Isn’t it better to grow your own small businesses than to work on recruiting outside businesses? We’re taking a look at some research.
Another reader emailed me last week to say they had formed a revitalization group for their town and asked for tips to attract businesses to their town. I don’t have any.
Revitalizing a town is less about what you can attract from outside and more about what you can grow yourself. Experiment, try, fail, learn, try some more, help others try, connect people with resources. Those are the essential skills to revitalizing a town.
Here’s why I have no tips for helping you attract businesses from outside:
- If you can attract them, someone else can attract them away.
- If headquarters and decision-making are elsewhere, that’s where profits are going, too.
- If it’s part of a larger company, local service providers and subcontractors are unlikely to get much business from it.
Better to grow 10 of your own one-person businesses than to recruit a 10-employee branch. It’s not just me making this up. Here’s the established research on this question.
1. Small companies are better for your town than big ones.
Researcher Charles Tolbert of Baylor University found small firms are associated with positive factors like:
- Higher average incomes
- Lower poverty levels
- Lower income inequality
- Better health outcomes such as lower death rates from chronic disease.
There was no such association with large firms.
2. Locally-grown businesses return more money to your community.
Here are 10 studies on that from the AMIBA.
They do new ones each year and all the time on different industries. Keep up with them at the AMIBA site.
3. More small firms means more jobs.
That’s straight from the Harvard Business Review.
“Regional economic growth is highly correlated with the presence of many small, entrepreneurial employers–not a few big ones.”
“Industries with smaller firms and more startups enjoyed faster employment growth than other industries in the same city and than the same industry in other cities.”
“Cities relying on only a few large firms for employment experienced slower subsequent job growth than cities with an abundance of small firms.”
Read a summary of “The Secret to Job Growth: Think Small” in the Harvard Business Review.
4. Focusing on your existing businesses is more productive than recruiting.
That’s research from the Federal Reserve Bank of Kansas City.
“Focusing on the growth of existing small businesses and entrepreneurs can be a more productive and cost-effective strategy than recruitment of new businesses.”
Regions and towns with “more entrepreneurship have a higher gross domestic product.”
“Entrepreneurship helps raise incomes and improve the quality of life of citizens. Research has demonstrated that regions and local economies with strong entrepreneurship bases achieve faster and more sustainable economic growth.”
“Entrepreneurs serve a critical role in the social development of communities, especially in rural areas and the urban core of inner cities. Entrepreneurs are committed to their community’s long-term growth and viability. Local entrepreneurs are likely to remain in their community and be committed to philanthropy and community service.”
The KC Fed believes in this so much, they made a Grow Your Own Guide (PDF) for you to download. Which you should do. Right now.
5. 80% of jobs come from existing businesses.
My friend Vikki Dearing with the Oklahoma Department of Commerce repeated this key stat.
“Business retention and expansion (BR&E) is important economic development work in any community,” Vikki said. “Since at least 80% of all new jobs come from existing businesses, keeping existing businesses strong and growing is key. And, as you note, growing your own is also critical.”
6. The war of “recruit” versus “grow your own” is over. Growing won.
Michael Shuman summed up what he called a 10-year-long debate over recruitment-based versus entrepreneurship-based economic development with this, “We have won the war of ideas.”
Hear more about Shuman’s local-business-first view in this audio interview.
More than enough people are focused on recruiting outside businesses. Your town needs you to think differently. Focus on growing your own businesses.
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Our friend Michael Stumpf of Place Dynamics sent this comment via email:
“Your post this morning was timely. I just published a white paper on retail, which I chose to write because I continually get contacts from communities wanting to attract chain retail. Attraction certainly can be a role for some communities, though more often they will have better luck approaching a business in a nearby town to inquire about opening a second location. More chain stores are closing rather than opening. More independent retailers are opening than are closing. Anyway, the paper is here, and I hope you enjoy.”
If you want to get a better understanding of the enormous shifts in retail, take time to read Michael’s paper.