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Micro-businesses in the Shadow of CrisisHow Can Non-traditional Entrepreneurs Contribute to Boston’s Economy?
Alvaro Lima, Director of Research, BRANortheastern University, January 2010
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WHY SUPPORT MICRO-BUSINESSES?
If micro-businesses do not
accelerate entrepreneurship grow create employment spark economic development
MANY REASONS:
they provide an important strategy for self-employment;they are a vital entry point in the economy for immigrants and low income populations;they are crucial for the maintenance of existing physical infrastructure;they create “social capital” in communities that need to build “strong ties,” particularly among immigrant communities;they supply needed goods and services to all the neighborhoods of Boston ;their job creation capacity is not insignificant, particularly for certain segments of the population (immigrants, low-income populations, youngsters; etc….)
Let’s start with the questions posed by some researchers:
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Micro-businesses in Boston employ 20,165 people out of a total of 546,046…or about 3.7% of all jobs.
Boston's Employment by Firm Size for Industry Sectors
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Professional, BusinessServices and Information
F.I.R.E. Health care and socialassistance
Leisure and Hospitality Educational services Wholesale Trade andTransportation
Retail trade Utilities and Construction Manufacturing Other
1 to 4
5 to 9
10 to 19Employees
20-49Employees
50 to 99 Employees
100 or MoreEmployees
129,653 115,576 105,059 28,48631,79852,534 14,009 25,27315,90927,751
Source: U.S. County Business Patterns, 2002, BRA Research Division Analysis
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Boston’s Total Employment by Employment-Size Class (1-4 Employees)
Source: U.S. County Business Patterns, 2002, BRA Research Division Analysis
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Micro-businesses in Boston make up 9,206 of 18,583 establishments…or about 49.5% of all establishments.
Boston's Establishments by Firm Size for Industry Sectors
0%
20%
40%
60%
80%
100%
Professional, BusinessServices andInformation
F.I.R.E. Health care and socialassistance
Leisure and Hospitality Educational services Wholesale Trade andTransportation
Retail trade Utilities andConstruction
Manufacturing Other
1 to 4 Employees
5 to 9Employees
10 to 19Employees
20-49Employees
50 to 99
100 or More
4,936 2,482 1,619 1,0583032,221 2,5723887392,265
Source: U.S. County Business Patterns, 2002, BRA Research Division Analysis
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Number of Establishments by Employment-Size Class (1-4 Employees)
Source: U.S. County Business Patterns, 2002, BRA Research Division Analysis
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Types of “businesses” with 1-4 employees:
Communications Computer Dealers, Repair & Training Construction & Demolition Business Consultants Convenience Stores Copying & Duplicating Services Cosmetics & Perfumes Retail Credit & Debit Counseling Dance Companies & Instructions Data Processing Services Day Care Centers Dentists Delivery Services Designers Driving Instruction Economic Research Analysis Educational Consultants Electric Contractors Employee Benefits & Compensation Plans Employment Agencies & Opportunities
Entertainers Events Executive SearchExercise & Physical Fitness Exporters Manufacturers Facilities Management Fashion Designers Financial Advisory Services Floor Laying Refinishing & Resurfacing Florists Food Markets Lawyers Fruits, Vegetables & Produce Fuel Management Fund Raising Counselors Funeral Homes Garbage Collection General Contractors AND THE LIST GOES ON……
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What is the problem with the actual research on micro-businesses?
Their conclusions and policy implications are drawn from data and not from theory or practice…
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ENTERPRISE DEVELOPMENT
BENEFITS• Independence• Limited liability
(easy to exit)• Ability to gain
more than wage
CHALLENGES/ LIMITATIONS
• Volatility/high failure rate
• Limitations to profit
• Limited capacity
BENEFITS• Improved stability• Higher profit• Improved customer
reach
CHALLENGES/ LIMITATIONS
• Increased competitive threat
• More difficult to exit
• Higher managerial involvement needs
• Limited capacity
BENEFITS• Lower failure rate• Steady profit• Further customer
reach• Scale economies
CHALLENGES/ LIMITATIONS
• Management delegation
• Attracting skilled managers
• Growing IT/ computer needs
Domestic & Wage Labor
Self-employed
SmallEmployer
GrowthBusiness
ENABLERS• Build reputation
and steady client base
• More capital - fixed costs
• Get licenses/ permits
ENABLERS• Expand client
base• Expand org.
structure• Get mgmt.
training• Get loans
variable costs fixed coststechnical skills managerial skillsincome target return on capital
entry points
?
?
ENABLERS• Easy to start
– easy to reach customers
– little skill training
– low capital requirements
• Fast breakeven
?
progression
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ENTERPRISE DEVELOPMENTExamples
TRANSPORTATION
BEAUTY/GROOMING
CLEANING SERVICES
EATING PLACES
RETAIL
• Taxi/Limo driver• Delivery (food,
other)
• Manicurist• Hair Stylist
• Janitor• Cleaning person or
House cleaner• Maid/hospitality
• Cook• Waiter• Caterer
• Cashier• Salesperson• Stock manager
• Taxi/Limo driver• Delivery (food,
other)
• Leased seat in hair salon
• House calls
• Solo operator (janitor, cleaning person)
• Solo franchise
• Take-out stand• Burrito cart
• Door-to-door sales• Third-party
marketing franchise
• 1-3 limos• Multiple (leased)
medallions• 1-3 delivery cars
• Nail Salon• Beauty Salon
• Local contractor• Dry-cleaning
storefront• Small cleaning
business
• Restaurant (with eat-in, take-out, delivery)
• Small catering service
• Small franchise• Small store• Third-party mktg.
• Multiple cars (3+)• Multiple services
(delivery services, or limo services)
• Chain of nail/beauty salons
• Multiple services
• Regional contractors (commercial, residential)
• Multiple services
• Multiple restaurants
• Multiple services (catering, delivery)
• Food services
• Retail chain
GrowthBusiness
SmallEmployer
Self-Employed
Wage Labor (Employee)
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SUCCESSFUL INNER-CITY ENTERPRISESExamples
FIELD
Transportation
Cleaning
Eating Places/ Restaurants/ Catering
BUSINESS
Your Limo Services(Rita McGlaughlin - since 1993)
Majestic Cleaning(Sheila Martinez - since 1994)
Bob the Chef’s(Darryl Settles - since 1989)
SUCCESS DRIVERS
• Niche focus - transportation for the elderly and the handicapped
• Focused marketing• Personal skills - dedication,
persistence, previous business experience
• Niche focus - residential cleaning for young professional families
• Marketing - “environmentally friendly products”
• Personal skills - hard work, dedication, persistence, professionalism
• Image - “trendy locale”• High standards of excellence• Personal skills - dedication,
business vision
SUCCESS MEASURES
• Grew from 2 to 20 vehicles, in 6 years
• Employs 25 people • Acquired 25,000 sq. ft. site
(capacity expansion)
• Grew from 20 to 60 customers in 3 years
• Employs 5 people
• Renowned in Greater Boston
• Grew sales by X% in last 10 years
• Employs 37 people
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SUCCESSFUL INNER-CITY ENTERPRISES GROW SLOWLY Enterprise Stage Duration(1)
(1) from business inception until 1999
Source: ICIC Boston & BCG
1
4
4
3
2
4.5
9
6
8
7
5.5
5
8
0.5
3
0 2 4 6 8 10 12 14
Your Limo
First Choice Limo
Brighton Limo
Primetime Express
Majestic Cleaning
Banshee
Mass Paint & Cleaning
Nartoone Security
Bob the Chef's
City Fresh Foods
Merengue
Tacos El Charro
Years
Tra
ns
po
rta
tio
nB
uil
din
g
Ma
inte
na
nc
eR
es
tau
ran
ts/
Ca
teri
ng
Self-Employed Small Employer Growth Business
??
??
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A better framework to understand “micro-businesses” is to look at the social forms of production:
productionfor income
productionfor direct
use
productionfor profit
Self-employment
(micro-businesses)
Small businesses
Growth businesses
Production for Profit – How do they differ?
Ownership Structure1. Single owner or not incorporated 2. Independently or family owned3. Limited liability & more complex legal structure
Employment & Revenue Size & Capital Structure1. 1-2 people & < 10K & < $100K2. < 500 people & < $20M …3. > 500 people …
Financial Structure & Ability to Leverage1. Simple cash flow & no ability to leverage2. Bank financing3. External financing, investors, VC, investment banks
Management Structure1. Hands-on worker & control everything2. Management across all functions3. Professional management, board, investors
Skill Sets1. Finding & servicing customers2. Detailed understanding of industry3. Financial and organizational skills
Employment Size & Structure
Technology, Production & Markets1. Low to no technology2. Single technology, production & markets3. Multiple products, technology & markets
Success 1. Make enough individual income & control lifestyle2. Salary & Profits & Value of Company3. IPO/share price
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Where do we go from here? “Micro-businesses” are important for job creation, fostering entrepreneurship,
and economic development on their own terms
Research, guided by theory and practice, is needed to better understand how to support “micro-business” in its varying forms so that they can:
they provide an important strategy for self-employment;they are a vital entry point in the economy for immigrants and low income populations;they are crucial for the maintenance of existing physical infrastructure;they create “social capital” in communities that need to build “strong ties,” particularly among immigrant communities;they supply needed goods and services to all the neighborhoods of Boston ;their job creation capacity is not insignificant, particularly for certain segments of the population (immigrants, low-income populations, youngsters; etc….)