Updated: Jul 7, 2020
As we rebuild our economy from this crisis, we have an opportunity, our collective shot, to make positive economic development changes to make Tucson more resilient now and for the 4th Industrial workforce disruptions to come. Here I offer some attainable, post-partisan policy solutions to consider.
In a desperate bid to try to lure our screen-hooked pre-teens out of their rooms during quarantine for some human interaction, I purchased a home karaoke set up. Amazingly, it worked like a charm. Bleary-eyed they crept out of their little tech lairs-- trying carefully to not look too interested--but then eagerly began selecting songs to belt out together. Even though it has been a few years since it was on repeat at our home, the kids still remember every word to Hamilton so inevitably the much beloved Shot, switched on.
Hey, Yo, I'm just like my country,
young, scrappy, and hungry
And I'm not throwing away my SHOT.
Getting to work with entrepreneurs everyday through my work at Startup Tucson, this line rings especially true. The much fabled and cherished American-Spirit is on its best display with entrepreneurs; they throw themselves full throttle into building something from nothing, with passion, determination, and drive. They embrace uncertainty with creativity and bound over every hurdle in their paths.
It is no surprise that innovation is the bedrock of what has kept the United States leading the world for the past 70 years. It is built into our DNA, the fabric of our community, it is what calls people to move here and make a home.
Every American's heart swells just a little bit when we remember the dream that anyone, regardless of who they are or where they are from, has the opportunity to make a better life. For some of us, yes, our heart swells a little bit, even as our mind immediately leaps in with caveats for the million ways in which that dream has not been the reality for so many.
But still, the pursuit of actualizing that shared vision has motivated generations of patriots to scrabble, fight and argue over creating a freer, fairer, more just society for all. COVID-19 has laid bare the essential tensions that threaded throughout our history, from the very time of Hamilton; states rights, our social safety net, and individual freedom versus public good. Right now, small businesses are on the front lines of a two hundred and forty three year old battle.
Yes, our nation is young, scrappy and hungry, but in the wake of the COVID crisis, maybe it is time to grow up just a little.
As we rebuild our economy from this crisis, we have an opportunity, our collective shot, to correct some of the policy errors that have led to the persistent decline in new entrepreneurs.
Our national policies have taken entrepreneurs for granted. We have blithely assumed that we will always have a wealth of new scrappy talent, pouring themselves into building new innovative companies, willing to live on the edge of poverty for just one shot at building something world-changing for their families and for our community.
We have somehow allowed the definition of being “pro-business” to exclude being “pro-entrepreneurship,” despite the critical role small and micro- business play in our economic health and vitality as a community. The primary source of all net new jobs in the United States are a result of new businesses created by entrepreneurs. And yet the rates of entrepreneurship have fallen precipitously, especially among young people loaded down with student debt and fragile social safety nets.
A bipartisan group has released A New Business Plan for America that aims at addressing how policy makers, at the federal, state, and local-level can make small but impactful changes to tap into the American spirit to lift our country out of the current crisis and set us on a path for long term success. These recommendations were built with direct input from thousands of small business owners, keeping community entrepreneurs at the heart of policy formation. Paired with specific data about Tucson, here are some takeaways on how we can both preserve the scrappy creativity that drives innovation, but also create the stability, safety, and protections that can make entrepreneurship a more viable option for the next, more diverse generation of changemakers.
Simplify the Onramp and Level the Playing Field
If the goal of policymakers is to increase jobs in a given area, there has been an overemphasis towards the SIZE of the company, rather than the AGE of the company. Businesses that are less than 5 years old create virtually all of the new jobs in our country, which is especially important during economic downturns. This bias towards bigger companies has resulted in:
More investment in economic development dollars for attracting outside businesses that bring a one-time serge of new jobs versus helping small businesses scale, adding jobs to local economies over time and that are deeply rooted in their communities.
Rules and regulations tailored for large companies that negatively impact startups. One solution would be to create an Entrepreneurship Impact Statement (EIS) to laws, regulations, and rules that create modifications for businesses less than five years old. Likewise, creating simple, straightforward guides of applicable regulations to help small companies stay in compliance, without the benefits of huge in-house legal teams.
The inherent bias against small businesses and entrepreneurs was never more visible than in the rollout of the PPP, where available funds were gobbled up by companies that were not the most at risk. It was public outcry that caused large companies to sheepishly hand back the funds; unfortunately public outcry is less likely for things like incentive programs and regulations that are far less visible, but just as impactful. Our recommendation would be to create a greater balance between resources allocated to business attraction and business development.
Similarly, we are now just beginning to understand the significant economic impact of “micro-digital-business,” particularly for helping cities like Tucson bounce-back from recessions. A recent study, featured in the New York Times, but conducted by Dr. Karen Mossberger at ASU, discovered that while tiny, local digital eCommerce sites were often too small to be officially tracked as ventures, these ventures have a significant impact on economic resiliency, especially during recessions. The impact of these businesses in protecting the economy was especially noticeable in small to medium-sized towns that had limited access to high-speed internet, like Tucson.
This finding tracks with what we have seen through our work at Startup Tucson, which was part of the reason we launched TucsonShopsTucson, a digital marketplace for consumers to shop at local businesses and further amplify the impact and reach of these micro-businesses. Through our experience with local entrepreneurs, we found that while some are already running these types of eCommerce sites, there are even more that do not yet have an online presence gaps exist in their comfort and knowledge with technology. We recommend resources be dedicated to assisting current small businesses to make the transition to online platforms to help increase our ability to not only weather the current storm, but recover more quickly after the current crisis has passed. This small effort can help simplify the on-ramp and level the playing field at a microlevel, right here in Tucson.
Create Multiple in-Roads for Access to Capital
While Arizona has recently experienced a relative influx of venture capital, still 75% of all VC funding nationally goes to just three states in the US. This type of capital is also is notoriously biased, with only 2% of VC funding going to female-founded companies and only 1% to companies founded by African-Americans. This inequity in access to capital for high-growth ventures needs to be addressed head on. Talent is being left on the table. In a recent study by ASU, they found that Arizona is under-developing the fastest growing population of entrepreneurs in the country. If we were able achieve greater gender-balance, we would see an additional $105.2 billion and 91,000 jobs added to our economy. While there are a number of opportunities and initiatives to bring greater parity to VC funding, the reality is that a more immediate solution to creating better access is for communities to get more creative about alternative opportunities for funding.
Tucson is heading in the right direction with organizations like Community Investment Corporation and Growth Partners creating alternative funding options (Kiva, WeFunder) and helping make micro-loans possible, with extremely high rates of diversity among their loan grantee’s. Supporting nontraditional funding opportunities is going to be our best bet at creating multiple in-roads for access, over and above traditional bank loans, angel, and VC investment. Suggestions for maximizing the opportunity for increased access to capital includes;
Change crowdfunding regulations to allow new businesses requiring larger investments to participate
Continue with the angel investment tax credits, which were wildly successful at generating local support for entrepreneurs and paid back the state many times over
Educate entrepreneurs early in their journey about the various types of capital and help pair them with the type that makes the most sense for their business and goals
Long-term Workforce Resilience Through Business Education & Skills Certifications
There is not going to be any returning to the status-quo for job markets, and local economies need to invest in preparing for the future. It is estimated that over 40% of jobs in Pima Country will be disrupted due to automation in the coming years. Now is the time to retrain the workforce by educating potential entrepreneurs though high-quality, low cost business education -- widely available to schools and adult learners alike. It is also time to provide technical training for skills like software development, to build a local source for talent.
Tucson’s tech sector has grown by 90% in the past few years, but is still desperate for the developers to sustain that growth.
Expand the resources available to small business support and training
Integrate entrepreneurship into the grade school and high school curriculums
Expand support for technical educational programs
Create a Safety Net to Make Risk Less Risky
Finally, particularly as it is expected we will see ongoing turbulence in the job market from here on out, it is time to get serious about our social safety-net. Too long has the conversation about the social safety net stayed mired in the one-dimensional dichotomy of “handouts that incentivize laziness vs. compassion for those in need.” There are so many more angles to the argument that need to be seriously discussed. Shackling healthcare to employment not only makes entrepreneurship prohibitively risky for aspiring entrepreneurs but also creates a heavy burden on small businesses. The millstone of student loans unnecessarily inflates entry-level wages because young people need so much more than ever before to just cover their bills. Childcare in some places now costs as much as college tuition. All of these factors contribute to lower rates of entrepreneurship and bar individuals of diverse backgrounds from ever being able to enter the race, let alone compete fairly.
So in summary, if we--as a nation and as the city of Tucson--want to rebound more quickly from the current crisis and develop protective factors that will guard us for the inevitable future economic turbulence our focus should be to:
Simplify the Onramp and Level the Playing Field Creating greater balance between the incentives and support we give to large, external companies and the support we give to homegrown companies, particularly when it comes to assisting local companies to access online markets
Create Multiple in-Roads for Access to Capital Continuing to make many forms of capital accessible and available to local entrepreneurs, with a focus on individuals who have been blocked from traditional forms of capital
Long-term Workforce Resilience Through Business Education & Skills Certifications: Enabling more workforce development and training through expanding entrepreneurial education from schools to adult learners, with particular focus on accessible coding schools to support our growing tech sector
Create a Safety Net to Make Risk Less Risky Advocate for policies that better allow entrepreneurial individuals to take “take the leap” without so severely risking the health and wellness of themselves or their families through a robust social safety-net
In this time of uncertainty it is critical to not only focus on what is being lost in the short term, but rather think like entrepreneurs. In the face of defeat, look to what stands to be gained; jobs, revitalized communities, inventions, products, and services, individual purpose and fulfillment and long term vibrancy, economic competitiveness, and new wealth for those who have been marginalized and excluded from accessing the American Dream. So in the words of Lin Manuel Miranda, echoing the call of generations of Americans, “Come on, let's go, we gotta Rise up, Rise up, Rise up.”
John Haltiwanger, Ron S. Jarmin, and Javier Miranda, “Who Creates Jobs? Small Versus Large Versus Young,” The Review of Economics and Statistics 95, no. 2 (May 2013): 347-361.
Haltiwanger, Jarmin, and Miranda, “Who Creates Jobs?” May 2013.
“Venture Monitor: 4Q 2017,” PitchBook and National Venture Capital Association, 2018.
Jonathan Sherry, “A Data-Driven Look at Diversity in Venture Capital and Startups,” CB Insights, June 15, 2015.
Kristin Slice, ASU E+I Empowered PhXX Collaborative