When the son of a corporate executive or the daughter of a doctor decides to partner with a software engineer to launch a new business in Manhattan or San Francisco, they are technically urban entrepreneurs. They fund their startup with a patient and forgiving seed investment from family and friends. They use the family network to find a good lawyer to file a patent application. They talk to a Wall Street banker about growth plans.
Yet, these are not the entrepreneurs that we, at the Center for Urban Entrepreneurship and Economic Development (CUEED), work with everyday. Instead of “tech bros,” with family wealth and long histories of business ownership, we work with first generation entrepreneurs to grow revenue, create jobs and have urban economic development impact.
To date, we have worked with over 300 urban entrepreneurs (70% minority and 62% women) who are often resource constrained. Our definition of urban is more expansive than race and gender, however. It also encompasses location too – densely populated, racially concentrated, high poverty neighborhoods in New Jersey cities and across the nation that tap into a certain consumer market. We describe people who live in or do business in under served communities as urban entrepreneurs.
I am an urban entrepreneur. In my 20’s I started my business with great vision and enthusiasm to develop real estate in urban under served neighborhoods in Chicago. Like typical small business owners, I saved just enough money to use as seed capital to launch my small business. I believed that I had good product and endeavored to give good customer service. I worked smart yet did not shy away from the hard work required. Indeed, I put in long hours with the dream that my small business would grow into a big business – maybe, one day, even become listed as one of the public companies traded on the New York Stock Exchange.
The ethos of American entrepreneurship requires people to be “all in” – unequivocally. My commitment was not lukewarm and I see today’s urban entrepreneurs toiling, strategizing and worrying about their small business seven days a week just as I did. Early on they may make a little money, but often these owners have to reinvest most of it back into their business. I still remember the December afternoon when I sat down after a few years of running my business, and did some sobering math. I calculated the number of hours that I had toiled and divided that number into what I was actually able to take home as compensation and I was astounded by the reality of the calculation: I was making less than $10.00 per hour!
It seems that the day after urban entrepreneurs do that same math, they seek out capacity building programs like the ones that CUEED offers — in order to make sense of it all. They come see us to recalibrate and to put their business onto a different trajectory that will be more profitable. Our programs provide education and information with the goal of helping entrepreneurs to build sustainable and growing businesses.
It’s imperative that entrepreneurs learn how to work on their businesses, not just in them. The following describes the three primary ways that we help urban entrepreneurs to make that pivot.
Strategic Plan
When urban entrepreneurs actually create an implementable written strategic plan, and reexamine their business purpose and goals, they increase the chances of survival and success. So often, we find that urban entrepreneurs (just like me) started their businesses with the idea of addressing a need in their community. We want to hire promising young people and provide jobs to formerly incarcerated individuals, renovate blighted inner-city property and make the world better in general. Urban entrepreneurs are visible community leaders. They become local leaders and politically important people who are invited to attend the Chamber of Commerce meetings during the day and sit on the zoning board at night.
I now always advise urban business owners to focus on being profitable, first. We encourage them to recognize and stop unprofitable activities. Sometimes we coach people to pivot to a new business strategy by offering different products or services. We tell people to focus on high margin customers and drop some who are too demanding.
The entrepreneur sometimes feels guilty about slowing down and taking the time to come up with pragmatic business solutions. But it is so necessary that the entrepreneur find the time and space to think critically—and break away from the on-the-run trial and error process.
Financial Counseling
Urban entrepreneurs often complain about the shortage of available business financing. Even with the U.S. Small Business Administration publicizing its backing of small business loans and scrappy Community Development Financial Institutions (CDFIs) aggressively offering flexible debt, the lack of “access to capital” remains a common refrain of the urban entrepreneur.
Urban entrepreneurs often go down a variety of financial avenues to start and grow their businesses. Some take on credit card debt and borrow money at high interest rates from hard money lenders. Others get short term loans from family and friends and feel miserable when they cannot make timely repayment. Many face the challenge of having poor financial systems and controls that hinder good cash flow management which in turn prevents them from obtaining conventional financing with lower interest rates.
Personal and business financial counseling sounds rudimentary, but it is essential. I remember naively wanting the banker to just look at my growing business revenues, receivables and projections. Clearly, even the most sympathetic lenders cannot provide business financing when the entrepreneur’s personal credit scores are low. Personal credit scores of small business owners are a critical factor in obtaining small business loans.
So the first step to addressing the capital access problem is understanding how to mend and improve one’s personal credit rating. Financial counseling includes assistance with preparing a financial plan that specifies capital needs and takes into account different types of financing. CUEED’s programs include bringing partners to the table to work with the entrepreneurs and to help them apply for financing.
Peer Mentors
Entrepreneurship can be lonely. Few people really understand how tough it is to create a product, keep customers satisfied and manage all of the nuances of a growing venture.
As an urban entrepreneur I often felt the need for an extra layer of privacy given the difficult environment in which we operate. And I wanted to shield my family from the matters that caused me sleepless nights (i.e. collecting receivables, managing vendor relationships and making payroll).
Entrepreneurs really benefit from peer networking, mentorship and friendship. During our programs the entrepreneurs are given the opportunity to converse and share during breaks. They respect the sound advice of other entrepreneurs who are battling the same issues related to business growth.
It is not surprising to find that they also find ways to do business with each other and barter services from time to time. It has been fascinating to observe semi-formal alumni associations emerge after the formal training program has ended. These groups provide a space where entrepreneurs can come together to share ideas, thoughts, know-how, contacts, and other resources. From this, important relationships are often formed that at times in the future may be helpful, even critical, to a business owner moving their venture to a greater level of success.
Helping urban entrepreneurs to survive and grow is gratifying and, we believe, impactful work. Indeed, we are starting to initiate research efforts to learn more about the connection between urban entrepreneurship and economic development. Our hypothesis is that when there are more urban entrepreneurs profitably operating in inner city neighborhoods, there will be direct and indirect socioeconomic impacts (i.e., less unemployment, crime reduction, property appreciation and other public and private investment). Urban entrepreneurs’ success is important to the American economy on many levels.
