Entrepreneurs and Small Businesses Are Vital to Our Economy and We Must Nurture Both
Urban entrepreneurs and small businesses may originate and operate differently. But for each to flourish, they require resources and professional expertise that increasingly are not evenly applied. Yet, both are vital to Main Streets, neighborhoods and the financial revitalization of cities.
Far too often, the resources needed to foster hubs of activity focus more on tech startups than the more traditional small businesses like coffee shops, cleaners and hair salons.
But small businesses need nurturing, too, given their significance to national and local economies — two-thirds of new jobs and 44 percent of U.S. economic activity.
Government policies and public-private partnerships aimed at remaking economies must support both business models. What’s the downside of allowing that dichotomy to persist? These small businesses will be starved of the kind of support and attention that could help them grow and survive. And we can’t afford that.
Entrepreneurs and small business owners have similar needs
Entrepreneurs really need access to mentors and the kind of technical advisors who can help them craft an effective pitch deck to present their case to investors.
They also obviously need access to capital, but a different scale of capital from small businesses. Entrepreneurs usually rely on angel investors, people with deep pockets who spot profitable ventures and use their own money to gain a stake. But they seek out venture capital, too, which generally is not available to small mom and pop operations. Entrepreneurs benefit from having an influential board of advisors whose very presence can add important credibility to the venture.
In cities like Boston, St. Louis and Austin entrepreneurs are thriving, helped along by this network of capital and experienced mentors. Not to mention the serial opportunities they have to create even more new things. Cities across America, especially in the heartland, need that vibrancy.
But as policymakers, we can’t forget the other less flashy risk-takers and job creators. That’s those small businesses that line our neighborhood streets. Ironically, as entrepreneurs settle in, these small businesses become perfect supply-line partners, providing everything from office supplies to computer repairs. The connective tissue between both entities create heightened economic activity.
They need the same level of support as the innovative entrepreneur and that’s especially true in communities of color where they are often the economic backbone of urban neighborhood centers, providing jobs and essential supplies for everyday life.
They may not be multi-billion-dollar, innovative tech operations, but they provide essential services that can gross $250,000 to $500,000 annually. They are the little engines that build transferrable family wealth.
While these small business owners might not operate on the scale of a tech entrepreneur, how much better would they be if they got some professional help writing business plans and had an experienced mentor step in and guide them about inventory and other staples of sustaining and growing a business?
Treat them as equal partners
To be fair, we need to do more to include them in discussions about reinventing our local economies and to offer them networking opportunities so they can grow and thrive. Treating them as equal partners in our changing innovation ecosystem will pay huge dividends as our economies transform.
Obviously, they need capital. While the entrepreneur is courting investors, the small business owner is more likely to approach the area’s private institutional banking.
But this is where many small businesses can find their pathways blocked. Former Treasury Secretary Jack Lew maintained that businesses seeking loans from traditional banking institutions received 8,000 denials a day. That translates into short odds for the neighborhood or Main Street small business owner.
Thus, small businesses frequently turn to mission-driven funders, which are often community-based and receive their capital from Treasury’s Community Development Financial Institutions Fund. The CDFI fund offers resources and innovative programs that allow financial institutions to apply market-based approaches to lending in low-income and economically distressed communities.
But the regulations are often not easily translatable to communities of color. Advocates are calling for CDFI to address risk policies that are handcuffing mission-driven organizations with unnecessarily restrictive regulations. While CDFIs weren’t major players in the 2007-2008 recession, they are being hampered by regulations created after the economic downturn to reel in the bad actors.
The loan restrictions have a decidedly negative impact. A comprehensive study found that while 2.58 million African American businesses generated $150 billion in annual revenue and supported 3.56 million jobs in the U.S., those black-owned businesses still lagged behind ones owned by whites. The same study demonstrated the difficulty that minorities have in obtaining capital for their businesses — only 28 percent of minority credit seekers were approved for loan requests, compared to 67 percent of whites.
Recognizing the value of small businesses while encouraging a more entrepreneurial environment is a challenge that we should all lean into more. It is good business. The nation needs everyone from policymakers to the loan underwriters to better understand the interdependency of small businesses and entrepreneurs when it comes to our local economies and work to elevate both.