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Main Street Entrepreneurs are Economic and Community Pillars

This Policy Digest examines how Main Street entrepreneurs tend to have deep roots in their communities and encounter distinct policy challenges.

Whether it’s called a gazelle or a unicorn, a small business or a family business, a “side hustle” or a startup, it is all entrepreneurship. No matter what term is used, the act of setting out, working for one’s self and creating something new and valuable is key to growth, both for individuals and the economy.

Entrepreneurship is a path to economic security for founders. It also presents opportunities for those who are not entrepreneurs to climb the economic ladder and achieve economic stability through the jobs entrepreneurs create. Replicated hundreds of thousands of times a month, Americans’ entrepreneurial pursuits drive economic growth, create nearly all of the country’s net new jobs, spark competition, and build community cohesion.

Entrepreneurship is also dynamic. Some businesses that start small will grow quickly to employ many people. Some will fail. Others will remain small, following a more gradual growth path. We call the founders of these locally owned small businesses Main Street entrepreneurs.

Main Street entrepreneurs are the owners and founders of companies that are more than five years old and employ fifty or fewer workers. These businesses tend to have deep roots in their communities and encounter distinct policy challenges.

The Power of Main Street

Challenges Facing Main Street Entrepreneurs

  • Main Street entrepreneurs historically rely on small banks to finance their companies. Since the Great Recession, (which disproportionately hurt Main Street businesses) lending by small banks has shrunk dramatically as a portion of the overall loan market. Simultaneously, larger banks lend even less to Main Street entrepreneurs.
  • Marketplace lenders provide another option for Main Street entrepreneurs seeking capital, but the terms of these loans can be difficult to understand, and interest rates can be high. With traditional credit from banks harder to obtain, these alternative paths to financing will continue to be an important part of the funding landscape for entrepreneurs.
  • Main Street entrepreneurs not only provide avenues to economic independence for individuals, but also inject competition and innovation into markets dominated by incumbent firms. But policies that limit competition, such as occupational licensing or some procurement processes, shut out Main Street entrepreneurs and entrench incumbent advantage.
  • Main Street entrepreneurs often have to comply with the same regulations as larger businesses, but have fewer resources and feel the cost of compliance more acutely. Regulatory accumulation compounds this challenge.
Components of the Kauffman Index of Main Street Entrepreneurship

Help Main Street Entrepreneurs Get their Start

  • Mitigate the Risk of Starting a Business
  • Expand Access to Capital
    • About 40 percent of the initial startup capital of newly formed businesses originates from banks. But Main Street entrepreneurs are struggling to get the capital they need from traditional banking sources.
    • Encourage new business funding options, such as debt-based crowdfunding. This allows Main Street entrepreneurs to engage their customers as investors, generate capital from new sources and keep control in the hands of the entrepreneur.

Help Main Street Entrepreneurs Succeed

  • Simplify Regulatory Processes and Remove Barriers
    • A tangled web of regulations and tax requirements, even ones designed to help entrepreneurs, can discourage entrepreneurship. Regularly review existing regulations with the purpose of pruning unnecessary regulations and making compliance as simple as possible.
  • Connect to Local Networks
    • Main Street entrepreneurs can both benefit from relationships with other established firms and institutions as well as provide those same organizations with important services. Bring entrepreneurs together in an environment that catalyzes learning and relationship building.
  • Zone for Main Street
    • Land use restrictions, both in large cities and in small towns, can present an immovable barrier to Main Street entrepreneurs trying to sustain themselves. Local policymakers have the authority to regularly review rules and regulations to facilitate flexible and diverse areas for Main Street entrepreneurs to grow. Cities need to take advantage of these opportunities. Identify policies that entrench incumbent power, and look for opportunities to say “yes” to creative, small businesses.

For More Information

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