Online microbusinesses can be an easy economic win for local governments
Karen Mossberger worked on creating economic “empowerment zones” for Detroit’s city government in the mid-1990s, to help aspiring entrepreneurs overcome decades of urban decay by starting their own companies. The results were disappointing, weighed down by several chronic problems: lack of access to capital or suitable physical spaces to set up shop, and lack of local demand in one of the poorest cities in the nation. Too many people concluded it was too risky to quit their day jobs.
Today, and billions of internet connections later, Mossberger sees a world that can sidestep some of those physical and financial limitations. She now studies a source of economic development that many policymakers never see: the tens of millions of microbusinesses that sell online, many without the overhead of a storefront or the pressure of an all-or-nothing bet on their financial futures.
“One rule of economic development is to look for the easy wins,” says Mossberger, now a professor of public affairs at Arizona State University. “Helping more people build microbusinesses is definitely one of them.”
These “ventures” have developed without specific help from policymakers or local governments. Three years ago, GoDaddy started Venture Forward, a multi-year research project, to study the impact ventures have on the U.S. economy. We’ve partnered with social scientists at ASU, including Mossberger, and Caroline Tolbert of the University of Iowa. A key finding: Adding more ventures in a community raises the household median income for everyone, reduces unemployment and leads to greater recovery from economic downturns.
“One rule of economic development is to look for the easy wins. Helping more people build microbusinesses is definitely one of them.”Karen Mossberger, ASU Professor of public affairs
We’ve seen this in the unprecedented moment we’re living through now. According to our recent data on the COVID-19 crisis, ventures have helped communities withstand the impact of shuttered shops and lost jobs.
An emerging formula to help these online ventures both multiply and grow is beginning to take shape among policymakers. “It’s led to a lot of conversations about what they need from us, and how we can create an environment where they can flourish and be a catalyst for new ideas and growth,” says Jenn Daniels, mayor of Gilbert, Arizona, a large suburban town just south of Phoenix.
The programs that make the biggest difference are a departure from the traditional economic development plans focused on tax breaks and other incentives. It turns out that helping ventures succeed is more about providing local mentors, skills training and networking opportunities. The end goal is to create a local culture of “venturing,” where more people feel comfortable trying to turn their good ideas into commercial efforts that can generate revenue and create jobs.
“Ultimately what holds most people back from starting their own ventures is themselves,” says Daniels.
What ventures need
Venture operators need training and a community of coaches, peers and partners to help them get started but also to prosper. Among the most pressing of their needs, according to our surveys, is marketing. These entrepreneurs may be experts at making candles or providing lawn care services, but they often struggle to draw attention to their efforts or make clear what makes their venture special.
Better business training is part of the answer. But while there are lots of programs on how to start an online venture, only 25% of these offer in-depth courses on marketing, says Stacy Cline, GoDaddy’s director of Corporate Social Responsibility who oversees our Empower program that provides support services for would-be entrepreneurs.
Finding talent is another oft-cited problem. The COVID-19 shelter-in-place orders are causing many people to re-think whether they need to live close to work. Creating an entrepreneurial climate could help local communities also attract workers from more expensive urban centers, says Dre Thompson, executive vice president of Startup Tucson, a nonprofit that’s used Venture Forward data to rethink how best to accomplish this goal.
“I’ve talked to hundreds of talented people who say ‘I’m so sick of San Francisco or New York or Austin,” she says. “Many of them have gotten over the hump that they need to live near work, so why not consider a place like Tucson that’s gorgeous, has a really low cost of living and a rich cultural heritage.”
How Tucson is helping ventures
Whether this diaspora of talent happens, Tucson provides a case study for what’s required to build a venture-friendly culture. The city, not far from the Mexican border, has long struggled economically, and nearly a quarter of its residents live in poverty, says Thompson.
In 2017, Startup Tucson and other groups began working with local entrepreneurs, especially early transplants from the tech sector. By early 2020, an “innovation sector” was starting to take shape downtown. Revenues from tech-related companies had grown 90%. Three coworking spaces had opened, and Thompson’s group had raised $25 million in funding to do more.
Then COVID-19 hit, slowing the economy to a crawl. In two months, unemployment rose as much as it had during the three years of the Great Recession of 2008. Especially hard hit were the dozens of farmers, fruit growers and crafts makers who depended on local farmers’ markets and large festivals. Only 13% of these purveyors had a digital presence.
Startup Tucson and other groups quickly developed a website where residents could find and support these businesses. And, after reading about the Venture Forward project, Thompson contacted Mossberger, who spoke to local entrepreneurs about the impact that ventures have on communities. Thompson’s organization then set up a mentoring system where entrepreneurs could get help from ASU professors with expertise in particular aspects of business.
Providing skills to help ventures prosper is only part of the challenge. Perhaps more important is to remove the obstacles that prevent people from starting one in the first place.
One of those obstacles is fear of technology. While it’s become far easier to stand up a website, people who haven’t done it before don’t know that to be true. Similarly, many sites don’t have e-commerce capabilities. So Startup Tucson is working with partners including GoDaddy to create a totally turnkey technology stack, called LockBox. All an entrepreneur will have to do is pick from a few templates to develop the look and functionality of their site.
“We have a lot of people who just don’t think they have the time or the funds to build a modern website,” says Thompson. “So let’s just take that off the table for them.”
Together, Thompson hopes these moves will help Tucson weather the economic storm ahead.
“We want as many people as possible thinking about entrepreneurship and doing entrepreneurship,” says Thompson, of Startup Tucson. “A lot of communities, when they think about economic development, think about attracting an Amazon. To us, that’s kind of like hunting, but what we’re doing is farming.”
Or in Ben Forbes’ case, ranching. He’d built his 4-year-old Forbes Meat Company into a successful one-man show, selling high-grade, locally sourced meats at farmers’ markets and to local restaurants. But when talk of a local lockdown started in late March, he hired a friend to build an e-commerce site. Online sales started on April 1, and quickly soared to 75% more than what he made before.
Since then, he’s hired the son of a customer to wrap meats and clean, and another friend who’d been laid off in the wake of the pandemic. Now, he’s building a full-blown “virtual butcher’s shop,” with a wide selection of cuts to buy. He’s already looking to lease a bigger plant, and if all goes to plan, he’ll need 15 employees a year from now.
“We had a decent business before,” says Forbes. “But we’re definitely going to keep rocking the e-commerce thing.”
Four policy pillars that will encourage online microbusinesses
To support a vibrant part of the economy, focus on access to capital, broadband, benefits and marketing skills
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