I know it is hokey, and everyone is always saying it, but small business really is the backbone of the country's growth. While I typically cover large-cap stocks, we need to address the topic because, alas, there's lots of money being made acknowledging the leadership in this new economy.
No big business started as a big business. The stories are legion about how many companies, especially tech companies, started out in garages, tinkering, while they begged and borrowed. I am not talking about those success stories. They are too far along.
I am talking about people and companies that know if they can help put food on the table for the little person building his or her business they have they've done a great thing.
It's not easy to figure out exactly who is doing the most to help small business. Big business has been the priority of most companies, especially the banks. But if you think, as I do, that there's something special going on in this economy, as the pandemic runs its course, it's not easy to pin it down. When you go to a Wall Street research house there's no small business analyst. These companies don't do deals that don't pay the bills. They are opaque and they aren't important until it is too late for anyone other than insiders to really crush it, unless the companies become the rare enterprises that grow up to be in the Nasdaq 100 or the S&P 500.
However, taken en masse they are incredibly important because they are the companies that hire. Most of the big companies I deal with are trying to do more with less. I like the railroads because they have figured out precision railroading that requires fewer people but better service. I like a bank like Wells Fargo (WFC) because is slimming down, which, unintentionally- or intentionally - means laying off people, And, of course, I like any company that replaces expensive people with inexpensive machines even as I know that sounds meretricious and tawdry.
What do small businesses do?
They grow the top line by hiring. They need people to make more and sell more.
They, not big business, are why this economy is snapping back and snapping back hard. Or, as Harley Finkelstein, the brilliant president of Shopify (SHOP) told us last night: "What we are seeing is that entrepreneurship is now part of the global recovery story. Small business is going to lead the charge in bringing our cities and communities back to where we were pre-pandemic."
Shopify is actually a good place to start when it comes to finding out who is helping small business getting us out of this morass. Shopify has long identified with small business to the point that they invest and loan to companies they think have great ideas and can make it with a little bit of capital. Harley pointed out that the company's capital arm has now given out $2 billion in cumulative capital, capital, he pointed out "that otherwise small business would not be able to receive.
Harley's company has because, as he says "we want to democratize the opportunity" for those who use the company, to the point where, as he announced at the company's Unite conference, Shopify will take zero percent of a user's first million.
Remember, Shopify basically puts a small business on par with a big business because the web itself is a great democratizer. Shopify helps small companies' sites and customer experiences be equal to those of large companies. In 2020 alone 450 million people checked out on Shopify, 8% of the global economy. With 90% of all e-commerce going through Shopify, it's making it a successful proxy for successful small businesses.
Don't worry if you are concerned that Harley's company is spending too much time helping businesses doomed to fail, which is probably how the Potters and big banks feel. If you bought Shopify's stock five years ago, you would be up 4697%. Helping small business is real good business.
Who else is helping?
How about Etsy (ETSY) , the little now very big company based in Brooklyn, New York. I try to do as much charity stuff as I can and I remember years ago being on a panel with the old CEO of Etsy and he was determined to help small business to the point that he almost wiped his own company out. The company has had a couple of iterations that culminated in the choice of Josh Silverman, the brilliant CEO who, again, is all about helping entrepreneurs realize their dreams by letting them scale, something that they could never do before Etsy. There are 90.6 active users looking at merchandise from 4.7 million sellers. Who are these sellers? How about people who may have had a dream one day to have their own business but had no access to an audience beyond their porch or the penny-saver. Now, they have a ready audience of people who seem sick of mass produced products that end up in landfills. One of the tremendous things about Etsy is that the vast majority of sellers are women who can show their wares all over the world.
When my wife, Lisa, decided to open an Italian bistro, the Longshoreman, with her friend Michelle, she needed distinctive hand-made restaurant aprons. Where are you going to get those? How about a woman from the United Kingdom who makes unique, distinctive handmade restaurant aprons? When you get something from an Etsy seller it is often only the beginning of a real relationship. My wife consults with her overseas compadre and gets aprons quite regularly.
Independently, Etsy wouldn't have much of a business, just like it did when I first met the CEO on that Brooklyn panel. But collectively the profits are so big that the stock of this company is up more than 2000% in the last five years. Thank you, Josh Silverman, for having your priorities right.
For so long having a small business meant having a cash business. But when Square (SQ) came along, Jack Dorsey decided to change all of that with a point of sale system that enabled its small business customers to borrow against the receipts. I remember when the legendary Sarah Friar first told me about Square's receipt loans. She was the CFO at the time. I told her that I couldn't think of a worse business to be in than a lender to small business. She told me that they have far fewer bad loans than traditional banks because they knew exactly how the business was doing. Rather than take Mad Money off her to do list, she schooled us into the world of how lucrative small business en masse can be. Hmmm, Square's stock is up a little more than 2,500 percent in the last five years.
Small businesses, especially ones run out of the kitchen or the den used to have no luck against a giant brick and mortar operation. Now the tables have turned and because of the omnichannel small businesses don't need to lease expensive space. Even better the entrepreneurs can have sites that look every bit as good as the big dogs, courtesy the help of Adobe (ADBE) and Wix (WIX) . We use Wix for one of my restaurants and our rent's about $10 a month. Not bad. Wix, the stock is a disappointment in this crowd, up only 800%.
Oh, during this period, by the way, the S&P 500 is up a little more than 100%.
Now there are so many big companies that really do a tremendous amount to help small business. I think that American Express (AXP) , which has championed small business in a remarkable way, has put the whole movement front and center. Steve Squeri, the AXP CEO, is so passionate about small business that he is putting all his muscle behind multiple initiatives to shop small even as he has to be an equal opportunity caterer. Twilio's (TWLO) CEO, Jeff Lawson and Marc Benioff from Salesforce.com (CRM) have gone as far as to help people learn to code so they can compete in a world where many people were passed by because of digitization. Apple's (AAPL) app store has supported more than 2.1 million jobs in all 50 states. More than one in four small developers who sell digital goods and services have grown their earnings at least 25% a year for the past five years.
Facebook's (FB) Instagram small business initiatives, slow at first, are now legion and that small business help will stand them better in Washington than the pols believe.
Ultimately, the business in America is small business and it's booming. I say let's help them out. Shop small. And let's keep this engine going.