The community role in business success
Small businesses are the backbone of local economies, yet their failure rates remain sobering. According to the U.S. Bureau of Labor Statistics, approximately 20% of small businesses fail within the first year, and nearly 60% don’t survive past their fifth year. In small-town America, these challenges are even more pronounced.
Many entrepreneurs start with passion, limited budgets, and strong work ethics. They hope word-of-mouth marketing will drive growth, exceptional customer service will differentiate them, and hard work will overcome obstacles like suboptimal
locations. However, “hope” makes for a poor business strategy. The question becomes: What responsibility does a community bear in fostering business success?
Studies consistently show that locally-owned
businesses recirculate 48% of their revenue back into the local economy, compared to just 14% for chain retailers. For every $100 spent at a local business, approximately $68 remains in the community. The same $100 spent at a national chain keeps only $43 local. This “multiplier effect” means each dollar circulated locally generates 3-4 times the economic impact.
Communities that understand this economic reality prioritize local spending through intentional policies and practices. Here are evidence-based approaches for communities seeking to strengthen their entrepreneurial ecosystems:
Forward-thinking communities implement formal “buy local first” policies for government procurement. A study by the Institute for Local Self-Reliance found that municipalities with such policies experienced a 3.6% increase in independent business revenue compared to those without. These communities examine every expenditure through a local-first lens, understanding that the tax dollars kept within community boundaries circulate repeatedly, creating economic resilience.
Action steps for community leaders include establishing local preference policies with specific thresholds and criteria, conducting regular procurement reviews to identify local sourcing opportunities, creating local vendor databases accessible to all municipal departments.
Communities with the lowest business failure rates have robust support ecosystems. According to the Federal Reserve Bank, areas with strong business support networks see 11% higher small business survival rates over five-year periods. These networks should include low-cost business incubation spaces (which reduce overhead by 40-50%), mentorship programs connecting new entrepreneurs with experienced business owners, accessible microloan programs (businesses with such support have 10-15% higher survival rates), coordinated technical assistance addressing common failure points.
While many communities chase major employers or manufacturers, the data suggests a diversified approach is more sustainable. Ten new businesses opening annually with 3-5 employees each equal one 150-250 employee company arriving every five years — but with significantly reduced risk and greater community engagement.
Research from the Economic Innovation Group found that communities with diverse small business growth experienced faster economic recovery from recessions and greater resilience during economic downturns. Additionally, these new
businesses typically request fewer tax breaks and contribute more actively to community initiatives.
Tourism represents significant economic potential for communities of all sizes. The U.S. Travel Assoc. reports domestic travelers spend an average of $144 per day when visiting small towns. When communities can attract just 500 additional visitors annually, that represents over $70,000 in new spending — often during otherwise slow economic periods.
Communities needn’t be traditional tourist destinations to benefit from visitor spending. Research from Main Street America shows that towns highlighting authentic, unique local experiences saw tourism increases of 12-18% after implementing coordinated marketing strategies. In the post-pandemic environment, regional travel has increased by 17%, creating opportunities for small towns to capture visitors seeking distinctive experiences closer to home.
Communities that implement these strategies systematically show measurable results. Results include reduced storefront vacancy rates (typically 15-20% lower than comparable towns), increased sales tax revenues (8-12% higher than regional averages), greater business diversity and resilience during economic downturns, stronger community identity and pride
The data is clear: when communities actively participate in business development rather than passively hoping entrepreneurs will succeed on their own, economic outcomes improve significantly. Communities can either compete effectively in today’s economic landscape through intentional support systems or watch their downtowns and business districts slowly erode. Which path will your community choose?
Email Newby at john@truly-local.org