Updates

Supporting Underserved Entrepreneurs

July 16, 2015

More than ever, smart economic development is focused on ways to support entrepreneurship and stimulate the kind of job growth that young firms bring to a healthy regional economy. With nearly all of net job creation in the US coming from firms less than five years old, entrepreneurship has rightly become a regional growth priority for Greater Philadelphia.

Many entrepreneurial support efforts have centered upon fostering startups in high-growth, technology-based sectors. But, in a rapidly changing economy offering a shrinking pool of middle-income jobs, we also need to focus on entrepreneurship as a pathway out of poverty.

Supporting more individuals from underserved communities – in particular minority, women, and foreign-born populations – to start locally-serving businesses can help build household wealth and economic self-sufficiency. Research indicates that entrepreneurs are more likely to move into a higher income group than non-entrepreneurs, providing a critical opportunity for low-income individuals caught in the cycle of poverty. At the community level, entrepreneurs create jobs and, for retail and service establishments setting up shop in previously vacant storefronts, they can help revitalize neighborhoods and commercial corridors.

How PHL is faring around entrepreneurship

So how is our region faring with entrepreneurship in general and in underserved communities in particular?

On the whole, Greater Philadelphia continues to lag on key entrepreneurship indicators. The Kauffman Foundation’s 2015 Index of Startup Activity ranks Greater Philadelphia 31st among the US’s 40 largest metros across multiple measures of new business and startup activity.

The good news is that the number of people starting businesses per capita in our region has been gradually rising. In 2014, Greater Philadelphia produced an average of 229 new entrepreneurs per month for every 100,000 adults. Although this ranked us last among the 10 largest US metros and 25th among the 40 largest, it still represented an increase of more than 60 percent over 2009. This was during a period when most other metros saw their rate of new entrepreneurs decline.

RATE OF NEW ENTREPRENEURS IN GREATER PHILADELPHIA (2008-2014)

The region has a similar ranking when looking at startup density, or the number of firms less than one year old that have employees. Last year, Greater Philadelphia had 124 startups per 100,000 people, ranking last among the 10 largest metros and below the US rate of 131 startups per 100,000

Looking at motivations for starting a business, our region has a comparatively high share of new entrepreneurs coming directly out of unemployment – only Atlanta, Miami, and Los Angeles among the 10 largest metros have more. One in four new entrepreneurs in Greater Philadelphia was unemployed immediately before starting their business. Many of these new entrepreneurs can be considered “necessity entrepreneurs,” or individuals who choose to start a business because no better options exist due to lack of jobs or inability to qualify for available jobs.

While necessity entrepreneurs have emerged post-recession across the entire income spectrum, a significant portion come from disadvantaged communities. Greater Philadelphia’s relatively high share of new entrepreneurs who were previously unemployed indicates that at least some of our recent increase in entrepreneurial activity has been driven by a weak regional job market.

Metro-level data breaking down entrepreneurial activity by race and gender are not currently available, but national data points to gaps. Among minority populations, African-Americans have a notably low rate of business starts, representing 9 percent of new entrepreneurs while making up 12 percent of the population. Last year, women made up only 37 percent of new entrepreneurs in the US while comprising 51 percent of the total population.

Foreign-born entrepreneurs help drive growth.

If minorities and women are forming businesses at a lower-than-expected rate given their share of the population, immigrants are on the other end of the entrepreneurial spectrum. Foreign-born entrepreneurs start new businesses at twice the rate of the native-born population. With Philadelphia’s status as a reemerging immigrant gateway, this represents an opportunity to convert the region’s current influx of newcomers into new business activity. The region’s foreign born population has more than doubled since 1970 to 590,000 and is growing at a faster rate than many other large US metros.

Representing 10 percent of Greater Philadelphia’s population, immigrants are responsible for a staggering 96 percent of growth in Main Street businesses – neighborhood retail, services, and hospitality – in the region between 2000 and 2013. The majority of these immigrant-owned businesses are retail and many are commercial corridor-based. The Welcoming Center for New Pennsylvanians estimates that between 50 and 70 percent of businesses in high-traffic corridors in Philadelphia are immigrant-owned.

And they hail from all over the globe, with entrepreneurs from India leading the way with 1,800 of the region’s 13,000 immigrant businesses, followed by Korea, Greece, China, and Vietnam. Beyond helping to breathe new life into commercial corridors, these businesses increase the region’s global connections, setting the stage for more international trade and investment.

Providing the basics – the four C's

Whether starting a new biotech venture or a neighborhood hair salon, all entrepreneurs require the same basics to start a new business. They need the four Cs: connections, capital, capacity, and confidence. Entrepreneurs from underserved communities can face additional barriers when it comes to these basics.

The World Class business growth agenda emphasizes the importance of strengthening entrepreneurial networks in our region – the precious connections that help entrepreneurs find mentors, share tips and support, gain market intelligence, find talent, and reach potential new customer bases. This is critical for new and smaller firms that may start with a narrower range of contacts – and even moreso for entrepreneurs from low-income communities that find themselves geographically or socially isolated. In many regions, economic development investments are increasingly focusing on creative ways to strengthen entrepreneurial networks – an area where, according to at least one leading researcher, our region has room for improvement.

For entrepreneurs from low-income communities, lower levels of personal wealth and poor credit can limit both investment and borrowing options. And throughout immigrant communities, many are not familiar with the American banking system and its norms. While the US Small Business Administration and local financial institutions provide loan products geared toward lower-income small businesses, many fledgling entrepreneurs are not aware of these opportunities and struggle to obtain key financing.

When it comes to capacity, with fewer entrepreneurial role models in their own networks, individuals from underserved communities often lack basic information about how to start and operate a business. To make up for this information and experience deficit, entrepreneurs in underserved communities need access to inexpensive classes on business planning, finance and accounting, marketing, and management. Capacity building for women entrepreneurs in particular can mean family-friendly supports around child care and balancing work and home responsibilities. For immigrant entrepreneurs, support often starts with addressing English language and cultural competencies.

Coordinating supports & elevating entrepreneurship as a viable option

Beyond providing these basics, what else should we be doing to increase entrepreneurship within underserved communities? With dozens of organizations working in some capacity toward this end, area entrepreneurs would benefit from greater coordination and integration of supports. Nonprofit and government agencies currently reach out to minority and immigrant communities in a relatively patchwork fashion with duplicative services and are incentivized to serve as many firms as possible rather than collaborate and cultivate success among a fewer number.

The business training, capital, and real estate assistance that small businesses need are commonly spread across different organizations instead of under one roof. (One example of a smart consolidated services approach is Minneapolis’ Neighborhood Development Center, which was featured in a recent report on supporting immigrant businesses.) The opportunity exists for local governments and philanthropic leaders to drive better alignment of services and outcomes for entrepreneurs.

In Philadelphia, the Nutter administration has placed a greater emphasis on entrepreneurship both overall and within disadvantaged communities by revamping the City’s agency supporting minority-, women- and disabled-owned businesses into the Office of Economic Opportunity, creating a new Office of Immigrant and Multicultural Affairs, and launching StartupPHL. The City, however, has a long way to go to catch up with others’ level of commitment to entrepreneurial supports, with Boston investing five times as much per year in technical assistance ($4.5 million) as Philadelphia ($900,000).

There’s a clear need for investments and policy changes further upstream to encourage more individuals from disadvantaged communities to see entrepreneurship as a viable option. Providing entrepreneurial role models at an early age is crucial for youth in underserved communities who are less likely than kids in higher-income communities to know small business owners among immediate family and friends. The Network for Teaching Entrepreneurship, or NFTE, is in 19 schools throughout the region with programming that introduces students to entrepreneurs and small business skills.

Most federally-funded workforce development programs serving un- and under-employed individuals do not currently count entrepreneurial skill-building toward training requirements, deterring people from starting their own business for fear of losing government benefits. Changing workforce program requirements to allow small business training would help those who could most benefit from charting their own path as an entrepreneur.

Finally, the region’s various media outlets and business and civic organizations together can tell the story of successful minority-, women-, and foreign-born businesses. Entrepreneurial success is contagious – the more people see and hear about it, the more we’ll have in Greater Philadelphia.

Three organizations leading the way

There are dozens of organizations working to support entrepreneurs in underserved communities in our region. Here’s a closer look at three that are leading the way with innovative efforts to boost entrepreneurs’ capacity, connections, capital, and confidence:

WELCOMING CENTER FOR NEW PENNSYLVANIANS

The Welcoming Center for New Pennsylvanians’ entrepreneurial support efforts trace back to 2008 when community tensions between native- and foreign-born populations emerged in Southwest Philadelphia. In response to accusations of favored treatment for immigrant businesses, the Welcoming Center took a close look at what was going on in the community and found that 70 percent of new entrepreneurs in storefronts on local commercial corridors were immigrants, creating an average of 3.8 jobs per business. Sharing these facts on the ground changed what had previously been a contentious conversation and helped reposition immigrant businesses as job creators helping to revitalize vacant properties.

From this early foray, the Welcoming Center has built an impressive entrepreneur support program that has drawn national attention. Its most popular program is English for Entrepreneurs, which helps foreign-born business owners to build their English as well as their cultural competencies. It has also produced a how-to-start-a-business guide in several languages and operates a popular monthly automated phone message system that provides information on classes and workshops.

Recently, the Welcoming Center launched a technology ambassadors program that connects tech-savvy college students with neighborhood businesses to help with basics like websites and payment systems. Importantly, all of these services are available to immigrant and native-born business owners alike, with program usage at 70 percent foreign-born and 30 percent native-born. Alongside its services, the Welcoming Center works to build connections between local business associations and immigrant store owners.

URBAN LEAGUE OF PHILADELPHIA

As part of its mission to create a self-reliant African-American community, the Urban League of Philadelphia operates an entrepreneurship center that provides technical assistance and connections to help small businesses grow.

The Urban League places a particular emphasis on linking African-American businesses to a broader set of networks and resources. It drives referrals to one of the most promising new entrepreneurial support programs in Philadelphia – the Goldman Sachs 10,000 Small Businesses initiative operated by the Community College of Philadelphia. It also connects businesses to the Greater Philadelphia Chamber of Commerce’s CEO Access Network, which pairs emerging minority CEOs with experienced CEOs from large area firms for mentoring and networking. And while it focuses primarily on working with existing firms, the Urban League works closely with small business development centers, or SBDCs, throughout the region to connect fledgling businesses with the startup assistance they need.

As part of its efforts to connect firms with business opportunities, the Urban League recently held an information session about service and retail opportunities around the upcoming Democratic National Convention. Looking to expand upon its experience supporting firms in the highly competitive construction industry, the Urban League is planning a series of “think tanks” later this year to explore both employment and entrepreneurship opportunities within the health care, energy, and transportation sectors.

ENTREPRENEUR WORKS

Entrepreneur Works is one of several local organizations working to increase access to capital for small businesses. The 25-year-old nonprofit provides microloans, business training, and one-on-one guidance to hundreds of businesses each year.

As one of several certified community development financial institutions, or CDFIs, in the region, Entrepreneur Works provides loans ranging from $500 to $50,000 to assist early stage entrepreneurs. It targets businesses in underserved communities that are unable to access capital through mainstream financial institutions and has assisted more than 4,000 entrepreneurs over its history.

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