Entrepreneurship support is the most effective and cost-efficient economic development strategy for many cities and towns. Elected leaders, planning commissions, and local chambers of commerce and business districts need to become experts at helping business start-ups. If you aren't familiar with the term, entrepreneurship is the art of starting a new business.
Entrepreneurs risk their money, time, and effort. Increasing the success rate of business start-ups promotes new jobs with employers who already have chosen to live in your neighborhood.
The significance of this topic to community leaders and concerned citizens is that over time, successful entrepreneurship support generates new income to circulate within the community.
An economic development incubator or accelerator for start-ups and intensive entrepreneurship support are far more likely to yield results than excursions to other parts of the country or world to woo business owners to your location.
To understand why this is relevant to neighborhoods and communities of all sizes, you will need to understand where the vitality in job creation in the U.S. right now lies.
Small businesses as a group generate most of the net new jobs in this country. More specifically, the federal Bureau of Labor Statistics says businesses with 49 or fewer employees created about 63% of new jobs in the U.S. in 2018.
Like any simple statistic, this one hides a few potentially important facts, such as the fact that job losses in firms 1-4 years old having 1-4 employees exceeded the job gains by a whopping 442,946. So yes, we could poke some holes in the theory that most job gains come from small business, but in most years, most age ranges of firms, and most sizes of firms, that rule holds true.
Further, small, new businesses help stabilize an economy when large firms are being buffeted about by major world economic trends. For instance, in July, 2008, when the economy was beginning to go south, they still were hiring. By the way, at the deepest point of the recession, only new businesses were hiring.
Small businesses apply for and develop most of the patents, and employ about half the workers and produce about half of the gross domestic product. If you've been around an entrepreneur in their first two years, you know that growing a baby business is just as intense as parenting a child. The creative energy, effort, and persistence are off the charts.
From the community economic development standpoint, here's the biggest benefit: You eliminate hosting site visits with unpredictable results and poor ratio between effort and payback. You don't have to put on a huge dog and pony show for people who live elsewhere, followed by the big let-down when they choose not to move or to move to someplace with advantages you can't match.
And even if you succeed in attracting an office of an existing business, you still have to cope with the "black box" of corporate intentions that you cannot discern If the corporate headquarters are out of town, the corporate profits are spent out of town.
Let's see. If you grow your own businesses, they are very likely to stay in your town if they can succeed there. After all, they were there before they started the business. Your town is their home. If and when they make a profit, they'll spend much of it in your town. They will bring a burst of creative energy onto your scene, and they will hire workers. What is not to like?
Critics will say that the government exaggerates some of the figures about the percentage of the net new workers (the term takes into account the fact that some workers are hired and then quickly laid off) that small businesses create. However, until I see definitive studies otherwise, I accept these figures because they are consistent with my own observations.
Another set of more discouraging figures pertains to the failure rate of small business start-up attempts. Again, lively debate would be the polite term for the discussions about statistics on small business failure.
If there's any consensus at all, it tends in the direction of about a third of all small businesses succeeding, a third breaking even, and a third losing money. About a third drop out within the first two years, and only about half are still in existence in four years. Maybe 30% are still in business in 10 years.
Given all these tendencies and allowing for bad measurement, liars who figure, and scholars who keep the liars somewhat in line, the following are realistic conclusions from the community standpoint:
• Small business is by far the most reliable source of new jobs for your community.
• Start-ups are quite vulnerable within their first two to four years.
• Entrepreneurship support embodies your community's energy, enthusiasm, and courage, and gives your economic development program a more active stance than waiting around for investors to find you.
• If new ventures succeed, there is a high probability that jobs will remain within your community and be far less vulnerable to moves than jobs that were imported from somewhere else in the first place.
Personal qualities that start-ups need to succeed include good timing, adequate capital, realistic financial projections and a way to support themselves long enough to make it, intuition and the confidence to pay attention to it, ability to present themselves well, and the ability to self-correct quickly if they see that they have made an error.
Entrepreneurs also need financial support from either a public-private fund, philanthropists, or venture capitalists. Venture capitalists specialize in evaluating and investing in new business ventures. You may hear them called angel investors too.
This start-up capital can be divided into seed money, which basically allows the entrepreneur and family to survive until there are revenues, and proof of concept funding, which is needed for research and development of the idea, and to produce prototypes to refine the product and also to "sell" investors on the idea.
Yet few, if any, new businesses have exactly the right combination of personal traits of the entrepreneur, favorable lending trends, and positive climate for venture capital. That's where entrepreneurship support, in the form of knowledge, contacts, a supportive ecosystem, and emotional support, becomes so important.
But this site is focused in on community development. So from the standpoint of what the fledgling business needs or can gain from the community, worthwhile contributions from the local government, local business organizations, and other start-ups include:
Entrepreneurship support resembles most of the long-range projects explained on this community development site. It requires persistent, day-in and day-out attention, effort, and reflection on what efforts are helpful and which ones are counterproductive.
Then, in community work even more than our personal lives, sometimes we have to force ourselves off of auto-pilot and quit doing the thing we've always done if we see it's not working.
Like other aspects of community development, you need to organize a burnout-proof network of others who share your interest, passion, and responsibility for cultivating entrepreneurs.
When you move on to another job, have to care for an ailing parent or child, have a baby, get cancer, fall in love, and otherwise participate in life, your entrepreneurs keep rolling right along. It you go it alone, you subject the community effort to interruptions if something changes for you.
We're big believers in business incubators. However, even if you decide not to sponsor a community business incubator, or while you're waiting to get one going, see what shared services your entrepreneurship support program can provide.
At a minimum, you can provide frequent entrepreneurship support seminars or breakfasts by the most dynamic presenters you can find. You need some programs on the topic of whether entrepreneurship is appropriate for a particular person, because not everyone is cut out for the intensity, focus, and risk taking inherent in start-ups.
Or you could sponsor weekly happy hours, with guest speakers making short presentations after a friendly amount of time for grabbing a drink and networking. Free beer and wine would add to your chances of building a loyal following. You would find that in addition to learning from guest experts, entrepreneurs and would-be business owners learn from, assist, and buy from one another.
Regardless of the time of day and format, you should add other practical "how to" sessions on getting the paperwork side of things tidy and keeping it that way. New business owners will appreciate sessions on selecting marketing, accounting, and legal firms.
The local Small Business Development Center, government, chamber of commerce, community college, or university would be ideal sponsors of these entrepreneurship support programs. If not, see if someone wants to start or expand a business, and put together his/her own series of half-day workshops and charge an entrance fee.
Recently I read about a great-sounding program in Irvine, California, supporting micropreneurs, which is a name coming into vogue for entrepreneurs operating on a very small scale. The support program consists of weekly webinars, which are not that difficult to conduct, and also individualized coaching and mentoring available through the economic development program.
But cultivating small business start-up implies much more than throwing up a few programs on how to get started. If we think back to the farming metaphor, cultivating means removing the weeds so the good stuff can grow.
Be there at the beginning, but also early and often as the entrepreneur moves through the process. Help him or her observe what is happening, and point out weeds. Ideally this is a community effort, shared by an entrepreneurship support team consisting of several experienced entrepreneurs who have succeeded in small business at least once, as well as subject matter experts from the potential sponsoring agencies we discussed above.
Your community needs to locate at least one person, or ideally more than one, who has time, expertise, and inclination to roll up the sleeves and pitch in to help an entrepreneur when the going gets tough. Think of retired executives, such as SCORE, as well. If you did this, you would have a selling point that most communities can't offer, and you would increase the likelihood that your locally grown start-ups will succeed.
You're going to roll your eyes and think we're asking you to judge who's most likely to succeed, or to generally pick your favorite start-up and go with that gut feeling. But you would be wrong.
The only suggestion we want to offer here is that you keep in mind what constitutes and contributes to your economic base, and how you can expand your base laterally with compatible and complementary businesses.
When you see that type of start-up, yes, you should favor it over the hobby boutique that may never be more than a source of pleasure for the owner, if successful.
You may want to follow the trend toward green jobs or clean energy. The record is uneven thus far, though, so this isn't your only strategy when you need to show quick or certain results.
Let's say that your entrepreneurship support program is fabulously successful, and that in four or five years, you have a great crop of successful small businesses. A few have fallen by the wayside, but you have a real and noticeable net gain.
You ask what the next steps should be. Will they start looking for more advantageous locations for their business? You can bet that if they are truly successful, nearby towns and faraway cities will be trying to lure them away, sometimes with actual cash bribes in the form of tax increment financing or similar programs.
Of course it's possible that you will lose an entrepreneur or two along the way. There could be compelling business reasons that they will thrive more in a different location, more central to markets, suppliers, their transportation network, cheaper or more skilled labor, and supportive resources such as universities.
You can't control everything in their business environment. So control what's within your sphere, and that's the loyalty and attentiveness of the community to their needs. Treat your entrepreneur retention program as a sub-set of a more general business retention program.
Make sure that by the time other communities are knocking on their door, and they're getting restless about taking their business to the next level, they are so firmly entrenched in and happy in your community that they will be very reluctant to leave. So make their families love your community too! Insights into how that loyalty develops can be found on our page about community attachment.