Unsexy Entrepreneurship

I’m currently on a flight back from Louisville, where I was honored to be invited to present Kiva Zip to a conference of mayors representing cities throughout America. The conference was organized by the Kauffman Foundation, and the focus was on entrepreneurship. In his opening address, Dane Stangler (from Kauffman) highlighted some reasons for pessimism about the future of U.S. entrepreneurship – for example, the concerning downward trends in small business creation rates over the last two decades.

Entrepreneurial activity in decline...

But he also posited some reasons for optimism. One such reason was the growing proliferation of accelerators and incubators focused on, well, accelerating and incubating entrepreneurs – Up Global, 500 Startups, Three Day Startup, etc. Now don’t take what I’m about to write the wrong way – I think these organizations, and this movement, is awesome. Its orientation towards action and lean startup principles are proving highly effective and valuable for the entrepreneurs they are supporting. And it provides a welcome contrast to traditional technical assistance, which is, at times, at risk of becoming overly formulaic and academic.

Sexy incubators

But at Kiva Zip, we observe two things:

Firstly, that (as Josh McManus from the Knight Foundation eloquently put it at the Mayors Conference on Entrepreneurship) “in a city like Detroit, where 85% of the population is African-American, the populations of these incubators is overwhelmingly ‘whitewashed’ “.

And secondly, that this movement only really addresses the tiny minority of America’s 25 million entrepreneurs that are extremely high growth, usually technology-focused, and “sexy”.

On the first observation, where African-American and Latin-American entrepreneurs are three times more likely to see their small business loan applications declined than their Caucasian counterparts, we are proud that 60% of the Kiva Zip loans we have made over the last three years have been to ethnic minority entrepreneurs.

But in this blog post I want to focus on the second observation. Because attending this conference really helped me realize that, while we are excited for Kiva Zip to continue supporting some high-growth, “sexy” startups, they are not our focus. Rather, our focus is on coffee shops and barbershops, on cleaning companies and plumbers, on Etsy artisans and Ebay sellers, on taco trucks and fashion trucks, and on small-scale farmers and food producers. These small businesses might be conventionally classified as “unsexy”, but we see them creating and sustaining millions and millions of jobs, injecting color and character into our neighborhoods and communities, and representing the vast majority of businesses in America.

A little bit of everything

We believe that a healthy economy needs both “sexy” and “unsexy” small businesses. The rapidly-growing tech startups may turn into AirBnBs, Lyfts and Pinterests, creating thousands of jobs. But their employees will get their clothes dry-cleaned, their nails done, and their coffees brewed at the small businesses in their neighborhoods.

While it might seem to the economic development department of a city (or the country) that the pursuit of both these ends of the entrepreneurial spectrum could be conflicting or distracting, the encouraging thing is that there is actually important synergy between the two worlds:

Firstly, in a positive way. I don’t know many Square, Google or Yelp (or more nascent startups) employees who would choose Starbucks over an artisanal local coffee shop. Entrepreneurs appreciate other entrepreneurs – even “unsexy” ones. I also suspect that where cities foster a vibrant and thriving bedrock of “neighborhood entrepreneurs”, they forge a cultural fabric of creativity and diversity that is also conducive to more “sexy” entrepreneurship. And of course, let’s not forget that the core customers of Square, Google and Yelp are those millions of “unsexy” entrepreneurs.

And secondly, in a more ominous way. In San Francisco, there has been significant friction in recent months and years, between big tech companies and existing residents, who are concerned by rising rents and costs of living. If we (collectively) refrain from investing in the small businesses, and associated economic vitality, of neighborhoods like San Francisco’s Tenderloin (where Twitter and Square recently moved their headquarters to), Chicago’s South Side, Pittsburgh’s Homewood, or Louisville’s Shawnee, their economic marginalization will bring growing problems of crime, poverty and social immobility. In cities that neglect “unsexy” small businesses, the tensions we are currently witnessing in San Francisco will escalate, stymying the expansion of these high-growth companies, and making these cities less attractive places for these companies to locate into. Cultivation of high-growth entrepreneurship must go hand in hand with support for neighborhood entrepreneurship. And the development of an ecosystem for neighborhood small businesses will handily and symbiotically accelerate the development of high-growth, high-tech companies.

So how does Kiva Zip fit in?

Over the last three years, we have certainly supported high-growth entrepreneurs on Kiva Zip. In July 2013, we made a $5,000 loan to MakersKit, endorsed by Zaarly. In the words of co-founder Mike Stone, the injection of capital “helped us grow faster and better than we could have ever imagined”. MakersKit went on to raise $1.5M in seed funding to rapidly expand their business. And Matt Wilkins, creator of Pedal Forward (who received a $5,000 Kiva Zip loan in August 2014), recently shared the stage with Bill Clinton at the Clinton Global Initiative in New York, because his company was deemed to have so much exciting potential.

Pedal Forward

Many superficially “unsexy” businesses can also produce rapid growth in revenues and employment. One Kiva Zip borrower in Oregon borrowed $5,000 to upgrade his equipment, and then won government contracts worth over a million dollars. And Victor, one of our first ever cohort of six borrowers, borrowed $5,000 to open Cafeto coffee shop in early 2012, and has since opened another coffee shop (partly funded by a larger, $10,000 Kiva Zip loan), and (just last week) a full-scale restaurant in South San Francisco. Collectively, this one Kiva Zip borrower, and his three establishments, have now created 15 jobs. On the Kiva Zip team, we’re encouraged by these success stories, and the analogy with the venture capital business model, which is sustained by the tiny minority of investments that “go big”.

Victor

But the vast majority of the small businesses funded by Kiva Zip will never take over the world. They will remain small. But they will provide jobs and incomes for their small number of employees, and a significant source of pride and passion for their hard-working, entrepreneurial owners. And they will infuse life and energy into the street corners and commercial corridors that they culturally and economically enhance. These neighborhood entrepreneurs might be “unsexy”…but on the Kiva Zip team, we’re pretty turned on.

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Posted by Jonny Price, Senior Director, Kiva Zip

Oct 29, 2014

Jonny first came to Kiva in 2009 as a volunteer on a 5-month externship from his management consulting firm Oliver Wyman. After 6 years at Oliver Wyman, first in London and then in San Francisco, he joined Kiva full-time in September 2011, to lead the Kiva Zip program. Jonny is married to Ali, who he met at Kiva, and occasionally you may glimpse them cycling their tandem through the streets of San Francisco. He graduated with a BA in History from the University of Cambridge, where he represented his college at 14 sports (although 3 of these were table football, pool and chess).

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