Rallying for rural entrepreneurship: addressing the challenges that face rural small businesses

I grew up in a small town in north Iowa—Cedar Falls, to be exact. During my tenure with the local University I worked with economic developers all across Iowa, from Sioux City to Davenport and a great many small but mighty communities in-between: Grinnell, Parkersburg, Webster City and Lamoni to name a few. I consulted and trained dozens of local economic developers on entrepreneurship ecosystem building efforts, developing a unique understanding of the stereotypes and challenges associated with rural economic development and entrepreneurship ecosystem building.

Starting and growing a business can prove to be a daunting endeavor within any market. Geography does not determine success—it may surface some unique challenges, but it also gives unique opportunities.

Any community can cultivate entrepreneurship and help aspiring business owners start and grow companies, but it’s important to identify and acknowledge the unique obstacles entrepreneurs face in different parts of the country in order to be able to tailor solutions to their specific needs.

One of my favorite thought leaders, Don Macke with the e2 Entrepreneurial Communities, often talks about the fact that entrepreneurial talent is universal, but thriving entrepreneurial ecosystems are not. While I’m paraphrasing here, the underlying truth of this powerful sentiment is the same.

The term “entrepreneur” encompasses a wide range of diverse businesses in rural communities, from those thinking about starting a business to longtime business owners. Defining an entrepreneur is itself an interesting (or frustrating, depending on who you ask) exercise, as we have written about before.

As mentioned in Rural Development Initiatives’ report, entrepreneurs include businesses that “serve the local community (the local corner store) to those with a much wider market (a craft brewery).” These people may not see themselves as entrepreneurs, but “their ability to create, adapt, pivot, and/or grow their businesses is vital to community well-being.” These businesses deserve our support and celebration; they make up the bulk of the existing entrepreneurial ecosystem in any community. Microenterprise and Main Street companies are especially important for our rural communities, and should be carefully considered in rural economic development.

Through our work with affiliates that include IASourceLink, SourceLink Nebraska, NetWork Kansas, MOSourceLink, Launch Network and more, we’ve learned first-hand the struggles rural business owners in America experience and how building a network of entrepreneurial support can solve for those challenges. After all, the only way to fill a gap is to identify it, and work collaboratively to address and overcome systemic barriers to better support small business success. The wonderful thing about rural America is that we have cultural assets and mindsets that allow us to thrive when it comes to entrepreneurship and innovation.

Talent seeks opportunities, and opportunities can (and must) be created

Entrepreneurial development in rural areas is needed now more than ever. Since 2010, populations in rural cities have been falling and according to the United States Census rural America now represents less than 20% of the U.S. Population, though 97% of U.S. land is considered rural. In the e2 Entrepreneurial Ecosystems thought paper Why Entrepreneurship? Making the Case for Entrepreneurship! Don and his team find in many rural communities, “well-educated young people […] are seeking careers in a wider range of fields,” and if the community fails to create diverse job opportunities associated with career paths, “chances are good that most of the community’s children and grandchildren will leave the community and not return.”

People tend to rule out rural towns as viable places to build careers or launch businesses, often migrating to urban areas they perceive to have additional opportunities. 74% of employers in rural areas stated they had difficulty finding candidates with the right education, skills or training. When polled again, 69% stated that they face a large lack of talent in their area.

What could we do if even some of the available workforce could be inspired to create their own jobs? This concept of scaling entrepreneurship can be a part of the solution for small rural communities looking to grow. New small businesses create the majority of all net new jobs in the United States, according to research published by the Federal Reserve Bank of Kansas City. They also play a major role in raising a community’s median income and quality of life. Research included in the report demonstrates that “regions and local economies with strong entrepreneurship bases achieve faster and more sustainable economic growth.”

When entrepreneurs start and grow local businesses, it directly impacts the overall well-being of their communities from both an economic and community development standpoint. They are invested not only in their own endeavors, but want to see the community as a whole thrive and “are likely to remain in their community and be committed to philanthropy and community service,” according to the Grow Your Own guide.

We see this all the time across main street America—the drug store sponsoring the youth baseball team, the supermarket hiring high schoolers to give them their first work experience, and growing innovation companies reinvesting the owner’s time back into mentorship, inspiring other would-be entrepreneurs. Often these innovators love to prove that “they can do it here,” and so should others. It’s a message we don’t often hear, but if you’ve lived in a rural community across any of the middle states you can readily point to many examples of innovators and entrepreneurs who inspire others; Christina Long, I’m looking at you. 🙂

New and enduring challenges in accessing capital

Anyone who has started a business knows that access to capital is essential. For those trying to operate in rural communities, acquiring funding can be more difficult as “40% of rural small business owners have trouble accessing capital through loans or grants, so most use personal savings.” In a poll asking local rural business owners to rate the top two difficulties they face when accessing capital, the top two reasons were that too few local banks are willing to lend to businesses like theirs (20% of respondents), and that too few local banks are willing to lend to new businesses (19%). This is not an uncommon finding and is a serious challenge that our rural communities must address, especially when there may only be one bank or credit union in town.

The recent COVID-19 pandemic affected businesses of all sizes, making the Paycheck Protection Program (PPP) an essential component in keeping operations and payroll afloat. However, many rural businesses found it difficult to obtain this aid; large banks have become less likely to operate in the small loan space due to low-profit margins, and small banks that traditionally served local small businesses have declined due to a wave of bank consolidations since the financial crisis.

We’ve seen many leaders and organizations emerge to meet this gap; bar-none the best-in-class example can be found with NetWork Kansas, but there is much that has yet to be done. Crowdfunding, peer lending, and community foundations have stepped up to the plate, and their work inspires our team and is something we will continue to support, champion and amplify.

Digitally disconnected

As a society, we’re virtually connected in so many ways we often take for granted, the quick and easy digital access we have to the world around us.

However, virtual resources aren’t available for everyone. In many rural parts of the United States, nearly one-fourth of the population —14.5 million people—lack access to fixed broadband service. Even when broadband connectivity reaches rural locales, a lack of capital can be a barrier to operating a business successfully in this digital space.

Take for example what is happening with the Missouri Broadband Resource Rail. Through a collaboratively driven approach spearheaded by the University of Missouri System and guided by SourceLink, UM System, MU Office of Extension and Engagement, and MU Center for Applied Research and Engagement Systems (CARES), Missouri is encouraging the statewide build-out of reliable high-speed internet infrastructure and use of broadband-based applications to improve the lives of Missourians.

Mun ChoiAccording to Mun Choi, President of the University of Missouri System, “It is our responsibility and privilege to partner with the counties and people of Missouri to ensure access to today’s essential utility.  The recent social-distancing required to fight the spread of [COVID-19] has thrown into sharp focus our need for broadband. Broadband based tools are essential to maintaining our connections.”

We’ve also seen how local governments like Cedar Falls, Iowa, are able to rally support and install gig internet to accelerate economic development and growth for residents and home-based businesses, as well as have massive benefit to larger commercial enterprises. In the seven years since installing broadband, they’ve been able to attract and grow a network of high-tech innovation companies who now actively shape the rich character of the Cedar Falls community. This provides another important lesson for those doing this work—the horizon for efforts like this are measured in decades, not years. It takes patience, dedicated time and resources, but it is worth it.

Examples like Missouri Broadband Resource Rail and Cedar Falls prove it’s possible, if the will and desire is cultivated and shaped among the community. When rural businesses have access to reliable broadband, they have the ability to invest in online tools and technology – a move that could increase gross sales in rural regions by an additional “20.8% during the next three years, the equivalent of $84.5 billion per year. With this increase, sales could contribute an additional $46.9 billion value-added to U.S. GDP per year and create 360,054 jobs with $14.8 billion wages per year.” Fast internet is not just a nice thing to have, it is truly an economic imperative for of our communities in the middle.

Heightened vulnerability for minority entrepreneurs

In 2019, the Rural Opportunity Initiative (ROI) program was launched and led by the Rural Development Initiatives (RDI) in partnership with Foundry Collective and Kelley Nonprofit Consulting. This initiative was an Ecosystem Building Program focused on learning how to fill gaps and support an entrepreneurial system in six rural Oregon communities.

The two-year program, funded by the Ewing Kauffman Foundation, found that just like in non-rural communities across the nation, there were higher barriers for rural Black, Indigenous, People of Color (BIPOC) entrepreneurs and small business owners. One challenge the initiative found is that “rural Latinx entrepreneurs specifically need financial literacy, bookkeeping, and tailored support from a trusted, familiar source, in Spanish and at a time that works with other family and work obligations.” Additionally, while PPP loans were already challenging for rural small businesses to secure, the traditional banking system that the program relied on to deliver loans favored existing customers and disadvantaged minority-owned businesses. These point to continued systemic racism and barriers that must be fixed, in rural communities and in metros alike.

Distance and transportation

Significant rural population declines make it difficult to justify investing in infrastructure and public transportation options that would increase access to and from remote areas, but physical connectivity (or lack thereof) is an important obstacle for economic developers and government leaders to address if they’re looking to grow local economies through small business support and entrepreneurship-led job creation, which we know is where our economic recovery and advancement rests.

Sixty-six U.S. cities with a population of 50,000 or more do not have direct access to the Interstate Highway System. When a rural community is isolated geographically, it creates visibility and accessibility barriers for both small business owners and their potential customers. The quality and connectivity of a community’s transportation system influences economic success and overall quality of life and often factors into an entrepreneur’s decision on where to set up shop. Left unaddressed, these infrastructure and transportation issues could continue to keep small rural communities from reaching their full entrepreneurial potential.

The good news? We live in an interconnected world. I know many work-at-home developers in rural Iowa and Missouri who are working on projects based on the coasts. One of my mentors and thought leaders in this space, Chris Gibbons, often talks about leveraging technology and R&D to help second stage firms find markets outside of the region. It’s a winning, and demonstrated strategy, that can be tremendously impactful to bringing new dollars in.

Check out Economic Gardening for more, or talk to our friend Mark Lange to hear how they can help you find those second stage firms. Whether for Atchison County, KS or the entire state of Wisconsin you can find this data on YourEconomy. Tell them that SourceLink sent you!


Targeted initiatives: Rural Entrepreneurship Venture

Rural Entrepreneurial Venture (REV) – a program of the Southern Minnesota Initiative Foundation – is one organization that has been combatting many of these issues by finding and lifting up entrepreneurs in local communities.

The “grow your own approach” helps local entrepreneurial communities grow from within and from where they stand—something that is core to our philosophy. REV has worked with several communities including Blue Earth in Faribault County, Lake City in Wabasha County and Lanesboro and Spring Valley in Fillmore County to implement initiatives such as business succession and youth retention programs.

Cropped Pam-BishopThe first cohort of REV communities also supported local businesses through the COVID-19 pandemic. These communities focused efforts on creating valuable and collaborative relationships among the businesses and government agencies, and many of them refreshed and established new associations and chambers of commerce to better serve their district.

“We are so proud of the work that our REV Communities do day-in and day-out to celebrate, support, and surround local entrepreneurs with the resources that they need to start and grow. Winning for us means meeting these owners where they are, in their coffee shop, auto repair business and/or with business networking events- that’s how our community leaders get the job done, and we are proud of them and their impact.” Pam Bishop, SMIF.

Creating connection in rural areas: The GRID Wisconsin

Another community impact program providing resources for entrepreneurs stemmed out of Nicolet College, the only higher education institution in the rural north Wisconsin region. The college wanted to do more to support economic growth, and realized the impact that supporting entrepreneurs and small businesses could make on their communities.

SourceLink provided consulting and technology support to Nicolet College as they formalized a collective resource network called The GRID (Guiding Rural Innovation and Development) that connects entrepreneurs to resources and mentors in the tight-knit community. By creating custom solutions within the customer relationship management tool, SourceLink Pro, The GRID identified community leaders, top-notch networkers, and mentors in the area who could leverage their networks and match entrepreneurs to resources for their specific business development needs.

ToniVanDoren-200x200“It starts with leveraging local talent and winning where you are,” said Toni. “We’re not a Madison or Milwaukee, some of our resources require entrepreneurs to travel about an hour away, and that’s what we wanted to solve for. We may not have a massive population center, but we do have talent; we have amazing mentors, super connectors and dedicated, smart businesspeople in the Northwoods who want to give back to our community. What we have been able to do is identify these movers, shakers and dreamers and activate them in a formal way, so they’re empowered to give back to our owners and help personally guide owners to their next desired business stage. The success we’ve seen has been tremendous, and you don’t have to look any further than our website to find inspiring examples of our great innovators, entrepreneurs and community builders here in the Northwoods. Any community can do this, it just takes focus, time and passion—things our team has in spades!”

Rural entrepreneurship has much to teach us all

Though partnerships, community engagement and focused dedicated effort, communities of any size can build their own thriving entrepreneurial ecosystem. Don’t fall into the easy trap of believing that “flyover country” has nothing to offer ecosystem builders; they have lot that our larger peer communities would be wise to learn from and continue to inspire me and our entire SourceLink team. I recently attended the Startup Champions Summit in Des Moines, and was amazed to learn about many new and pioneering entrepreneurship-led economic development efforts.

Some of the powerful aspects of meaningful entrepreneurial ecosystem development can be found in the ethos and values exemplified by Iowa farmers, Minnesota immigrants, Nebraska BIPOC communities and Missouri refugees. Many of the leaders building in the middle, myself included, have these traits and can trace their culture back to the powerful shared ethics of open collaboration, ingenuity and hard work.

We would be foolish to discount what is going on in rural America with entrepreneurship should take note on how they are transforming communities leveraging these amazing assets.

I hope I’ve given you a sense of what’s possible and what we might all learn from rural America when it comes to entrepreneurship-led economic development.  If you’re interested in talking further on this topic, drop me a note at [email protected] – I’d love to connect.