(E)conomic strategies that simply ignore microbusinesses risk ignoring entrepreneurs that access business ownership outside high-tech sectors or advanced manufacturing…
Brookings
July 14, 2021
Pamela D. Lewis
In 2008, Adrienne Bennett—the nation’s first licensed Black female master plumber and plumbing contractor—launched a Detroit-based plumbing business, Benkari. Benkari was successful until business eventually plateaued. Bennett knew she needed to invest in a new estimating tool to help bid on larger projects, but could not get financing. This problem is common for “microbusinesses,” or those with fewer than 10 employees. Microbusinesses account for nearly 80% of U.S. small businesses. Those led by owners of color are disproportionately disconnected from capital, resources, and strategic social networks that equip them to survive, adapt, and grow.
In 2015, Bennett heard about the New Economy Initiative’s (the organization which I lead) business plan challenge NEIdeas, which offered $10,000 grants for microbusinesses with growth ambitions but had been excluded from access to capital and other supports. A total of 650 businesses applied, and Benkari was one of 30 that received grants, which they used to buy the estimating tool.
Benkari’s financing did not come from traditional lenders. Instead, through NEIdeas, the business secured credit from a nonprofit community development finance institution (CDFI) that had been sourced by grant capital from philanthropies. With this funding and the estimating tool it purchased, Benkari secured one of the larger contracts in the company’s history: the transformation of the iconic Detroit rail depot, Michigan Central Station, led by Ford Motor Company. With contracts like this one, Benkari grew 20 times in size in six years, now generating $2 million in annual revenue and employing 22 workers—50% of whom are people of color, many with technical skills and earning family-sustaining incomes. Benkari can now secure loan capital directly from commercial lenders—a sign of the business’s long-term viability.
Benkari’s story illustrates how intentional strategies to uplift microbusinesses in underserved communities can benefit local economies. But it takes time, strategic planning, and significant resources to generate these successes. As a strategic grant-maker and entrepreneurial support ecosystem builder for underserved entrepreneurs in metro area Detroit, we at the New Economy Initiative (NEI) know launching and growing a microbusiness here has not been easy, and have learned a lot. For other communities interested in such an approach, here are three steps to consider.
- Understand microbusinesses, what barriers they face, and how to support their growth
When Benkari wanted to expand its plumbing and construction services, it faced limited access to credit through traditional channels. But lack of access to private capital and commercial bank support is just one of the barriers microbusinesses face in Detroit. Others include:
- Little or no family investment or social network-based investment
- Inability to access public dollars (such as Small Business Administration loans)
- Higher insurance costs
- Public safety concerns and underinvested infrastructure
- Lack of a professional network
- Workforce challenges
When we surveyed 600 microbusinesses in metropolitan Detroit, we found that community economic developers need to create strategies to engage with and support underserved microbusinesses—something that takes intentional work. These microbusinesses do not make headlines or receive accolades; they are often off the radar and don’t receive tax breaks or other incentives from local, state, or federal government programs. Many are unbanked or underbanked, as was revealed last year when early stages of the Paycheck Protection Program neglected microbusinesses in underserved communities. We also learned that many of these businesses elected not to even apply.
Why is this? Gauged by traditional economic development metrics such as job creation and capital investment, it has been challenging to build a case for microbusiness support. Often, their growth trajectory is slow, their jobs are not always at wages that can sustain families, and they often operate in the local-serving part of the economy, meaning that their growth may simply cut into another local business’s growth. But economic strategies that simply ignore microbusinesses risk ignoring entrepreneurs that access business ownership outside high-tech sectors or advanced manufacturing—two sectors of focus historically for Michigan’s economic policy. As Michigan’s economic development strategies consider racial equity or neighborhood opportunity as key outcomes instead, microbusinesses immediately become a necessary lever of change. In Detroit, 82% of microbusinesses are owned by people of color and 64% are owned by women. In Detroit neighborhoods like Grandmont Rosedale, businesses such as Detroit Vegan Soul, Spa-A-Peel, and Pages Book Store—all owned by women—are providing jobs for residents, a path of alternative income for owners, and most importantly, accessible services for residents that are in proximity to their homes. These businesses are a part of the neighborhood community, supported by the community development corporation, Grandmont Rosedale Community Development Corporation, and also winners of NEI’s small business challenge.
NEI’s small business challenge was only one way in which microbusinesses have been supported in metro area Detroit. Practical assistance providers offering financing and cash flow advice, accounting, legal, and accessible micro- and small loans are other ways the nonprofit sector has been serving these types of businesses, along with community development organizations building their capabilities to point neighborhood businesses to resources.
- Build and boost a support network to help microbusinesses grow
Communities that want to support microbusinesses should consider these types of supports essential:
- Access to affordable capital through microfinance organizations and community development financial institutions.
- Practical assistance to provide expertise around marketing, legal issues, real estate, accounting, and other areas of business operations.
- Expert coaching and mentoring from those who understand the nuances of microbusiness challenges and opportunities.
These supports are best delivered through a network of business support organizations (BSOs) attuned to the unique needs of small businesses. The BSO network has some key characteristics:
- A shared mission to support underserved small businesses.
- A shared value around inclusive practices to increase support to businesses led by people of color and women.
- Actively working to be aware of others’ services in order to make or receive referrals.
- Regularly meeting to share leads and best practices and identify and remove barriers in meeting small business owners’ needs.
Examples of BSOs include CDFIs, banks and credit unions, Community Development Corporations (CDCs), industry-specific support organizations, online platforms for resources and storytelling, small business development centers (SBDCs), and local branches of U.S. SBA-funded SCORE, an association of over 13,000 volunteer counselors providing free advice and mentorship to business owners.
It is important to have an organization with resources to convene and nurture the BSOs as a network, and, in turn, allow that network to take care of the microbusinesses in need of support and resources to grow. Too often, BSOs operate without adequate resources or in isolation, which limits their impact. NEI has played this role in Detroit, boosting the BSO network via:
- Capacity-building grants and resources
- Practical technical assistance
- Training and learning opportunities
- Events and convenings
- Incentives to operate as a cohort
- Information sharing
- Trust and connections
- Access to nonfinancial resources
- Marketing and storytelling
- Elevate the conversation around microbusiness support
Answering the following questions should be part and parcel to every community’s growth and development strategies:
- What if every sole proprietor who wanted to grow had the support they needed to do so?
- What if every small business with fewer than five employees made enough revenue so the owner and its workers—regardless of their social or economic status—had living wage jobs?
- What if the pools of resources that support small businesses had a better understanding of Main Street microbusinesses that represent most of the businesses in our communities and are mostly owned by women and people of color?
We need to figure out how to better elevate this segment of small businesses as well as the conversation about them. Allocating resources and doing more data-driven work to better understand their plight will put more microbusinesses on a trajectory of growth, and move them from micro to small and beyond.
Pamela Lewis is the director of the New Economy Initiative for Southeast Michigan.