Mind the Gap: How to Accurately Account for Small Businesses in the Inner City
Policymakers and economic development professionals understand that small businesses are important engines for economic growth. In inner cities, small businesses particularly are important because they create jobs and wealth for populations that may lack many alternative employment opportunities. But small businesses in inner cities are difficult to identify and track, which makes it challenging not only to create effective policies and programs that help small businesses grow, but also to understand the impact of policies on small businesses.
For example, for more than two decades, Massachusetts’s public transit system, the MBTA, ran through two of Boston’s lowest-income neighborhoods, Dorchester and Mattapan, with very few stops. The MBTA has reconfigured the “Fairmont/Indigo” line to include six new and renovated stations along this corridor. Local advocates have argued that the new stations will be a boost to the inner city economy. The Boston and Garfield Foundations engaged ICIC to measure the impact of the transit line changes on businesses within the Fairmont corridor. ICIC teamed up with Northeastern University’s Dukakis Center to conduct a thorough inventory and analysis of the existing businesses.
We found that commonly used databases contained inaccurate and missing information on small businesses in Boston’s inner city. When we compared public and commercial databases, we found that city and state databases did not include 43 percent of the businesses listed on a leading commercial database. Further, a walking inventory of commercial districts along the Fairmont corridor revealed that 30 percent of the businesses in the commercial database no longer existed and 380 “new” businesses were not included.
This data gap has significant consequences for small businesses in the inner city. The “missing” businesses may lose out on potential contracting opportunities with large anchor organizations such as universities, hospitals and corporations. ICIC has worked with numerous anchor organizations on procurement strategies in cities across the U.S. and we have found that identifying small businesses within certain industries is a major challenge.
The many “buy local” consumer campaigns that have sprouted nationally also may be overlooking some small businesses and perhaps those that need it most. If such campaigns cannot find all of the businesses in a city, some small businesses will be unintentionally excluded from their directories and from new customers.
Finally, these businesses may not have the chance to take advantage of local business programs designed to support urban entrepreneurs. From management education to accessing alternative forms of capital, ICIC research finds that these programs are critical to inner city business growth. Given our own experience over the past fifteen years identifying small businesses for our urban business initiatives, Inner City 100, Inner City Capital Connections and as a national partner on the Goldman Sachs 10,000 Small Businesses initiative, we understand the significant challenges associated with this task.
In an effort to develop better inner city business datasets, ICIC has developed a multi-pronged approach or, a “Roadmap for Inner City Business Data Collection”.
- Collect data from public and commercial sources. Firm-level business data can be obtained from a number of public and commercial sources, though the scope and quality of data vary by source. Small business data typically will be included in city, county and state databases. Commercial datasets may also be purchased from InfoUSA, Dun and Bradstreet/Hoovers and the National Establishment Time-Series Database, among other sources.
- Compare the sources to highlight inconsistencies. If it is not possible to compare the complete small business databases for a city, a statistically significant sample may be used to get a sense of the scope of inaccuracies.
- Conduct a website search of companies and update business information. Comparing even basic data between databases and websites can help determine the degree of information discrepancies in a city or community. However, it is important to note that many small businesses may not have active websites. In the Boston study, ICIC found that only 37 percent of the businesses in the sample had active websites.
- Carefully consider surveying the businesses—conventional surveys often are not effective for small business populations. In an ideal world, researchers would survey all existing businesses in the target geography to create an accurate dataset. However, a combination of factors – including limited business data/contact information and cost – may make this impractical. Moreover, the response rate to surveys is usually low. A 50% response rate would be considered extremely high.
- Initiate a walking inventory of businesses, if possible. A visual check to confirm database information is the best way to ensure the accuracy of basic business information. Yet, as with surveys, this can be cost- and labor-intensive.
- Explore the creation of an online interactive directory that pulls data from governmental databases, small business intermediaries and businesses. In addition to public and online databases, local CDCs and Main Street organizations can serve an important role in data collection. Establishing relationships with these organizations can help with efforts to aggregate data and maintain comprehensive records of the local business community.
Moving forward, new databases need to be established that collect timely and accurate information on small businesses to ensure the effectiveness and reach of the programs and initiatives that support urban small businesses. We hope the multi-pronged data collection strategy outlined above will help other organizations collect better inner city firm data across the U.S.
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