A small business ecosystem is an interconnected system of elements that influence the operation and success of small businesses within a particular environment. This ecosystem typically includes several actors, including:
- Small businesses – the central entities of the ecosystem
- Suppliers and vendors – businesses that provide goods and services required by small businesses to operate, including technology providers
- Financial institutions – banks, credit unions, and investors that provide funding and financial services to small businesses
- Government – may set regulations and provide small business support, including incentives
- Educational institutions – organize training and education resources to help small business owners and employees develop skills and knowledge
- Business support and networks – community groups, such as economic development organizations (EDOs), chambers of commerce, industry associations, and other organizations that offer business support services that help small businesses manage and grow
Small businesses are central economic drivers, representing 99.9% of US businesses (33.33 million in total). Despite their size, small businesses collectively act as significant employers, employing 61.6 million people, or 45.9% of US employees. The establishment of small businesses provides new employment opportunities, with small businesses contributing to 70% of the increase in jobs between March 2021 and March 2022.
Small businesses can be vulnerable to downturns because they may have more limited resources, such as access to capital and staff capacity, than larger firms. In the early days of the COVID-19 pandemic, less than 20% of small businesses reported having enough cash on hand to cover three months of business operations. As late as January 16, 2022 (the last available data period), 30.8% of small businesses reported having moderate or large decreases in the number of paid employees compared to before March 13, 2020.
The challenges small businesses face, particularly during economic disruptions, raise important questions about their ability to withstand and recover from such interruptions. This brings us to economic resilience, an essential factor in determining how well small businesses can adapt, survive, and even thrive in the face of adversity.
What is economic resilience?
Economic factors, consumer trends, and competitive dynamics affect the business environment and potential opportunities for small businesses daily. But what happens when the market conditions are significantly stressed? According to the EDA, economic resilience is the ability of an economy to “anticipate, withstand, and bounce back from any type of shock, disruption, or stress it may experience.” Typically, these shocks are global disruptions, such as a global recession, natural and manmade disruptions, and local or regional disruptions, such as the exit of a major employer.
Strengthening your local small business ecosystem can protect against these downturns and increase economic resiliency. But how can communities actively build and support these resilient ecosystems? The following section will explore key strategies and actions to foster resilience among small businesses.
What strategies can help to build resilient small business ecosystems?
The best time to prepare for a disaster or disruption is before it occurs. Strategic planning is an essential step in strengthening your local or regional economy. During the planning process, local partners work together to better understand the community’s assets, vulnerabilities, and needs.
Here are some recommendations to consider incorporating into a strategic plan that prepares a community to navigate future challenges and seize new opportunities for sustainable growth.
1. Strengthen relationships and collaboration between local partners and stakeholders
Engage a broad spectrum of local partners, including small business owners, government agencies, academic institutions, nonprofits, private sector partners, and residents. This process can proactively identify each partner’s roles and contributions, ensuring a smoother response in the event of a disruption.
2. Create a one-stop resource for businesses to access the ecosystem, gather information, and stay current on the latest developments
Business owners should be able to access information and resources quickly. An effective small business ecosystem will establish a robust communication plan. The communication plan should include a marketing campaign that intentionally includes small, minority-owned, women-owned, and veteran-owned businesses to promote access. The plan can be used to strengthen connections within the ecosystem, bringing entities together to network, share ideas, cooperatively solve problems, and affect responsiveness. A business support organization typically manages this communication plan to ensure all ecosystem partners have up-to-date information, especially during and after a disruption.
Consider establishing a business recovery center (BRC), either virtually or in person, to provide tailored support for local businesses during a catastrophic event. These BRCs focus exclusively on business needs to ensure effective and targeted assistance.
3. Encourage small businesses to undertake business continuity planning
In business continuity planning, business owners determine how the business can continue operations during and after disruptions. This involves identifying and prioritizing risk based on likelihood and severity, documenting critical business functions and processes, organizing a business continuity team, and identifying potential recovery strategies in the case of a disruption. Adaptive business models allow businesses to plan for both current and future needs using technology and innovative solutions.
Local organizations can play a critical role by informing business owners of the importance of business continuity planning and hosting informational events to aid them in developing their continuity plans. These business support organizations can also provide guidance on adaptive business models that allow businesses to remain flexible and responsive.
For small businesses looking to undertake this work, the Insurance Institute for Business & Home Safety provides a free resource, the Open for Business-EZ (OFB-EZ) toolkit, which is specifically designed to help small- and mid-size businesses plan for disruptions. Ready.gov, a public service campaign to promote preparedness, has a series of videos on business continuity training and a situation manual designed to test the effectiveness of a business owner’s plans.
4. Increase access to capital
Small businesses, which tend to have less cash reserves, may need more access to working capital during and after a disruption. This could take many forms, including business grants, short-term financing, bridge loan programs, and revolving loan funds. Small business ecosystems should have strong relationships with local banks, investors, and foundations to support these efforts.
5. Measure resilience to provide a baseline and benchmark
Measuring economic resilience is essential for communities aiming to build stronger, more adaptable small business ecosystems. Continuously tracking key data points can give real-time insights into the health of their local economies. This ongoing monitoring can provide early warning signs of potential disruptions, enabling communities to respond proactively before challenges escalate. Establishing a baseline and benchmarking against key indicators helps assess the community’s capacity to withstand and recover from economic disruptions and guides targeted interventions to bolster resilience. Communities can use tools like the National Resilience Data Explorer to understand and monitor resilience indicators, helping them identify areas of vulnerability and target interventions more effectively.
An outreach survey can help maintain an understanding of the challenges small businesses face. This is especially true after an economic shock. Having baseline data to evaluate how disruption impacts businesses will provide insight into what resources and programs should be initiated or altered to meet short- and long-term business needs.
6. Engage in industry diversification initiatives
A diverse economy, with a broad mix of industries, is less susceptible to sector-specific downturns and is better positioned to adapt to changes, thereby mitigating risk and ensuring more stable economic growth. This approach curbs the impact of sector-specific downturns and fosters innovation and adaptability, as different industries bring varied skills, resources, and perspectives to the community. To promote industry diversification, communities can focus on attracting new industries that complement existing ones, strengthening local supply chains, encouraging entrepreneurship in emerging sectors, and supporting innovation across all businesses.
7. Invest in workforce development
Workforce development plays a critical role in economic resiliency. Equipping workers with versatile skills relevant to multiple industries can enhance a community’s adaptability to economic changes.
8. Address income inequality
High levels of income inequality can make communities more vulnerable to economic shocks, as disparities in access to resources and opportunities weaken the overall economic fabric.
9. Incorporate resiliency measures in local policy
Flexibility in policy and resource allocation can be vital to economic recovery. Governments must remain agile to the changing needs of communities, especially in business development. To build resilience, local policies should promote updated building codes and zoning regulations that withstand natural disasters. Critical infrastructure like roads, public transit, broadband, and utilities must also be durable and well-maintained to handle disruptions.
Conclusion
Building and supporting a resilient small business ecosystem is imperative for safeguarding communities from economic downturns. Small businesses are the lifeblood of our communities, driving economic growth, innovation, and job creation. By understanding the intricate connections within the ecosystem and proactively implementing strategies, communities can foster an environment where small businesses not only survive but thrive.
TPMA is committed to helping you build a more robust and adaptable economy. Our team of experts can provide tailored solutions to address your community’s specific needs. Let us partner with you to create a future where every community flourishes. Contact Brett Wiler, Senior Director of Economic Development and Strategic Planning, here, today to embark on this transformative path.
The time to act is now. Together we can build a stronger, more resilient future for all.
Authors: Lindsay Bloos, Erin Brown, Zachary Rice, Ashley Sharpley, and Brett Wiler.