- Researchers look at two approaches for fostering entrepreneurship to lift up local communities
- Study concludes that traditional business accelerators often have a minimal impact on supporting local economies due to the goal of rapidly scaling up growth
- An alternative approach encouraging the leverage of local resources results in smaller scale growth, but a deeper impact on the community
Summary by Dirk Langeveld
Numerous business organizations seek to revitalize downtown areas and otherwise strengthen local economies by supporting entrepreneurs. Yet a recent study finds that these efforts often overlook local needs in favor of pushing for rapid, broad growth.
The study by Suntae Kim and Anna Kim, assistant professors at Boston College and McGill University, respectively, looked at the efforts of two organizations supporting entrepreneurs in Detroit over an eight-year period. One was a traditional business accelerator, offering mentorship and other resources to spur growth, while the other was an alternative incubator encouraging startups to leverage existing resources in the community to assist with their growth.
The researchers concluded that efforts to encourage entrepreneurial growth in impoverished areas were more effective in supporting the local economy when using the slower growth method of the alternative incubator. They said the findings suggest that investors should not simply focus on companies that can offer strong financial returns, but also be sustainably self-reliant and beneficial to their community.
- Technical assistance, business accelerators, investments, and other traditional business support methods often don’t measurably improve a firm’s profitability or address local issues
- The researchers suggest that a model of promoting regional prosperity, similar to that used to create the booming tech sector in Silicon Valley, does not replicate well in more impoverished areas
- By encouraging a rapid scaling up of business operations, an accelerator might expand the firm’s original vision and minimize its impact on the local economy; this can even cause the company to relocate to tap into a larger pool of resources elsewhere
- Relying on local resources can produce stronger connections with local partners and supporters, as well as a deeper connection to the local community
- This method results in smaller scale growth, but also does a better job of addressing local issues and providing local services