home-based businesses

The Value of Home-Based Businesses to Economic Recovery

The challenge of America’s economic recovery, in the wake of the COVID-19 pandemic, is to spread it to every community – and especially those that have been historically excluded. The key to meeting that challenge is to appreciate the civic and economic value of an overlooked resource: home-based businesses.

There are about 16 million home-based businesses in the United States – about half (52%) of the  31.7 million small businesses – and they play a crucial role in employment in America. About a quarter of employer firms (24%) are home-based, and new businesses, most of which start at home, create virtually all net job growth in America.

There are home-based businesses in rural towns and big cities. There are home-based businesses that are full-time and bursting out of every room in the house, and others that are part-time to bring in extra income or pursue a passion. They each add to our communities and are essential to a more equitable economic recovery in every town and city.

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Historically, home-based businesses have been overlooked by economic development officials in communities of all sizes. The officials typically focus on attracting and retaining larger companies, which often contemplate relocation in exchange for tax cuts and end up bringing mostly low-wage jobs or only create a few new jobs. Rather than generating a significant number of new jobs, officials compete for the same ones and claim credit for victories that simply move those jobs (or prevent moving them) from one place to another.

It’s time to pursue a different economic strategy. One that is based on consistent economic growth, inclusion and opportunity in any neighborhood, town or city.

Every community can benefit and produce more jobs that grow and stay local for one simple reason: Every community has local talent and people with skills on which to draw.

Home-based businesses won’t generate instant jobs for a ribbon-cutting, but they offer so much more. They spring from local talent and local skills, spend money in the community, increase the diversity of business ownership, and thereby enhance community wealth and equity. They offer distinctive products and can grow to fill downtowns with unique and intriguing storefronts – not the same stores in every mall. And because they are so locally grounded, they have and continue to grow deep roots to help the community thrive long-term.

The result is that every community can benefit and produce more jobs that grow and stay local for one simple reason: Every community has local talent and people with skills on which to draw. What’s needed is to invest in and support home-based businesses – and the ecosystem they need to thrive – to enable them to grow into storefronts and build their revenues locally.

In my work advising communities nationwide, I have found that it’s crucial for community leaders to take five steps:

First, build connections to home-based business owners and between them. Because home-based businesses have been overlooked, they are often not known to the local economic development officials. A great place to find them is at farmers markets and as vendors at local festivals. Those events should increasingly be viewed as pipelines and incubators for business growth. That’s where many home-based businesses test out products and prices. That’s where local officials and property owners can gauge prospects for growth.

Connections between home-based businesses are similarly important. Research shows that business owners benefit from contact with other owners with similar experiences – through both mentorship and close personal relationships – making the business twice as likely to succeed.

Second, offer technical assistance to help home-based businesses grow. Ensure that it’s the kind of assistance needed (product businesses versus service businesses, for instance). Make it convenient and accessible to them. Engage leaders of historically excluded communities to earn business owners’ trust, ensure that the outreach is culturally appropriate, and be sure that the assistance is well-designed to overcome past exclusions (through, for instance, the location of the program or additional financial trainings needed).

Focus special attention on small-scale manufacturers – product businesses that sell online as well as in person. They have more than one source of revenue, which makes them potentially stronger occupants of downtown storefronts, as they do not depend solely on foot traffic and can bring revenues into the community through online sales.

Third, make capital more readily available. According to the Kauffman Foundation, at least 83 percent of entrepreneurs do not access bank loans or venture capital. Almost 65 percent rely on personal and family savings for startup capital, and close to 10 percent carry balances on their personal credit cards. Yet home-based business owners may not have friends and family from whom to borrow. They may be in rental housing and not have collateral. That’s even more likely in communities that have been historically excluded from wealth-building opportunities, as has been the case with historic exclusions of Black households from FHA loans or GI bill benefits.

Civic leaders, especially philanthropies and nonprofit providers, should talk with small business owners to assess their needs and consider creating microgrant and microloan funds to catalyze pivotal business growth. For many home-based businesses, small infusions of capital can make all the difference.

Fourth, make shared retail and production spaces available so that the transition from home-based business to storefront is more accessible and affordable. Many home-based businesses can only take on space gradually. That’s why farmers markets and local festivals featuring product businesses as vendors are so essential to accessible business growth. They let businesses take on only as much space as they need and only for as many days as they can afford, while also testing out product-market fit, marketing, and customer service. Shared storefronts, integration of product businesses in food halls and coworking space for small manufacturers all also respond to this need.

Fifth, communities should promote locally made products. Larger cities often have such programs – like SF Made in San Francisco and Made in Baltimore. Every community and state can help promote local products by giving them social media visibility (echoing a shared hashtag, for instance), encouraging the media to highlight them (telling their stories!), and featuring them at seasonal events (where vendors are local entrepreneurs).

Early visibility can give new businesses an enormous boost that they could not otherwise get. It can broaden their markets in ways that are catalytic.

To extend America’s economic recovery to every community and advance economic equity, we must look homeward. Home-based businesses should become a national priority – cherished for what they already are and supported in becoming what they aspire to be.

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