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Advantages of Creating Small Businesses in Local Communities

13 June 2023

Last week, we discussed the challenges associated with launching a small business in small local community. This week we explore the great reasons to launch a business in smaller community despite some of the obstacles that may be faced.  Small local businesses play a crucial role in fostering economic growth and development in communities of all sizes. While larger cities often attract significant attention for their commercial activities, smaller communities can also benefit greatly from the establishment and support of small local businesses. From enhancing the local economy, employment opportunities, promoting community cohesion, and sustainability, small local businesses provide a range of positive impacts that contribute to the overall well-being and prosperity of smaller communities.


Small local businesses contribute to the economic growth of smaller communities in several ways. They generate local income and employment opportunities. According to a study by Civic Economics, on average, 48% of each purchase at local independent businesses recirculates within the community, compared to just 14% for chain stores. This means that a larger portion of revenue generated by small local businesses stays within the community. For communities that rely on sales tax to survive, this is a huge benefit and certainly increases local economic activity.


Small local businesses often source their supplies and services locally, thus strengthening inter-dependence among community members. A research study conducted by the Institute for Local Self-Reliance found that independent retailers tend to procure their goods and services from other local businesses, thereby creating a multiplier effect on the local economy. This increased economic inter-dependence can lead to a virtuous cycle of growth, increased sales tax revenue, and new investment within the community.


Small local businesses are important generators of employment opportunities, particularly in smaller communities. According to the U.S. Small Business Administration (SBA), small businesses accounted for 64% of net new private-sector jobs between 1993 and 2011. These businesses provide diverse employment opportunities, often hire locally, reducing commute times, and foster a sense of belonging and community pride.


In addition to jobs, small local businesses offer a greater level of job stability than larger corporations. A study conducted by the Economic Policy Institute found that small businesses are less likely to engage in mass layoffs during economic downturns compared to large corporations. This resilience helps maintain a stable employment base, thereby reducing unemployment rates and enhancing community well-being.


Small local businesses play a vital role in building and strengthening community cohesion and social capital. They often serve as gathering places where community members interact, fostering social connections and a sense of belonging. A study published in the Journal of Rural Studies found that locally owned businesses create a sense of place, enhance community identity, and contribute to a stronger social fabric.


Small local businesses are more likely to support community initiatives and give back through donations and sponsorships. A survey conducted by the American Independent Business Alliance revealed that independent businesses donate between 2-3 times as much per sales dollar to local causes compared to larger chain competitors. This philanthropic support strengthens community bonds and promotes the overall well-being of the residents.


Creating small local businesses in smaller communities can contribute to environmental sustainability. These businesses often have a smaller ecological footprint compared to larger corporations, as they tend to source locally, minimizing transportation-related emissions. Additionally, small local businesses are more likely to adopt sustainable practices due to their closer connection to the community and the environment.


A study by the Journal of Industrial Ecology found that small businesses, particularly those in local food production and retail, have a lower environmental impact per unit of output compared to larger firms. This is due to practices such as organic farming, reduced packaging waste, and shorter supply chains. By supporting small local businesses, communities encourage adoption of environmentally friendly practices, contributing to a more sustainable future.


As you can see, small local businesses are the lifeblood of smaller communities, without them, those communities would wither away over time. While landing a large employer can boost your economy, local leaders must adopt policies encouraging the creation of local businesses. Communities that figure this out will have a huge advantage over their competitors and other like communities. Don’t delay, time is your enemy, the future is now, grasp it and you will win, fail to grasp it, and your community will not survive in the way we all want for future generations.


John Newby is a nationally recognized Columnist, Speaker, & Publisher. He consults with Chambers, Communities, Business & Media. His “Building Main Street, not Wall Street,” column appears in 60+ newspapers and media outlets. As founder of Truly-Local, he assists chambers, communities, media, and businesses in creating synergies that build vibrant communities. He can be reached at: John@Truly-Local.org.