Understanding Small Businesses

We have reviewed scholarly work about the relation between small businesses and their communities. We focused on three broad themes to have a strong grasp about our research topic and develop our knowledge. Three themes we covered are about;

• Economic and Social Impact of Small Businesses
• Community Development, Gentrification and Small Businesses
• Minority and Family-Owned Small Businesses

Economic and Social Impact of Small Businesses

Neighborhood Revitalization Zones (NRZs) can be important to cities.  In Connecticut, NRZs were created by state statute in 1995 and apply to the cities that want to utilize the structure of NRZs in accordance with the statute.  While the statute has not changed since its original inception, cities including Hartford, utilize this structure, but need to modernize the development and economic incentivization of NRZs. 

Hartford has thirteen NRZs, each individually run and governed under the Hartford NEXT umbrella organization.  Engagement of the community is crucial not only to the individual NRZs, but inclusive of the neighborhood of small businesses within the NRZ(s).

Neighborhood Revitalization Zones encourage:

• Public Safety
• Businesses
• Anchor investments

These items are to the benefits of long-term residents in neighborhoods undergoing revitalization.

Patterns of Crime, Community Norms and Public Safety Perceptions:

There is inherent evidence that when persons with higher incomes move into a neighborhood the public safety component improves.  Entrepreneurs and small business owners typically, but not always, have higher incomes than the non-business owning residents of the community.  Small business owners do invest in their businesses to draw customers from the neighborhood. 

Not all studies suggest lower crime rates when there is revitalization or investment in a neighborhood. Neighborhood crime rates suggest equity income distribution has a racial component which may lead to increased crime rates.  Potential investments in neighborhoods are not a factor in lowering crime rates, but targeted alleviation of poverty may do more to reduce crime rates. 

Analysis of neighborhood change needs to take the data from public safety with input observations from residents’ perceptions of public safety.  Municipal leaders need to incorporate public policy solutions in revitalization of neighborhoods with appropriately targeted investments unique to each neighborhood.

Small Businesses and Displacement:

Many studies focus on the displacement of individuals.  Small businesses are affected due to rising rents, changing customers, various changes in the neighborhood and regulatory requirements for business operations.  Changes in building rents vs. building ownership contribute to the economics of small business.  Access to credit based upon race can be challenging.  Changes in customer base can affect small businesses when more upscale businesses move in and the customers from outside the neighborhood can reduce overall small business neighborhood customer base. 

Municipal governments can develop programs, technical assistance and funding that are equitable across the community.  In cities where change is in process, the most at-risk group is immigrants due to increases in rent and loss of immigrant customer base. Many municipalities engage in large-scale projects at the neighborhood level, there are both negative and positive? connotations to this approach.  The positive of large-scale investments can provide long-term residents with access to services and sites that are important to them.  The negative effect of large-scale investments can lead to displacement of long-term residents through increased rents and lack of affordable housing. 

If investments are targeted for small businesses instead of large-scale investment of the neighborhood (i.e., small business grants), there can be a positive outcome for the small businesses and residents of a neighborhood. 

Small business and economic investment include:

1. Communities with strong entrepreneurial cultures and small business sectors experience better economic outputs than those without.
2. Small businesses reinvest their profits locally and are more economically and socially engaged than larger non-local businesses.
3. Small businesses create nodes for employment, informal social networks, and small business networks.
4. Small businesses account for job growth at the community level.
5. Relationships between unemployment and crime rate at the neighborhood level could be due to the concentration of social and economic disadvantages within resident populations.
6. Small businesses may improve access to healthcare
7. Social capital – small businesses have a social capital effect. The building of the network infrastructure between network relationships creates strong ties between individuals, businesses, and community at large.
8. Civic Engagement and Social cohesion – a positive correlation between the local retail and the number of associations and groups a person participated in.

Conclusion:

Each neighborhood, community, or locality needs to conduct its own analysis on the effects of new investments.  Each is unique but the displacement of individuals and businesses is not unique unto itself, but early discussions with long-term residents and small businesses is necessary to mitigate the issues and help communities to engage and grow. 

Community Development, Gentrification and Small Businesses

One of the subjects we focused on is the relationship between community development and small businesses. Community is a sense of place situated in a given geographic area. It’s also a social unit with commonalities such as norms, religions, cultures, and identities. In the community, people can help each other in need, have the feeling of belonging and a sense of relatedness, and share an emotional connection (McMillan and Chavis, 1986.) Customer loyalty is also very common in the community. For example, Hispanic people in the neighborhood are more willing to visit the stores run by Hispanics.

According to United Nations, community development is “a process where community members come together to take collective action and generate solutions to common problems.”(UNTERM, 2014) The community also has a close connection with these small businesses. Community is the place where these dwellers live while small businesses create most of the jobs in the city overall as well as in distressed inner-city communities (ICIC, 2019.) Family businesses employ 62% of the total country’s employment and account for 78% of all new job creation (Astrachan & Shanker, 2003.) The small businesses in the community make huge contributions to the local economy. A modest increase in the number of employees hired by small businesses could create enough employment opportunities for the dwellers in the community (ICIC, 2019.)

Under a broad definition, between 40-60% of the US GDP is generated by family businesses (Melissa, 1996.) According to a report issued by the Small Business Administration (SBA) in 2019, small businesses account for 44% of economic activity in the United States. Small businesses create two-thirds of new jobs and deliver 43.5% of the United States’ gross domestic product (Smith, 2021.)

Within the process of community development, more wealthy residents and businesses on a larger scale may move into the neighborhood. Consequently, gentrification will take place. Gentrification is a social and economic process where individual homeowners and renters and private capital reinvest in fiscally abandoned neighborhoods (Trenessa and Charles, 2016.) Gentrification may play a role in displacement of small businesses which can not keep up with the rising rent prices and property values in the area. Thus, it is critically important to take into consideration of local knowledge and needs of communities while implementing community development projects.

Minority and Family-Owned Small Businesses 

Being a minority is considered not to be a part of the bigger percentage in a territory. Therefore, any ethnic, religious, or linguistic group that takes up less than half of the population in the country. In the US, a minority person can either be an African American, Hispanic, Native American, Asian Pacific, or Asian Indian. A family business is an organization that is influenced by generations of a family, either related by blood, marriage, or even adoption, they can influence how the vision of the business and ability to pursue specific goals. Communities can either be big or small, rural, or urban, residents can prefer energetic places to live, work, and play, places that show growth and a rising quality of life. Having a flourishing economy can happen when businesses expand, new businesses start, and additional businesses are brought in. (Fitzgerald & Muske, 2016)

Based on research, “family businesses are found in all communities and represent a significant component of all parts of the U.S. economy. Depending upon the definition used, family businesses represent 4 to 20 million businesses.” (Fitzgerald & Muske, 2016) When we mention minority family businesses, we think of restaurants, retailing, and garment manufacturing (Carney, 2007). Family-owned businesses carry most “important segment of small and medium-sized enterprises, employing more than 50% of the total U.S workforce with minority-owned SMEs growing in importance.” (Shinnar et al., 2012) Most family businesses consist of minorities, so different cultural views and norms influence their entrepreneurship.

Impact on communities/neighborhoods

Minority and family-owned businesses make impacts on their communities and neighborhoods. Minority entrepreneurs have a vital role in economic growth and community development not because they are productive toward the economy but because they extend the opportunity to others by creating jobs. They provide for their community that may not be there otherwise. (Zenbusiness, 2019) They also come up with different ways to bring unique experiences and perspectives to their business since they are from different backgrounds. This allows them to “create new processes and products and can help revitalize stagnating industries.” (Zenbusiness, 2019)

The same thing goes for family-owned businesses, they can also invest in their team to build their skills and talents and invest back into the community that supports them. (David, 2020) When investment is made into local businesses, it goes right back into their community, either by supporting large or small organizations in their neighborhoods and creating partnerships, raising funds and awareness. (David, 2020)

Challenges

Starting a business is never easy, there will certainly be challenges and problems entrepreneurs will have to face. After the COVID-19 pandemic, many businesses suffered; they lost employees, impacted payroll, and interrupted supply chains, especially businesses that are owned by minorities and by families. Asian, Black, and Hispanic-owned businesses have “reported more negative impacts from the pandemic, and fewer options to improve their financial conditions, than their white counterparts.” (Stutts, 2022) Based on findings from the Federal Reserve System’s 2021 SBCS (Small Business Credit Survey), most small business owners reported experiencing financial hardship during the pandemic, but the highest rate was mostly Black-owned firms with 92%, followed by 89% for Asian-Americans-owned firms, 85% for Latino or Hispanic-owned firms, and 79% for white-owned firms. (Perry et al., 2022) It is obvious which racial group got affected more by the pandemic but there is however still a high percentage for other racial groups, especially minorities.

Family businesses may however be affected by the pandemic as well, but they are still faced with quite different challenges such as company culture, setting compensation and benefits, separating business from pleasure, generational problems, and succession planning. (Weltman, 2018) Not only can there be issues with the business itself but when it comes down to mixing family and business there will be other problems to address along the way. It is best to create company values for all employees (related or non-related) and to follow the same standards.

Support system

There are many ways in supporting family and/or minority-owned businesses. When you support these businesses, it can help you build a sense of community, once you do background research on the owners you have a stronger emotional investment in the business. Also, other ways you can support these businesses are by sharing them within your social circle, building a relationship, writing reviews, including them in your daily life, offering mentorship, and resources, investing in them and so much more. (Farmiloe, 2021) Just becoming a regular customer or tagging them in one of your social media posts can contribute to the lifeline of these businesses. There is even assistance from some government-related organizations and agencies, they give pieces of advice, and funds and connect them to lenders so they can plan and start their businesses. For example, the Small Business Administration (SBA), who are committed to supporting the development and growth of minority small-owned business owners and entrepreneurs from unsupported communities or even smaller local organizations.

Conclusion

Family and minority-owned businesses have an important role in today’s economy.  They have an impact on their communities and neighborhoods, they are essential in community development and economic growth. With minority businesses having backgrounds of different cultures, they use it to bring different views and norms that they use to influence their business. Overall, small businesses are the heart of their community and economy.