How to include microenterprises in economic growth strategies
In 2005 Adrienne Bennett, the nation’s first black woman certified master plumber and plumbing contractor, started a Detroit-based plumbing business, Benkari. Benkari was successful until the business hit a plateau. Bennett knew she needed to invest in a new estimating tool to help bid on larger projects, but was unable to secure funding. This problem is common for “micro enterprises” or those with less than 10 employees. Microenterprises make up nearly 80% of US small businesses. Those led by the owners of color are disproportionately disconnected from the capital, resources and strategic social networks that equip them to survive, adapt and grow.
In 2010, Bennett heard about the New Economy Initiative’s (the organization I lead) business plan challenge NEIdeas, which offered grants of $ 10,000 to microenterprises with growth ambitions, but had been excluded from it. access to capital and other supports. A total of 650 companies applied and Benkari was one of 30 that received grants, which they used to purchase the estimation tool.
Benkari’s funding did not come from traditional lenders. Instead, through NEIdeas, the company obtained credit from a nonprofit community development finance institution (CDFI) that had been funded by grants from philanthropies. With this financing and the estimation tool he bought, Benkari was awarded one of the largest contracts in the company’s history: the transformation of Detroit’s iconic rail depot, Michigan Central Station, run by Ford Motor Company. With contracts like this, Benkari has grown 20-fold in six years, now generating $ 2 million in annual revenue and employing 22 workers, 50% of whom are people of color, many of whom have technical skills and earn a family income. Benkari can now obtain debt capital directly from commercial lenders, a sign of the long-term viability of the business.
Benkari’s story illustrates how intentional strategies to develop microenterprises in underserved communities can benefit local economies. But it takes time, strategic planning and significant resources to generate these successes. As a strategic funder and builder of entrepreneurial support ecosystems for underserved entrepreneurs in the Metro Detroit area, we at the New Economy Initiative (NEI) know that the launch and growth of a micro- business here has not been easy and we have learned a lot. For other communities interested in such an approach, here are three steps to consider.
1. Understand microenterprises, the obstacles they face and how to support their growth
When Benkari wanted to expand her plumbing and construction services, she 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 microenterprises face in Detroit. Others include:
- Little or no family investment or social media-based investment
- Inability to access public funds (such as Small Business Administration loans)
- Higher insurance costs
- Public safety concerns and underinvested infrastructure
- Lack of professional network
- The challenges of the workforce
When we surveyed 600 microenterprises in metro Detroit, we found that community economic developers need to create strategies to engage and support underserved microenterprises, which requires intentional work. These microenterprises do not make the headlines or receive praise; they are often off the radar and do not receive tax breaks or other incentives from local, state, or federal government programs. Many are unbanked or underbanked, as was revealed last year when the early stages of the paycheck protection program neglected micro-businesses in underserved communities. We also learned that many of these companies chose not to even apply.
Why is it? Judged by traditional economic development measures such as job creation and capital investment, it has been difficult to justify support for microenterprises. Often their growth trajectory is slow, their jobs are not always at wages that can support families and they often operate in the local part of the economy, which means that their growth may simply hamper the growth of their families. ‘another local business. But economic strategies that simply ignore microenterprises run the risk of ignoring entrepreneurs who acquire ownership of businesses outside of high-tech or advanced manufacturing sectors, two areas of historical interest to Michigan economic policy. As Michigan’s economic development strategies instead consider racial equity or neighborhood opportunities as key outcomes, microenterprises immediately become a necessary lever for change. In Detroit, 82% of micro businesses are owned by people of color and 64% are owned by women. In Detroit neighborhoods like Grandmont Rosedale, businesses like Detroit Vegan Soul, Spa-A-Peel, and Pages Book Store, all owned by women, provide jobs for residents, an alternative income route for homeowners, and most importantly. , accessible services. for residents who are near their home. These businesses are part of the neighborhood community, supported by the community development corporation, Grandmont Rosedale Community Development Corporation, and also winners of the NEI Small Business Challenge.
The NEI Small Business Challenge was just one way microenterprises were supported in metro Detroit. Practical assistance providers offering advice on finance and treasury, accounting, law and accessible micro and small loans are other ways in which the nonprofit sector has served these types of businesses, as well as community development organizations strengthening their capacities to orient neighborhood businesses towards resources.
2. Build and energize a support network to help microenterprises to develop
Communities wishing to support microenterprises should consider these types of support as essential:
- Access at an affordable price Capital city through microfinance organizations and community development finance institutions.
- Practical help provide expertise in marketing, legal matters, real estate, accounting and other areas of business activity.
- Expert coaching and mentoring those who understand the nuances of microenterprise challenges and opportunities.
These supports are best delivered through a network of Business Support Organizations (OSBs) tailored to the unique needs of small businesses. The BSO network has a few key features:
- A shared mission to support underserved small businesses.
- A shared value around inclusive practices to increase support for businesses run by people of color and women.
- Actively work to be aware of the services of others in order to make or receive referrals.
- Meet regularly to share leads and best practices and identify and remove barriers to meeting the needs of small business owners.
Examples of BSOs include CDFIs, banks and credit unions, community development corporations (CDCs), industry specific support organizations, online platforms for resources and storytelling, development centers small business (SBDC) and local branches of SCORE, a US organization funded by the SBA. association of over 13,000 volunteer advisors providing free advice and mentoring to business owners.
It is important to have an organization with resources to bring together and nurture BSOs as a network and, in turn, enable this network to take care of microenterprises in need of support and resources to grow. Too often, BSOs operate without adequate resources or in isolation, limiting their impact. NEI played this role in Detroit by boosting the BSO network through:
- Grants and resources for capacity building
- Practical technical assistance
- Training and learning opportunities
- Events and notices
- Incentives to operate as a cohort
- Information sharing
- Trust and relationships
- Access to non-financial resources
- Marketing and storytelling
3. Elevate the conversation around supporting microenterprises
Answering the following questions should be an integral part of each community’s growth and development strategies:
- What if every single owner who wanted to grow had the support they needed to do so?
- What if every small business with fewer than five employees earned enough income for the owner and his workers, regardless of their social or economic status, to have paid employment?
- What if the resource pools that support small businesses had a better understanding of the Main Street microenterprises that represent most of the businesses in our communities and are primarily owned by women and people of color?
We need to figure out how to better nurture this segment of small businesses and the conversation about them. Allocating resources and doing more data-driven work to better understand their situation will put more microenterprises on a growth path and move them from micro to small and beyond.