Measuring the Strength of Small Business Ecosystems in the Ten Largest Urban Markets

Written by Genevieve O’Mara, ICIC 

City leaders across the U.S. are embracing the role of small businesses in generating vibrant urban economies. Most cities have a number of organizations and initiatives focused on stimulating small business growth. These organizations and initiatives form small business support networks often called ecosystems. But what makes one small business ecosystem stronger or more effective than another?

While many people talk about small business ecosystems, few try to understand their components or measure their strength. In a recent study funded by the JPMorgan Chase Foundation as part of JPMorgan Chase & Co.’s new Small Business Forward initiative, ICIC took a step in that direction by developing a conceptual framework of small business ecosystems and applying it to the nation’s ten largest cities (New York, Los Angeles, Chicago, Houston, Philadelphia, Phoenix, San Antonio, San Diego, Dallas and San Jose), allowing us to make cross-city comparisons. Our framework identifies six key players that are important to the structure and, therefore, the effectiveness of small business ecosystems:

• City government
• Small business development centers (SBDCs)
• Economic development authorities
• Community development organizations (e.g., community development corporations)
• Financial institutions, including micro-lending organizations and CDFIs
• Community colleges and other workforce development organizations

For our study, we interviewed 54 experts representing organizations in these six categories in each of the ten cities for insight into what’s happening, and, more importantly, what’s working in their small business ecosystems. Our conversations unveiled compelling examples of where their cities are getting it right.

City government

Strong leadership by city government is essential to coordinate small business support resources and organizations and to develop a city-wide small business growth strategy. The Bloomberg Administration in New York City was recognized as a leader on this front, streamlining and increasing the effectiveness of small business support across the city. According to the experts we interviewed, the City of Dallas also stands out in its strong intentional effort to coordinate initiatives across public and private organizations. It also has two dedicated departments that concentrate on small business initiatives and business expansion and incentives.

Small business development centers (SBDCs)

SBDCs play a substantive role in providing technical assistance, mentorship and educational programming to startups and established businesses in most cities across the U.S. In San Antonio, the SBDC housed at the University of Texas San Antonio Institute for Economic Development (IED) has an astonishing impact on small businesses.  Last year alone, the IED – in which the largest program is the SBDC – served over 36,000 businesses, trained 23,000 participants, and generated $350 million in new financing for small businesses.

Economic development authorities

Economic development authorities, as part of their mission to drive economic growth, are important leaders in developing small businesses. In Philadelphia, the Philadelphia Industrial Development Corporation (PIDC) was identified by the experts we interviewed as one of the most robust small business support organizations in the city. Known for its direct and efficient delivery of capital to small businesses, PIDC is also especially highly regarded as an important connector to CDFIs, banks, the City, and a number of small business initiatives.

Community development organizations

The key player in a small business ecosystem that is perhaps most knowledgeable about what’s happening with small businesses on the neighborhood level is a city’s community development organizations. Chicago is one city that has a number of CDCs, some of which have entrepreneurial training centers providing technical assistance and consulting support to neighborhood businesses. An example is New Covenant CDC, which primarily serves low-income and underserved minority residents and businesses in Chicago’s Lawndale neighborhood, which is on the west side of Chicago.

Financial institutions

Since one of the greatest obstacles to small business growth is access to capital, financial institutions are an essential part of the ecosystem. The experts we interviewed in San Antonio and Dallas cited Accion Texas, a nonprofit lender headquartered in San Antonio, as a fundamental and wide-reaching resource that provides opportunities for small business owners unable to access capital from traditional sources.

Community colleges

Community colleges play a special role in the ecosystem. Not only do their workforce training programs prepare workers to meet the skill demands of local businesses, they also provide direct support to small businesses themselves. LaGuardia Community College’s programs in New York City exemplify this active participation in driving local small business growth. Its accessible suite of business services includes three different technical assistance programs and an incubator for small design and technology firms.

Together, these six key players within the small business ecosystem help bind the fabric of business support resources in a city. All ecosystems need diverse, complimentary, and coordinated elements in order to thrive and sustain. A small business ecosystem is no different. By understanding the role of these key players and measuring their effectiveness, we can have a more productive dialogue about how cities can improve the health of their small business ecosystems to more effectively drive small business and economic growth.

Read ICIC’s full report, The Missing Link: Clusters, Small Business Growth and Vibrant Urban Economies, released at a July 22nd roundtable discussion hosted by JPMorgan Chase & Co. about the power of small business clusters to promote economic growth and job creation.