TPMA, through its work with clients, has gained keen insight and practical wisdom on strategically working with local economic development organizations (EDOs). We have found that EDOs play a critical role in catalyzing and maturing local ecosystems for small business development.
The United States Small Business Administration (SBA) employs a flexible definition of small businesses, adapting criteria based on industry-specific factors such as employee count and annual revenue. Generally, a small business is a for-profit entity that operates independently and meets SBA size standards. This adaptable definition allows for the inclusion of diverse business types across various market structures.
Small businesses are essential contributors to local, regional, and national economic growth and prosperity. They account for roughly half of America’s private workforce and significantly impact local economies. Notably, about 68% of revenue from local businesses stays within the community, compared to only 43% from non-local entities. This underscores small businesses’ crucial role in job creation and economic stability, particularly in local settings.
For small businesses to thrive, local economic development organizations and partners must implement coordinated strategies to strengthen the small business ecosystem. The Local Initiative Support Corporation (LISC) defines a small business ecosystem as “a set of conditions and supports that all entrepreneurs need to thrive – to launch and expand their businesses, and to sustain them in the face of impediments to growth and economic shocks.”
However, what are some important componets of a healthy ecosystem? The following sections will explore 4 essential actions required to create and sustain a robust small business ecosystem, offering insights into how these support structures can be developed and maintained.
1. Facilitate Incubation
Business incubators, whose roots trace back to the 1950s, began with the purpose of providing low-cost office space and support services for small businesses. While their overall goals have not changed substantially, their day-to-day operations have. Now, the efforts are more strategic and are centered around mentoring/coaching, providing networking opportunities, and access to capital and emerging research. To effectively execute a business incubation process, it is important that the ecosystems not only have ample resources to support the creation, management, and expansion of small businesses but also that the existing resources have designated entities responsible for the strategic coordination of these resources.
The Boston Consulting Group (BCG) completed a report in 2023 commissioned by the Georgia Tech Foundation to identify limitations of the resources available to aspiring entrepreneurs in Atlanta, GA. The report found that Atlanta contained a multitude of resources. Those resources include business assistance grants, loan funds, tax incentives, venture capital funds, and site selection services. Also, the ecosystem featured collaborative spaces to facilitate interaction among entrepreneurs and resource hubs focused on providing coaching, education, and accelerator programs. Though Atlanta boasted a variety of support services, systems were lacking to connect these pillars, inhibiting cohesive and comprehensive programming for the entrepreneurial community. At TPMA, we excel at building webs of relationships for our clients to leverage opportunities and address oncoming challenges.
In response to this report, Atlanta launched a consortium of local universities called ACES. This organization is designed to help the city define and track metrics to measure support for the local tech and small business ecosystem. It is also responsible for supporting the entrepreneurial ecosystem with grant funding, focusing on inclusivity.
2. Cultivate Entrepreneurship
Through our practice, TPMA has found that the most successful EDOs adopt both a vertical and horizontal approach to nurture a healthy ecosystem. Understanding and grooming an upward mobility pathway for seasoned entrepreneurs and their firms is critical to achieving regional impact and scale. Conversely, EDOs are key in cultivating aspiring entrepreneurs from all backgrounds and business sectors with equal access to resources, programs, and networks. We have found that strong ecosystems must be cultivated intentionally, but they should also remain nimble to ensure resources can be adapted to complement the evolving needs of budding entrepreneurs. High-performing EDOs emphasize inclusivity as they groom a healthy ecosystem to elevate the economic well-being of individuals from underrepresented communities. Furthermore, clever EDOs manage a diversity of perspectives through alternative forms of engagement that can drive innovation and an enriched quality of life for the community at large. Engagement might include soliciting participation from immigrant organizations and historically Black Colleges and Universities (HBCUs).
Austin, Texas, recently completed a needs assessment to help the city’s small businesses rebound from the COVID pandemic. The assessment indicated the city should develop strategies to help companies that closed due to the pandemic. Suggested strategies include engagement to strengthen community connections through social media and regular digital town hall meetings as the pandemic waned face-to-face mixers. These strategies have been successful in promoting optimism for the future once the pandemic passed. Furthermore, five high-priority industries were identified, including music, arts, restaurants and food services, travel and tourism, and green businesses.
To create more pathways for residents to access the entrepreneurial ecosystem, Austin developed several programs:
- BizAid Business Organizations: A free online class introducing new entrepreneurs to local resources. This program also provides free one-on-one coaching and technical assistance to help entrepreneurs carry out their business plans.
- Austin Economic Development Corporation: A local development corporation that is a direct public response to decreased affordability in the Austin MSA. AEDC blends public and private deals to create equitable development opportunities for all through affordable leases and redevelopment.
- Small and Minority Business Resource Department (SMBR): SMBR promotes access to city contracts and economic opportunities for small, minority-owned, women-owned, and disadvantaged businesses through certification, compliance, and resource provision.
One important aspect of the abovementioned cultivation efforts is that they implement inclusive programs to create equitable growth. An organization, the Lansing Economic Area Partnership’s One and All initiative, received the IEDC Gold Award for Economic Equity and Inclusion in 2021. Key hallmarks of this program include seed funding for program participants, comprehensive training focused on business and entrepreneurship skills over eight weeks, addressing systemic barriers that have blocked individuals from pursuing entrepreneurial activities through education and capital investment, and long-term community engagement to maintain a strong business network. Economic development organizations seeking to grow highly capable entrepreneurs should strive to model programs like this to deliver equitable development outcomes.
3. Leverage Economic Gardening
A substantial proportion of economic development work focuses on business attraction. The logic goes that bringing in companies, specifically larger companies, that can provide residents with quality, high-paying jobs will generate economic stimulus and support families. While this is an important component of impactful economic development strategies, business attraction efforts can be costly and time-consuming and may compete with local businesses, driving them out of the competition. Business attraction efforts should be considered when the opportunity is ripe; however, other solutions that grow existing businesses from within a community, such as economic gardening, should also be considered.
Economic Gardening is an innovative approach to economic development that focuses on nurturing existing local businesses rather than recruiting new businesses from elsewhere. This strategy recognizes that local companies are often the most significant job creators in a community and allows small businesses to connect with the intent of resource sharing, knowledge sharing, and business-to-business mentoring. This strategy can also save communities money by withholding the distribution of subsidies, relocation incentives, and tax breaks.
To execute an effective economic gardening effort, local economic development organizations should have a strong connection to community assets and resources such as training opportunities, capital investment, business intelligence, and data analytics to help local businesses grow. According to the National Center for Economic Gardening, these efforts are best applied to stage 2 companies that have superseded the start-up phase and are focused on business growth. Companies in this phase typically reflect growing customer bases, between $1-$50 million in revenue, and most importantly, challenges and obstacles that accompany growing companies, such as the need for subject matter specialists, consistent service delivery, goal alignment, and more.
4. Coordinate Small Business Networks
Several Small Businesses Network programs, such as Main Street America and Service Corps for Retired Executives (SCORE), focus on facilitating transformative connections among local businesses. Main Street America published recent accomplishments from 2023.
Main Street America is a nonprofit organization focused on revitalizing commercial districts and downtowns to help small businesses thrive. The organization helps communities build small business networks by providing educational tools for entrepreneurs, distributes grant funding to under-resourced businesses and communities, and, more importantly, shares emerging trends and best practices through business insights.
SCORE is another nonprofit that focuses on supporting the development of small business ecosystems. Through volunteer business mentors’ support, SCORE provides mentorship programs for start-up businesses, resource libraries, and educational workshops and facilitates local events and networking opportunities. Like other organizations, many of SCORE’s events deliver educational training focused on marketing, business strategies, increasing sales, etc., but contain an added layer of facilitated networking to promote stronger business collaboration and support.
The Build from Within Alliance (BFWIA) is a national network of community economic development organizations. Network affiliates employ four distinct pillars to grow local entrepreneurship: training, technical assistance, financing, and real estate development. Currently, the network has sixteen members working in fifty neighborhoods across the country. It holds an annual conference and receives funding from several local and national foundations.
Conclusion
Fostering a robust small business ecosystem requires a multifaceted approach integrating various support structures and strategies. Key elements include facilitating business incubation, managing entrepreneur cultivation, leveraging economic gardening, and coordinating small business networks. Cities have demonstrated the importance of assessing local needs and implementing targeted programs to support entrepreneurs from diverse backgrounds. At the same time, organizations like Main Street America, SCORE, and BFWIA provide resources, mentorship, and networking opportunities.
The success of a small business ecosystem hinges on the strategic coordination of available resources and the creation of inclusive engagement opportunities. By focusing on increasing income rather than just reducing expenses and by identifying markets with growth potential, communities can nurture their existing businesses and create sustainable economic growth. As the small business landscape continues to evolve, local governments, nonprofit organizations, and business leaders need to collaborate in developing and maintaining support systems that enable entrepreneurs to thrive in the face of challenges and capitalize on new opportunities.
Through its vast experience working with numerous local Economic Development Organizations (EDOs), TPMA has mined and refined best practices across a diverse set of small business ecosystems. We are constantly maturing our approaches to data gathering and analysis, community engagement, strategy development, evaluation protocols, and organizational capacity building. For more information, please contact Brett Wiler here.
- Lead authors: Ben Helkowski, Consultant and Miguel Garcia, Consultant
- Supporting authors: Brett Wiler, Senior Director of Economic Development & Strategic Planning and Kaycee Bunch, Senior Consultant