To Grow Small Businesses, Doing What Local Governments Do Best is Best

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The recent recessionary period has garnered new attention to the role of small businesses in generating economic growth.  As a result, many local governments have renewed interest in policies to support and grow their small business community.  But how do we know what really works? During a recent meeting of the Atlanta and Dallas Federal Reserve and Kauffman Foundation, NLC presented preliminary findings on those local government policies that create the most significant opportunities for small business growth…and the results may surprise you.  Research findings are based on NLC’s analysis of the International City/County Management Association and NLC 2009 Economic Development survey of city and county officials.

Doing What You Do Best is Best. Overall, the findings suggest that those local policies that have the greatest impact on small business growth, defined as the growth in the number of new establishments under 99 employees between 2007 and 2008, are providing regulatory assistance and creating a supportive culture between the local public and private sectors.  Regulatory assistance includes one-stop shops and streamlining permitting/zoning processes.  Creating a supportive culture means providing avenues for local small businesses to engage with each other and to be heard by policy makers.

These aren’t revolutionary measures. In fact, they are facilitative roles of local government that lie squarely within their purview, and are exactly those things that local small businesses expect from their local government.  Surprisingly, however, only 59% of cities report providing regulatory assistance and only 48% report creating partnerships with the private sector.

A Word of Warning. The study’s preliminary findings also suggest that the primary local policy used for providing small businesses access to capital – revolving loan funds (RLF’s) – likely has little of the desired impact on small business growth, and may in fact actually contribute in the opposite direction.  Similarly, while Small Business Development Centers (SBDC’s) had a positive effect on small business growth overall, they did not have the sizable impact we would have expected.

RLF’s and SBDC’s should not be ruled out based on our preliminary results alone, however. There are many examples of communities with successful programs. Our results represent the swath of local governments across the country and do not necessarily capture the reach of particular programs. In those communities that have had success, their small business programs have the appropriate level of resources and management and industry expertise, engage strategic partners, respond to unique needs of the small businesses in their community, support a broader economic development strategy, and have political support.

In the coming year NLC will work with local communities to better understand what makes programs successful, and also explore more innovative local approaches, such as economic gardening. In the meantime, the good news for cities is that they have options to support small businesses that are proven, within their scope to implement fairly quickly and easily, and are not necessarily costly.

4 comments on “To Grow Small Businesses, Doing What Local Governments Do Best is Best”

  1. Thank you for the thoughtful approach to highlighting some of the key findings that hinder small businesses ability to succeed. In a nutshell, your research described a fundamental problem in that there is not a “one size fits all” solution for either the public or the private sector. Your research also surfaces that access (or lack of) to capital is not the #1 reason that businesses thrive. This has long been evidenced in research. The number one reason why businesses fail is poor management, not capital.

    In my opinion, the lack of success of many local economic development programs and strategy is due in part to the lack of clarity around desired outcomes, roles/responsibilities and implementation. In addition, existing policies and regulations are frequently out of date with current economic realities. With fewer resources it is difficult to meet the growing needs and demands of communities. True public/private partnerships thrive when each stakeholder understands its role and is willing to relinquish control in the areas in which it often lacks expertise. In my experience, models that are effective include a partnership between Government, Industry and Community. Government is best served as the enabler to small business and economic development, which is achieved through pro-business and economic development policy and financial/tax incentives. Private enterprises should implement, which is the role that it best serves. Organizations that have a demonstrated track record in developing and implementing innovative financing programs and technical assistance to businesses should be primarily involved in the development, design and implementation of revolving loan fund strategies and support services. Community includes not only the business community but the community at-large. Surprisingly, policies are often created in a vacuum without truly engaging the interests and views of the Community or Industry. Similarly, Industry is often dismissive of the government process required to facilitate implementation.

    Both the public and private sector should remain intently focused on the goal – to support the growth and viability of small businesses. If we start with the fact that not all businesses or communities are created equal and that all parties have specific roles to play, we can begin to remove some of the roadblocks that hinder the design and execution of thoughtful solutions to complex problems. The sum (partnership) is generally better than the parts as each party has something of value to contribute.

  2. This is an encouraging post for us at The Company Lab. We have been helping create an entrepreneurial ecosystem in Chattanooga, TN. Our mission is to increase the viability of start-ups in the region. The only way that this will happen is through collaborative partnerships between local government and the private sector. We have seen a lot of progress in Chattanooga with aligning these key assets, and the result is that we’re seeing more start-ups launching here than ever. Our local leaders have recently recognized that our local regulatory assistance for entrepreneurs is not what it should be. If Chattanooga had a one stop resource for regulatory issues, it would greatly improve the process for getting a start-up off the ground. Overall, we are excited about the findings of the NLC. If The Company Lab continues to enhance the entrepreneurial ecosystem and our local leaders help remove some of the regulatory roadblocks, then we will see a lot of economic growth in our community over the next few years.

  3. Thanks for this analysis. The Seattle City Council came to similar conclusions, which is why we advanced five new policy approaches in the 2011 budget process as part of our continuing work on economic recovery that focus on small business and creating a supportive culture. The Council adopted directives to City Departments to:

    1. Compile a list of all City-issued licenses and permits required to open and operate a business in Seattle, and identify opportunities for consolidation or change of licensing and permitting requirements and the feasibility of developing a Master Licensing system (one stop license and permit service).
    2. Formally establish an Interdepartmental City wide Business Advocacy Team, to bring together the work of different Departments that businesses have to interact with.
    3. Coordinate, integrate, and improve access to the array of City environmental sustainability services as part of our business expansion and retention work.
    4. Develop a promotion and communication strategy to make the City’s business support services more accessible to micro-businesses.
    5. Develop market research support to small business.

    One-Stop Licensing. Businesses have long bemoaned the multiplicity of regulatory and licensing requirements in Seattle. We were surprised to find that there is no central listing or inventory! We have asked the Department of Finance and Administrative Services (FAS) to identify and categorize all City-issued licenses and permits required to open and operate a business in Seattle, and to work with departments to analyze the original purpose of each license and permit requirement and analyze whether the license or permit continues to achieve its intended purpose. Once this is completed, FAS will identify opportunities for consolidation or change in licensing and permitting requirements, and analyze the feasibility of developing a Master Licensing system (one stop license and permit service).

    Business Advocacy Team. The Office of Economic Development has a Citywide Business Advocacy Team, but this team should include OED, Seattle Public Utilities, Seattle Department of Transportation, Seattle City Light, the Seattle Fire Department, Department of Planning and Development, and Finance and Administrative Services. The mission of the team would be to:
    • provide business assistance and case management for businesses that need assistance in working through specific issues related to one or more city departments;
    • identify systemic and/or recurring issues, barriers that unintentionally impact specific industries (e.g., biotech, farmers markets, street vendors, etc.) and regulatory challenges;
    • recommend policy modifications and process improvements to Departments, the Council, and the Executive.

    Business Services Support. The Office of Economic Development (OED) manages a business services program to help businesses navigate permitting and regulatory issues, access financing, and provides other technical resources. Seattle also provides a suite of services to help businesses become more environmentally sustainable. From a business owner’s perspective, it can be challenging to navigate the array of environmental services that the city offers and evaluate what may be appropriate for their business. The Council wants these two services to be coordinated so that businesses receive the most effective and efficient service.

    Micro-Business Support. Our smallest businesses (1 to 5 employees) often are not aware of and do not access City resources. The Council is looking for collaborative efforts with community partners to let new micro-businesses know about City and community services tailored to their needs, and opportunities for improving current services.

    Market Research. One of the challenges for small business retention and expansion is the capability to do market research. Currently, OED’s work in this area is limited to connecting companies to opportunities within the City of Seattle and informal match-making, but does not include providing GIS data, customer segmentation information, and other market research that large companies depend on to identify new markets. The Council wants OED to develop options for providing market research support to small businesses, including using services currently in existence, such as the Western Washington University, Business Competitiveness Center, as well as new ideas such as establishing a “corporate librarian” as part of the Seattle Public Library system.

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