How Entrepreneurship Can Revitalize Local Communities

Entrepreneurship has the power to revitalize and support impoverished communities, that is, if policymakers can shift their attention from only supporting VC-backed investing and include design programs that help neighborhood businesses scale. Small cities and towns across the country are looking for lessons that can help them build a more resilient, home-grown economy.

Recent research from the Harvard Business Review recently shed some insights on how entrepreneurship can help support local communities. During eight years of investigating, authors Suntae Kim (Boston College) and Anna Kim (McGill University) followed two organizations dedicated to revitalizing Detroit, Michigan, through entrepreneurship. 

One organization was a venture capital-backed accelerator, while the other was a locally-focused business incubator. These organizations focused on "scaling deep," meaning they grow slowly and become embedded in the local economy. The practice also requires building deep relationships with local partners to seek out new ways to use the available resources in their local communities to address any urgent problems. The research further finds that "scaling deep" has a significant positive impact on the community, while those "scaling up" have only short-term effects since most eventually leave their local community.

A significant benefit of scaling deep in struggling cities and neglected neighborhoods are developing locally-distinctive enterprises that distinguish one community from another. Local businesses create a localized culture and atmosphere, but they also contribute to a comprehensive sense of community and provide hubs or gathering spots that unite residents and attract visitors. They also help households from the community create wealth and stay within the community to collaborate in its success. This dynamic helps generate the revitalization that supports neighborhood assets, not imports.

Scaling deep also incorporates and enhances diverse business leaders, as it may draw upon its local heritage and the strengths that come with that history and knowledge of the community. These small businesses and their owners already live in the neighborhood, so the talent is focused there. They only need vital resources and support for their businesses to survive. Additionally, these local entrepreneurs are more likely to partner with other local companies and organizations that can help them scale.

Scaling deep can be successfully realized by building upon several essential insights that organizational developers have learned across the country and used in their local communities.

1. Development Officials Should Connect Resources with Aspiring Entrepreneurs

In most communities, even the ones that have been historically excluded from investment, local entrepreneurs can use financial and other types of resources. Aspiring entrepreneurs, especially in underdeveloped communities, may not know about those resources or how to access them. They may have been told those resources aren't for them or won't be helpful to them in the past. However, economic development leaders must create relationships with aspiring entrepreneurs where they live and work. They should meet, engage and connect the missing pieces to build their trust. They also need to work with neighborhood or community leaders who have a vested interest in their community and begin to develop new relationships with existing business owners to understand their needs and how to grow and scale in their local neighborhood.

2. Design Business Assistance Programs to Serve Local Entrepreneurs

Next, policymakers must ensure that business assistance programs are designed to serve aspiring business owners in their local communities. They need to decide if they provide the needed assistance and if those resources are offered in convenient locations. They must also distinguish the needs of businesses that offer services versus those that create products. Bringing training to the neighborhood is essential and purposeful to ensure that these existing programs include business owners from historically excluded communities. The location and who hosts this programming are crucial considerations, so business owners feel that the programming and its resources are geared toward them and can trust it.

3. Facilitate Flexible Real Estate Options for Businesses

Emerging local businesses typically evolve from home-based operations to commercial real estate locations. However, flexible real estate options are often needed for that business to grow. Entrepreneurs may need smaller spaces, shooter lease terms, or shared spaces. Local governments should understand those needs and engage commercial property owners to influence the potential for real estate flexibility and communicate that to budding entrepreneurs. Community development organizations or local housing authorities may also be able to help find needed spacing. Some shared spaces, like community kitchens, could even become influential in defining the community. Flexibility in real estate space should also include training and mentoring to advance the opportunities for a new business.

4. Prioritize small-scale manufacturers 

Small-scale manufacturers can sell products in stores and online and aren't solely dependent on foot traffic like many struggling stores in economically disadvantaged neighborhoods or towns. When production and retail are centered at an in-town location, they provide great experiential retail as people walking by can see the products being made. Local communities should prioritize small-scale manufacturers to highlight the development and creativity of the local business.

5. Develop Initiatives that Connect New Business Owners

Initiatives or programs should build a community of new business owners that help connect them. Extensive research shows that new business owners are more likely to succeed if they have access to a community of other entrepreneurs. Incubators typically provide those services in tech-based communities. Creating similar small business hubs in this model can offer services that should be made available to historically underserved communities.

The Harvard Business Review research builds upon an opportune case for reinvesting in America's cities and towns, growing local businesses, and supporting local entrepreneurs. It comes when most jurisdictions seek ways to enhance their economies in the wake of the COVID-19 pandemic. "Scaling deep" should become an investment priority for economic development throughout America in the future.