Locating a small business: The trade-offs between roots and opportunity

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There is a positive association between the density of small businesses and the economic performance of a given location (Rupasingha, 2016). That is mainly because small business owners tend to stay home and spend their money in the local economy. Consider large companies like Walmart that suck away money from local economies in the form of huge profits. Not surprisingly, towns and cities are on to this, and so they do all kinds of things to try to encourage the establishment of small businesses locally.

Roots, especially family and friends tend to limit the mobility of entrepreneurs. Entrepreneurs’ social network and nearness to family and friends determines business location (Dahl & Sorenson, 2009), but not necessarily success (Berchicci et al, 2011). There is some evidence that family businesses perform better over the long run because they tend to survive longer than non-family firms—but this does not imply staying put in the home town or city is best. Some explanations by business scholars focus on the well-being and resiliency that families can bring to business (Powell & Eddleston, 2016), but the evidence seems mixed.

One issue is that entrepreneurs often want to locate their business where there is both demand and weak competition. This can pull them away from home. However, this perspective is usually the artifact of an entrepreneurs passion for a particular small business type, e.g. “I want to open a yogurt shop but I want to be an early mover in a city nearby rather than be the 10th shop to open here”.

Small business entrepreneurs seeking to run their business near their homes can still benefit from an opportunity perspective that looks beyond the best location for their business. For instance, an entrepreneur’s passion for a particular business type may limit options in a city lacking demand or having heavy rivalry between existing competitors. Entrepreneurs should have a passion for entrepreneurship and should not limit themselves to what they know or think they know. Some recent research shows that age and firm growth are negatively associated mostly when aging entrepreneurs focus too much on what they already know (Gielnik, Zacher & Schmitt, 2016)

This all suggests that entrepreneurs need to stretch their passions and look at entrepreneurial opportunities in related industries. At LaunchScore, we suggest the best cities to start each of 800 types of businesses, but we also estimate the best business types to open in a particular city. For example, we were recently feature in the local news in Columbia, MO for our list of best business opportunities there. We have lists for 750 U.S. cities, chances are, you are among the more than 200 million people living in these cities, so come check us out and see what our statistical analyses suggest are the best business to open in your city.

References

Berchicci, L., King, A., & Tucci, C. L. (2011). Does the apple always fall close to the tree? The geographical proximity choice of spin‐outs. Strategic Entrepreneurship Journal, 5(2), 120-136.

Dahl, M. S., & Sorenson, O. (2009). The embedded entrepreneur. European Management Review, 6(3), 172-181.

Gielnik, M. M., Zacher, H., & Schmitt, A. (2016). How Small Business Managers’ Age and Focus on Opportunities Affect Business Growth: A Mediated Moderation Growth Model. Journal of Small Business Management.

Powell, G. N., & Eddleston, K. A. (2016). Family Involvement in the Firm, Family‐to‐Business Support, and Entrepreneurial Outcomes: An Exploration. Journal of Small Business Management.

Rupasingha, Anil. (2016). Local Business Ownership and Local Economic Performance: Evidence from US Counties. Regional Studies.