The Ripple Effect: Why Every Business Matters to Its Community
When we talk about the importance of business in our economies, we tend to talk in big numbers. We talk about turnover, GDP, employment, investment, exports, productivity and tax revenues. All of those things matter, but reducing the contribution of businesses to economic statistics can make it very easy to forget what a business actually is and how extraordinarily far its influence can travel.
At its most fundamental level, a business is an individual or group of people who create something somebody else values enough to pay for. That transaction might appear to take place between only two parties, but the money, opportunity and activity it creates never stops there. A customer pays a business, the business pays an employee, and that employee pays their mortgage, buys their food, takes their children swimming, goes to a restaurant or pays somebody to fix their boiler. The business also pays suppliers, who employ their own people, purchase their own materials and services, invest in their businesses and support another collection of households.
The original customer will probably never see any of this. Nevertheless, their £10, £100 or £10,000 purchase has travelled considerably further than the business in which they initially spent it.
This is the ripple effect of business, and I think we dramatically underestimate its importance, particularly when we think about small businesses. Their impact extends far beyond their own accounts. Businesses support individuals, households, other businesses and entire supply chains, but they also create relationships, skills, confidence, opportunities and places where people connect. In doing so, they become part of both the economic and human infrastructure of their communities.
A small business is rarely actually small
Imagine a café employing six people. On paper, it is one small business with six employees. In reality, those six people may represent six households containing partners, children or other family members who are, to varying degrees, supported by the income generated by that business.
The café itself also buys things. It may buy bread from a local bakery, food from wholesalers, milk from a dairy supplier and cleaning products from another company. It may use an accountant, an electrician, a plumber, a window cleaner and somebody to maintain its website. It pays rent, utilities, insurance and tax. Perhaps it commissions a local signmaker, buys flowers from the shop along the road or uses a local photographer when it needs new images for its website.
Each of those businesses has its own network of employees, suppliers and households. Suddenly, one apparently small café sits within a much larger economic web.
Then there are its customers. Some simply come in for coffee, but others meet friends, conduct business meetings or work there for an hour because they live alone and enjoy being around other people. A new parent gets out of the house. An elderly customer has the same conversation with the person behind the counter every Tuesday morning. Two business owners meet and eventually work together. Someone notices a poster advertising a local event and decides to attend.
It becomes very difficult to define where the impact of that one small business actually ends.
Money moves through communities
One of the most important things businesses do is circulate money. When somebody spends money with a business, most of that money doesn’t simply arrive in the owner's bank account and stay there. It moves through the economy.
Some goes to wages and some to suppliers. Some pays rent, utilities, insurance and professional advisers. Some goes to tax. Some is invested in equipment, premises, technology, training or expansion and, if the business is financially healthy, some eventually becomes profit that can be retained, reinvested or distributed.
The recipients then spend money themselves, creating another series of transactions. An employee spends part of their salary in another business. A supplier uses the income from an order to employ another person. The owner of that business pays another supplier. That supplier invests in a new vehicle, and the process continues.
When businesses can trade with other businesses in their area, more of that economic activity can keep circulating through the local economy. One successful business helps another business succeed, which supports another job, which supports another household, which creates another customer for somebody else.
None of this means every pound spent locally somehow remains permanently within a local area; modern economies and supply chains clearly do not work like that. It does mean, however, that viable businesses create transactions, employment and demand, and those activities generate further economic activity around them.
Employment has a ripple effect of its own
Employment is one of the most obvious ways businesses contribute to their communities, but even here I think we sometimes make the mistake of reducing the effect to a statistic. We say that a new business has created 20 jobs without really considering what those 20 jobs mean.
They mean 20 people receiving an income, but potentially they also mean greater financial security for 20 households. Those people can make decisions about where they live, what they buy and what opportunities they can provide for themselves and their families. They can save, borrow, plan and invest. They spend money with other businesses and contribute to demand elsewhere in the economy.
Work can also provide considerably more than income. At its best, it provides structure, relationships, confidence, skills, development and a sense of contribution. The experience somebody gains working within one business can remain with them throughout their career, benefiting every organisation they subsequently join and perhaps eventually enabling them to start a business of their own.
A good employer can therefore have an influence that lasts far beyond the period during which somebody appears on its payroll. The knowledge, confidence and capability developed within businesses move with people, and that creates another ripple that is almost impossible to quantify.
Businesses affect families they will never meet
Perhaps one of the most fascinating aspects of business is that owners and managers will never know most of the people ultimately affected by the decisions they make.
They may know their employees and key suppliers, and they will know some of their customers, but they may never meet the employee's child who gets an opportunity because their parent's income made it possible. They will probably never meet the family supported by somebody working for one of their suppliers. They may never know that placing a regular order gave another small business enough confidence to hire its first staff member.
Likewise, a business owner may never discover that two people who met in their premises went on to become friends, business partners or employers of one another. They may never know that an employee took something they learned within the company and used it ten years later to create something completely new.
Business creates connections between people who often do not even realise they are connected. That makes the potential impact of running a successful business considerably greater than its turnover or headcount might suggest.
Businesses are also part of our emotional infrastructure
The economic contribution of businesses is relatively easy to understand. Their social and emotional contribution is harder to measure, but that doesn't make it any less real.
Think about the businesses that form part of everyday life. There is the café where somebody knows your order, the pub where people gather after a funeral, the restaurant where a family celebrates a birthday and the hairdresser who has heard about marriages, divorces, babies, illnesses, new jobs and family dramas over the course of 20 years.
There is the shopkeeper who notices that a regular customer hasn't appeared for a while, the business that sponsors the children's football team, the local employer that provides raffle prizes for a fundraiser, and the noticeboard covered in information about everything happening nearby.
None of these things necessarily appear on an invoice or in a set of accounts, but they have value. Businesses create reasons for people to leave their homes, meet one another, and participate in the places where they live. They can provide familiarity and human contact in a world that can otherwise feel increasingly anonymous.
This is why businesses can form part of the emotional infrastructure of communities as well as the economic infrastructure. They provide places where life happens.
What happens when businesses disappear?
Sometimes the easiest way to understand the importance of businesses is to consider what happens when they are no longer there.
One shop closes, then another. The café disappears. The pub closes. A local employer relocates. People begin travelling elsewhere to buy what they need and, while they are there, make other purchases too. Footfall in the original town or village declines, making life more difficult for the businesses that remain.
Gradually, fewer reasons remain for people to come into the centre of the community. What has disappeared is not simply a collection of commercial organisations. Some of the connections between people have disappeared with them.
There can be an economic effect too. If employment and opportunity become scarce, people may have to travel further to work or eventually move elsewhere. Skills leave. Spending patterns change. Buildings become vacant, and the remaining businesses have to operate in a less vibrant environment.
This is why healthy businesses and healthy communities are so interconnected. Businesses need communities that can support them, but communities also benefit enormously from having viable businesses within them.
Trade is one of the foundations of community
Communities are obviously about much more than commerce. They are built around family, friendship, culture, shared identity, history and place. Nevertheless, economic exchange has always been one mechanism through which communities function.
Humans trade. We exchange things we have, make, grow, know or can do for things that somebody else has, makes, grows, knows or can do.
One person becomes particularly good at making something. Another grows something. Another repairs things. Someone else understands numbers. Another can build, teach, design or transport goods between them. Exchange lets people specialise; niches develop skills, and those skills create value that can be exchanged again.
Business is simply a more developed form of something humans have been doing for a very long time.
Without sufficient economic activity, communities struggle to sustain themselves because people eventually have to look elsewhere for employment, services and opportunity. Commerce is not the whole of a community, but it is one of the things that enables communities to remain viable.
A financially healthy business can do more
This is also why I think we should be comfortable talking about the importance of businesses making money. Profit is sometimes discussed as though it is somehow separate from social contribution, when in reality a financially weak business has very limited capacity to help anybody.
A profitable, cash-generative business has choices. It can invest in equipment, develop new products, improve premises, employ more people, train existing employees, increase wages, build reserves and survive difficult economic periods. It can support local activities, buy from other businesses, take calculated risks and fund its next stage of growth.
It can also provide a return to the people who invested their money, time and energy in creating it. There is nothing inherently wrong with that. Sustainable profit allows a commercial business to keep operating and deliver the wider benefits that flow from it.
Even organisations that do not exist to generate profit need financial resilience. Charities, social enterprises, and not-for-profit organisations still need cash to employ people, occupy premises, buy goods and services, and deliver their purpose. A worthwhile mission does not remove the need for sound economics.
Financial health creates options, and some of those options create the next generation of economic and social ripples.
The way a business behaves matters
None of this means that every business automatically benefits its community simply by existing. Its impact depends largely on how it operates.
Businesses can treat employees badly, squeeze small suppliers, pay late, provide poor products or services and extract value without creating very much in return. They can make decisions that benefit one group while creating high costs for another.
Because businesses touch so many people, how they operate matters.
Paying a small supplier when you said you would matters because a household may be on the other end of that invoice. Developing an employee matters because the capability you help them build may serve them for the rest of their career. Giving somebody their first opportunity matters. Treating customers fairly matters. Building a business that can survive difficult periods matters.
Making enough money to continue doing all of those things matters too.
A well-run business understands that its responsibilities extend beyond producing this month's numbers. It needs to remain commercially viable while recognising that its decisions travel through a much larger network of people than it can ever see.
Never underestimate the size of your ripple
If you run a small business, it can be easy to look at a large company and assume that your own contribution is insignificant by comparison. It rarely is.
Start counting the people connected to your business. Think about your employees and their households, your suppliers and their employees, your customers, the professionals who support you, the other businesses you buy from and the organisations or activities you support. Then consider the people connected to each of them and the circle becomes very large, very quickly.
The effect is not only financial. Knowledge is transferred, skills are developed, confidence grows, relationships are formed, and opportunities are created. People meet each other, families are supported, and money moves from one household and business to another.
A business therefore does not sit separately from its community. It is woven into it. Decisions made inside even a very small business can travel much farther than its owners will ever see, affecting people with whom they may never have any direct relationship.
That is one reason I believe building good businesses matters so much. A financially healthy, well-managed business can create employment, develop people, support other businesses, invest, innovate and contribute to the resilience of the place in which it operates.
The real impact of a successful business is rarely contained within its own four walls. It ripples outwards through employees, families, suppliers, customers and communities, creating economic and human effects that we may never be able to measure in their entirety.
Build better businesses. Build stronger communities.
At Ogilvie Business School, we believe practical business education should help people build businesses that are commercially strong, well managed and capable of creating lasting value.
Our programmes draw on real-world business experience to develop the financial, commercial, strategic and leadership understanding that helps people make better decisions and build stronger organisations. Whether you are starting a business, growing one, leading an established organisation or developing your own professional capability, understanding how the whole business fits together matters.
Because when one business becomes stronger, the benefit does not necessarily stop with that business. It can travel through employees, families, suppliers, customers and communities in ways we may never fully see.
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