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May 13, 2015

What Do We Want From Economic Development?

In forming a start-up company, being called an entrepreneur has become essential to being taken seriously as a businessperson.  Countering this is a preference by some to limit this honorific to high-growth or highly scalable start-ups.

Brad Feld in his popular book Startup Communities distinguishes between high-growth entrepreneurial companies and slow-growth small businesses, crowning only the former as eligible leaders of a startup community.  Others disparage slow-growth small businesses as merely “lifestyle” businesses, implying they lack the commitment and skill to be taken seriously.

Even the highly regarded MaRS Discovery District, Toronto’s successful innovation hub, restricts the term “social investors” to highly scalable investments that solve “real problems” and labels those who fund other undertakings as “funders” who lower the bar of success to the start-up having “social benefits” and “adequate funding.”

I think we compromise the economic development of our community to adopt these dichotomies.  All start-ups need to be supported, whether they are high growth or not, scalable or not, social or not.  Indeed the highly regarded National Bureau of Economic Research in its paper, Who Creates Jobs? Small vs. Large vs. Young  (NBER Working Paper No. 16300) concluded “The real driver of disproportionate job growth… is not small companies, but young companies. It is the startup firms that generate the surge of jobs that earlier research attributed to small companies.”

To make the case that small is truly beautiful when it comes to developing our community, let me provide two examples from the growing set of  profiles of local social enterprises, largely start-ups, being compiled by the Center for Social Enterprise Development.

L.A. Catering, a social enterprise arm of LifeCare Alliance started in 2002, is small by most standards with annual revenue of $700,000.  This is 35 times LifeCare Alliance’s original investment to start this business.  The profits from this business allow LifeCare Alliance, through its Meals on Wheels program, to provide daily hot meals to 300 older adults that would otherwise have been possible only if it could have raised hundreds of thousands of dollars more in charitable contributions.  In creating this social benefit, L.A. Catering generates an annual payroll of $325,000, supporting numerous households and sending tax dollars to local and state governments.

A more recent social enterprise start-up, Hot Chicken Takeover, is still in its early ramp-up stage where reaching positive cashflow is a major milestone.  This small business is dedicated to creating financial stability, household stability, and professional development for individuals impacted by homelessness, incarceration, or poverty.  It started with about $200,000 in proceeds from borrowing and crowdfunding.  This investment has already produced an annualized payroll that is over double the original investment and provides financial stability to dozens of individuals that are now contributing to society rather than depending on society.

Our community needs these local, profitable, modest-growth businesses as much as it needs the high-growth ones.  Providing a basic living to individuals that otherwise would have been reliant on government support is as or more vital to a vibrant community than creating the $85,000 jobs touted for high-tech start-ups.

So let’s drop any notion that our economic development strategy needs to pick its winners and its leaders only from scalable, high-growth, high-wage start-ups.  These local, small business social enterprises may ultimately be the best investment we could make in our community.

Want to know more about the social enterprises starting up in Central Ohio?  Visit www.cincohio.com over the next few months as we begin posting profiles of the dozens of local, slow-growth, non-tech social enterprises that are making our community a better place for all.

Yours in Linking Mission to Money,

Allen Proctor, President & CEO

Center for Social Enterprise Development