While it’s easy to get lost in the buzz about big business, small businesses remain the backbone of the U.S. economy. Every town in every neighborhood is powered by its local small and mid-sized businesses (SMBs). In fact, nearly two-thirds of the workforce is employed by small or mid-sized businesses.
The decisions, investments, and leadership challenges that CEOs and owners of SMBs are facing play a critical role in how well our country performs on a larger scale. Over the past 20 years at Vistage, we’ve surveyed SMB leaders on a quarterly basis to gauge their current and forward-looking outlook on the state of business. During that time, one thing has proven true: the sentiment of the SMB community is an accurate predictor of the health of the economy.
With 81 quarters of CEO Confidence Index data going back to Q2 2003, Vistage has had a front-row seat to massive shifts in corporate America. The last two decades might as well have been two centuries. In 2003, we were newly exiting the dotcom crash. We were only beginning to understand how to leverage the internet. At the end of the 2000s, we experienced the financial crisis and subsequent mass layoffs—many people had issues finding new roles, while employers had their pick of talent. During the rising tide of 2010 – 2019, interest rates were low, inflation was essentially non-existent, and technology disruption was frequent.
Then, when Covid hit in 2020, we saw unprecedented levels of economic volatility. The talent market experienced a massive pendulum swing—The Great Resignation—due to skyrocketing quit rates and historically low unemployment. After experiencing the life-changing impacts of the pandemic, employees set out to find positions that better fit their needs and desires, and they were empowered to do so due to the mass availability of jobs.
Now, business has settled into the aftermath economy. We’ve seen a stabilization in CEO sentiment and created a new baseline, marked by higher inflation and interest rates and slower growth. The job market has shown resilience, and unemployment has remained at near-bottom lows, but quit rates have decelerated to a more sustainable rate. The highs and lows have smoothed to create a new “set point” lower than ever before. It is from this point we move forward into the balance of the decade.
Everything has changed. What worked in 2003 and what worked in 2013 will not work in 2023. However, the predictive nature of SMB insights has continued to ring true. For instance, despite the fact layoffs have dominated recent news, it doesn’t match up with our sustained low levels of unemployment. This makes more sense when you look at SMBs: As of Q2 2023, 48% of SMB CEOs intend to increase their workforce in the year ahead. Even if SMBs choose to slow their sales cycle and delay fixed investments, they are not reducing headcount.
While a short and shallow recession is still likely, SMB CEOs will remain focused on retaining their top talent, as they’ve learned just how critical having the right team on staff is when the job market picks back up and nearly half (45%) are still reporting that hiring challenges are impacting their ability to operate at full capacity. And since the data points to another growth cycle right around the bend, those who can balance cost management in the near-term while staying prepared to rear their engine at a moment’s notice stand to come out on top.
Another item worth watching is SMBs’ investments in technology. One in five (20%) are already using AI, according to recent Vistage data, and more than one in three (36%) are planning on training their teams to use it. This technology is expected to have transformative effects—and we know SMB CEOs will be at the forefront of determining how it impacts business as a whole.
After 20 years of massive shifts and disruption, we’ve emerged in a brave, totally changed world that’s only evolving faster. The only constant is the ability of the small and mid-sized business CEO to provide a deeper understanding of what’s next for the U.S. economy. While the rhetoric may often be about the biggest and boldest, the real key to what lies ahead is right in everyone’s backyard: small business.
Joe Galvin is the Chief Research Officer at Vistage.