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The Local Economy Revolution

The Real Power of Small Businesses

See the previous section of The Local Economy Revolution: Everyone is Special ... Really?

Today, some of the challenges local businesses face ... and some of the advantages they bring to your local economy.

A short list of the premises that I have attempted to lay out so far in this book (after you sort through the cars and lemonade and what all) would include:

  • Local economies are ecosystems, and need to be managed as such,
  • Talent rules, and talent is scarce,
  • You can’t sell your way to a better community.
  • Your existing assets equal your best opportunities
  • The stuff you can do that will most effectively strengthen your economic ecosystem isn’t exciting or flashy, but it’s the stuff that will matter most.

We need to take a deep look at how we can enable all of the small business sectors of our ecosystem, from the tech start-ups to the strip mall retailers.

One issue where all of this comes together, and where people who care about economic development needs to substantially refocus our efforts, is on growing our communities’ small business ecosystems.

Like I said earlier, I am not going to tell you that “Small Businesses are Awesome!! They can fix Everything!!” But given that the average business size, across the board, is shrinking fast, and the very nature of working for someone is coming unpinned from the someone we used to work for, we need to take a deep look at how we can enable all of the small business sectors of our ecosystem, from the tech start-ups to the strip mall retailers, to strengthen their capacity and generally work better.

The next few sections will focus on that.

Nope, not that.

“Entrepreneurs will solve everything!! Yay yay yay!!”

If you read books about economic development, or you've heard a few common conference speakers, you might have heard this.

It won’t.

Pretending that we can return to the world of medieval shopsmiths, or Andy Griffith-style small towns, is exactly that: pretending.

We live in a hyper-interconnected, choice-laden, preference-swarming world. If the locally-owned shoe store doesn't carry my (very small) size, I don't have to settle for the brogans my grandma would wear because that’s the only option available. I can go 10 other places in nearby towns, or 5 or 10 online shoe warehouses, to pick exactly the kind of platform wedge with the squared toe that I was looking for.

Pretending that I can or will buy everything I need or want from the local guys makes for a nice happy picture, but it’s not going to be reality.

Pretending that I can or will buy everything I need or want from the local guys makes for a nice happy picture, but it’s not going to be reality.

Retail is the easy example to think about, but that’s true for manufacturers, tech providers, pretty much everyone else. We cannot realistically expect our people to shift all their economic habits to our little village. It don’t work that way anymore.

Given that, though, shifting a significant portion of our economic development efforts to small business feeding and development makes a ton of sense, again for very pragmatic reasons:

Small businesses are growing in number, economic reach and economic impact ... the businesses we're dealing with, more and more, are small.

  • Small businesses are growing in number, economic reach and economic impact. Pragmatically, the businesses we're dealing with, more and more, are small.
  • Small businesses are getting smaller, often micro-smaller. That means that not only are there a whole hell of a lot more of them to deal with, but they're operating with less and less of their own internal capacity. That’s a huge and growing problem, because it raises their risk of imploding. Which is not just about them, but a risk to your community as well.
  • Small businesses, on the whole, are better equipped to pivot -- to change their products, their operations, their sales methods, etc. when changes in technology or consumer tastes or transportation threaten to leave their work in the dust. As economic and technological and everything else change continues to accelerate, small businesses will be able to tack away from the storms, while the big businesses risk swamping in the waves.

Small boat on top of wave. Illustration by Marc Hughes for PlannersWeb

Small businesses are not just mini versions of the big guys. Whether you're dealing with tech startups, doctors’ offices or retailers, they function in ways that are fundamentally different from big operations in the same field. That means that they might not really need what you’ve been offering. That means that they probably most need something else.

Lashing Together

"We businesses need [economic development] organizations. We need them to help every segment of community to succeed. We need the economy to have multiple legs. Economic development should ask: what I can do to help businesses lash up with others?"
-- James E Jardon, II, CEO JHT Incorporated and Medical Curriculum Technologies. Opening Keynote, 2013 Leadership Conference, International Economic Development Council.

Sharing burgers between two boats. Illustration by Marc Hughes for PlannersWebWhen boats lash up, they tie up to each other broadside (long edge of the hull). Usually you do that so that people can move from one boat to another easily, like you might want to do if you're having a party. It’s easier to share the burgers and the wine bottles among your boating friends if your boats are lashed together.

But the other reason you might lash together is to help weather a storm. If your boat is anchored alone, you only have one or two points holding you down, but if you lash to other boats that have also dropped anchors, then you have much better odds of staying out in the deep and not getting blown into shore.

We started this book by talking about a local economy as an ecosystem to be managed, rather than a machine to be unsuccessfully manipulated. And we continued by talking about finding usability -- the idea that your place will have the most value for those who want what it uniquely has to offer. The benefit of an ecosystem, and a place that builds on its usability, is its resilience -- it’s ability to weather the storm because of its connections. So let’s explore how that works.

Small Business Ecosystem

From my point of view, the long-term benefits of growing a robust small business economy are pretty clear:

1.  A small business-based economy is more resilient, on the whole, than one that depends on a single business or a small number or large enterprises. Don't believe me? Let me time travel you to Cleveland in the 1970s … or Las Vegas in 2007, or Detroit in 2008. Or any one of a number of Sunbelt cities today.

2.  A small business-based economy has more ability to adapt to changing markets because it’s easier to change course for a small business than a larger one.

3.  A small business-based economy may arguably provide more opportunities for employment growth than one loaded with large industries. Google “job creation and small business” and you will get Bureau of Labor statistics about job creation trends among large and small businesses. This isn’t a new phenomenon; the story has been the same for a couple of decades.

4.  When some of your small businesses do one day grow into large businesses, you’ll probably find that they are more likely to stay put, and become contributing corporate citizens, than something you cajoled into coming to town with a hefty incentive. That’s not a guarantee, but it does increase your odds.

Important stuff. You would think that growing this sector of the economy would be where we would logically put our effort, rather than leaving it to chance. But so often, we don’t.

Small businesses in most communities face incredibly steep odds to success. Most don't have enough resources -- of any type.

Small businesses in most communities face incredibly steep odds to success. Most don't have enough resources -- of any type. Pick one. Loans are hard to come by, start-up funds are slim, markets untested, staff expensive. Uncertainty runs rampant.

Even successful small businesses face a constant string of trials. How do you manage employees and payroll? How do you keep inventory from drowning you in costs? How do you navigate local government regulatory systems? How do you retire without losing the value you have built up over the years?

The biggest barriers almost always come down to capacity, define that however you like.

When my dad was Vice President of the little paint factory, his duties included the following:

  • Keeping the alcoholic shipping clerk on the job,
  • Purchasing and storing toxic chemicals,
  • Re-working the books when he discovered that my grandfather (the company president) had been skimming profits, and
  • Dragging into the shop on Cleveland February midnights to try to cajole the ancient boiler into functioning for one more day.

Don’t know how to fix a boiler? Don’t know how to keep a troubled employee working?

No small business owner knows how to do it all, or has time and money to get an expert. But they try do it all anyways, the best they can.


So, it comes down to capacity. What can a community do to give its small businesses the best chances to succeed?

When you grow a garden, you don't build the plants out of rocks and plastic. You create the environment where those tiny, threadlike little seedlings have the best chance you can give them of growing into strong and resilient plants. Some plants grow faster than others, some are inherently hardier.  You can't do it for them. Your job is to give them the best chance you can give them to grow.

Next: Interdependence