The Macro Benefits of Microbusinesses

In the wake of the 2008 financial crisis, the idea of stimulating entrepreneurship in order to expand economic opportunity has become increasingly popular. Although these conversations tend to focus on companies that aspire to become national or global players, we must not overlook the aggregate contributions of microbusinesses—those with fewer than five employees. Representatives from fifteen microbusiness support organizations gathered at Emory University in early 2017 to explore these contributions and discuss the importance of these small-scale enterprises for communities around the country. Our colloquium included groups such as Access Ventures of Louisville, Ky., Rising Tide Capital from Jersey City, N.J., and Mi Casa Resource Center of Denver, Colo., who worked together to collectively identify ways to improve microbusiness support programs around the country.

Some of the benefits of microbusinesses are already well known. These small enterprises provide, on average, 38 percent of their owners’ household incomes, according to a recent study from the Microenterprise Fund for Innovation, Effectiveness, Learning, and Dissemination (FIELD) at the Aspen Institute. Though the dollar amounts may be small, these additional incomes provide pathways by which families can exit poverty. Microbusinesses also create jobs that foster skill development, and often employ local residents who are disadvantaged or excluded from traditional labor markets, the same FIELD study showed. The majority of these jobs offer wages at or above the federal minimum wage, while providing employees with valuable skills and job stability.

However, our colloquium identified four more reasons why microbusinesses are critical resources for communities:

1. They provide products and services tailored to locals. Kamika Culmer was running a childcare business out of her home in Louisa, Va., which has a population of 12,694 and a median household Income of $52,586 (numbers from 2010). Looking to expand, she found an opportunity to move into a local vacant building but wasn't sure about how to execute the next steps. A workshop held by Community Investment Collaborative helped her develop a business plan and think about her cash flows. The nonprofit group also connected her with a business mentor. In her new space, Harvest of Little Seeds Daycare is now certified and serves 17 kids with three employees. With this growth, she is providing a much-needed local resource for more working parents who need education-oriented care for their children.

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   They occupy otherwise vacant storefronts and provide places for neighbors to meet. We heard over and over from colloquium participants that microbusinesses fuel the revitalization of Main Streets; small cafes, markets, and shops become community meeting places. On Hosea Williams Drive, the main thoroughfare through Atlanta’s East Lake neighborhood, Mia Canada runs the giftwrapping store That’s a Wrap! Business has been good and, with support from the Start:ME business accelerator program, Mia secured funding to expand. Recent media attention attracted new customers from around Atlanta, and in a short time, Mia’s business has become a valued neighborhood storefront that serves as a gathering place for local artisans and provides services to a growing number of customers.

3. They stimulate an inflow of community resources. Participants in our colloquium emphasized that artisan microbusinesses often develop followings for their unique products. With a passion for cooking and entertaining, Pat Rowe hit the ground running when he founded BBQ Rowe in 2016. Working with the entrepreneur support organization LAUNCH, Rowe gained valuable skills that helped him market and scale his business, and was introduced to additional corporate clients throughout the greater Chattanooga area. His catering company now hosts events for major clients in the city, and evens caters events outside of Tennessee. Notably, in June 2017, Rowe and his BBQ Rowe team catered 36|86, the Southeast’s premier technology conference for entrepreneurs, investors, and thought leaders from across the country.

   Tourists also love to visit local workshops and studios, bringing dollars and positive attention to the community. Mama Coo’s Boutique is an upscale resale/vintage boutique in Detroit's historic Corktown neighborhood, which in 2010 had a poverty rate of 46.8 percent and a median household income of just $18,950. Owner Lana Rodriguez conceptualized the business while she worked as a consultant for creative nonprofits, and later refined the idea in courses offered by Build Institute. An entrepreneur with a social mission, Rodriguez donates to community organizations and sponsors local events—like her annual prom dress drive for local students— that bring commercial success to her business and community benefits to Corktown.

4. They provide role models and support for future entrepreneurs. Colloquium participants explained that by working in neighborhoods with successful business owners, they create micro-incubators and innovation hubs that prove to others it can be done.

Identifying Microbusiness Gaps

Unfortunately, microbusinesses are not uniformly distributed across communities. On the contrary, data from the Census Bureau’s County Business Patterns Survey reveal a pronounced gap between wealthy and poor residential ZIP codes in urban areas around the country. On average, the ZIP codes with the highest poverty rates have 31.5 percent fewer microbusinesses per 1,000 people.

 

Since the average population in the 1,087 highest-poverty ZIP codes is roughly 30,000 people, and the microbusiness deficit in these areas is 6.0 per 1,000 people, an average high-poverty community would need roughly 180 additional microbusinesses to close the gap. Imagine the many positive things that might happen if 180 additional microbusinesses were hiring, renting space, and offering goods and services to both local residents and visitors.

Supporting Microbusiness

Because microbusiness formation is highly local, owners rely heavily on local financial and network resources. Poor communities often lack these critical local resources, preventing promising micro-entrepreneurs from succeeding, and robbing communities of the benefits of the ideas and efforts of thousands of promising entrepreneurs.

So instead of downplaying the vital role of microbusiness in broad-based economic development, we should:

1. Elevate the status of microbusinesses and microbusiness research. National and local leaders must recognize microbusinesses as important contributors to economic vitality. This means including microbusiness owners in discussions about local economic development.
2. Collect more data about microbusinesses and the communities where they work. The paucity of information hinders the ability of support organizations to design and implement programs that effectively stimulate microbusinesses.
3. Share best business and business support practices. With decades of experience, microbusiness support organizations have a litany of success stories. These should be articulated and shared in a systematic program of case writing. Promulgating these learning materials will better position microbusiness owners and their supporters for success.
4. Connect microbusinesses to support networks. Promising micro-entrepreneurs—especially those working in economically isolated communities—need to connect to advisors, business opportunities, customers and partners. Nationwide, we’ve seen an explosion of entrepreneurial networking events. Let’s make sure that microbusiness owners have similar chances to build social capital.
5. Fund both immediate and longer-term microbusiness growth. Closing the microbusiness gap means helping promising micro-entrepreneurs access traditional sources of funding. It also requires innovative start-up funding instruments and practices that ensure microbusiness owners have the capital they need to sustain and expand operations.

Often, visions for the entrepreneurial success of cities involve attracting and nurturing companies that will hire hundreds or thousands of people. Rather than focusing exclusively on one or two companies that might hire 1,000 people each, we must also find ways to support 1,000 companies that might each hire just one or two people. This approach generates a similar number of jobs while fostering a more equitable distribution of economic opportunities. It also ensures that communities around the country, rich and poor alike, benefit from the countless contributions that microbusinesses make when they are allowed to serve their communities.

Read more stories by Peter W. Roberts & Deonta D. Wortham.