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Micro-business in the Shadow of the Crisis
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Micro-business in the Shadow of the Crisis

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A framework to understand business development and entrepreneurship.

A framework to understand business development and entrepreneurship.

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  • Thanks Steve for this nice introduction I would like to start by sharing with you an enterprise development framework. In the process I will make some general points and present some examples regarding this process in Boston’s inner city. This framework can be understood as both an evolutionary process or we can think of it as a series of entry points in this process. Lets start here (first step)… Domestic and wage labor. Suppose we have a family unit in which some of its members work at home performing some domestic duties and others work outside the household as wage laborers... They complement the family income with their in kind (cooking, for example) and monetary incomes (from cooking in a restaurant, for example). Suppose now that they decide to open their own home-based cooking business… They are transitioning to a “self employment mode of production.” The general point here is that for every transition from one social form of production to the other there are enabling factors, benefits, and challenges. Enabling factors are here understood as “business environment factors” - external factors such as taxation, capital availability, technical support systems, training, etc. - and “operational factors” - internal factors such as technical skills, business skills, equity capital, etc.

Micro-business in the Shadow of the Crisis Micro-business in the Shadow of the Crisis Presentation Transcript

  • Micro-businesses in the Shadow of Crisis How Can Non-traditional Entrepreneurs Contribute to Boston’s Economy? Alvaro Lima, Director of Research, BRA Northeastern University, January 2010
  • 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:
    • Micro-businesses in Boston employ 20,165 people out of a total of 546,046…or about 3.7% of all jobs.
    Source: U.S. County Business Patterns, 2002, BRA Research Division Analysis
  • Boston’s Total Employment by Employment-Size Class (1-4 Employees) Source: U.S. County Business Patterns, 2002, BRA Research Division Analysis
    • Micro-businesses in Boston make up 9,206 of 18,583 establishments…or about 49.5% of all establishments.
    Source: U.S. County Business Patterns, 2002, BRA Research Division Analysis
  • Number of Establishments by Employment-Size Class (1-4 Employees) Source: U.S. County Business Patterns, 2002, BRA Research Division Analysis
    • 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 Search
    • Exercise & 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……
  •  
  • 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…
  • 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
    • 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 costs technical skills managerial skills income target return on capital entry points ? ?
    • ENABLERS
    • Easy to start
      • easy to reach customers
      • little skill training
      • low capital requirements
    • Fast breakeven
    ? progression Domestic & Wage Labor Self- employed Small Employer Growth Business
  • ENTERPRISE DEVELOPMENT Examples 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
    Growth Business Small Employer Self- Employed Wage Labor (Employee)
  • SUCCESSFUL INNER-CITY ENTERPRISES Examples
    • 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
  • 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 Transportation Building Maintenance Restaurants/ Catering Self-Employed Small Employer Growth Business ?? ??
  • A better framework to understand “micro-businesses” is to look at the social forms of production:
    • Production for Profit – How do they differ?
    • Ownership Structure
      • Single owner or not incorporated
      • Independently or family owned
      • Limited liability & more complex legal structure
    • Employment & Revenue Size & Capital Structure
      • 1-2 people & < 10K & < $100K
      • < 500 people & < $20M …
      • > 500 people …
    • Financial Structure & Ability to Leverage
      • Simple cash flow & no ability to leverage
      • Bank financing
      • External financing, investors, VC, investment banks
    • Management Structure
      • Hands-on worker & control everything
      • Management across all functions
      • Professional management, board, investors
    • Skill Sets
      • Finding & servicing customers
      • Detailed understanding of industry
      • Financial and organizational skills
    • Employment Size & Structure
    • Technology, Production & Markets
      • Low to no technology
      • Single technology, production & markets
      • Multiple products, technology & markets
    • Success
      • Make enough individual income & control lifestyle
      • Salary & Profits & Value of Company
      • IPO/share price
    production for income production for direct use production for profit Self-employment (micro-businesses) Small businesses Growth businesses
    • 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….)