Microbusinesses boomed during the pandemic. Now, local leaders need to support them.

Diverse group of business people working together at a small office. Woman showing her digital tablet and discussing new business plan with coworkers.

In the spring of 2021 as the COVID-19 pandemic lingered on, Kalamazoo’s Deputy Director of Economic Development Antonio Mitchell had a problem. He knew that many Kalamazoo residents had started businesses during the pandemic, but had no idea who they were, how many of them there were, and what they needed to succeed?

Kalamazoo was not alone in seeing a spike of new microenterprises, nor the only community where local economic development officials were struggling with how best to identify them and support their success. The COVID-19 pandemic delivered a massive shock to America’s workers, with many rethinking both their choice of job and their location. One result of this was a burst of microbusiness startups, as people sought to make up for lost income or strike out on their own.

As Brookings Metro previously detailed, Americans created 2.8 million more online microbusinesses in 2020 than they did in 2019.  The Small Business Association defines a microbusiness as any business with 10 or fewer employees. The Brookings analysis used microbusiness data provided by Venture Forward an initiative sponsored by GoDaddy, which defines microbusinesses as an business operating out of a single location with a discrete domain name and an active website, 90% of which have fewer than 10 employees.) Their growth provides a new opportunity to more equitably support small business development and aid budding entrepreneurs, particularly among minority communities and economically marginalized residents, who are more likely to operate these businesses – the opportunity Antonio Mitchell in Kalamazoo was looking to seize.

But microbusinesses’ patterns of growth vary from state to state and community to community. For local economic development officials to take advantage of this new opportunity and help these entrepreneurs succeed, they must understand where these businesses are, how many of them there are, and what tools and services they need.

In the industrial Midwest, some states with large minority populations have seen a sharp rise in microbusiness growth from an already high number (Illinois, New York), while others have a relatively low and flat growth curve (Iowa, West Virginia).

Number of microenterprises per capita between August 2019 and March 2022

These variances are likely linked to the fact that minorities are among the most likely to start microbusinesses, as well as the fact that minority businesses tend to start small and stay small relative to white-owned businesses. Also, given that the pandemic’s economic fallout generally hit minority groups harder in terms of job losses, it is likely many were forced to seek a new way to generate income.

Pre-pandemic, Black Americans accounted for 15% of all microbusiness owners nationally—higher than their share of the overall population (12%). By July 2021, the share of Black microbusiness owners had grown to a whopping 26%. Microbusinesses were also more likely to be a path for people without a college degree—their share of microbusiness ownership increased from 36% to 44% during this period.

Looking back to the Midwest, and specifically Michigan, a common pattern emerges. In counties home to communities with significant shares of minority populations—including Wayne (home to Detroit), Saginaw, Genesee (Flint), Berrien (Benton Harbor), Kalamazoo, and Muskegon—one largely sees microbusiness growth.

County change in per capita microenterprises between August 2019 and March 2022

This is in contrast to Michigan counties with smaller minority populations, including several (Grand Traverse, Washtenaw, and Livingston) where residents are significantly better off economically. In these places, there was a relative drop in microbusinesses through the pandemic. An exception is Mecosta County, a very white (only 2.7% of the population is Black) but very poor rural county, where residents may have faced similar pandemic income challenges as minorities in urban cores.

These trends underscore the new opportunity for officials interested in supporting marginalized populations and closing equity gaps. In that regard, Kalamazoo, Mich. is a great case study in the power of microbusinesses to accomplish these goals.

Kalamazoo is a classic medium-sized (75,000 residents) Midwest industrial community, with a significant population of people of color (22% Black). As with peer communities across the Midwest, it is home to some of the nation’s most intense racial and socioeconomic disparities, which the COVID-19 pandemic made more damaging—even lethal. Kalamazoo has faced challenges common among other older industrial communities, such as the near total collapse of its dominant employer, a pharmaceutical firm named the Upjohn Company, and a steady outflow of mostly white, middle-class residents to the surrounding suburbs.

But in response, Kalamazoo has done a lot of things right. The city helped the Upjohn Company’s laid-off scientists and engineers start new bio-tech companies. Local leaders remade their downtown for walkability, sprouting new businesses in the process. Most famously, anonymous benefactors started the Kalamazoo Promise, which guarantees free public higher education anywhere in Michigan to full (K-12) graduates of Kalamazoo Public Schools. The Promise marked the community as one that values education, reversing a decades-long population exodus.

Relative to similar industrial communities, Kalamazoo is back on its feet. But economic development leaders realized they needed to go further to support economic success for residents who still weren’t finding their place in a changed economy. By the spring of 2022, Kalamazoo’s Mitchell had found 200 Kalamazoo microbusinesses—overwhelmingly minority-owned—and had been contacting them to ask about their most pressing business development needs. Officials discovered that microbusinesses generally—and particularly those operated by minorities—face unique challenges such as access to capital, confirmed by the research from Brookings’s Pamela D. Lewis in Detroit and elsewhere.

Time will tell if, aided by additional data, Kalamazoo can deliver on hope of keeping its new microbusinesses on a path to success. Self-employment is a risky journey, and many will fail. But given the benefit to themselves and their communities if these entrepreneurs succeed, local officials should try to better understand and bolster the field.

By identifying their budding entrepreneurs, understanding what is important to their success, and providing the small business support services they can, Kalamazoo and communities across the nation can narrow stubborn equity gaps and nurture new paths to economic opportunity for marginalized populations.