than owners of the smallest, small firms, innovation in its broadest sense was reasonably well distributed by firm size. Industry was more indicative of innovative propensities, though small sample sizes in many industries make it difficult to say so with certainty. A significant majority (61%) of those who introduced at least one of these new, or significantly improved products, services, processes, or designs, introduced more than one of them (Q#1a). The remainder focused on a single novelty.
The most likely type of introduction was a new product. Fifty-five (55) percent reported that their most important introduction was a product of some type (Q#1b). Another 29 percent said their most important introduction was a service. Eight percent believed theirs to be a process and another 7 percent cited a design. The latter two combined mean that 15 percent of owners saw their primary introductions in the prior year as something other than products or services.
The names or descriptions of those introductions were often familiar. For example, 36 respondents named a food or food product as their contribution. Food and food products also suggests that many, if not most, innovations are marginal changes in familiar products; radical changes seem uncommon. Still, a healthy number refused to answer specifics about their introduction on the grounds that their innovations are still under wraps or at the Patent Office waiting its imprimatur.
A second way to judge the innovation of an introduction is the source of its idea. One-third (33%) report they developed their introduction from scratch (Q#1e). The idea was new or, at least, the owner believes it to be. About 14 percent of the total population, therefore, believe that they developed and introduced into the market something new in the last year.
The innovation concept can be extended. An introduction can also be innovative when it represents a substantial upgrade or modification of existing products, etc. Forty-two (42) percent (or 18% of the population) report their introduction stems from modification or upgrading something in existence. Another 15 percent (or 6% of the population) say they copied the idea directly from someone else. While the latter type of introduction can be new to the firm or even to the local market, it is unlikely to be particularly innovative. Nine percent did not answer the question.
An innovative product, service, design or process typically can be licensed or sold. Twelve (12) percent are attempting to sell or license their primary introduction (Q#1d). That number represents about 5 percent of the total small employer population. The innovativeness of these introductions might also be judged by the change in competitive position resulting from the novelty or by the owner’s intent to sell or license it. Almost half (48%) say the introduction put their firms ahead of the competition (Q#1c). That suggests these owners think their introduction has some market impact, even if localized. However, the remainder thinks that their introduction kept them abreast of the competition (34%) or allowed them to catch up (11%). Seven percent did not answer. While it is always possible that a true market innovation could compensate for competitive shortfalls in other areas, true innovation in a market laggard is not likely.
The majority of small employers did not introduce anything of significance over the last 12 months. The immediate question then becomes - was this behavior normal or abnormal? The answer appears to be that it is too often normal. Fifty-nine (59) percent of those without an introduction in the last 12 months indicate that they have never introduced one or more new, or significantly improved, products, services, designs, or processes (Q#1g). That means about one in three (34%) small, employing businesses have never done anything that might be termed innovative, even if it were innovative just for the firm and not for the market. Another 10 percent who did nothing last year, did introduce something novel in the prior two years and 11 percent did in the years prior to that.
back to top
Employees in Innovation
Three in four (75%) small employers specifically and directly encourage their employees to suggest ideas for new products or services or better ways to produce and distribute the products and services they sell (Q#7). About 85 percent of those with 10 or more employees do so compared to 72 percent among those with less than 10.
While small-business owners say they want employee ideas, how often they actually use them is another matter. Over half (52%) of all employers and nearly two-thirds (65%) of those who encourage employee innovative suggestions give recognition and/or bonuses to those who come up with useful ideas that the business can turn into improvement in their products, services, designs and processes (Q#7a). Even 12 percent of those who do not specifically encourage employees to make suggested improvements provide rewards for such behavior. Bonuses plus recognition is the most common type of reward structure. Nearly two-thirds (64%) of those offering awards use both while 26 percent use bonuses exclusively and 10 percent use recognition exclusively.
Apparently, employees make helpful suggestions frequently and employers adopt them often as the number of employees receiving bonuses and recognition for their efforts demonstrate. About half (50%) of all small employers who provided awards gave them to one or two employees (Q#7a1). However, 43 percent say that last year they gave awards to at least half of their work force. It is quite possible that respondents in this latter group included profit-sharing programs as incentives for valued behavior of which suggestions are a part.
back to top
Producers, Users, and Avoiders of Technology
Five percent of small employers say that it would be most accurate to describe their businesses as producers of technology (Q#8). Another 4 percent volunteer they are both its producers and consumers. However, most small employers are primarily users of technology. Sixty-five (65) percent claim they are extensive users of technology and 16 percent avoid it whenever possible. One response class, modest users of technology, was inadvertently omitted from the final questionnaire, though the category likely would have drawn respondents primarily from the extensive user class. Assuredly none would have been drawn from the producers of technology category.
Technology is hugely important in modern business whether it is as a producer or a consumer of it. Yet, 16 percent avoid technology whenever possible. Their reasons for avoiding it are instructive: 53 percent avoid technology because it costs too much (Q#9A); a non-mutually exclusive 52 percent avoid it because of the confusion and upheaval that inevitably accompanies technological change (Q#9B); 42 percent claim that technology depersonalizes and changes the atmosphere in the business (Q#9C); and, 61 percent say that the business ends up serving the technology rather then the reverse (Q#9D). The striking part of these reasons is the consistently high numbers who cite multiple reasons. Most who try to avoid technology do not find a single issue with it, but an entire series of them.
back to top
Conventional wisdom is correct: a relatively modest portion of the small-business population is heavily involved in innovative activity; most are not. But the issue is significantly more subtle, if for no other reason than innovating firms may be involved in more conventional activities as well. Or, because all innovation is not technological. Or, because innovation and mundane change may not be as distinct in reality as in theory.
The number of small businesses engaged in innovative activity likely ranges between 5 and 15 percent, depending on the definition of innovative. No reasonable measure in the survey showed innovation-producing firms falling below 5 percent, and while some measures stretched considerably above 15 percent, the behavior measured in those outliers is unlikely to yield innovation. As a base, 5 percent have patents; 5 percent classify themselves primarily as producers of technology with an additional 4 percent saying they are both producers and extensive users; 5 percent are attempting to license or sell the rights of their (most important) new or significant introduction to the market within the last year.
At the other end of the spectrum, 14 percent claim to have made a new or significantly improved introduction into the market within the last year, the idea for which originated in the firm; 20 percent have at least one person whose primary job is to produce new things; 11 percent say their businesses purposefully innovate with the intention of selling or leasing their creations; 13 percent hold a copyright; and 21 percent design things to be sold.
These innovators lay in stark contrast to the third who have not introduced anything new or significantly improved in their existence and the 11 percent more who have not done so in at least three years. Unfortunately, the data are not available to compare these two groups in terms of profitability, etc.
Though most typically think of innovation in terms of products tied to technological development, innovation is much broader. New services, process advances, and more efficient design are innovative activities, too, and they appear to occupy as much attention of small-business owners as the more traditional form. Measuring small business participation in them however, may be even more difficult than measuring their participation in narrower product innovation. Clearly, it is important. Many small firms, not technically oriented, attempt to innovate other ways, but a good estimate of their numbers does not appear possible at this point. Nor can we determine if their role in technological innovation is greatly different from that in others.
Considerable change goes on in small business without any innovation. This change is not necessarily wasted motion, however. Small-business owners frequently attempt to improve their competitive position through change. The specific and direct encouragement that three-quarters of small employers give their employees to offer their suggestions is illustrative. But productivity increases cannot be equated with innovation. The former is likely to be new to the firm; the latter is new.