How cities can woo small businesses
Part of our series on the future of Main Street
Small businesses aren't all alike. Some are restaurants, some are mom-and-pop shops, and some might even become the next Facebook. But one thing ties them all together, says Christiana McFarland, research director at the National League of Cities: "They're employing folks interested in staying and investing in the city."
With most cities looking to attract job creators to town, what can an eager young up-and-comer do to stand out? Here, a few ways:
1. Streamline the process
"Enhancing the regulatory process is a critical way local government can support small businesses," McFarland said. One of the best ways to accomplish that is to make interactions between businesses and cities as smooth as possible.
Some cities, like Chicago and Kansas City, set up small business centers (physical locations and online sources), mapping out the steps for starting a business, plus forms and advice for business plans and navigating the city's licensing processes.
It's also important for cities to teach entrepreneurs how to use the information, McFarland said. In the case of a restaurant owner, could the city provide a concierge service to help him navigate the process? How can local government maintain safety standards but avoid being overly burdensome on the owner?
McFarland pointed to Seattle's Restaurant Success program as an example. With so many codes for opening a restaurant, permits, licensing — and the fact that starting and running a restaurant is one of the most difficult business ventures — the city's helpful step-by-step guide facilitates the process specifically for restaurateurs.
The needs of small businesses are very diverse, but one thing businesses of all sizes want is streamlining, McFarland said.
2. Give them what they need to succeed
It takes money to make money. If cities want to attract small businesses, they're going to need to be connectors, helping small businesses find resources like loans and other forms of financing, McFarland said.
From registering businesses with the appropriate agencies (county, state, and federal), to zoning, paying taxes, and getting licenses and permits, the fees alone could add up. The U.S. Small Business Administration estimates that a home-based franchise operation could cost $1000 to $5000 — and that's on the low end.
Detroit's effort to connect is BizGrid, debuted in 2013. The grid-based infographic matches up all of the city's available resources — like financing — to the small business' needs. It's been so successful that other regional organizations want to be added to the infographic and other Michigan cities have asked for help in making their own version.
Philadelphia, Pennsylvania's InStore Forgivable Loan program offers $15,000 to $50,000 to small businesses and nonprofits, given they meet certain criteria — that includes enhancing foot traffic to the commercial corridor and impacting job retention or creation. The businesses can use the money to expand, move to a better location, or buy new equipment. The loan will be forgiven if they meet the city's requirements.
3. Implement an anchor strategy
Another way for cities to boost small businesses is an anchor strategy.
These strategies are based around an anchor institution, something like a university or hospital. These large, local institution have a strong employment base and spending power that won't move out of the city. But these institutions can't thrive if the surrounding neighborhoods don't. Cities are partnering with these anchor institutions to leverage and direct their spending power toward the city's small businesses and the local economy.
Many cities are following in the steps of Cleveland, Ohio's University Hospitals. In a partnership with the mayor, the hospital launched a five-year, $1.2 billion growth plan in 2005. The expansion centered on spending as much of that budget in the city and including as many female- and minority-owned local businesses as possible — and they met their goals.
Anchor strategies are a win-win: Institutions place themselves at the heart of innovation as they invest in the community, and the small businesses benefit not only from revenue but constant access too. The more the local business works with the anchor institution, the more they can test new products and strategies, and eventually bring them to market. Bringing in outside dollars offers a city the most economic value, McFarland said.
The success of University Hospitals' plan has become a blueprint for other anchor strategies in the nation. Yet, Cleveland continues to change the game with its Greater University Circle Initiative, a plan including multiple anchor institutions.
4. Places to work, live, and play
The other thing cities have that small businesses need is the right kind of space.
Small scale manufacturers and tech startups are high growth businesses that expand quickly, which means they need more physical space: more offices, bigger warehouses, etc. Suburbs tend to focus on attracting businesses like this, McFarland said. Cities can counter that by offering something more than an office building: an entire community where small business can thrive.
"We're seeing a resurgence of downtown innovation districts," McFarland said. An innovation district clusters anchor institutions, startups, and incubators with mixed-use housing, office, and retail space in high-density areas in the city, usually with easy access to public transportation, broadband, and amenities. It's like dropping Stanford Research Park directly into the heart of San Francisco.
These districts foster a community that lives an entrepreneurial lifestyle: The small business owners live, work, network, experiment, and expand in a concentrated area, which spurs economic growth and investment. It's open to anyone.
The successes of Barcelona, Spain's 22@ and Boston Innovation District have paved the way for cities like Chattanooga, Tennessee, the first mid-sized city with an innovation district.
"Most small businesses are home-grown," McFarland said. "The goal is to create great quality of life to keep smart people there."