Related Links

• Growing Rural America Through Startups
• Rural Spotlight: Promoting Small Business Development in South Carolina
• Investing in Locally-Driven Economic Opportunity: Supporting Rural Entrepreneurs and Small Businesses

Transcript

Tim Sablik: Hello and welcome, everyone. I'm your host, Tim Sablik, a senior economics writer at the Richmond Fed. I'm joined today by Erika Bell, community development regional manager for the Carolinas here at the Richmond Fed, and Laura Ullrich, a regional economist in our Charlotte branch. Today, we're going to be talking about entrepreneurship and, specifically, entrepreneurship in rural settings.

This is going to be a little bit of a different show where I might be a little bit more actively involved than in some previous episodes. I recently wrote an Econ Focus article about this topic, and I'm excited to have both of you on the show to talk about what I learned in writing that article and see if that resonates with what you've been hearing from the business and community leaders that you interact with in the Carolinas.

I thought to kind of set the stage, we could talk about the research at our Bank and many other organizations that has documented a persistent gap in economic opportunities in rural and small towns versus cities. If anything, it seems like this gap seems to be widening as more and more economic activity gets concentrated in large cities. One thing that jumped out to me as I was researching for my piece was that, in the past, a lot of efforts to improve opportunities in rural or small-town communities tended to revolve around trying to attract big employers to those places. But it seems that more recently, there's been a shift in emphasis to try to encourage more entrepreneurship and job creation from within those communities.

Erika, I'm wondering if that's something that you've seen in the communities that you work with as well.

Erika Bell: Yeah, Tim, I have a great example of encouraging entrepreneurship in small towns and rural places. It's the newly created Orangeburg Regional Innovation Center in South Carolina.

I understand that a South Carolina Department of Commerce grant allowed South Carolina State University — in conjunction with Claflin University, Orangeburg-Calhoun Technical College and other community partners — to form the Innovation Center. It will serve an eight-county rural region that includes Allendale, Bamberg, Barnwell, Calhoun, Clarendon, Colleton, Hampton and Orangeburg counties by providing small businesses with access to education, mentorship, counseling, and assistance with developing business plans and funding sources. This launched in 2021, so yes, I am seeing an emphasis on entrepreneurship and small business development in rural communities.

Sablik: That brings up a good point when thinking about these differences between cities, small towns, and rural places. Rural entrepreneurs often face more constraints than those in cities — for example, limited access to financing, a smaller pool of workers and customers, to less access to tools like broadband.

I'm wondering what are the key constraints that you've heard from the communities that you've talked with? How are they trying to overcome those barriers?

Bell: Across the board, I'm seeing access to credit as an issue. As a solution, several nonprofits and community-based organizations across the Carolinas have developed or are developing programs that help those launching small businesses prepare to apply for financing. They say that this involves creating a business plan and envisioning how to manage business finances really as the baseline for getting started.

Community development financial institutions — those are otherwise known as CDFIs, like CommunityWorks in Greenville, South Carolina — are playing a key role in this effort. They have a footprint that doesn't only include Greenville but really the whole state, including several rural communities.

Laura Ullrich: Yes, Tim, I agree with Erika as well. Access to credit does continue to come up often. I also hear a lot about access to public infrastructure. When we're having conversations out in rural communities, oftentimes things such as broadband and access to sewers comes up.

Thankfully, there's been a lot of money that's been pledged via the stimulus package and the CARES Act and the ARPA funds that were passed during the pandemic, and also the infrastructure bill. There's millions and millions of dollars that has been pledged to improve public infrastructure, which really does have the potential to make a tremendous difference in rural communities. I think the question that exists right now is, how does the money get deployed? How quickly does it get deployed? And does it get deployed to the right places?

Sablik: Right, and I think we'll come back to talking about [the] infrastructure bill a little bit later.

But another element — thinking about these ingredients to creating an entrepreneurial environment — is education. I think many people when they hear the word entrepreneur, they immediately think about, say, the college dropouts who went on to start wildly successful tech companies. But that's pretty rare. Most businesses start small and being a small business owner means wearing a lot of different hats, which requires many different skills. Are you seeing rural communities trying to teach more of those entrepreneurial skills?

Ullrich: The short answer is yes. I've talked a good bit to both K-12 contacts and higher ed contacts. And I've heard from many of them that enrollment in entrepreneurship courses at both high school and college have skyrocketed over the past few years.

Sometimes you'll hear people call it the "Shark Tank effect" because the timing of that increase really did coincide with the increased popularity of the Shark Tank show. I think it allowed younger people to see themselves as entrepreneurs, and even some of the entrepreneurs on Shark Tank are younger people.

What I've observed — and some of this actually comes from my time in higher ed before I joined the Fed three years ago — I worked in a college of business and the students were demanding those classes and skills. We were hearing a lot from people saying I want to major in finance, but I also want to minor in entrepreneurship so that I can start my own company, right? Or I want to major in education and minor in entrepreneurship so I can start my own education services firm at some point. I think a lot of students now, a lot of younger people are thinking not only about their major, but also how they might be able to work for themselves in that field in the future.

Sablik: Right. Yeah, I heard some similar things from the people I talked to when I was writing my article as well.

Another thing that struck me is — keeping with this dichotomy between fast-growing startups and small businesses — for many years both researchers and also the incubators and the educators involved in this space were more focused on the first group, the fast-growth startups. But now that there seems to be growing recognition that small businesses also have an important positive effect on their community. Is that something that you've seen as well?

Ullrich: In my community service activity that I do, I'm part of a group that works with entrepreneurs in Rock Hill, South Carolina, the community where I live. I work with entrepreneurs there through a program that's called the Venture Mentoring Service. It's actually a program out of MIT that is replicated in a lot of other communities.

Pre-pandemic, we were seeing more high-tech startups and entrepreneurs that were really focused on scaling quickly and becoming larger firms. But we've seen a real change in the past couple of years, in a lot of different ways. We're now seeing more startups in the hospitality and retail spaces and other services, so things such as life coaching, occupational therapy businesses, just all sorts of different companies. And a lot of these folks are people who, during the pandemic, decided to take the field they already worked in and start their own business.

Our entrepreneurial community in Rock Hill has really embraced the change. It doesn't mean we still don't want those startups that are going to scale and produce a lot of jobs, right? Those we're always going to want. But we also realized that an entrepreneur with a small food cart is also an important part of the overall entrepreneurial ecosystem. So I would say there's definitely been a change and at least in the community I'm involved in, it's been embraced.

Sablik: That's great to hear. In fact, I think the Carolinas are a pretty good illustration of that. You've got the Research Triangle area in North Carolina which is home to many fast-growing tech firms. But then there's also smaller rural communities that have seen some new opportunities arise as well as other opportunities diminish.

When you talk to incubator organizations in rural communities, where's their focus? Are they trying to build, say, the next Silicon Valley or high-growth area, or are they trying to support more local business growth?

Bell: Leaders of the incubators that I've spoken with, particularly in small towns and rural places, seem to want to truly support the community and the individuals striving to get a business off the ground — whether it's a technology company, home health business, or urban retailer as is the case in Florence, South Carolina, all of which support local business growth. So, while I have seen technology focused incubators, as Laura mentioned I see many of the small town and rural incubators supporting a wide range of small businesses.

Sablik: I think another important issue to recognize when talking about entrepreneurship and this drive to support more entrepreneurs is that, while starting a business can be very rewarding for individuals and their communities, it is also very risky. Many new businesses fail.

I'm wondering how support organizations communicate those risks to people looking to start a business and how they can help new entrepreneurs mitigate those risks.

Bell: We recently wrote about this in a Rural Spotlights article. With only about half of small business startups surviving five years and only about one third surviving to 10 years, incubators can help mitigate risks by offering a startup location and business supports to fledglings. Incubators exists both in urban and rural places and are supported by local municipalities, economic development coalitions, universities and community colleges. Through their education programs, incubators and other organizations like CDFIs can provide coaching to help avoid the risks.

Sablik: Another thing that struck me as I was working on my article was that, coming after the Great Recession of 2007 and 2009, nationally startup activity was actually on the decline. But it seems to have rebounded in a big way during the pandemic, which was one of the things that kind of inspired me to dig into this a little bit more. It's not clear how much of that was driven by displaced workers needing to find alternative income versus the disruption of the last two years prompting some workers to try something new.

What are you hearing in your communities? Has there been an uptick in entrepreneurship?

Ullrich: Yeah, for sure, Tim. There's been a really sharp increase in the number of business startups. We can see that in some of the data. In 2021, there were nearly 5.4 million applications filed to form new businesses. That's the most of any year on record based on the Census Bureau data, and that's from the business formation statistics. This means there were roughly 1.9 million more business applications in 2021 than we saw in 2019. That's a 53 percent increase, so not a small increase by any means.

Now, it's hard to know, we can't tell from these data, whether or not these are entrepreneurs that intend to just be a one-man shop or women's show or if it's someone that does hope to scale a business. It's difficult to tell what types of businesses these are. We'll have more data as time goes on.

I think you're right to assume that some of this was driven by displaced workers that were forced to go home in 2020. But I also think that a lot of it [came] from the pause that all of us took in March 2020, and that some people were forced to take for quite a number of months. I think we're seeing this not only in entrepreneurship and in education in the workforce, right, and this Great Resignation. A lot of people had a chance to really think about things from a new perspective. I think all of us did this in some way, right? People had a chance to think about things like, "How do I want to work? How many hours a week do I want to work? What type of industry do I want to work in? Am I able to start my own business?" We saw people that moved. Some people changed the schools their kids went to, some changed jobs, and some decided, "I want to go out and start my own business."

A perfect example of this in the local community where I live is we have one of our entrepreneurs [who] worked in an elementary school cafeteria for many, many years. Schools closed in spring 2020, she went home, and now she started her own food truck business. It's the same industry she's always worked in, but that pause gave her time to think about how she might be able to do that. She told us in a typical year, "I don't have time to think about what I'm gonna do. I'm working so hard." So it just gave her the ability to pivot. And I think that's what we're seeing from a lot of people.

Sablik: Right. In thinking about those new opportunities in the context of rural and small towns, some people have speculated that we might see some migration of people from cities to smaller towns with the growth of online businesses and remote working during the pandemic, and that could actually be beneficial and create even more opportunities for new businesses in those areas. Have you seen any evidence of that in the Carolinas?

Ullrich: Yes, we have. I would say it's limited at this point. But we have seen some evidence about it, specifically in Western Carolina in and around Asheville. Erika and I were on a call yesterday talking about this with one of our partners out that way. I think what we're seeing right now is that we've seen that the remote work environment has brought with it higher rates of emigration to certain communities like Asheville, like Charleston, South Carolina, but maybe not yet into the more rural part of the [Fifth] District.

It appears anecdotally that many of those that are moving into the area are coming from very large metro areas and relocating to smaller metro areas. We're not seeing I don't think a lot yet that are going from metro to rural, but over time we could, right?

Connectivity is key. People simply are not going to be able to work remotely in communities without very reliable internet access, or in communities where even if they have reliable internet access at home, every time they drive their car anywhere in the community the cellphone signal drops.

Another pattern that we're seeing is we're seeing a bit of outmigration from the urban core areas to suburban areas that are farther out. Population in the Charlotte region, for example, is growing much, much faster in the outer suburbs right now than it is in the urban core. This makes sense, right? Because in a hybrid work environment — which a lot of companies in the Charlotte area are now in — if workers only have to go into the office one or two days a week, they might be willing to do a much longer commute for those one or two days a week. I know myself personally, my commute doesn't bother me two days a week near as much as it used to be five days a week. So while these areas in the suburbs aren't necessarily classified as rural, they are smaller towns that haven't been as fast growing in the past and they certainly will benefit from the additional economic development and increased tax base.

Sablik: Right. And as you said, it all gets back to that infrastructure part and having the right base to support that kind of growth. I definitely agree on the commute. I also am enjoying not having to commute five days a week.

Well, Erika and Laura, thank you both for being on the show to share your insights on this topic.

Bell and Ullrich (overlapping): Thank you for having us.

Sablik: For our listeners who are interested in hearing more about this, I'd encourage you to check out our events page on Richmondfed.org. The Richmond Fed recently hosted an Investing in Rural America Conference, which included panel discussions on rural entrepreneurship as well as other topics like infrastructure that we mentioned.

That's all we've got for today. Thank you very much for listening.