Young companies create virtually all net job growth in the United States, including replacing jobs lost. That’s why cities and other local governments should prioritize entrepreneurship in their recovery from the COVID-19 pandemic.
The challenge for entrepreneurship, however, is not just the pandemic. The United States had long been in a “startup slump” before COVID-19 – with new business creation having fallen overall to its lowest rate in more than 40 years. Then COVID-19 piled on: with an estimated 3.2 million businesses shutting down at one point. Certain demographics got hit far worse, with 41% of Black-owned businesses and 32% of Hispanic-owned businesses shut down at the peak of the crisis (compared to 22% overall). Although businesses are bouncing back, what’s clear is that certain populations are far more vulnerable than others.
While many leaders talk about reopening businesses, recovery won’t be that simple. Many closed businesses – up to 60% by one estimate – have closed permanently.
The good news is that the United States has a deep-rooted entrepreneurial and small business culture on which to build. The lone entrepreneur in a garage or basement might be an iconic figure. But we must pivot from that solitary notion of entrepreneurship to one in which entrepreneurship is a community-wide priority.
In building an environment that supports entrepreneurship, government officials can draw on available free tools. For instance, Right to Start, the national campaign I lead, has recently published a “Field Guide for Policymakers.” It provides steps that governments at all levels can take to remove the barriers in the way of entrepreneurship. That includes nine steps for the federal government, nine for states, and five for local jurisdictions. The five local ones, each of which is described in greater detail in the “Field Guide” and accompanied by extensive links to additional materials, are the following:
- Zero barriers to start. Eliminate all registration costs and licensing fees to cut red tape for new businesses at the start and in their early years. Reconsider licensing requirements as well. Over the past 60 years, the percent of the workforce subject to licensing requirements has risen from 4-5% to over 25%, as the economy shifted from manufacturing to services. Yet less than 25% of business license services in mid-sized cities are available online. Easing regulations is an important starting point. Small barriers can feel like huge barriers for our most vulnerable entrepreneurs.
- Access to contracts. Dedicate a pilot percentage of 5% of government procurement dollars to businesses under $3 million in revenues, especially those in their first 5 years and in the most underserved populations. Research suggests that many government procurement practices hinder new businesses. They should advance entrepreneurship instead. Cities can create procurement scorecards that track the age of businesses and the demographics of their owners, to ensure contracts are flowing equitably.
- Spur local financial innovation. Create Entrepreneurial Capital Catalyst Grants to invest in starting and restarting businesses underserved by the capital marketplace. Over 4 out of 5 entrepreneurs don’t access venture capital or banking, so they need alternative capital mechanisms. The Right to Start “Field Guide” offers numerous models, including those tackling financial gaps for Black-owned businesses and other underserved segments.
- Drive local learning. Redirect 5% of workforce training and economic development funding into helping Americans start businesses through local and online entrepreneurial support organizations. Traditional economic development incentives do not lead to desired jobs and growth. They are often focused on attracting larger companies, rather than growing new businesses. Local and state models have demonstrated success in workforce training for entrepreneurs. New economic development practices for building entrepreneurial ecosystems are available from Startup Champions Network, SourceLink, and the Kauffman Foundation Ecosystem Building Playbook.
- Easy access. Strengthen local libraries as hubs of knowledge and digital tools for entrepreneurs.
These are policy steps that all local policymakers can and should take. But those who move fastest will set the pace and help regrow our economy and spur job growth.
American innovation can overcome COVID-19. But leadership should start in our cities and other local jurisdictions. The “Field Guide” lays out the steps for policymakers. It’s time for America to start looking forward. Local policymakers can lead the way.