Small Business Dynamism

Current Prime Growth Small Businesses in Economically Distressed Communities


21 February 2019
 
By Steve Waters
Founder & CEO, SMB Intelligence


 

This continually updated map identifies current prime growth small businesses in economically distressed communities, and provides insight into their socioeconomic status. We define a distressed community as a census tract whose median income is less than 80% of the median income of the surrounding metro area, based on 5 year ACS data 2102-2016.
 
Contrary to popular belief, and even with an encouraging uptick the last few years, new creation of small employer businesses (companies that employee people beyond the owner) is in a long-term decline1, having fallen to roughly half of what it was in the 1970’s2.
 
At the same time geographic inequality in the sector is also rising, with new firms increasingly concentrated in already prosperous areas – economically distressed communities are being left behind3. Firms in distressed areas are substantially more likely to experience challenges accessing the solutions they need to startup and expand4 than firms in prosperous areas.

The purpose of this dataset is to help local and state agencies, nonprofits, and corporate responsibility programs maintain a high-level view of current prime growth small businesses in distressed communities, in order to more effectively deliver growth solutions to them.
 
Prime growth firms are independents or small chains, that are employers, with a commercial location, that are currently at a seed (new, pre-opening) or expansion (high growth) development stage. They are the small businesses currently most likely to be growth-motivated and receptive to new solutions, and if they are successful in their current growth plans, to experience substantial growth and create new jobs.
 
If these already growth-motivated small business owners can connect with the right solutions to support their current growth priorities, it will substantially increase their chances of survival, success and expansion5.

 


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Methodology / References
 
 
1. Kauffman Foundation. “2017 Kauffman Index of Startup Activity – National Trends”, p.4, May 2017. Available online.
 
2. Economic Innovation Group. “Dynamism in Retreat”, Feb. 2017, p.10. Available online.
 
3. Economically distressed areas are being left behind with new business creation: more than half (54%) of the country’s distressed zip codes had fewer jobs and establishments in 2015 than they did in 2000, compared to 32% of all US zip codes and only 13% of prosperous zip codes. Economic Innovation Group, “2017 Distressed Communities Index”. Available online.
 
4. Kugler, Maurice and Marios Michaelides, Neha Nanda, Cassandra Agbayani, “Entrepreneurship in Low-Income Areas”, page 1, IMPAQ International LLC for Small Business Administration, September 2017. Available online.
 
5. Goldman Sachs. “Progress Report on Goldman Sachs 10,000 Small Businesses: Fourth Edition”, 2018. Available online
 
Prime growth small businesses are sourced from our bi-weekly Prime Growth Briefing. SMB Intelligence uses proprietary open-source intelligence (OSINT) methods applied through a combination of machine analysis and human analytics to continually monitor over 30,000 real estate, editorial, public government data, social media and other sources to track planned growth activity in the small business sector. We apply Prime Growth Classification to that data to identify prime growth firms, and then aggregate additional data points to determine key characteristics including their current job creation status, contact details and digital engagement. We then geocode each prime growth firm, assign a US census tract, and use extensive public government data to determine the current socioeconomic status of the community each firm is located in.
 
Firm format is either independent or small chain. We define an independent as a single establishment (location) firm with less than 500 employees. It’s important to note that while we include firms with up to 500 employees, nearly all (98%) of small businesses have less than 100 employees, and 96% have less than 50. We define a small chain as any firm with more than 1 and less than 20 establishments. This also applies to firms with several establishments that are not normally perceived as “chains”, such as tech and manufacturing companies with several office locations.
 
Development stage refers to where the firm is in their business lifecycle. Prime growth firms are currently at a seed or expansion development stage. We define seed stage as a new, pre-revenue, pre-opening firm currently planning their launch. We define expansion stage as an existing firm currently planning to add an establishment, relocate the firm or an establishment, or that has recently closed a substantial fundraising round.
 
Employer firm confirms that the firm is an employer – they have employees beyond the owner, accuracy is 98%. All prime growth firms are employers (or in the case of seed stage firms, they will be once they launch).
 
Commercial location confirms that the firm is not operating from a residence, accuracy is 98%. All prime growth firms have commercial locations (or in the case of seed stage firms, they will once they launch).
 
Job creation status is determined through a proprietary process, accuracy is 97%. Current means the firm is currently hiring for newly created jobs. Near future means the firm will be adding newly created jobs in the near future.
Opening or expansion date determines when the firm opening or expansion is scheduled for. Firms with “current” status are expansion stage firms who have recently closed a substantial funding round. SMB Intelligence clients can access specific opening / expansion timeframes.
 
Minority-owned determines if the owner of the firm is a member of a minority group. We use a proprietary process to determine minority-owned status, accuracy is 87%.
 
Women-owned determines if the owner of the firm is a woman. We use a proprietary process to determine women-owned status, accuracy is 96%.
 
Prime growth segment determines which Prime Growth segment the firm is categorized as. Prime Growth Classification groups prime growth firms into one of nine segments based on their current growth priorites. Growth priorities define the format and scale of growth an owner is currently working to accomplish. Learn more about Prime Growth Classification.
 
Opportunity Zones are a new community development program established by Congress in the Tax Cuts and Jobs Act of 2017 to encourage long-term investments in low-income urban and rural communities nationwide. The Opportunity Zones program provides a tax incentive for investors to re-invest their unrealized capital gains into Opportunity Funds that are dedicated to investing into Opportunity Zones designated by the chief executives of every U.S. state and territory. Learn more at Economic Innovation Group. Opportunity Zone designation is based on the June 14, 2018 dataset from the Department of Treasury CDFI Fund.
 
Low income tract determines if the median income of the tract the firm / establishment is located in is less than 80% of the median income of the surrounding metro area, based on 5 Year ACS Data 2012-2106 (the latest available).
 
Concentrated poverty determines if a tract has more than 40% of individuals living at or below the poverty line, or is three or more times the average tract poverty rate for the metro / micro area, whichever is lower. Data is from the Department of Housing and Urban Development 2018 Areas of Concentrated Poverty File, and is based on 5 Year ACS Data 2012-2016.
 
ReCap (Ethnically concentrated areas of poverty) determines if an area of concentrated poverty has a non-white population of more than 50%, or if it’s outside of a metro / micro area, a non-white population of more than 20%. Data is from the Department of Housing and Urban Development 2018 Areas of Concentrated Poverty File, and is based on 5 Year ACS Data 2012-2016.
 
Area economic index provides insight into the level of economic distress or advantage of the census tract the firm / establishment is located in, in relation to the surrounding metro area. The index is calculated by dividing the median income of the census tract by the median income of the metro statistical area based on 5 year ACS data 2012-2016, providing a percentage. We define under 80% as economically distressed, and over 120% as advantaged.
 
FEMA disaster area determines if the census tract is located in a county designated a disaster area eligible for individual assistance within the previous three years. Data is from FEMA, 2018.