A Small Business Development System That’s Working

How Detroit is innovating to boost economic opportunity

With a number of major public projects well underway, Detroit's planners and lenders have renewed focus on the role of small business development in the city's ongoing revitalization. Now the next step of putting these lessons to work nationwide is taking shape.

The famous urban planning pioneer Jane Jacobs knew well that such comeback stories are built block by block, with diverse and stable communities creating a contagious vitality that could spread street by street, neighbor by neighbor, to form a diverse and thriving city. Vibrant local businesses are these blocks' bedrock.

But building these strong communities hinges on local businesses that can help them grow, and that's no easy feat. Difficulty accessing capital, business networks, and understanding of steps required to create a successful business can be daunting to would-be business owners. However, collaborations like Detroit's Entrepreneurs of Color Fund, can address each of these factors on behalf of the burgeoning businesses they serve.

A case study of one such business in Detroit is the House of Pure Vin, a wine store nestled in the thick of downtown. During its first 120 days in operation, the store's three female African-American founders have seen a steady uptick in business. And, like many similar small businesses across the city, their success stems from extensive pre-opening planning and support from outside entities. The support the founders experienced is varied and multifaceted; it's an example of a new small business development system working effectively, and is a model that cities around the US can strive to replicate.

Small Business Growth in Detroit

The founders got their start at a retail boot camp offered by Tech Town, Detroit's preeminent business accelerator and incubator. Their boot camp experience helped them qualify for the initial phase of the Detroit Development Fund's (DDF) newly established Entrepreneurs of Color Fund, a $6.5 million lending program with financial backing from the JPMorgan Chase & Co. foundation and the W.K. Kellogg Foundation. But the EOC Fund is just one project backed by the DDF: in its role as a certified community development financial institution (CDFI) the Fund makes loans to countless small businesses and serves as advisor to a wide variety of entrepreneurs.

"We felt they needed some assistance in addition to the retail boot camp," DDF President Ray Waters explained. "We sent them to another business partner of ours called Lifeline Business Consulting… for fine tuning the business plan and their projections." There, the team received guidance from seasoned retail veterans in tackling challenges such as the store build out and integrating a point of sale system. DDF helped House of Pure Vin budget as accurately as possible, and when inevitable overages arose, they leveraged their funding network, pulling in another CDFI for an additional investment.

The ability of new businesses to kickstart a local economy is anecdotally clear, but is also supported by US jobs data. A recent US Census-guided study found that while first-year businesses account for only 3% of total US employment, they are responsible for 20% of annual hiring activity—startups are more reliable job creators than larger legacy companies that employ more people but hire less frequently. In other words, these entities are crucial for growth and generating new jobs.

However, these jobs are rarely created by minority business owners: A recent paper published at University of Michigan points out that minorities have a disproportionately low rate of entrepreneurship, which is another small business challenge that alternative support structures are equipped to address.

"One of our goals is to try to bring more African-American owned companies to downtown," Ray Waters, the president of the DDF, explained. "There is a banding together of the local businesses that are close together."

Jane Jacobs knew well that comeback stories are built block by block, street by street, neighbor by neighbor, to form a diverse and thriving city.

The House of Pure Vin founders see this spirit constantly. "We always partner with different entities in order to expand our reach and expand our consumer audience and provide relevancy," one of the founders, Regina Gaines, explained. "This venture has broken barriers, and I can't really put a segment on our customer base." The store does joint promotions with the Woodhouse Day Spa next door; a nearby synagogue places Hebrew wine orders; restaurant Downtown Louie's around the corner allows customers to cork wines at the restaurant; Wright and Company is a post-tasting meal hotspot; and the David Kline Gallery places big orders for openings.

This model holds promise for other cities grappling with revitalization efforts. Through alternative funding partnerships, underserved entrepreneurial spirits can blossom into new opportunities across a depressed area. Early into JPMorgan Chase's $100 million commitment to Detroit, the impact is clear—both in the city itself and in other cities taking notice.

"I think there's a conscious effort here that could exist in other cities if certain service providers can partner with alternative lending organizations," Waters said. "There is an access to capital for small business, and particularly minority-owned businesses. The capital's out there, it's about getting access and being loan ready."

And soon a lot of small businesses will have ample occasion to position themselves for support. JPMorgan Chase has just announced a $125 million commitment called Partnerships for Raising Opportunity in Neighborhoods (PRO Neighborhoods). This five-year initiative seeks to replicate the success experienced in Detroit, broadening the company's scope in cities across the country—it's already made a positive contribution in neighborhoods from Chicago to Colorado.

It's an exciting time for community-centric development, and the effects of this approach will soon be enjoyed by residents in a host of cities. A wine store in Detroit is just the beginning; the pairing of smart finance and community support will soon be on the rise in countless growing neighborhoods.