It is very difficult to track capital for small businesses in any rigorous fashion. The Census Bureau and the Kauffman Foundation partnered to conduct the Annual Survey of Entrepreneurs (ASE), with the first survey covering 2014. Additional surveys covered 2015 and 2016. These surveys provide a nationwide baseline for investment data for small businesses and entrepreneurs, but the data is only available by state and for the fifty largest metropolitan areas.
The most common sources of business financing for young firms are the personal assets of the owner and the owner’s family. The reliances on these sources limits entrepreneurship to the wealthy. Since we do not know which opportunities will create value, it is important to increase the pool of risk capital beyond the small amount that the market provides, which can create opportunities for those without family resources.
Sources of Capital for Startups (less than 2 years old)
Source: Annual Survey of Entrepreneurs, 2014
A small percentage of firms are able to tap resources beyond their personal assets. For startups less than two years only, only 12 percent (120 out of 1,000) are able to access traditional bank financing and seven percent establish a credit account for their business. Five out of 100 firms are able to get a loan or investment from family or friends. State and local governments operate a number of business loan programs, but these are often out of reach for startup businesses where their only collateral is intellectual property. As a result, for firms less than two years old, 17 out of 1,000 access a government guaranteed business loan and only four out of 1,000 businesses are able to access a direct government loan. This leaves a lot of businesses out of the capital markets.
The Small Business Administration (SBA) publishes information on the lending activity they support through their programs. The SBA 7(a) Program provides loans for small businesses of up to $5 million to fund startup costs, buy equipment and more. Here’s what else you can do with 7(a) funds:
- Purchase new land (including construction costs)
- Repair existing capital
- Purchase or expand an existing business
- Refine existing debt
- Purchase machinery, furniture, fixtures, supplies or materials
The Geography of Small Business Finance in Pennsylvania
Using the SBA data, we can dive deeper into what businesses are accessing these loans, where they are located, and what banks are involved. As an example, Fourth Economy created an interactive workbook that presents the SBA 7a loans in the state of Pennsylvania from 2010 through April of 2018. You can explore the maps and data by county.
Earlier this month, Fourth Economy came together with practitioners from various sectors and parts of the country to help St. Louis tackle the issue of economic inequity. We were convened by 100 Resilient Cities – Pioneered by The Rockefeller Foundation, because they have seen so many of the cities in their network identify economic inequity as a key stress. Fourth Economy is a platform partner of the 100 Resilient Cities network, creating tactical recommendations for the planning and implementation of resilience efforts. After two days of intense collaboration, our group of community leaders, Chief Resilience Officers, economic development experts, and other thought leaders developed seven discrete project ideas that St. Louis could implement to impact economic inequity.
Some of our ideas really focused on the basics. One clear take-away is that before we can implement new, innovative solutions, we need to ensure that we are investing in the basics.
- Talk to Each Other – First thing’s first…Developers, city agencies, and community organizations need a forum to discuss how all partners enhance the tools, processes, and partnerships to implement equitable economic development.
- Equitable Economic Development Strategy – St. Louis is about to embark on creating an economic development strategy; making it explicitly about creating an equitable economy will be key.
- Resilient CDCs – Like many of our cities, some of our neighborhoods have strong community-based organizing and development capacity, while others are lacking in investment, or quality investment, in part due to this lack of capacity. We recommended an organization that could promote sharing of resources, developing professional capacity, promoting collaboration, and developing a central pool of funding.
One of those other important basics is data. We all know that what isn’t measured, doesn’t count. So 100 Resilient Cities is working with the CUNY Center for State and Local Governance to help cities in the network develop a set of equity indicators. The equity indicators that St. Louis will be using to measure economic resilience and economic equity include:
- Are residents able to fully participate in the economy?
- Educational attainment: Enrollment in college or vocational training
- Education quality: Dropout rate
- Court reform: Youth adult convictions for nonviolent, nontraffic crimes
- Court reform: Legal representation
- Civic engagement: Digital equity
- Are residents able to access goods and services?
- Health: Pedestrian deaths
- Health: Access to healthy food
- Health: Access to social services
- Are residents able to invest in their own community?
- Financial empowerment: Median credit scores
- Financial empowerment: Home loan denial rates
- Financial empowerment: Business ownership rates
With these indicators in mind, our group developed ideas around both Access and Investment.
Access to Services and Jobs
- Hubs of Growth – In cities that have experienced the degree of population loss that St. Louis has (and that’s a lot of us!), we must foster the development and growth of neighborhood hubs of economic and community activity that will drive growth in their surrounding areas. If connected by transit, these hubs can enhance safe access to healthy food and social services, but also create the density needed to support the growth of local businesses.
- Mobilize – Another common challenge is the mismatch both between where people live and the skills they have, and where and what jobs are available. This idea brings employers and training providers to the neighborhoods to better understand the needs and opportunities of residents, and target services accordingly. Furthermore, micro transit would be used to connect residents to jobs.
Investing in Small Business
- Scale up STL – This program would increase access to capital and supportive services for small businesses that want to scale in targeted neighborhoods. This could include discounted land/space, collateral back stops, regulatory relief, and right-seed lending products.
- Small Business Portal – St. Louis is making investments in its open data portal. But once they have all of their data available, how should it be used? This proposal is to engage small businesses to understand how the data can best be utilized to support their growth.
- Women of STL – St. Louis could use a grass-roots organization run by women that strengthens the social fabric and supports the creation and growth of women-owned businesses. This organization would provide workshops, business incubation to address how to start a business, how to access credit, and technical training, e.g. use of internet resources.
As the City of St. Louis develops its resilience strategy, these ideas will be further developed. If you know of best practices in any of these areas, send them our way so we can help St. Louis create equitable economic development faster!
My circle of friends includes a lot of small business owners. People who own bars, print shops, jewelry businesses, motorcycle shops, yoga studios, food trucks, cideries, dinner clubs, podcasts, and organic farms. And they all have one thing in common.
They do not want to come to your chamber event.
I actually go to a lot of chamber and industry events—and I have benefitted tremendously from attending networking happy hours, gaining mentors and connections. But I’m an economic developer, and I’m used to the small talk, the dress code, and the business card exchange. My friends who are creative, entrepreneurial types are not interested in putting themselves in environments where the main activity is “networking” and the food options range from crudité and ranch to cheese and crackers, (typically without a gluten free or vegan option, excluding celery.) Faced with the choice of running marketing campaigns from their phone while they watch season 4 of Parks and Rec, or interacting with people they don’t know, they’re going to pick yoga pants and the couch over awkward conversations.
They also haven’t heard about your event. Your networking lunch may be posted on your website and Facebook page, but if this target audience is not already interacting with you on social media, then it’s not reaching small business owners outside of your members.
Why is this a problem? Why does the kombucha brewer need to know about and attend Chamber events? Because she represents your next generation of businesses, and if she is not accessing the services offered by your chamber and other aligned organizations, then your economic development ecosystem is failing.
Chambers are vital partners in economic development efforts. They are the access point for businesses in the region, and through their networks, businesses gain access to resources offered by the supportive organizations that can guide them to success, such as financing and mentorship opportunities.
Unfortunately, if a small business owner is looking at your chamber website, seeing a board and staff lacking diversity, holding events at the country club, she will not see your organization as a space where she fits. And when her business encounters a setback, without a network of support, you risk losing her business and all that comes with it—the owner, the employees, and the young people who would potentially be attracted to your community by the enticing things to eat, do, and see. Today, talent is the most important factor in retaining and attracting business, and chambers cannot stand to ignore a subset of small businesses just because they are unconventional or much younger than other members.
Another reason that your “Business After Hours” may not be attracting young people is that networking as an activity has lost its spark. With their purchasing decisions, Millennials have shown that they value authenticity, connection, and community – witness the success of outdoor brand Patagonia, whose products and branding advocate for ecological sustainability – and whose recent Pittsburgh store opening featured designs by a local print shop. With creative engagement with the community, Patagonia attracts young people with common goals and ideals to come together in their space, for events beyond shopping. Trading business cards and small talk does not provide engagement with a community or authentic connections.
Business networking events don’t really make sense to people running small, creative businesses. Talking to a bunch of random people at a business networking event is not an effective solution for growing your business when technologies like LinkedIn and Google exist, making it easy to research specific contacts, understand their expertise, and reach out for a coffee date. Finally, for young business owners, their time outside of work is limited, and they want to spend it having quality experiences.
So, what can you do?
Economic development is a profession built on relationships. Stopping by the new businesses that are cropping up in your community and introducing yourself and your organization goes a long way. You might have to do a little bit of hunting – small businesses operating from their houses won’t have a storefront yet, but could be selling significant amounts of merchandise on Etsy or another online platform.
One way to get in touch with these producers is to keep up with farmers markets and maker fairs in your community. Maker fairs like Handmade Arcade feature hundreds of craft-based artists, makers, and producers; consider reaching out to the fair organizers to get an roster of local vendors whose booths you can visit.
Millennials have been programmed their whole lives. From Little League to dance lessons to student life activities in college, Millennials are really good at engaging in organized fun. Having an activity or event gives participants something to talk about and engage in together, creating an authentic connection. The description of Newaukee, a young professionals group in Milwaukee explains why programming is so essential to creating meaningful networking events for young people:
“…there had to be a way to socialize and explore the city with their peers that did not entail hauling a stack of business cards to a stuffy networking event. And they also believed in building genuine, long-lasting relationships – people need to meet on a common ground, doing something that they truly love together.”
Newaukee hosts incredible events for their members, billed on their website as Signature Experiences, such as Tournavation, a crowd-sourced idea generation platform that focuses on solving important issues that face the city of Milwaukee, and The Launch, a curated networking program featuring an exhibition of hiring companies and potential recruits on a boat.
Social Media Ready
I am not suggesting you join Snapchat, but I am suggesting your event be worthy of posting on social media. Food choices, drink selections and choice of venue contribute to the quality of the event and the attractiveness of images to be shared. It’s not just enough to have a hashtag – consider experiences that young people can engage with and share on social media, such as a custom backdrop, or providing a station to make signs about why they love their community.
Also – make sure your events are being shared with the young people you are trying to engage. Social media is great for this but working with local online communities, such as blogs or message boards, will put your event in front of new eyes. Don’t forget community bulletin boards at coffee shops or bars – if your event flier is posted alongside music and art shows, that’s a good sign.
Don’t Go It Alone
To get maximum turnout from young folks at your events, engage them in the planning process – and in your organization. Start with asking young people to get involved in planning your events – ask for help in where to have them, and how to promote them. As they become more involved, ask them to join your committees or boards, or help them to create their own, Chamber-supported organizations.
For example, the group Connecticut Young Professionals was started in 2013 by a young person who was new to the state and has grown to more than 1,400 people. They hold events such as a non-profit pitch nights. In an interview, founder Faris Virani explains how he tailors events and messaging to his membership:
Growing up in the digital age, millennials are used to getting information very efficiently, delivered quickly and with brevity. Our speakers realize that their job is almost to plant seeds, not necessarily convey all the information during your speech.
Create a Judgement Free Environment
Today’s young entrepreneurs are more likely to wear a hoodie, echoing Facebook founder Mark Zuckerberg, than a French cuff shirt reminiscent of Gordon Gekko. If you expect young people to wear different clothing to your event than what they wear to work every day, you’re doing it wrong. If you’re changing the venue and the programming of events, you might also consider specifying a dress code on your marketing – with friendly wording such as “Come as you are,” or Dress Code: Casual.
Take these suggestions and look at where your Chamber organization or networking program has room for growth. A good first step is to visit that brand new local brewery, coffee shop, or café and introduce yourself the old-fashioned way. Those authentic connections will take you a long way in connecting with the new generation of business owners.
Is it the Retail Apocalypse or simply Retail Restructuring?
There continues to be a great deal of apprehension about the retail sector. In June of 2017, Business Insider tallied more than 5,000 store closures with a projection of nearly 9,000 store closures by the end of 2017. Fourth Economy has mapped more than 1,700 of these closings across the United States. Traditional brick and mortar retail faces a fundamental challenge from shifts in consumer preferences and advances in online shopping and delivery services. The store closings are the physical manifestation of the challenges facing the retail sector, which often can leave significant redevelopment challenges for local community and economic development officials.
Despite the headlines and the hysteria, overall retail has been adding jobs. Job losses occurring over the last year may be a warning sign, but it is too early to tell. Fourth Economy created a dashboard to track three key statistics.
- Overall retail employment
- Jobs gains and losses from opening, expanding, closing and contracting
- Worker separation and hires
At this point, the data on retail employment does not indicate a “Retail Apocalypse.” Over the long run, retail has been very volatile and the impact of the recession created a greater disruption than we are seeing now. What is portrayed in the media reflects a shift within retail. Over the past year there have been significant losses in general merchandise, and five other retail categories. These stores represent many of the traditional brands in brick and mortar stores.
|Sep 2016||Sep 2017||Change|
|General merchandise stores||3,188,600||3,130,700||-57,900|
|Clothing & clothing accessories stores||1,351,800||1,321,100||-30,700|
|Food & beverage stores||3,096,200||3,067,400||-28,800|
|Electronics & appliance stores||530,200||502,100||-28,100|
|Sporting goods, hobby, book, & music stores||618,700||601,200||-17,500|
|Health & personal care stores||1,051,800||1,048,000||-3,800|
Other categories of retail are increasing, with nonstore retailers (Amazon) leading the way. Gains have also occurred in motor vehicle and parts dealers as well as building material and garden supplies. These gains were not enough to offset the losing categories, but it shows that the retail sector should not be painted with a broad brush.
|Sep 2016||Sep 2017||Change|
|Motor vehicle and parts dealers||1,988,600||2,012,900||24,300|
|Building material and garden supply stores||1,279,100||1,296,600||17,500|
|Furniture and home furnishings stores||477,100||484,000||6,900|
|Miscellaneous store retailers||833,200||834,400||1,200|
Even if retail is experiencing some short-term declines that portend larger losses to come, there are other segments of the service sector that are adding significant numbers of jobs. The 156,100 jobs added in food services and drinking places is nearly double the job loss in retail.
|Sep 2016||Sep 2017||Change|
|Food services and drinking places||11,499,000||11,655,100||156,100|
|Personal and laundry services||1,458,500||1,491,700||33,200|
|Amusements, gambling, and recreation||1,616,200||1,635,300||19,100|
|Museums, historical sites, and similar institutions||161,500||168,600||7,100|
|Repair and maintenance||1,288,000||1,292,400||4,400|
|Performing arts and spectator sports||457,500||459,700||2,200|
The dire forecasts are overblown. Consumers are shifting from commodities to experiences and many analysts say that retail’s future is to provide more than merchandise. This is as much about where the service is provided as how it is provided. Neighborhood level (Main Street) retail also appears to be adapting to these trends. People looking for and returning to walkable communities has helped, but so has the ability of “Mom and Pop” stores to differentiate through service and quality rather than low prices. The emphasis on more services, entertainment and food has also helped Main Street retail. Recent data on the performance of small retailers is not available at this time, so it is not possible to fully evaluate these trends but it appears that the dominance of big box and superstore retailers is being challenged on two fronts – online and on Main Street.
The end is near…the year end of course.
Like most of you we’ve been reflecting a little and recognizing what an exciting year it has been. We wanted to share some of our highlights:
We began the year talking about our newly announced partnership with the 100 Resilient Cities Initiative, powered by the Rockefeller Foundation. Our Region’s Business, a Southwestern Pennsylvania new program featured Chelsea and Rich discussing their role as a Platform Partner and what it means for our work and the Pittsburgh region. You can check them out HERE.
Fourth Economy completed a Pay for Success feasibility study for Enviro Social Capital to assess the potential for green infrastructure to be supported by this innovative financing model. The Fourth Economy team developed a financial model for a potential transaction, identified key stakeholders who would need to be engaged, and modeled three scenarios based on our analysis. This work is currently being used by the project team in continued conversations with stakeholders.
Completed the business district analysis and projections for the Homewood business district for Operation Better Block (Pittsburgh, PA).
Also in March, Fourth Economy partnered with Mongalo-Winston Consulting on a public engagement process for the Pittsburgh Land Bank’s Policies and Procedures, which must be completed before the Land Bank can be fully operational. You can read the full report on public feedback here.
Not to let a little weather get in the way of some team fun, we participated in our annual Pirates baseball Opening Day outing to PNC Park. The impressive snow squalls that kept rolling in did not deter us, but may have caused us to think that maybe Spring training would be a better outing next year.
This month we supported the University of Pittsburgh in the launch of the inaugural Life Sciences Week. Our team helped create the website and materials for a variety of presentations. During the week our sector analysis, Life Science Opportunity Analysis was published and provided a base for ongoing conversations in the community.
We hosted our first Agents of Change meetup event for community leaders from a variety of backgrounds to get together in a free form conversation about how we can achieve greater impacts in the region. To join us – sign up here!
Our team was selected to serve as the inaugural One Stop Operator for the Pittsburgh/Allegheny County CareerLink. This new position was created following changes to the federal Workforce Innovation Opportunity Act. This is a big responsibility and an awesome way for us to help advance this critical community network. To date, we’ve worked with the seven partners who provide services through the CareerLink to create a common vision and mission, and to establish goals and related working groups to enhance collaboration and service delivery.
Fourth Economy kicked-off our engagement with the Indianapolis MPO. Since then we’ve engaged hundreds of stakeholders throughout the 9-county region to help the MPO determine how they can best support other regional planning needs, such as economic development, water quality and supply, land use, and housing.
The team completed a strategic planning engagement with Interise. This engagement opened our eyes to the world of small business training programs and how important they are for growth and resilience in our urban centers. Interise licenses their Streetwise ‘MBA” to partners who deliver it through their own locally branded programs. This training provides small business owners with the knowledge know-how, and networks they need to achieve scale. We strongly encourage our economic and community development friends to look into Interise to see how you may partner.
We joined 500 practitioners in New York City for the 100 Resilient Cities – Urban Resilience Summit. Fourth Economy is the only domestic community and economic development platform partner for this the 100 Resilient Cities Initiative.
Fourth Economy completed the market analysis and business plan for University of Pittsburgh’s GRID Institute.
Building on five years of modeling, Fourth Economy released the 2017 Fourth Economy Community Index. The Fourth Economy Community Index highlights counties that are poised to achieve sustainable growth in a 21st-century economy. We examine five areas: Investment, Talent, Sustainability, Place, and Diversity because we know they cultivate better communities and stronger economies. We believe the right metrics identify responsible and resilient growth, and you can read more about the great economic development stories that the data unearthed here.
Chris Ellis contributed to Robert Wood Johnson Foundation’s inaugural volume of a publication series intended to catalyze discussion, engage new partners, and inspire action to build a Culture of Health in America. The book is titled Knowledge to Action: Accelerating Progress in Health, Well-Being, and Equity. The chapter focuses on public, private, and nonprofit partnerships and examines the impact of these partnerships by highlighting Utah’s Pay for Success transaction that expanded access to high-quality preschool services for low-income children.
The Indiana Regional Cities Initiative received a Silver Award for Cross Border Collaboration by the International Economic Development Council. The Fourth Economy team supported the Indiana Economic Development Corporation in the development of this initiative. “Fourth Economy supported our vision with a creative and engaged planning process that allowed us to launch the Regional Cities Initiative on solid footing and achieve quick success.” –Eric Doden former CEO for the Indiana Economic Development Corporation.
Also in September, we recognized a few of our Fourth Economy Community Index Top 10 Communities while we were all participating at the IEDC conference.
Rich Overmoyer, presented at the Talent Infrastructure Summit in Evansville, Indiana. Rich presented a response to the question “Does place matter and why should we invest in it”. The Summit led by the Economic Development Coalition of Southwest Indiana was a rallying point for community leaders to think differently about their community, the recruitment of talent and the risks and opportunities ahead.
And finally, Emily was one of two presenters at a two-day IEDC training course in Frostburg, Maryland entitled, “Economic Development for Local Leaders,” covering strategic thinking, revitalization, and workforce development for a group of about 35 leaders in the western Maryland region.
Completed a market analysis report for Ascender, a hub for Pittsburgh’s starters and builders that provides programming, insight and connectivity. This coworking space is part of a growing movement that we are seeing around the country. For more information on the way that coworking is being discussed see here.
This month we traveled to Gary, IN to kick-off their comprehensive plan. We are super fans of the team in Gary and the innovative approach that they are taking to this process. Read more about it here.
Fourth Economy has been working with Rhode Island’s Polaris Manufacturing Extension Partnership for several years to design and launch the Innovation Center for Design and Manufacturing. As part of that, we helped to develop a Design Readiness Assessment to help manufacturer’s assess their capacity to use design to enhance innovation in their company. This month marked the 50th company who participated in the Design Readiness Assessment process.
Rich and Chris authored an article that was published in Green Building Alliance’s annual publication, Viride. The article is titled Social Change: Refinanced and discussed the potential of impact investing.
Rich spoke at the Inspire Speaker Series event focused on Social Impact and Investing. Fourth Economy is a multi-year sponsor of the Inspire Speaker Series, as it aligns well with our mission to bring together different groups to collaborate on community transformation. You can learn more and sign up HERE.
Fourth Economy hosted a Lunch and Learn with Majestic Lane, Deputy Chief of Neighborhood Empowerment for the City of Pittsburgh to learn about his involvement with PlaceLab and how that will influence “Ethical Redevelopment” in Pittsburgh.
The Franklin County Energy Study was released for public comment. The study provides a data-driven assessment of energy use and production across key sectors of the economy in order to establish a baseline and identify issues and opportunities.
The Lancaster Economic Development Company began its efforts to increase informed decision making in the region with two new reports from the Center for Regional Analysis prepared by Fourth Economy. More than 400 regional leaders were on hand at the annual meeting to test their knowledge of the region and the role played by agriculture and manufacturing.
Fourth Economy and Palo Alto Partners worked together to support Just Harvest and Economic Development South in planning for a fresh foods market in Clairton, a community outside of Pittsburgh. Providing a need and opportunity assessment, market analysis, site and market feasibility study, and business planning, the team identified what it would take to transform the community’s vision for fresh foods into a reality. The report is being used by the community to make strategic decisions as the market comes closer to fruition.
We began working with Lawrenceville Corporation, a local community development organization, on their Community Land Trust (CLT). A CLT is a powerful tool that Lawrenceville Corporation is using to help preserve housing affordability in their neighborhood, and Fourth Economy is helping the CLT assess long-term financial planning options.
Jerry served as a member of the technical assistance team and the National League of Cities Equitable Economic Development Fellows on the Nashville site visit.
Jerry worked with a 14-member technical assistance for the National League of Cities Equitable Economic Development Fellowship to advise Nashville on strategies for affordable housing, economic inclusion and promoting urban manufacturing. Recommendations were delivered to Mayor Megan Barry and city staff on December 8.
Workforce is the underpinning of the three-legged stool of economic development. Without a strong workforce, there is no way to succeed at business attraction or retentionand no way to cultivate entrepreneurs. In economic development circles, the discussion around placemaking often centers on talent attraction. The thinking goes that top talent is attracted to places with high quality of life; businesses thrive on this talent and will expand and relocate to those places where talent flocks. So, in essence, places with a high quality of life are better for business.
A Change in Economic Forces
It used to be that a community’s economic success was dependent on some fixed competitive advantage such as access to natural resources or proclivity to a transportation network for moving goods. A good example is our firm’s hometown, Pittsburgh, located in an area rich in ore and coal to make steel and with access to three major rivers. Manufacturing created the economies of Pittsburgh and many other cities, but today, talent is the number one most important economic force. Sources from across the economic development spectrum tell us this. Nearly all the executives (95.1 percent) surveyed by Area Development in its 28th annual Corporate Survey rated availability of skilled labor as “very important” or “important” in their site selection factors. This factor is now considered more important than highway accessibility and labor costs, and certainly more important than incentives offered. We see this in Pittsburgh too, as companies such as Google and Facebook locating offices in town to be close to the graduates of the University of Pittsburgh and Carnegie Mellon University.
But talent is in short supply. Unemployment rates are falling, which means there are fewer people available for jobs. This is felt particularly hard in tech companies, which report a lack of talented workers with the skills needed for the rapidly evolving industry. Another benefit of attracting and retaining talented workers is that they are engines of innovation, whether from the inside of companies where they spearhead new ideas and spin off new divisions, or through entrepreneurship, forming their own enterprises and creating jobs. Attracting new talent is essential, and the best way to bring in high quality people is to offer a high quality of place.
Beyond the Baseline of Quality Markers
Quality of place means many things. A more traditional definition includes low crime rates, good housing stock, great schools, and local culture and recreation. But the cities and regions that are really pulling ahead in the race for talent understand that the baseline is no longer good enough. Much has been made of the “return to the city” and how millennials and baby boomers prefer a dense, walkable environment where they can live, work and play (to the point where urban planning professionals roll their eyes at the catchphrase). But the proof is in the evidence. Cities that provide living space in multi-use areas connected by transit and surrounded by quality recreation outlets are seeing their attraction of talent skyrocket.
Take Denver for example. The city has bet large on placemaking, from the $1 billion revitalization of the historic downtown Union Station to a new light rail system. These investments, coupled with outdoor amenities and copious sunshine, have contributed to Denver being named by the Brookings Foundation as second in the nation for attracting millennials. But it’s not just large cities that benefit economically from increased quality of life via placemaking. Regions around the U.S. are shifting their focus from business attraction to talent attraction. In Northeast Indiana, the focus of the Northeast Indiana Regional Partnership is to attract new people to the area through improvements in downtowns, greenways and blue ways, arts and cultural assets, and education and industry through the Road to One Million plan (which Fourth Economy had a role in creating.)
Resiliency Means Quality of Place for All
Attracting and retaining talent is an essential component of economic development, but, it’s important to understand that placemaking does not mean only making places comfortable for highly skilled, highly paid employees. A well-designed place delivers quality of life to those at every age and income spectrum. Planning for all members of a population is what makes a place resilient and vibrant.
Providing affordable housing, especially in trendy inner-city neighborhoods, is a tough challenge and one that affects the workforce, especially for essential employees whose wages don’t begin to compare with highly paid tech workers. In places like New York, workers who make under $35,000 are increasingly being pushed out of formerly affordable neighborhoods to outer suburbs. When this happens, the financial and time cost of their commutes rise, cutting into already low wages. While particularly dire for service employees such as retail workers, this also affects teachers and police personnel.
From the placemaking perspective, increasing density leads to more options for housing across the spectrum, ideally situated in in-town neighborhoods that are walkable and served by transit. As the supply of housing increases in these desirable neighborhoods, the price decreases. One tactic to encourage denser development is to allow for “Missing Middle” housing to be developed. Missing Middle housing, a term coined by Opticos Design, is composed of a range of multi-unit or clustered housing types that are compatible in scale to single-family homes. Some examples include duplexes, carriage houses, townhouses, and accessory dwelling units. Allowing this type of development densifies neighborhoods and provides access to housing at a lower price point, without a significant disruption of neighborhood character.
Barriers to Small Scale Affordable Housing
Building Missing Middle housing is typically not undertaken by large developers, and therefore is built by property owners, small real estate developers, and community development corporations and financed by local banks. The margins of profit for Missing Middle housing are smaller so in order for these projects to be financially feasible, there must be a regulatory environment that permits these types of buildings. Most existing zoning codes separate housing types so that multi-family is not intermixed with single family and residential above retail is not allowed. This stunts Missing Middle housing by forcing projects to go through zoning hearings that extend the project timeline and cost to a point where construction is not feasible.
Allowing for small residential infill projects to be built not only provides more options for affordable housing, it allows property owners to benefit from rising housing costs, and alleviates increased property taxes. Of course, to truly provide benefit, increased density needs to be coupled with transit to access jobs and services.
A Connected Workforce
Placemaking is a term that can be misconstrued to simply mean making communities more beautiful. While placemaking tactics such as downtown development, street scaping, and encouraging traditionally affordable housing types does improve a community’s aesthetics, if done properly, placemaking can unlock significant economic value. Connected, vibrant communities with a multitude of housing and transportation options return the best value to inhabitants, creating places that workers are attached to and invested in.
Over the past decade, co-working has grown from a niche offering to having a significant impact in terms of the commercial real estate market — and providing a new alternatives tailored for remote and independent workers and small teams.
This summer, Fourth Economy was engaged to create a market assessment for the co-working market here in Pittsburgh. As a part of that effort, we reviewed a volume of existing secondary research that answered questions similar to the ones that we were looking to answer in Pittsburgh: what is the market capacity for co-working? Who is the co-working market? And, as we’ll address in this blog post, how is “co-working” defined?
What is co-working?
The Oxford Dictionaries define co-working as “the use of an office or other working environment by people who are self-employed or working for different employers, typically so as to share equipment, ideas and knowledge.” The general definition was reiterated in the reports we read the most closely *. But this definition doesn’t help narrow down on what the boundaries of co-working are, ranging from a desk one can rent for a few hours to a serviced office space one can rent for a team of 15 workers. Reading them more closely, these reports tended to define co-working, and view the co-working market, through either a real estate-centric or a workforce-centric lens, depending on the benefits or targets of co-working they focused on.
Deloitte’s report defines co-working as a “membership-based workspace with a monthly fee giving access to a desk, office space, Wi-Fi, and other amenities.” The real estate-centric definitions focused more more on the short-term lease and flexible membership benefits of co-working, rather than its community-based or knowledge-sharing aspects. In this framing, co-working is usually lumped in with professional serviced office spaces like those of Regus or WeWork; the different work styles of serviced offices and co-working (specifically, the social difference between working in an open space close to other co-workers, as opposed to in a small rented office with shared amenities) are not emphasized.
This is also reflected in the types of co-working spaces many of the reports we read measure: because their focus is on the commercial real estate implications of co-working — both for the entrepreneurs or remote workers who are co-working tenants and for the co-working operators (like WeWork or Regus) — these reports tended not to measure locally-run co-working spaces.
The workforce-based definitions were centered around the culture of these spaces. This approach highlights the types of worker (e.g. self-employed, entrepreneurial, etc.) as well as the collaborative and innovative elements of the space. For instance, in their “The Work Shop” report, CBRE describes co-working as “the best elements of a coffee shop (social, energetic, creative) and the best elements of a workspace (productive, functional)” combined to give workers the opportunity for an affordable, shared space. This definition explains a general value proposition for co-working — but elides how that value proposition differs across teams of different sizes and across the different types of spaces (from rentable private offices to shared desks) that may create a more or less collaborative co-working environment.
Given these different lenses through which to view the co-working market, how did we categorize the Pittsburgh market for our own study? We categorized it two ways: through identifying three main types of co-working spaces we observed in our market, and through identifying the different needs and motivations of co-working clients, from single clients through 8-person teams.
Three kinds of co-working
In the absence of one specific way to define what co-working includes and doesn’t include, we focused our analysis on workspaces that allow for short-term, flexible lease terms with shared amenities (like kitchenettes and meeting rooms).
We segmented the Pittsburgh market into three rough categories, “Professional Co-Working,” “Community Co-working,” and short-term offices. Professional co-working spaces generally feel more corporate, may have more expensive furniture and finishes, may offer additional amenities like a front-desk receptionist, and are offered at higher monthly rents to reflect those factors.
Community co-working spaces are community-driven spaces with a neighborhood orientation that offer flex and fixed desk workspace at a lower price point than professional co-working spaces. They are similar to professional co-working spaces in that they offer a membership model (often with month-to-month leases) but differ from professional co-working spaces in, corresponding to their lower price point, they may not have professional operations or staffing (like a front desk), the finishes and furniture may be less expensive, and the technology and building operating systems (for example, for teleconferencing or climate control) may be more basic. The trade-off is the emphasis on relationships and community that community co-working spaces offer — as one proprietor told us, co-workers first come to their co-working space because of the space’s proximity to where they live — but stay for the community and connections. Community co-working spaces also differ from the other types of spaces in that they often have a specific community focus, like social entrepreneurship.
Finally, short-term offices range from serviced offices, executive suites, business centers, or other lease-negotiated and based-agreement that may encompass some flexible or open space. Short-term offices differ from either professional co-working or community co-working in that they are specifically offices for small teams, as opposed to flex or fixed desks, and because of their lease-based, rather than membership-based, business model.
Cultural benefits — and costs — of co-working
For the smallest companies, beyond the financial benefits, co-working represents a low-barrier opportunity to participate in a professional culture. For slightly larger companies, the larger culture of the co-working space offers the possibility to either benefit or disrupt the internal culture of the company, depending on how well-matched the two are. Teams of above eight or ten people already have a profound enough sense of cohesion and internal culture that the benefit of being in a co-working space no longer satisfies that need—and a mismatch between the expectations of smaller and larger companies (as contributors to the overall culture of the co-working space) can be a challenge.
The importance of definitions
Reviewing the existing set of definitions for co-working, and creating a framework for understanding the study for our own analysis, was critical to being able to paint a picture of this exciting emerging market for our clients that was as specific and actionable as possible — and helped give them, and us, some new language and tools for understanding how they fit into the market.
Want to talk to us more about co-working and other entrepreneurial supports in your community? We’d love to hear about the impact of co-working where you are. Email us at email@example.com.
*Including Newmark Grubb Knight Frank’s October 2016 report, “Scale of Disruption: The Sharing Economy’s Effect on U.S. Commercial Real Estate,” JLL’s “Shared Workspaces” report, NGKF’s report “WeLease: The Growth of Shared Workspace and Its Impact on the New York City Market,” Deloitte’s report “The London Business Footprint: The Growth of Serviced Offices,”Cushman & Wakefield’s 2015 report “Continuing the Evolution of Flexible Working,” and CBRE’s 2016 report “U.S. Shared Workplaces” and “Work Shop” reports
One of the best things about our work is the opportunity to travel and work alongside interesting and inspiring people. Back in 2015, one of those people was Eric Shields, who was working with the Indiana Economic Development Corporation. While we collaborated on the Indiana Regional Cities Initiative, we started discussing the many ways that state and local decisions can influence quality of place, a key driver for economic success and a guiding principle for the program.
A few weeks ago Shields published a thoughtful consideration of public-sector roles and responsibilities in neighborhood change, in which he stresses that the role of subsidies, their intended and unintended consequences, ways to agree on objectives and measure success, and accountability and transparency must all be grappled with before they are used to preserve housing affordability for homeowners in Indiana.
Shields shared these thoughts in response to a proposal from Indiana State Representative Cherrish Pryor to provide property tax breaks to homeowners to balance reinvestment and affordability concerns.
Key questions for the public sector
The article, called Strong Neighborhoods Are Vital to Economic Success, poses important questions to the public sector. How can state and local government best balance market forces and residents? When are state or local governments best-suited to intervene? Should property owners be required to return subsidies when they sell their homes? What other factors, such as the type of development, contribute to displacement?
The evidence reveals unseen drivers of displacement
This last question is one that I would like to focus on. Shields rightly points out that if subsidies are provided to homeowners, but new development does not include a mix of housing options, then “displacement is inevitable over the long term.”
A key question, then, is what drives resident displacement? From there, both state and local interventions can be developed. Property tax abatement programs are based on the accurate assessment that property tax increases are a burden on existing residents, especially lower-income residents. Based on what we know about residential displacement, some other drivers to target could be:
1. Lower-income renter churn. In addition to longtime homeowners, renters are of course a community of concern with regard to displacement. One primary driver of renter displacement is beyond price increases and stems from a deeper housing stability pattern: lower-income renters tend to move more often than middle- and higher-income renters for a variety of reasons.
The problem for lower-income renters arises when, at this “normal” churn rate, they struggle to find another unit to move into within the same neighborhood. Therefore, programs designed to keep renters in their homes may miss the mark because lower-income renters face pressures beyond affordability that cause them to move around. Instead, programs that aim to preserve the number of units available at an appropriate price point within the same neighborhood, and perhaps marketed to neighborhood residents first, could help address this issue.
2. Changing business types. Displacement is caused not only by cost pressures, but also by neighborhood changes that alienate existing residents, called cultural displacement. Cultural displacement can happen in places experiencing racial and ethnic demographic changes, but can also happen in ethnically homogenous areas. The common thread defining cultural displacement is that the businesses that arise in changing neighborhoods to not feel welcoming or relatable to existing residents.
A classic form of cultural displacement occurs when a main street is suddenly awash in hip coffee shops, artsy boutiques, and quirky restaurants. Even if existing residents can afford to shop in these places, they are unlikely to see them as neighborhood-serving businesses. The policy question here lies in what kinds of businesses receive tax abatements, zoning variances, or other incentives, and how a City balances business attraction and retention strategies.
3. Crime rate changes. A recent study of decades of household moving and city crime rate patterns revealed that high-income and college-educated households are more likely to move to central city neighborhoods when those neighborhoods experience a three-year reduction in violent crime, while lower-income households and those without college degrees do not demonstrate the same phenomenon.
Because high-income and college-educated households are more willing move to lower-income and majority minority neighborhoods following a reduction in crime, these households would drive displacement even at normal household turnover rates because they would gradually make up a larger portion of demand for housing in the area. The result would be a neighborhood that has changed in its makeup, but not necessarily due to affordability challenges (although these can certainly happen at the same time). The policy implication here is to target displacement interventions to central city neighborhoods when they approach three years in crime rate reductions.
Neighborhood change and displacement are complex issues that deserve both an evidence-based approach to policy and an ability to implement new programs quickly. While examining the evidence is crucial, displacement is happening always and everywhere, and attempting to keep people in their homes and neighborhoods should always come first.
Fourth Economy congratulates the Indiana Economic Development Corporation for their Excellence in Economic Development Award from the International Economic Development Council on September 19th, 2017. The Indiana Economic Development Corporation won the award for the state’s efforts related to quality of life investments designed to support the retention and attraction of talent through the Indiana Regional Cities Initiative.
“Fourth Economy supported our vision with a creative and engaged planning process that allowed us to launch the Regional Cities Initiative on solid footing and achieve quick success.” –Eric Doden former CEO for the Indiana Economic Development Corporation.
In two short years since implementation, the Indiana Economic Development Corporation has approved $80.6 million in state funding for 41 projects, with a total of $903.0 million investment leveraged, which is a 10.2-to-1 ratio. Over 60% of the committed funds are coming from private sector investments with the balance coming from local resources.
“We are very proud to have been a part of the initiative that is fostering regional collaboration, cross-sector partnerships, bold planning, and quality of place investments for businesses and communities in Indiana.” –Rich Overmoyer CEO of Fourth Economy
Mr. Overmoyer went on to add, “These investments made in a region’s core city and in surrounding communities through an investment portfolio approach is demonstrating a new model of civic collaboration and direct focus on economic growth and prosperity.”
The Indiana Regional Cities Initiative, overseen by the Indiana Economic Development Corporation, sets a framework for communities to come together to develop long-term visions and actionable plans. The Initiative is a Silver Award recipient for the Regionalism & Cross-Border Collaboration, Population Greater Than 500,000 category. The Indiana Regional Cities program was originally passed with bipartisan support in 2015 by the Indiana General Assembly.
Fourth Economy cites the Indiana Regional Cities development process as being a critical experience for the firm as they work in communities throughout the country seeking to create a new model for quality of place investment.
Resilience is a word that you may be hearing more of lately. While it has its roots in environmentalism, the Rockefeller Foundation’s 100 Resilient Cities initiative defines resilience, in particular for cities, as…
“The capacity of cities to function, so that the people living and working in cities – particularly the poor and vulnerable – survive and thrive no matter what stresses or shocks they encounter.”
After attending the 100 Resilient Cities Urban Resilience Summit, among the 100 cities across the globe who are developing resilience strategies, one theme is clear: while they are confident in their ability to help their cities respond to natural shocks (such as floods) and stresses (such as antiquated infrastructure), they are less confident in how to create a resilient community and economic development system. With complex stresses such as economic inequality plaguing so many cities and the threat of shocks such as automation-driven industry collapse, the task of creating a resilient community and economic development system is not an easy one.
It may help to start with a clearer picture of what a resilient community and economic development system looks like. According to 100 Resilient Cities, there are 12 goals that articulate what a resilient city looks like. Six of these relate to community and economic development:
- Minimal human vulnerability Indicated by the extent to which everyone’s basic needs are met.
For community and economic development practitioners, this means access to affordable housing, food, and resources, such as energy and water.
- Diverse livelihoods and employment Facilitated by access to finance, ability to accrue savings, skills training, business support, and social welfare.
More than just a job, this requires a holistic approach to individual wealth building.
- Collective identity and community support Observed as active community engagement, strong social networks, and social integration.
We can always be doing more to embed this goal into our various planning and outreach processes.
- Sustainable economy Observed as sound financial management, diverse revenue streams, the ability to attract business investment, adequate investment, and emergency funds.
This is the heart of economic development; but doing it through a resilience framework means that we are considering a city and its private sector’s ability to respond emergencies – natural, economic, and social.
- Effective leadership and management Involving government, business, and civil society, and indicated by trusted individuals; multi-stakeholder consultation; and evidence-based decision-making. The more we can build cross-sector collaboration, the stronger our leadership and the more resilient our cities are.
- Integrated development planning Indicated by the presence of a city vision; an integrated development strategy; and plans that are regularly reviewed and updated by cross-departmental working groups.
As more cities are looking to address community and economic development challenges, it becomes increasingly critical to ensure that land use and development planning processes are informed by and addressing those challenges.
While resilience professionals are trying to understand how to address community and economic development shocks and stresses through their work, we could benefit from doing our work in a way that also creates a more resilient community. We need to find a way to work together. At Fourth Economy, we think there are two important first steps.
First, we need to rethink the most basic analysis that informs our work. Instead of a SWOT, we propose a new framework that includes analysis of Shocks, Stresses, Assets and Capacity (S2AC). This process will prepare communities to identify the issues that matter most and build a resilience agenda for their communities that is based on their ability to take action.
Second, our worlds still speak different languages. To effectively engage the private sector and economic development professionals, we need to build the business case for resilience. For instance, in Pittsburgh, climate change and extreme weather is one of our primary potential shocks, and economic and racial inequity is one of our primary stresses. By making the case for addressing those shocks and stresses in terms of lost GDP, decreased tax base, and inability to attract investment, we can start to break down silos and build new partnerships.
This is uncharted territory and no one has the answers. But we’re excited to figure them out. Want to join us? Let’s talk.