Last week, we announced the results of our Q4 Vistage CEO Confidence Index, which revealed a surge in optimism among small business CEOs as we enter the new year. These CEOs said that the economy is much better than it was twelve months ago, and they believe it will be even better twelve months from now. Moreover, confidence in their own businesses was evidenced by 77% of CEOs expecting increased revenues, 63% foreseeing higher profits and 54% planning to hire more people in the coming year – marking the first time in three years that a majority of these small business CEOs said they would add jobs. These results are a lot more than just typical survey fodder. They reflect the power and character of the Main Street business leaders who don’t always receive as much attention for their insights as they should.
Here are five reasons we should pay serious attention to what these CEOs are saying:
1. They represent 50% of our GDP and 75% of jobs – Too often, people think of the economic engine that powers this country in terms of Fortune 500 companies and the impact of all levels of government. Yet, it’s really the collective impact of small – to medium-sized businesses that provide the fuel for that engine. And when it comes to jobs, small businesses will be doing most of the hiring. A look back at the three year period after the recession of 2001 shows that companies of fewer than 20 employees created 107% of net new jobs, while companies with more than 500 employees actually contributed a net -24%.
2. They are not simply observers, they are doers – The CEOs we survey are not sitting in the stands betting on the outcome of the game. They are the players charging down the field to victory. They aren’t surmising what others may do; rather, they are confidently foreseeing the results they expect from their own leadership and nimbleness, the talent of their employees and the value of their products and services.
3. They predict the future they’re creating – We’ve been conducting the Vistage CEO Confidence Index under the direction of University of Michigan’s Dr. Richard Curtin since 2003. He has ascertained that trends in small business CEO confidence are a reliable predictor of both GDP and employment. When CEO confidence is up, the GDP trends upward two quarters later and employment trends upward in two to three quarters. These CEOs’ prophecies are self-fulfilling.
4. They are our primary source of innovation – According to the SBA, SMEs produce 13 times more patents per employee than large patenting firms and are a key source of innovation for both their own companies and large companies. Growth and prosperity in the U.S. economy will depend not only on what we do well today, but on the creativity and risk-taking of the smaller companies that invent and nurture new products and services. These are the companies whose leaders responded to our survey.
5. They have skin in the game – The results of our Q4 survey indicate that nearly half of Vistage CEOs pledged personal assets or invested personal cash into their companies to weather the economic downturn. While some smaller business owners may be expected to invest in their companies in order to save them, it should not be taken for granted that so many of them bailed themselves out (unlike quite a few Fortune 500 companies who were bailed out by the taxpayers). The cumulative impact of the “stimulus package” of SME owners dipping into their own pockets to avoid bankruptcies, more layoffs and an even more dire recession is unmeasured and unheralded. These very SME owners who invested in saving their companies last year are now saying they’re ready to invest again in growing their companies this year.
Not since 2004 have small business CEOs had a more favorable outlook for economic growth generally or for their own companies. They expect the recovery to accelerate and for investments in new plants and equipment to continue to grow. Most especially, they expect sales and hence revenues to increase and, as a result, they’ll hire more people. Given their track record, collective impact on our economy and their inextricable personal stake in their companies, all of us can feel confident about 2011.