Communities Need to Make Space for Entrepreneurs

This article is part four in a new in-depth series we’re launching on the economic challenges facing resource-based communities, and strategies that can help build lasting prosperity. Read part three here and part five here.

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Image via Flickr.

As the effects of globalization have worked their way through all aspects of the economy, the way Americans talk about entrepreneurship has changed. Today, we tend to talk about entrepreneurs like we talk about other businesspeople—as persons engaged with commercial activity that take on some level of risk and, if successful, will experience a financial reward.

This vastly discounts entrepreneurs and their important role in building a prosperous community. Entrepreneurs are fundamentally different from someone who owns or operates a business, someone who is more properly understood to be an investor.

Investor: A person that allocates capital with the expectation of future financial return.

Entrepreneur: A person with a crazy idea who does not know they can fail.

First and foremost, entrepreneurs have an idea, passion, or insight that drives them in an almost reckless pursuit. They tend to not make very prudent assessments of risk and they tend to discount their own time and capital in pursuing their idea. An entrepreneur can be a bit of a fanatic.

The person who buys the Dunkin Donut franchise is an investor. The person who starts a doughnut shop in the vacant storefront with only a deep fryer, a folding table, and a smartphone for taking payments is an entrepreneur.

Local communities, especially when they are struggling, need entrepreneurs. They need their energy and passion. They need their risk-taking. They need their ideas. Even if it takes 50 failed entrepreneurs to create one successful one, that success can transform an entire community. 

Fortunately, unlike many investors, a strategy to grow entrepreneurs does not require handouts or subsidies. They don’t require massive investments in public infrastructure. Entrepreneurs merely require an economic ecosystem that enables them to pursue their passion. They literally just need space to be an entrepreneur.

Nassim Taleb, risk management expert and author of many books including The Black Swan, Antifragile, and Skin in the Game, has suggested that:

“In order to progress, modern society should be treating ruined entrepreneurs in the same way we honor dead soldiers.”

That is because success for an entrepreneur is in finding a way to make a living by being of service to others, by providing a good or a service that is so valuable that their neighbors will pay them to continue doing so. That’s the kind of success every community needs.

A Necessary Mental Shift to Make Space for Entrepreneurs

Making space for entrepreneurs requires resource-focused communities to think differently about some things. 

• Understand the nature of small bets. An investor seeks steady gains over time, but entrepreneurs are generally engaged in pass-fail types of endeavors. Most entrepreneurs will fail, at least at their first attempt. The nature of small bets is to have many attempts, each with low cost and low risk, as a way to grow into success. Make it easy to fail early, and accept those small setbacks as the cost of large future gains.

• Tolerate a degree of messiness. Local governments often prefer to work with investors over entrepreneurs because investors know to keep things tidy. They fill out their paperwork professionally, they pay their fees without much complaint, and they market themselves as good citizens. In comparison, the entrepreneur can come across as disorganized, difficult, and counter-culture. Communities that want the magic of entrepreneurship need to embrace its tendency towards messiness. 

• Get out of the way. Creating an ecosystem for entrepreneurs is more about removing obstacles than it is about providing assistance and support. Local economic development programs will be more successful when they ask entrepreneurs, “what are you struggling with,” and then work to diminish that struggle than developing plans and programs to broadly assist the business community.

• Celebrate success and don’t personalize failure. Many communities take business failure as indication of a broader community failing. This can lead to finger-pointing, or worse. The reality is that most entrepreneurs will fail, regardless of what the community does. What should reflect poorly on the community is if not enough entrepreneurs are stepping forward to give their ideas a try.

Steps to Make Space for Entrepreneurs

Making space for entrepreneurs to unleash their creative energy is easy. Here are some things any community can do:

The Western Market in Muskegon, Michigan.

• Use Pop-Up Commercial Spaces. We think of businesses as storefronts or offices, but often they are not ready for that. A tent or a street table can be a low-cost alternative. Muskegon, Michigan, even bought some storage sheds, painted them up and then rented them out affordably to startup entrepreneurs. These small spaces are great for filling gaps in a streetscape.

• Waive Home Occupation Requirements. Would Bill Gates or Steve Jobs be able to start their multibillion-dollar businesses in their garage today? Not with the zoning restrictions found in most cities. If you can do the business inside the house or an outbuilding and nobody passing by can tell, then there is not a lot of justification for regulating it. We can let entrepreneurs get started by easing up on home occupations.

• Ease Up on Permitting, Especially for Building Reuse. When one business closes and another comes in, there is generally no need for lengthy permitting processes, especially in established commercial areas. Processes that require someone to prove a negative up front—that they won’t be a nuisance—are easy on bureaucrats but a huge obstacle for entrepreneurs. Let that startup know the community’s expectations for how to be a good neighbor, then burden them with process only when they don’t meet those expectations.

• Lower the Bar of Entry on Using Existing Buildings. The regulatory default is to require a business owner wanting to use a building to bring it up to the latest codes before doing anything else. This forces entrepreneurs to become developers and building contractors, as well as expend a lot of time and capital, before they can focus on their business venture. Make sure buildings are safe, but then get the entrepreneur working. Allow their success to provide the resources for bringing the building into full compliance.

The Possible Project Maker Space in Cambridge, MA.

• Use the Makerspace and Co-Working Models. The explosion in both makerspaces and co-working office space has created tremendous opportunity for startup entrepreneurs to not only get started, but to learn from others doing similar work. These models are hives for innovation that every community serious about entrepreneurship should be promoting.

Leveraging Entrepreneurs to Attract Investors

While there is a difference between investors and entrepreneurs, any community that wants to experience success ultimately needs both. A big part of building local wealth is giving the community the capacity to invest in itself, but investments of outside capital can also be positive. 

In the resource trap, the most common way to attract investment capital from outside the community is to provide subsidies. This means using community resources to lower the risk and increase the return for that outside investor. While these transactions can provide the illusion of progress, they rarely make financial sense for the community, especially when compared to other investment opportunities.

A more successful approach is to create an active ecosystem of entrepreneurs that signals to outside investors that they should want to be there. In this case, success creates its own success. An active set of successful local entrepreneurs will lower the risk, and potentially increase the return, for outside investors and make the community a more attractive place for them to put their capital to work, no subsidy required.

Cover image via Unsplash.

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