How Startups Solve Problems at the Intersection of Urbanization and Climate Change

This is a guest post by Stonly Baptiste.

startups postCould startups be the secret weapon to make cities smarter and combat climate change in the face of ever increasing urbanization? (Getty Images)

When you see the word ‘startups’ in the news, you see headlines like “Meet the Hottest Tech Startups,” “Snapchat Could Become One of the 3 Highest-Valued Startups in the World,” or “Why Startups Want This 28-Year-Old to Really Like Them.” But the most interesting startups may be the ones working on problems that can directly help cities.

The Problem: More People + More Energy Consumption = Climate Change

People are moving to cities at rates never before recorded. The urban population of the world has grown rapidly since 1950, from 746 million to 3.9 billion in 2014. This represents a shift from two out of 10 people to five out of 10 people living in cities. The motivations behind this migration vary, from the search for more employment opportunities and increased earning potential to better health care and improved living standards; social factors like better education opportunities also play a role. Whatever the cause, there is no denying the rapid rate of global urbanization.

So what does this mean in terms of climate change? Energy consumption is the biggest contributing factor to global climate change, and more people means more energy consumption. In fact, 75% of global energy consumption occurs in cities. That consumption is likely to increase as we experience the shift from 54% of the world’s population residing in urban areas in 2014  to 66% by 2050. The environment around us will simply not be able to support this kind of growth and the increased level of energy consumption. Managing climate change seems more and more like a city efficiency challenge.

The Challenge: Redesign Cities

“No challenge – no challenge – poses a greater threat to future generations than climate change.”
- President Barack Obama, State of the Union, Jan 20, 2015

The challenge is to create a fast, widely-adopted, effective and lasting impact on the future sustainability of cities; to redesign cities in response to climate change. Previously, the burden of these issues fell on the government. However, due to the increasing budget constraints of so many of the world’s economies, government can no longer afford to take on all of that responsibility.

The Solution: More Urbantech Startups

Technology has always helped shape urban and suburban environments. “Urbantech” describes the emerging technologies that are being used to solve problems at the intersection of urbanization and climate change, from reducing energy use and greenhouse gas emissions to reducing crime and increasing government efficiency.

Over the last 18 months at Urban.Us, we’ve analyzed hundreds of startups that are working on Urbantech problems. We wanted to understand what problems they are solving as well as their customer focus (consumers, businesses or governments). By creating the Urbantech radar, we were able to visualize companies according to their customers and problems they are trying to solve.

startups pic

The visualization reveals some interesting patterns about where founders and investors have chosen to focus – but it also shows where there is open space and opportunity.

The radar also provides strong evidence that the challenge of redesigning cities to positively impact climate change could very well lie in the hands of the consumer, therefore circumventing the government-first approach. By reaching mass consumer adoption, these startups are able to make cities sustainable through channels like the Apple Store, Home Depot and Amazon.

No one can predict what the future of cities will look like – but we can get a glimpse of what’s possible by looking at some of the fastest-growing startups currently reshaping the way people live and work in cities:

  • DASH, a hardware plugin tool that syncs to your mobile phone to turn any car into a smart car, unlocking enhanced performance, cost savings and social driving.
  • OneWheel, a one-wheeled electric skateboard to quickly and easily get you to and from mass transit.
  • Whill, an all-terrain wheelchair that makes hard-to-navigate obstacles like stairs a thing of the past for people with disabilities.
  • Radiator Labs, a radiator cover that converts old cast-iron radiators into precision heating machines with climate control, operational efficiency and safety comparable to any radiator, transforming steam heat into a comfortable and efficient solution.
  • Hammerhead, a handless device that enables cyclists to safely navigate streets.
  • Rachio, a smart sprinkler controller that automatically adjusts your watering schedule based on weather or seasonality to save on water consumption.
  • Zuli, a plug-and-play smart outlet that enables users to control appliances, dim lights, set schedules, and conserve energy from their mobile phones.
  • Lagoon, a smart water sensor that alerts you when there is a leak, tracks usage, and saves money on water bills.

These startups have found a way to impact climate change by leveraging consumers’ need to collect data, save money, and enjoy the user experience. The climate change aspect may not even be a factor for consumer adoption – but through new crowdfunding platforms, distribution channels and government procurement initiatives, these startups could change the future of our cities and the environment.

The Next Step: Local Government as the Coach vs. Quarterback

The way cities work with emerging technologies is entering a new paradigm in which the city is not always the customer but, more often, the regulator and promoter of the best ideas. We are excited to be hosting 100 of the most promising Urbantech startups at this year’s Smart City Startups event – and, thanks to the support and partnership of the National League of Cities, we will introduce local government officials from Tel Aviv, San Francisco, New York, Boston and elsewhere to the innovations these startups offer.

We have all seen the battle between Uber and regulators – and it’s likely that no local government made an attempt to discuss regulating Uber before the battle occurred. We’ve also seen the impact that Rachio is having on water consumption around the country – and in most cities, this shift is still under the radar. Recently, we’ve seen police departments fighting against some of the information shared on Waze.

Our goal is to enhance awareness and increase partnership between local governments and startups working to solve the same problems, so that the best solutions can be promoted and cities can begin to preemptively manage the impact of regulation. Urban.us and NLC are joined by Direct Energy, the Knight Foundation and others aligned with the goal of sharing experiences that cities are having as they work with startups to build new relationships that will forge the future of urbanization and climate change.

stonly_baptiste_headshotAbout the Author: Stonly Baptiste is the Co-Founder of Urban.Us, where he leads investment research, community management and platform development for the fund, which now works with 16 startups around the world solving urban challenges. Additionally, he is co-organizer of Smart City Startups, a multi-day, multi-track event based in Miami that recruits 100 of the the most promising startups from around the world who are working to solve challenges at the intersection of climate change and urbanization. Additional participants include officials focused on innovation and economic development from local governments in Tel Aviv, San Francisco, New York, Boston and more. Investors such as Vast Ventures and Fontinalis Partners, and global companies such as Direct Energy, EDF, and Canary Wharf join to further government efforts to work with startups and promote innovation in cities.

Workforce Development, Jobs Report, and Broadband: This Month in Economic Development

Our monthly roundup of the latest news in economic development filtered through a city-focused lens. This month’s roundup features stories from NLC’s Congressional Cities Conference. Reading something interesting? Share it with @robbins617.

"Photo by Jason Dixson Photography. www.jasondixson.com"President Obama announces his new TechHire initiative, which calls for a partnership between cities, higher education and the private sector to expand access to tech jobs in communities across the country, at NLC’s Congressional City Conference in Washington, D.C. last week. (Jason Dixson Photography)

White House announces TechHire initiative to expand skills training for tech jobs. President Obama addressed NLC’s membership at the Congressional Cities Conference and asked for cities to partner with him on TechHire, a new workforce program designed to train low-skilled workers for well-paying information technology jobs like software development, network administration and cybersecurity. The new initiative will include $100 million in competitive grant funding as well as private sector resources and support for 21 communities selected to participate.

Skills gap: myth or reality? Meanwhile, the ongoing debate continues over whether or not a skills gap actually exists in our country’s workforce. Tom Snyder, President of Ivy Tech Community College, wrote a piece for The Huffington Post about leveraging community colleges for skills training on emerging technologies. New York Times columnist Paul Krugman recently challenged the idea of a skills gap, arguing there’s insufficient evidence to prove a skills gap is holding back employment. However at the local level, where job opportunities are returning but going unfilled, mayors are responding by developing workforce programs to meet the specific hiring needs of area businesses (like in Missoula, Mont., and Heath, Ohio).

The latest employment trends in local government. NLC’s latest Local Jobs Report analysis by Christiana McFarland found slight gains in overall public sector employment, with local government responsible for the majority of those new jobs last month. But this positive news is tempered by the fact that the local government workforce is still smaller today than it was at its peak in 2008. Another local government trend highlighted by the Emerging Local Government Leaders (ELGL) network is the lack of growth in the percentage of chief administrative officers that are women. That number still stands at 13 percent – the same today as it was back in 1984. The thought-provoking ELGL “13 Percent” blog series features personal stories from city employees.

Municipal broadband could be coming to a neighborhood near you. In case you missed it, the Federal Communications Commission (FCC) voted to allow the municipal broadband systems in Chattanooga, Tenn., and Wilson, N.C., to expand outside their existing borders. This is encouraging news for other cities that are considering building their own broadband systems, like Seattle. The decision also affirms NLC’s position that municipal broadband systems can play an important role in supporting local growth and opportunity. More info from the FCC can be found here.

Cities are making the sharing economy work. NLC released a new report, Cities, the Sharing Economy, and What’s Next, at the Congressional Cities Conference. The report provides analysis from interviews with city officials about the impact of the sharing economy (and companies like Uber, Lyft, and Airbnb) on innovation and economic development and how cities are managing safety and implementation considerations. NLC’s Brooks Rainwater explained how this new resource will assist city leaders as they understand, encourage, and regulate the sharing economy in their cities.

For a laugh. Not to start a dog-versus-cat war, but how great would it be if every economic development strategy included plans for a cat café? Meanwhile in Boston, a GoFundMe campaign aiming to raise $300 million to fix the struggling local transit system first started out as a joke but is now receiving national media attention. The campaign is unlikely to reach its goal, but if you donate $50, the fund’s creator will scream your name on the orange line for 45 minutes during rush hour.

Idea of the month: Life experience as college credit. Getting a degree later in life is hard, but Pennsylvania’s community colleges are making it easier by now counting life experience as college credit.

What we’re reading. There were a few solid reports this month on workforce, wages, and jobs. Brookings released a report identifying the advanced industries with the greatest prospects for long-term economic growth (Governing provided a solid overview of the key findings). The Boston Consulting Group found that the top three reasons companies bring manufacturing jobs back to the U.S. are better access to skilled workers, lower shipping costs, and shorter supply chains. Finally, the Economic Policy Institute testified before Congress about government actions needed to create jobs and grow wages. The testimony said that local governments should implement targeted employment programs and also invest in broadband, education, transportation and other infrastructure projects.

(Last month’s roundup is here.)

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About the author: Emily Robbins is the Senior Associate, Finance and Economic Development at NLC. Follow Emily on Twitter: @robbins617.

Expanding on the President’s TechHire Initiative: How Innovation Districts Catalyze Jobs, Creativity & Growth

"Photo by Jason Dixson Photography. www.jasondixson.com"President Barack Obama, seen here speaking at NLC’s Congressional City Conference on Monday, March 9, revealed his new TechHire initiative to expand access to tech jobs in communities across the country. NLC has just released a new research brief on Innovation Districts that explores the President’s ideas in more depth, specifically reinforcing the important intersection where business, education, technology, and city leadership meet.

With President Obama’s announcement at the NLC Congressional Cities Conference of the new TechHire initiative, the White House will make available $100 million in grants to expand the number of Americans in well-paying tech jobs. The program will include city leaders, universities, community colleges, and the private sector with a special focus on underserved population, working together to expand tech jobs. At the same time as TechHire ramps up in the initial 21 cities, it is increasingly apparent that place in the 21st century economy matters more than ever. City leaders know that the tech sector of today is increasingly gravitating away from suburban office parks towards central cities and innovation districts.

Cities incubate creativity and serve as labs for innovative ideas and policies, and the place where this is happening more and more is in Innovation Districts. These districts are creative, energy-laden ecosystems that focus on building partnerships across sectors. Innovation Districts attract entrepreneurs, established companies, and leaders from all walks of life, providing them with the space and the place they need to create unexpected relationships and find transformative solutions.

From established environments, like the Boston Innovation District to the newly developing innovation district in Chattanooga, one of the founding TechHire cities, there is an increasing focus on catalyzing economic growth through “spatial clustering.” These districts share similarities with traditional economic clusters, but differ in key ways. Placemaking is central to innovation districts, and there is a focus on being sited in high-density areas with a cross-section of employees that want to share ideas instead of being cloistered apart from one another. These urban ecosystems foster collaboration and bump and spark interactions between workers that might just create the next big idea.

NLC’s Center for City Solutions and Applied Research (CSAR) has just released a new research brief on Innovation Districts that explores this concept in more depth, specifically reinforcing the important intersection where business, education, technology, and city leadership meet. Further work will be forthcoming in this space, including an in-depth look at the innovation district forming in Chattanooga, as well as work in partnership with other key players. Innovation districts can encourage experimentation and serve as a key strategy for cities as they further urban economic development and pave the way for new job opportunities through initiatives like TechHire.

Brooks Rainwater bio photoAbout the author: Brooks Rainwater is the Director of the Center for City Solutions and Applied Research at the National League of Cities. Follow Brooks on Twitter at @BrooksRainwater.

Opportunity for Cities to Help Young People Achieve Financial Success

NLC is providing guidance to the Consumer Financial Protection Bureau and the U.S. Department of Labor on their new technical assistance opportunity to help cities include financial capability in their youth employment programs.

American Apparel Holds Open Call For Jobs In New York City Young jobseekers attend an open jobs call. (Spencer Platt/Getty Images)

Each year, millions of youth in cities across the country participate in programs designed to help them secure employment. Many of these young people hail from low-income or distressed communities and do not have access to the same kind of educational and career opportunities as their more affluent peers.

Often, a lack of attachment to the labor force can lead to risk of gang activity or criminal involvement. Youth employment programs, many of which are led by municipalities, have the potential to provide crucial pathways to economic opportunity and increased social mobility for participating young jobseekers.

Being in the labor force at a young age has benefits for young people, their families and their communities. It often contributes much-needed income to families that are struggling to get by. It also encourages civic engagement and provides valuable job skills and work experience that can lead to long-term, stable employment. Moreover, when young people are employed, cities benefit from reduced crime and overall economic development.

Having a job also allows young people to be more financially independent. However, millions of young people enter the workforce without basic money management skills or knowledge about today’s complex financial systems, and these skills are not typically taught on the job. And because financial knowledge is not a core component of our education system, many young people lack the necessary awareness and skills to become financially responsible adults.

To improve the ability of young people to effectively manage their finances – from spending and saving to building credit and keeping debt manageable – NLC is working with two federal agencies to help city leaders identify ways to incorporate financial capability into youth employment programs.

As part of a broader project on financial capability and youth employment, NLC is providing guidance to the Consumer Financial Protection Bureau (CFPB) and the U.S. Department of Labor on their just-announced technical assistance opportunity for up to 25 cities. Assistance will focus on ways cities can ensure that financial capability training and access to safe and affordable financial products are available for young jobseekers and workers.

For more information on how your city can receive this technical assistance, check out CFPB’s blog post and read the criteria for submission. Letters of interest are due to the CFPB by Monday, April 20, 2015.

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About the Author
: Heidi Goldberg is the Program Director for Early Childhood & Family Economic Success in NLC’s Institute for Youth, Education, and Families. Follow Heidi on Twitter at @GoldbergHeidi.

New Award Recognizes Innovative Affordable Housing Policies & Programs

This is a guest post by Jess Zimbabwe and Michelle McDonough Winters.

A Rose Center panel reviews a model of the Mueller Airport redevelopment in AustinA Rose Center panel reviews a model of the Mueller Airport redevelopment in Austin, which includes both for-sale and for-rent homes—25% of the total units on the site—that are affordable to families making less than 80% of the area median income. (photo: Jess Zimbabwe)

Housing affordability is a serious concern for cities across the US. The Joint Center for Housing Studies has reported that 35 percent of Americans and half of all renters are “cost burdened,” meaning they pay more than 30 percent of their income on housing. This is a crisis that impacts not only families who stretch their budgets – and their commutes – to afford appropriate housing, but also the economic competitiveness of cities as businesses struggle to attract and retain qualified workers.

To recognize governments that are leading the way to solutions in housing, the ULI Robert C. Larson Housing Policy Leadership Awards recognizes policies and programs that are taking innovative approaches to housing affordability. This year’s call for entries for the Larson Awards, and their companion award program for affordable and workforce housing developments, is open until March 16. The program has honored eight state and local programs since its establishment, six of which went to cities or municipal housing departments:

2014
• City of Austin, Texas, for a comprehensive approach to housing policy. Designated by the US Census Bureau as the “nation’s capital for population growth,” the city of Austin is tackling its affordable housing shortage through a variety of mechanisms. In addition to the housing trust fund and general obligation bond funding, the city implemented planning and development policies and programs that encourage the production of affordable housing – securing affordability for more than 18,000-units since focusing on this crucial issue.

• City of Pasadena, California, for a comprehensive approach to housing policy. Since 2000, Pasadena’s housing policy and programs have resulted in the development of over 5,000 housing units in transit-oriented areas, including 1,370 units of affordable and workforce housing. Pasadena’s commitment to its housing vision, community engagement, and informed dialog has produced a highly integrated and effective mix of goals, policies, and programs for its 2014-2021 housing element plan.

2013
• Baltimore Housing, Baltimore, Maryland, for the Vacants to Value Program. After losing nearly a third of its population since the 1950s, Baltimore Housing launched the Vacants to Value program to help attract 10,000 new residents. The program has leveraged over $25 million in private capital and worked across city agencies to transform vacant housing stock into workforce housing.

• Park City Municipal Corporation, Park City, Utah, for creating workforce housing choices in a resort community. Aiming to reduce the burden on local businesses created by high seasonal job turnover, Park City has supported the creation of workforce housing by providing financial incentives including grants, land donation and fee waivers. The city has coupled these efforts with an inclusionary housing ordinance, homebuyer assistance and rental programs for municipal employees to create and maintain workforce housing opportunities and a more sustainable community.

2012
• New York City Department of Housing Preservation and Development, for the New Housing Marketplace Plan. A culture of innovation, leadership and collaboration have helped the New Housing Marketplace Plan to create or preserve 165,000 units of affordable housing—nearly 5,000 of which are workforce units – since 2003.

2011
• City of San José, California. Over the last 30 years, the City of San José, the center of Silicon Valley, has become one of the toughest places in the country to find affordable housing. In response, the City adopted a variety of policies and programs that have created 10,600 units of workforce housing. Its policies extend beyond project finance to include long-term planning and periodic revision of its zoning code to reduce regulatory barriers.

Is your community doing something innovative or impactful to address the need for affordable and workforce housing? If so, help spread the word and apply for recognition.

About the authors:

Jess Zimbabwe Headshot 150x150Jess Zimbabwe is Executive Director of the Rose Center for Public Leadership in Land Use, a program of the National League of Cities, in partnership with the Urban Land Institute. She’s an architect, city planner and politics junkie. Follow Jess on twitter at @jzimbabwe and @theRoseCenter.

 

Michelle Winters Headshot 150x150Michelle McDonough Winters is Senior Visiting Fellow for Housing at the Urban Land Institute’s Terwilliger Center for Housing. Follow her at @mkmwinters and the Terwilliger Center at @ULIHousing.

Tying Business Incentives to an Economic Development Strategy

This is a guest post written by Ellen Harpel. Post originally appeared on the Smart Incentives blog.

Construction-in-SingaporeEconomic development initiatives like this construction project in Singapore are more successful when investment incentives align with the values articulated by the overall development strategy. (Getty Images)

Incentives are not just about winning a deal or completing a transaction with an investor. Smart incentive use is always connected to a larger economic development strategy.

Economic strategy

Any project for which incentives are offered needs to be evaluated in the context of community economic goals and strategies. Many communities have an economic development strategy, though perhaps of varying quality, and making sure that an incentivized project aligns with the broad statements and values within that strategy is an important first step. Unfortunately, a surprising number of communities either do not have strategies in place or do not align their incentive programs to those strategies. Community discussions on incentive use focus on the deal, not the reason for the deal. My work around the country has revealed that the public, elected officials and even economic development board members do not see how incentives are connected to the broader economic development mission, seeing them entirely as necessary evils to enable business recruitment.

Program goals

Policymakers are increasingly ensuring that individual incentive programs have clear goals, although we have seen that guiding legislation can be frustratingly unclear, making both implementation and evaluation difficult. Clearly defining the purpose of an incentive program helps ensure it will be used as intended. Otherwise, it runs the risk of being offered to all comers regardless of their capacity to connect to community goals. Communities also often have specific objectives related to supporting target industries or developing individual sectors of the economy. Economic developers may be urged to support small businesses or firms meeting certain demographic criteria. Economic development organizations often work with regional or national organizations and may need to align efforts with their broader strategies. Sustainable development may be a priority. These are all additional strategic factors that should be considered when assessing the basic project benefits that an incentives investment might generate. Good economic development organizations know their communities well and should be able to relatively easily assess whether a proposed investment aligns with community values on these factors, singly or in combination.

Ellen Harpel bio photoAbout the Author: Ellen Harpel is President of Business Development Advisors (BDA) and Founder of Smart Incentives. She has over 17 years of experience in the economic development field, working with leaders at the local, state and national levels to increase business investment and job growth in their communities. Contact Ellen at eharpel@businessdevelopmentadvisors.com or ellen@smartincentives.org. You can also follow her on Twitter at @SmartIncentives.

The Evolution of Economic Gardening and What it Means for Big Business

This post originally appeared in the November edition of Site Selection magazine.

Cleveland-OhioThe City of Cleveland, Ohio, has made cultivation of second-stage companies a central cog in its anchor strategy, in part through development of post-incubator space. (Getty Images)

Economic gardening is an economic development approach that targets second stage businesses – small, local businesses with the potential and desire to grow.  This “grow from within” development strategy started in Littleton, Colo., in 1989 after the relocation of a major employer devastated the local economy. Precisely because of this harsh history, economic gardening became associated with small businesses, specifically eschewing economic recruitment or a focus on larger employers.

According to Chris Gibbons, director of business/industry affairs for the City of Littleton and co-creator of economic gardening, “The relocation of manufacturing plants offshore and the general decline of economic health in parts of the country have reduced the effectiveness of traditional economic ‘hunting.’ ” For these reasons, economic gardening in its purest form has been adopted in many smaller, more rural and harder-hit areas of the country.

Out of those start-up seedlings has come a harvest of second-stage businesses – companies that have moved past the start-up phase of development but are not yet fully mature. They have a proven product and a market for their goods or services often reaching beyond the local area, bringing dollars into the community, and generating a substantial economic impact.

As the outsized impact of second-stage businesses became more apparent, as cities came to realize that typical small business programs didn’t meet the needs of these unique businesses, and with a desire to strengthen the broader business ecosystem, cities across the country have therefore adapted economic gardening to their local circumstances. What has evolved is a second-stage strategy that leverages larger employers in meaningful ways to accelerate smaller businesses.

Where to Connect?

According to the Edward Lowe Foundation, between 1995 and 2012, second-stage companies represented 11.6 percent of establishments, but 33.9 percent of jobs. Employee numbers and revenue ranges vary by industry, but the population of firms with 10 to 100 employees and/or $750,000 to $50 million in receipts includes the vast majority of second-stage companies.

“Second-stagers now face more strategic issues as they strive to gain a stronger foothold in the market and win more customers,” says the foundation. “Second-stagers wrestle with refining core strategy, adapting to industry changes, expanding their markets, building a management team and embracing new leadership roles.”

4 quadrants (2)According to the U.S. Small Business Administration, economic gardening addresses these unique needs by providing infrastructure, connectivity and market intelligence.

In Kansas City, Mo., KCSourceLink connects small businesses to a network of more than 200 nonprofit resource organizations in the region that provide business-building services.

“In the 11 years we’ve been working in the entrepreneurial ecosystem, we’ve determined that second-stage companies are a key segment, creating jobs and stability in the community,” says Maria Meyers, director of the UMKC Innovation Center and KCSourceLink founder. “Resource partner organizations in the network – such as the Helzberg Entrepreneurial Mentoring Program, the Small Business and Technology Development Center and the World Trade Center – provide second-stage companies with critical connections to larger corporations, mentoring and market opportunities.”

From Vacant to Vibrant

A key trait of second-stage companies is their readiness to grow, both physically and with new market reach. Acceleration of growth firms has actually become an attraction strategy for some suburban communities located outside of larger innovation hubs such as Boston, Austin, Cleveland and Kansas City.

These communities may not have a high density of traditional start-up supports, but can offer value-add to companies seeking to expand, such as affordable wet-lab space.

In turn, some innovation hubs are focusing not only on the growth of start-up and second-stage companies, but on retaining them as well. In order to do that, these cities need to provide both the physical space and the market opportunities for them to continue to grow from within -and this where the opportunities lie to engage larger businesses.

The City of Cleveland’s rallying point for second-stage companies is actually its anchor strategy, an economic development approach that leverages the economic power of major employers such as hospitals and universities to build wealth in neighborhoods and grow other industries and businesses.

In Cleveland, anchor institutions were incubating some great start-ups, but as they reached second stage, they left for the suburbs, or were purchased and moved to other locations. In an effort to further capture value from their anchor strategy, the City of Cleveland partnered with local developer Fred Geis to create space for second-stage companies. This “post incubator space” came with all the amenities these growth companies seek, as well as incentives from the city and continued engagement with hospitals and universities.

“The three buildings in the Midtown Tech Center have allowed us to capitalize on our Anchor Strategy, attracting companies like Cleveland Heart Lab that have grown from 15 jobs when they exited the incubator to over 115 high-paying technical jobs now,” says Tracey Nichols, director of economic development for the City of Cleveland. “These former vacant properties have brought 389 jobs to the area since 2012.”

Although economic gardening arose as the antithesis to larger employers, the approach as a solo strategy disconnected from retention/attraction efforts is rare. More often, as in Cleveland, economic gardening has evolved as an integral part of a broader economic development portfolio, leading to a more strengthened and supportive business ecosystem.

christy-mcfarlandAbout the Author: Christiana K. McFarland is NLC’s Research Director. Follow Christy on Twitter at @ckmcfarland.

What Makes a City Business Friendly?

This is a guest blog post by Jon Lieber, Chief Economist at Thumbtack

US-Biz-Friendliness

Every year local lawmakers are flooded with studies purporting to tell them what makes their city a good (or in some cases, bad) place for business. The same city can receive a high grade in one report and a low grade in another – this year San Jose ranked 1st in one ranking of “Best US Cities for Small Business” and 121st in another ranking of “Best Cities to Start a Business.” It can be difficult to keep all the different rankings straight.

Thumbtack has developed an annual survey in partnership with the Ewing Marion Kauffman Foundation that differs in one fundamental way from these other lists – this survey asks small business owners directly what they think makes for a friendly business environment. By asking the owner-operators of these businesses about their perceptions of the local business climate, we learn from them what works and what doesn’t work about their governments.

This year nearly 13,000 small business owners participated in our survey – these are largely service professionals such as photographers, personal trainers, and house cleaners who use Thumbtack to find new business. The surveyed group largely reflects the geographic spread and demographic diversity of business owners nationwide, and from their responses we graded 82 cities and nearly every state along 11 metrics of the area’s friendliness towards small business.

For the third year in a row, we found that service professionals valued three things above all others in their local government: a licensing system that is simple and makes compliance easy; a tax system that has clear rules and is easy to understand; and training and networking programs that help service professionals get their businesses up and running, comply with the local rules, and meet other professionals in their industries.

Licensing and regulation

About half of the service professionals in the sample reported that they were required to be licensed by at least one level of government. Of this group, 62 percent said they faced licensing requirements from more than one level of government, while a full 25 percent said they were licensed by all four levels of government we asked about – city, county, state, and federal.

Although professional licensure requirements tended to reduce friendliness scores overall for those who faced them, the comments included with survey responses revealed that licensed professionals were of two minds – one group tended to say the government should back out of their business altogether, while the other group wanted to see an increase in enforcement to prevent unlicensed professionals from undercutting them on price. In general, service professionals did not express a desire for an unregulated marketplace, but wanted regulations that were easy to comply with and did not consume time they could be spending on a job. One pro said that the two days he wasted pulling permits for installing a hot water heater was two days he could’ve been working and earning a living for his family.

Taxes and Training

The effects of licensure requirements were so strong that they were actually twice as important as the friendliness of the tax code in determining perceptions of overall friendliness. When it came to taxes, tax rates were not a major complaint of our respondents – 2/3rds of all professionals say they pay their “fair share of taxes.” Instead what mattered more was the ease of understanding and ease of complying with local tax laws. Professionals who felt they understood their taxes were more likely to say a city was friendly towards them.

Finally, the largest factor under a local government’s control that affected overall friendliness scores was the availability of training and networking programs to help professionals succeed. 57 percent of survey respondents said they had never before run their own business – these professionals wanted to focus on serving their customers, and said they appreciated help from local community organizations in understanding and following the rules of the road for businesses. Professionals who said they knew of training and networking programs offered by the government ranked their governments 10 percent higher than those who didn’t.

The Kauffman Foundation’s Index of Entrepreneurial Activity shows that entrepreneurship can be a safe harbor for cities during difficult economic periods – as individuals lose their jobs during economic downturns, entrepreneurship tends to rise as they turn towards self-employment to keep their skills up or help pay the bills, and it declines again as the labor market recovers. This suggests that cities that create the right environment for entrepreneurs will be better positioned to weather challenging economic periods. Listening directly to entrepreneurs as the Thumbtack survey does can help cities understand which policies are making them small business friendly and which are keeping small business at bay.

Headquartered in San Francisco, Thumbtack is a consumer service that helps millions of people accomplish the personal projects that are central to their lives. Thumbtack introduces customers to experienced professionals who are available, interested and qualified to meet their specific needs. Whether looking for a painter for their home, a math tutor for their child, or a DJ for their wedding, Thumbtack provides anyone in the U.S. with an easy and dependable way to get started, compare options, and hire with confidence.

NLC’s Big Ideas for Small Business report provides helpful strategies for how cities can create a more business friendly environment. 

Lieber headshotAbout the Author: Jon Lieber is chief economist for Thumbtack, where he studies trends in the labor market, entrepreneurship, and the small business economy. He has previously acted as an economic policy advisor for the United States government, serving in the U.S. House of Representatives, the United States Senate, and the President’s National Economic Council at the White House.

More than money: Alternative incentives that benefit companies and communities

Construction in Raleigh, N.C.

Post adapted from Smart Incentives

Specialized services can complement financial incentives, while taking the concept of a partnership between business and community to a new level. Guest blogger Swati Ghosh, the International Economic Development Council‘s Director of Research and Technical Assistance, reports below on an interesting new paper addressing these and other alternative incentives.

Of all the tools that economic developers use to attract businesses to their community, incentives are the most controversial. Typically financial in nature, incentives are direct subsidies to businesses in the form of tax breaks, loans or grants. Proponents maintain that such subsidies are necessary to grow jobs locally as they reduce the cost, or risk, of doing business in a community. Critics, on the other hand, argue that there is no direct link between economic activity and such business subsidies, and some even suggest that they are a drag on economic growth.

Economic developers should closely follow an emerging alternative – programs and services that assist businesses but are not direct financial subsidies. Termed alternative incentives, these are investments in community programs that strengthen the business climate or that help a particular business in a way that benefits the broader community. They are a win-win: For businesses, alternative incentives can reduce the cost or risk of doing business in a community, yet communities retain these investments even if a firm shuts down or relocates to a different community.

IEDC’s Economic Development Research Partners program has developed a new paper focusing on alternative incentives. It is not an argument against the use of financial incentives; rather, it advocates for increased use of alternative incentives either alone or in conjunction with financial incentives. The paper, “More than Money: Alternative Incentives that Benefit Companies and Communities” (PDF), examines five categories of alternative incentives:

  • Talent/Workforce development
  • Real estate and permitting
  • Research and data
  • Networking and promotion
  • Infrastructure improvements

The paper is based on a survey of the IEDC membership to understand usage of over 40 different types of alternative incentives. It also includes several examples of organizations that have successfully utilized alternative incentives for business attraction and expansion, alone or in conjunction with other financial incentives. The paper concludes with recommendations for ways that economic developers can use alternative incentives effectively:

  • Focus on building relationships
  • Examine your organization’s strengths and utilize them creatively
  • Offer a wide spectrum of services
  • Bring along the key stakeholders
  • Focus on the needs of the community

As scrutiny, clawback provisions and other restrictions on the use of financial incentives increase, it may be beneficial to examine other options to support businesses. Alternative incentives not only stay in the community, but bring less of a burden in terms of monitoring and legal costs – benefits that every community and EDO can agree on.

90 Years of Helping City Leaders Improve the Local Business Climate

Seattle, Washington“How does a city government work with local industries, businesses, and institutions to keep them in the city and improve communications with them?” This crucial question was raised by Mayor Sam Schwartzkopf of Lincoln, Nebraska, in a 1968 article in NLC’s previously published Nation’s Cities magazine titled “You Have to Work to Keep Industry.” In today’s economic climate, the issue of business retention and expansion remains a prominent issue for city leaders and economic developers.

While many mayors and city councils across the country recognize the value of attracting new industries and businesses, there is also a growing emphasis on fostering local talent and supporting entrepreneurs and small businesses.

Mayor Schwartzkopf suggested back in 1968 that NLC members should consider adopting a city program he launched in Nebraska to personally visit local shops and companies and ask how the city can be of service to them. The Mayor and his team aimed to meet with as many of the city’s 300 firms as possible.

“Although the attraction of new firms and industries to any community is always extremely important, I feel that city government today must show its present industries that city government is deeply interested in them and that city government wants them to be interested in their city,” Schwartzkopf wrote in his article. “I strongly feel that city government must know what its industrial, business, and institutional leaders are thinking; what they would like to see done within the city.”

Some of the business assistance that Mayor Schwartzkopf provided as a result of his visits included providing increased police presence to an outlying industrial neighborhood, removing street parking to help reduce traffic congestion, modernizing street lighting, and dispatching city engineers to inspect the quality of a storm sewer near a steel company.

This type of support for the local business community is very similar to what we see today from cities involved in NLC’s Big Ideas for Small Business network. Our recent report on small business development highlights two key strategies for developing a business-friendly climate – proactively engaging the local business community and creating advisory councils with representation from small business.

As we highlight in the report, the city of Seattle’s Business Retention and Expansion Program (BREP) strives to retain and grow early-stage business through proactive outreach initiatives. The city staff who lead BREP aim to provide 250 businesses with direct assistance every year. The Seattle program has already helped hundreds of businesses find funding opportunities, select new site locations, and navigate government regulations.

In Cincinnati, the city formed a Small Business Advisory Committee (SBAC) as a mechanism for the local small business community to advise city officials on policies and programs. The SBAC voices the concerns of business owners and works in collaboration with city officials to find solutions to common problems. One of the city’s accomplishments since the establishment of the SBAC has been to streamline the permitting process by creating “jump teams” of city employees that work in coordination to assist small businesses.

While the economic landscape has evolved in many ways since 1968, Mayor Schwartzkopf from Lincoln knew back then what remains important today: getting the business friendly basics right is critical to supporting and growing local businesses. NLC is grateful to still be providing research, education and best practices about how cities can do just this.