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Q&A

GoDaddy and Milken collaborate to highlight the role of microbusinesses in a recovering economy

For the past 20 years, policymakers have relied on the Milken Institute’s Best-Performing Cities Index (BPC) to compare the economic performance and future prospects of metropolitan areas across the U.S. In 2021, with cities around the country looking to revitalize pandemic-battered economies, the team at the Center for Regional Economics (CRE), which produces the index, decided to expand the criteria behind the rankings. While the formula has heavily rewarded the level of growth in high-tech sectors, the CRE team added two new measures — access to broadband and housing affordability — to better reflect the degree to which all residents had access to economic opportunity. 

The impact on this year’s rankings was significant. Cities such as Chicago and Detroit that have few technology companies but plenty of everyday entrepreneurs rose in the rankings. Tech hubs such as San Francisco and San Jose that have high housing costs fell out of the top 25 for the first time in years. 

But the picture was still not complete. The authors knew, for example, that their criteria were not capturing data on the millions of online microbusinesses in the U.S. which GoDaddy’s Venture Forward initiative has been studying since 2018. So earlier this year, the CRE and Venture Forward teams began collaborating on a groundbreaking study on the link between microbusiness activity and overall wage and job growth reflected in the BPC ratings. 

The final report shows a correlation between microbusiness density — defined as the number of microbusinesses per 100 people — and BPC rankings in two-thirds of the 388 metro areas studied.

Venture Forward spoke with Aaron Melaas and Charlotte Kesteven, two of the co-authors of the new study, to get their perspective on the collaboration with Venture Forward and on what the findings mean for policymakers. Here are highlights of the conversation, edited for clarity and length.

VF: Why did you include broadband access and housing affordability as variables in your calculation of the BPC this year?

Aaron Melaas: We were both pretty new at CRE when we got started on the 2021 report, and as we looked at the way the index had been put together in the past, we realized there was a very strong focus on economic growth and development, especially in the tech sector, but not much attention paid to questions of access to economic opportunity. Broadband access is a simple but helpful measure of people’s ability to tap into the high-tech economy. And housing affordability tells you whether people can afford to live in these communities in the first place.

How did those new variables impact the index rankings?

Melaas: The index rankings changed fairly substantially. Some cities that had ranked very, very highly in the past, such as San Francisco and San Jose in California, didn’t rank quite as highly once we tried to account for access to opportunity.

Why did you want to work with the Venture Forward dataset?

Melaas: During the pandemic we started to see very clearly that access to opportunity doesn’t look the same in all metros, and that microbusinesses were potentially a really interesting complement to that work. But microbusiness activity is not necessarily captured in the indicators we use for BPC. It became clear that our approaches dovetailed nicely.

What was your biggest takeaway from doing the study?

Charlotte Kesteven: We knew that microbusinesses are super important in the overall economy, but we imagined the pattern would be similar across the board. But the variation is huge. Some cities have a few really big industries and almost no microbusinesses, and some have the opposite. Some have both.

Did this study reinforce what you found by expanding the BPC criteria to include broadband access and housing affordability?

Kesteven: Yes. We found some geographic variation from one region to another. In the Midwest, for example, cities like Chicago, Cleveland and Detroit that didn’t look very good from a BPC perspective in the past rose in the rankings. Once we began looking at the Venture Forward data, we saw surprisingly high microbusiness activity. The VF data helped us see that yes, there are a lot of good things going on in these places.

So based on the research, what is the single best way for policy makers to boost microbusiness activity?

Melaas: Provide quality broadband access, across the income spectrum. I think before we began working with VF, we tended to view broadband access as not exactly a luxury, but not a necessity. The pandemic made it abundantly clear that broadband is fundamental to succeeding in the 21st century economy.

Our research indicates that it’s not enough to just provide broadband access. Cities also need to provide skills training and education, so people know how to use that broadband to build online microbusinesses.

Melaas: Absolutely. For example, there are tons of skilled workers in places like Chicago and Detroit who no longer have the opportunities they once did in the manufacturing sector. We’re only scratching the surface of people’s potential to build online businesses, by translating their skills for a new purpose.

So it sounds like increasing microbusiness density can help cities, regardless of their current economic profile.

Melaas: One of the real crucial insights is that microbusiness density can complement the kind of high-tech activity that we traditionally look at in BPC. But it can also help cities fill in gaps, to overcome constraints on growth by making them less dependent on their existing dominant industries. For example, adding online microbusinesses can help you reach consumers anywhere in the global market.

Increasing microbusiness density can provide another set of economic opportunities for residents in the present, and potentially safeguard you if there’s a downturn in your core industries.

Is there one city that could really benefit from policies to help microbusinesses?

Melaas: Fresno, California, jumped out to us as a candidate. It scored relatively high on the index, but lower on microbusiness density. It seems that a strong agribusiness economy provided for fairly strong job growth and decent wage growth. But probably because of lower levels of broadband access and potentially because of lower levels of education and a large population of people for whom English is not their first language, people weren’t pursuing microbusiness opportunities.

Do you think there’s more to learn by studying the impacts of microbusinesses?

Melaas: Absolutely. Our work with Venture Forward has led us to ask important new questions about what the economy is going to look like in the future. We hope this is just the beginning of a dialogue with Venture Forward and certainly with policymakers and business leaders to ensure that access to opportunity is as broad and equitable as possible.
  
Kesteven: This project highlighted for me that economic success in a city is not as valuable if it’s not available to everyone that’s there. I think that’s why looking at issues of access to opportunity is so important to us.

Venture Forward and UCLA Anderson Forecast launch new microbusiness index

Venture Forward and UCLA Anderson Forecast launch new microbusiness index

UCLA Anderson Forecast economists Leila Bengali and William Yu, in partnership with Venture Forward by GoDaddy, have created a pioneering index to track the activity of online microbusinesses across multiple dimensions.