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Report - November 2016

Scale Up New York: Creating Middle Class Jobs By Growing New York City’s Small Businesses

Despite the surge in the number of new small businesses and start-ups, too few of these companies manage to achieve sustained growth. A strategy to help small companies scale up is one of New York’s greatest unrealized opportunities for economic and employment growth—and one of the best chances to expand the number of middle-class jobs.

by Charles Euchner

Tags: economic growth economic opportunity innovation economy small business middle class middle class jobs project

The following are the recommendations from Scale Up New York.

Read the full report (PDF).


New York City has an enormous opportunity to help its small businesses grow. The challenge is to identify the specific hurdles that keep small businesses small and end the disconnect between the city’s vast resources and its eager entrepreneurs. Rather than simply adding new programs, New York City should focus on aligning its efforts to serve growing businesses, making these programs easier to access, and targeting more of them at the gaps that prevent small businesses from scaling up.

Small business owners recognize that the city’s high costs stem, at least in part, from its extraordinary advantages. Real estate is expensive because so many people want to live and work here. Business taxes and regulations are high due to the city’s historical commitment to protect the health and safety of New Yorkers and to provide a wide range of services for a diverse population. But if New York places more burdens on small businesses than other cities, it should also strive to provide greater transparency and opportunity. A strategy to grow more of the city’s small businesses would strengthen and diversify the economy while creating a crucial source of middle-class jobs.

Create the NYC Business Engine, a single online portal to streamline business compliance information and programs to spur growth.
In order to help more small businesses grow, the city’s websites should do more than serve as repositories of information. To create clarity and certainty amid the city’s complex and often byzantine business environment, New York City should develop a comprehensive, web-based, interactive database of all regulations, taxes, mandates, and programs that apply to every stage of business development.

In order to succeed, the NYC Business Engine needs to collect all existing and future resources in a single place, spanning agencies, issues, and levels of government. Even more important, the Business Engine should consolidate access to information, guidance, and programs aimed at helping business overcome the hurdles that stymie growth.

The web-based portal would provide comprehensive information about regulations, taxes, and programs at the city, state, and federal levels. The database would allow businesses to track their progress on compliance issues and their participation in public programs, with prompts and tips for tasks and opportunities. Users could opt in to email reminders for filing deadlines and program options.

This system could be linked to a database for labor, which would provide online profiles of workers in all fields—a “career passport” that can help workers document their experience, skills, and training, and connect with employers.

The city has already developed a number of websites to help businesses. The city’s NYC Business website offers a number of “how to” resources for starting a new company. A “wizard” tool helps businesses sift through licensing requirements according to the type of business. Business owners can also check the status of permits, licenses, and violations. But too many of the existing systems are disconnected from one another and focused largely on helping start businesses—not helping them to grow.

Small Business First, a $27-million initiative of the Department of Small Business Services, includes the city’s latest effort to provide comprehensive and transparent data and information for businesses. The SBS Online Business Portal—which is currently under construction and scheduled to launch in 2017—would offer information about city taxes and regulations, filtered by the type of business and other variables. Using the portal, which the SBS is creating in collaboration with 20 departments, businesses will be able to track their progress on licenses, permits, certifications, inspections, and violations and to make payments to the city and check the status of applications.

The proposed Online Business Portal offers an excellent foundation for a comprehensive, interactive system. But the NYC Business Engine needs to go beyond this system to track information and processes. The tool could be even more effective if it included all levels of government as well as nonprofit and for-profit programs specifically focused on helping existing small businesses to navigate the challenges that accompany growth. The tool should provide one-stop shopping for all phases of small business development.

Develop an online tool with comprehensive information on resources, regulations, and programs across all levels of government and all stages of business growth.
The NYC Business Engine should include information about all relevant city, state, and federal regulations, taxes, certifications, and mandates. To grow a business in the city, companies need a comprehensive system for managing the many regulations, licenses, and mandates that require compliance, as well as links to relevant program applications, courses, procurement opportunities, consulting services, and other resources. And businesses need to understand the entire context of government mandates and opportunities, not just those at the city level.

To help small businesses take advantage of public sector contracts, the database should include information about government procurement at the federal, state, and local levels, as well as the tools to qualify for and bid on these contracts. This system should include links to companies seeking co-bidders and subcontractors, with tools for collaborating on contracts. As with all online data systems, these tools should allow users to populate forms offline, with the option to upload materials at key points in the qualification and bidding process.

The database should also contain comprehensive information about the relevant services and programs offered by all levels of government, as well as offerings from nonprofits and other organizations. The database should eventually include information, online forms, and tracking capabilities for small business financing, subsidized consulting, essential business services like broadband and utilities, and programs to help upgrade facilities and lease or purchase equipment.

To unify data most efficiently, the city should leverage existing resources. Rather than build a new data warehouse for small businesses, the city should feed relevant data into the city’s DataBridge warehouse and SBS should pull information from DataBridge for the Business Engine. Business records could then be linked to buildings, utilities, and financial data already fed into DataBridge. The Mayor’s Office of Operations should work with SBS to ensure that its needs are included in the Citywide Data Integration Agreement plan.

Crowdsource ideas and evaluations through online peer networks.
The Engine should include a crowdsourced system of ratings and comments about the quality of programs. For small businesses to thrive, they should be able to benefit from the wisdom of the crowd, not left to fend for themselves in an environment with many programs and initiatives of uneven quality. For the first time in history, a tech-savvy city like New York has the opportunity to provide comprehensive, detailed information on the full range of programs available to its small businesses. Yelp, the consumer rating site for restaurants, hotels, and other goods and services, could offer a model for this system. A rating system could also offer invaluable feedback to providers and administrators on the quality of various programs and services.

These evaluations could be enhanced by topic-specific online question-and-answer forums, organized around specific sectors and issues. Public forums should follow the best practices of online professional communities, with protections against spamming and a system for upvoting helpful responses. Experts could be invited to offer advice or conduct online seminars and city agencies could turn to the online community for user testing.

Analyze user-generated data to identify inside-out reforms.
City officials should leverage the data gathered through this online portal to identify rules and regulations that are unnecessary, duplicative, or contradictory—and then propose their revision or elimination. The NYC Business Engine will offer a place where virtually all data relevant to small business is tracked. This data can help the city identify gaps in its services and programs, and understand how changes to the city’s regulatory environment affect businesses across all sectors.

An award-winning state program in Minnesota, the Board of Government Innovation and Cooperation, offers a model for how this could work. Under the direction of a statewide board composed of members from all three branches of government, public officials were encouraged to propose waivers of regulations—as long as they also proposed a new, better way to pursue the regulations’ stated goals. At the end of the waiver period, the agencies assessed how well the alternate approach worked. If the trial approach worked, the board submitted a proposal to the legislature to make it permanent. If the approach did not work, the agencies reverted to the old approach. The Minnesota program saved millions of dollars and sparked a wide range of rule revisions and interagency collaborations.

Develop new initiatives to help small businesses grow and expand awareness of existing small business programs.
New York City has a number of valuable small business assistance programs, including initiatives run out of the Department of Small Business Services and the Economic Development Corporation, and others managed by nonprofit small business assistance providers. But the majority of these programs are focused on entrepreneurs starting new businesses. The de Blasio administration should refocus its toolkit of small business programs to include more initiatives that help existing businesses to grow.

In addition, although New York boasts several good business assistance programs, some of them are not marketed sufficiently. Small business executives say they simply aren’t aware of the programs that exist.

One city program that could benefit from additional marketing is Strategic Steps for Growth, a small business capacity-building program developed by the Boston-based nonprofit Interise. Strategic Steps for Growth provides minority and women business owners with the knowledge, knowhow and relationships they need to grow their business. It is one of the few standout business assistance programs in the five boroughs that is specifically focused on helping small firms get to the next level. Using Interise’s curriculum, the program now operates in 70 cities across the country, run by local partners that are licensed to deliver it. Results are impressive, but the Strategic Steps for Growth program in New York consistently operates at less than full capacity. The program, which is operated by SBS and the Berkley Innovation Lab at New York University’s Stern School of Business, can accommodate 18 business owners, but enrollment averages between 15 and 16 firms in each cohort.

The de Blasio administration should initiate an extensive marketing campaign for the program. To increase interest, the administration should provide full funding, allowing SBS to reduce or eliminate the $1,500 fee for Strategic Steps for Growth. Seven other Interise partner programs now operate in New York City without charging fees.

Create incentives for banks and alternative lenders to make more small loans.
For many small businesses, the biggest obstacle to growth is financing. In the early days, many entrepreneurs are able to keep their business afloat with funds from their own savings, support from friends and family, funding from a microloan, or profits from operations. But to expand, small businesses need next-stage capital, which is often too difficult to secure. Although entrepreneurs and small business owners at all levels struggle to access capital, the biggest gap is for loans under $1 million—and often in amounts under $250,000. Unfortunately, there is currently little incentive for banks to make loans at $500,000, $200,000 or $75,000. It costs the same for banks to process these small loans as it does for a $5 million loan, yet the profit potential is significantly lower and the risks are typically much higher. Meanwhile, microlenders generally do not provide loans over $50,000, with the vast majority of their investments coming in under $5,000. City, state, and federal government officials should create new incentives that entice lenders to fill the gap between microloans and traditional bank loans.

Expand the Capital Access program.
The city’s Capital Access program guarantees up to 40 percent of eligible loans from participating lenders to small businesses. By providing the guarantee, the city reduces the risk for lenders and thus helps them make small loans they would not otherwise offer. The de Blasio administration could do two things to increase the number of loans made through the program. First, it should follow the lead of the SBA, which eliminated fees that it had imposed on lenders for every loan made through its loan guarantee program. Second, the de Blasio administration ought to consider extending the guarantee to 60 or 70 percent. Doing so would encourage lenders to make more small loans.

Deploy small business counselors to visit companies where they are.
Federal and city assistance centers offer help centers in all five boroughs, allowing entrepreneurs and business owners to seek advice without trekking to the Small Business Services headquarters in lower Manhattan. But the city-funded Business Solutions Centers and federally funded Small Business Development Centers focus on clients who come to them. The vast majority of small businesses owners are too busy running their firm’s daily operations to leave their own neighborhoods, especially during business hours.

It is time to further decentralize small business services. SBS should create a new unit with a roving band of business counselors who regularly visit neighborhoods and actively reach out to businesses there to query them about their challenges and proactively offer suggestions on resources. This mobile business assistance unit might spend several days twice a year operating out of each of the city’s 69 business improvement districts (BIDs), which typically represent hundreds of area businesses but lack the capacity to have technical assistance providers on staff. Along with merchants’ associations and other neighborhood-based business entities, BIDs would be well placed to provide a temporary home for the city’s new team of roving business counselors.

Develop programs that help immigrant-run businesses scale up.
In recent years, both the de Blasio and Bloomberg administrations have rolled out new programs aimed at supporting immigrant entrepreneurs. This makes a lot of sense, as immigrants start almost half of all small businesses in New York.
The time has come to focus on helping more of the city’s immigrant-run firms expand. One idea is to launch new programs that help immigrant-run firms reach customers outside of their own ethnic communities. When an immigrant-owned firm makes a deliberate attempt to go out of its comfort zone and reach new markets, the results can be impressive. The city should partner with organizations in immigrant communities to launch a new program—or expand successful efforts like the Immigrant Business Initiative, which was launched by SBS in partnership with Citi—to provide counseling on strategies to expand markets beyond their own communities.

Strengthen the city’s outreach and standards for small business procurement opportunities.
By dint of its massive scale, New York’s state and city government should offer a rich feast of procurement opportunities for small businesses in all sectors. But while the city sets important goals for contracting with minority- and women-owned businesses, many of which are small, it sets no specific goals for small firms overall. Too often, small companies do not benefit from discretionary purchases or gain access to subcontracting arrangements with larger firms. The city should make small business procurement a major priority.

To help small businesses compete for more contracts, the city should require more contracts to be advertised publicly. Currently, only contracts worth more than $100,000 are required to be published in the City Record. The city should mirror the state’s policy of publicizing contracts over $50,000.

The city should also consider new policies for discretionary purchases that would help more small MWBEs compete for government contracts. A new city rule enacted in March 2016 increased the micro-purchase limit for construction from $25,000 to $35,000. This rule change allows agencies to direct more contracts toward certified MWBE vendors. The city should monitor that policy and consider increasing the micro-purchase limit in other industries.

The ultimate goal is to increase both MWBE and small business participation in procurement. The federal government sets a general goal of 23 percent contracting with small businesses. New York state and city governments set no contracting goals. The city should consider creating a certification program and setting goals for small businesses, just as it sets goals for MWBEs (30 percent) and service-disabled veteran-owned firms (6 percent). The city should also reach out to banks and community groups, such as community development corporations, to offer bridge loans for companies doing public projects. Many public contracts do not pay until months after the goods or services are provided, putting small businesses in precarious financial situations.

Too often, federal and state governments goals for small business subcontracting are not enforced. Prime contractors simply need to state that they tried and failed to find appropriate subcontractors, without any real proof of effort. Although greater oversight might help rectify the situation, there are other options, too. The city should use its many resources—including the NYC Business Engine—to create a pipeline of small businesses appropriate for a wide range of jobs. When a company asserts that it has tried and failed to find a subcontractor, the city could then suggest five certified small businesses to do the work.

Create more customized training programs for small business workers.
For small business to grow, they need workers who are prepared with the unique mix of skills that those enterprises demand. However, there is a major disconnect between the current workforce development system and the needs of small businesses.

New York’s job training programs tend to be oriented toward large employers in a limited range of industries. To better connect workers with small businesses, workforce development providers could partner with community-based organizations to identify the varied needs of everyone-does-everything small businesses and develop tailored training curricula. The city should expand its support for such community-based training programs, which have the potential to better integrate local business into the workforce development system.

The Brooklyn Chamber of Commerce, Southwest Brooklyn Development Corporation, and Lower East Side Employment Network (LESEN) offer useful models of programs that connect hundreds of businesses and thousands of workers each year. In the case of LESEN, for example, In the case of LESEN, for example, a job developer works with seven different workforce development organizations to feed candidates to small businesses on the Lower East Side.

For many small businesses, hiring new employees presents an additional challenge of onboarding and training. Retooling the city’s workforce development system to better address the needs of small businesses should include programs that help businesses provide on-the-job training for new hires and retraining for existing workers as the company’s needs shift.

Help more small businesses access operations and logistics advice.
In a city as expensive and competitive as New York, small businesses need strategic advice and direction on key issues of operations and development. Too often, businesses struggle due to limited knowledge about attracting and training workers, production and distribution processes, navigating complex tax and regulatory systems, or marketing and sales.

The Industrial and Technology Assistance Corporation, a state-funded consultancy, provides below-market consulting services for companies in New York. Independent analysis of 200 ITAC clients have found dramatic improvements in labor productivity and operational efficiency, as well as investments in equipment and training. Surveys of those clients from 2011 to 2015 showed increased sales of $145.86 million, cost savings of $173.2 million, and 1,297 new jobs.

The city—perhaps in collaboration with the state or local banks or foundations—should establish a fund to encourage businesses to invest in high-level advice on their operations and logistics. Under a “pay it forward” approach, the program might front the money needed for consulting or training from vetted agencies or companies. In return, the participants would pay program fees from future revenues. If consulting services enable companies to grow, some of their new revenues could pay for the program retroactively. Companies could be rewarded for creating jobs with a partial forgiveness of the loans.

NYCEDC’s Fashion Manufacturing Initiative, which offers a free “mini MBA” in business operations, presents a promising model. Such programs could be made available to owners and managers of companies at all stages of development, with a special focus on the challenges of scaling up.

Identify new opportunities for tracking small businesses into underutilized real estate and for creating small business spaces in new developments.
One of the greatest challenges facing small businesses in New York is finding the right facilities to build and grow a company. Although there are many opportunities for start-ups and new companies, including an ever-expanding ecosystem of incubators and accelerators, it is extremely difficult for small businesses to secure the physical space necessary to scale up.
 
The city should begin by countering the long, steady decline in Class B and C office space, which offers ideal places for small businesses to expand once they have outgrown coworking environment and smaller offices. Since the turn of the century, the city has lost more than 1.6 million square feet of Class B and C space. Rather than allow these buildings to be converted to high-end Class A offices, luxury apartments, and hotel buildings—sometimes supported by tax breaks and subsidies—the city could offer incentives for both owners and tenants to improve these spaces.

The city could also develop a strategy for repurposing hundreds of storage buildings that dot the city from the Bronx to the Hudson Yards area to the BQE corridor. The city should explore incentives to convert these spaces to more varied commercial uses.

The city might also consider a linkage policy for commercial real estate, similar to that used in affordable housing development. In exchange for providing 20 percent of their floor space to below-market rents for small business, developers could enjoy certain tax, regulatory, and land benefits from the city. Such a program could be used to incentivize cluster development in isolated parts of the city that need boosts in business and employment.

Leverage the infrastructure investments of the state and city to foster better opportunities for small businesses.
The state of the city’s infrastructure poses both a barrier and an opportunity for small businesses.

New York’s rapid growth shows in the congestion of major streets and arteries. Small companies waste countless hours stuck in traffic on local roads as well as major arteries and highways, making it a struggle to get deliveries and to ship their products. Some of this congestion is unavoidable. But better street design, maintenance, and traffic flows could improve the system dramatically. The city should work with local business and community organizations to identify the hot spots of traffic congestion and implement changes that could improve traffic flow. Sometimes minor changes—like curb cuts, signal changes, changing speed limits, and policing—can dramatically improve circulation. Other problems are more difficult, requiring long-term planning for street design. In both cases, state and city authorities should work to reduce the times needed to get goods on and off the highways.

The design and management of street flows is a tricky business in all major cities. Adjusting traffic patterns can take years to achieve. Spurred by PlaNYC, the city has redesigned more than 70 plazas over the past decade—including Times Square in Manhattan, Jackson Heights in Queens, and Fulton Street in Brooklyn—to improve traffic and safety. Because these projects were labeled “interim” and used simple materials like paint and planters—and were supported by partnerships and strong data analysis—they required less bureaucratic wrangling than previous efforts. Partnering with business improvement districts and other community groups, the city should pilot such high-reward/low-risk projects to improve traffic flows and street traffic for small businesses.

At the same time, the state and city’s long-term transportation planners should consider creative ways to get New York’s small businesses involved with building 21st-century infrastructure. The city should actively reach out to small businesses—in design, materials, construction, and manufacturing, as well as finance and support services—to participate in the ongoing construction and maintenance of the city’s built environment. This outreach effort should begin with procurement, but not end there. Competitions, with substantial awards, could incentivize “moonshot” breakthroughs to make 3D-printed infrastructure parts, subway cars, energy-efficient buildings, and more. The DARPA challenge for self-driving cars could be a model. When designing the competition, the city can incentivize “coopetition”—a mix of competition and cooperation—by making key breakthroughs open to all participants in the process.

This report is a publication of the Middle Class Jobs Project, a research initiative made possible by the generous support of Fisher Brothers and Winston C. Fisher.

Previous publications in this series include “Making It Here: The Future of Manufacturing in New York City” (July 2016), “Jobs in Transit: Opportunity in the Transportation Sector” (September 2016), and "The Rise (and Fall) of Middle Wage Industries in New York City" (May 2016).

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