From revitalizing commercial corridors to providing access to jobs, supporting underserved small businesses can change the trajectory for struggling neighborhoods.
Why some small businesses are underserved
NEInsight Following the need
When NEI formed in 2007, it was committed to finding ways to infuse an economy that was overly reliant on the auto industry. At that time, NEI was focused on high-growth and innovation – on preparing, attracting and retaining talent and creating the conditions for it to prosper.
As NEI resourced high-tech, innovation, workforce development, and startups, and worked to attract venture capital to the region, its leaders began to realize that one of the most neglected parts of the region’s ecosystem was underserved small businesses. If NEI truly was to be inclusive, it needed to better support small businesses, which typically have more founders who are women and people of color. It also understood the reinforcing loop between small business and big business.
“You can attract talent and start new businesses that are the next Google, but if the people coming here to work don’t have a restaurant to go to or a place to shop for groceries or service their dry cleaning, you’re only clapping with one hand,” says Pam Lewis, NEI director.
Today, NEI is committed to inclusive entrepreneurship and economic development through the growth of small businesses owned by underserved entrepreneurs in underserved communities.
Creating wealth, opportunity and better quality of life in underserved communities
What happens when a city focuses on small business support in underserved communities?
- Accessible jobs for residents are created
- Needed products and services are available nearby
- Commercial corridors and surrounding neighborhoods are invigorated
- Personal and community wealth building opportunities are made available to all
- Economic disparities decrease and conditions change to create more inclusive communities
An underserved community is a historically neglected community that has failed to receive the same economic opportunities as their preferential counterparts. Because of systemic neglect, racism and structural barriers, underserved communities typically have more residents with low incomes, more women and more people of color.
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NEInsight Neglected Neighborhoods vs. Popular High-Growth Areas: What does it mean to invest in an underserved small business?
Quincy Jones, executive director of Osborn Neighborhood Alliance in Detroit, shared what it means to invest in small businesses in underserved communities in NEI’s 2016 Impact Report. In his essay, Jones lifted up several distinct ways NEI invested in underserved businesses with its neighborhood approach:
Focus on the neighborhoods and informal economies: “Prior to NEI, it was very hard for small-scale, local business owners to navigate various local and regional bureaucracies. For the most part, funders overlooked smaller, neighborhood-based organizations in favor of bigger, more established ones.”
Jones also shared that “entrepreneurs in the informal economy, which accounts for a high portion of business activity in many neighborhoods, often lacked skills such as accounting or marketing needed to move into the formal economy and grow — despite having in-demand products and a stable customer base.”
“Through the NEIdeas challenge, NEI [provided] grants to dozens of small, women- and BIPOC-owned businesses to help them make their businesses shine.”
Bring people together to talk about common challenges and ideas: NEI brought on-the-ground insight from business owners and members of the community to a common table. Jones believed this was critical: “[In this way] NEI is helping organizations like mine to put the systems in place to help entrepreneurs in neighborhoods across Detroit scale their businesses.”
Share the mic: Giving a voice to those working in the most underserved communities, noted Jones, builds trust and confidence that any NEI-like effort will be of the people, of the ones who have worked hard in challenging circumstances over time, as well as of the newer entrepreneurs and industries.
Small Businesses as the Backbone of Urban Job Creation
In 2016, JP Morgan Chase and ICIC shared a report about the big impacts of investing in small businesses. Five cities were studied, including Detroit, and the report concluded that “city leaders should support the growth of small businesses with the same resources and intentionality as they do with the attraction and retention of large businesses.”
The evidence, as JP Morgan Chase and ICIC shared, was that small businesses created more jobs in the cities overall, and more jobs in distressed or underserved areas: “A modest increase in the number of employees hired by existing small businesses (1–3 employees per business) could create enough employment opportunities for ALL currently unemployed inner city residents.”
In 2019, JP Morgan Chase and ICIC updated and expanded their research to reflect findings from 10 cities, further highlighting the critical importance of investing in small businesses as a driving force of job creation and economic growth overall, and particularly in underserved areas.
Common barriers to underserved small businesses
Higher insurance costs
NEInsight Pickles vs. Tea: An illustration of how resources can impact a business’s trajectory
NEI realized that despite the best efforts and intentions of economic development efforts to promote entrepreneurship, some businesses needed additional resources and support to take flight. Some entrepreneurs didn’t have the financial backing of family, the lived experience of running a business, or the cultural acceptance of taking on a risky endeavor. That’s why a white-owned family pickle business with the social and financial capital resources to scale up quickly can’t be compared to a Black-owned tea company that transformed a family recipe into a national sensation lacking those resources.
McClure’s Pickles and Ellis Island Tea are both family-owned businesses that started with family recipes, and both are successful; however, without NEI’s prioritization of underserved businesses, the scales of success would have been unduly tipped toward the entrepreneur who faced fewer structural and racially inequitable barriers.
Joe McClure’s parents gave him and his brothers $50,000 to launch their pickle business. Nailah Ellis’s mother gave her a stern lecture on dropping out of college to start a business. Both business owners are intelligent, innovative people who now have extremely successful businesses. But Ellis, initially, couldn’t get funding from anyone. She moved forward by winning business plan competitions; she had more hurdles to cross than McClure, and NEI’s support helped to equalize the business landscape.
In summary, every small business owner needs different supports along their nonlinear journeys; but some entrepreneurs need brighter lit on-ramps, accessible technical support, and lower barriers to obtaining capital.
NEInsight NEI’s impact on supporting underserved small businesses in Detroit
NEI began including existing small businesses across Detroit into its funding mix when it noticed that, in addition to startups, neighborhood businesses that had endured through the city’s toughest years also needed capital infusions. With this acknowledgement, NEIdeas was born in 2014. Originally conceived as a $10,000 a week loan challenge to local startups, it morphed into a much more impactful and community-engaged philanthropic program.
NEIdeas was in and of the neighborhoods, bringing “ambassadors” to the door of neighborhood businesses that had never heard of NEI. The program met a need in the community for underserved small business owners who lacked access to capital to move to the next level. It also provided them with wraparound support from NEI-funded business support organizations that were already working across the city.
Persons of color owned
Both women and persons of color owned
In its first year, NEI awarded two $100,000 checks and 20 plus $10,000 checks to businesses from Detroit, Hamtramck, and Highland Park (all cities with poverty rates over 40 percent) that were at least three years old. Of the first 30 winners, 73 percent were persons of color owned, 60 percent were women owned, and 50 percent were both women and persons of color owned. When the program wrapped in 2018, it had infused $2.16 million into 144 businesses.
DIVE DEEPER: Read about how NEIdeas became a catalyst for small business revival in Detroit, Hamtramck and Highland Park.