ICIC builds ecosystem for small businesses
In 1994, when Harvard Business School Professor Michael Porter founded the Institute for a Competitive Inner City, decades of capital flight had taken a toll on Boston’s neighborhoods, leaving many without basic amenities such as supermarkets and drugstores.
Porter’s idea, that city neighborhoods populated by blacks, Latinos and low-income whites had untapped purchasing power and labor markets, ran counter to what many business leaders seemed to believe. But Porter’s idea hit at the right time, as Boston planners and neighborhood activists pushed for more businesses, and corporate headquarters greenlighted expansions into long-neglected corners of Boston.
Twenty-five years later, Porter’s original idea is widely accepted, as is evidenced by the proliferation of national chain stores from South Bay to Mattapan Square.
Now helmed by former State Treasurer Steve Grossman, ICIC has trained its sights on the undercapitalization of businesses owned by people of color.
“ICIC’s mission has evolved,” Grossman said. “So we now are talking not only about how we can help businesses in inner cities realize their full potential by giving them the tools and the skills they need, but we’re also talking about communities whose businesses don’t have the resources they need to accelerate growth, to access the capital that they have not been able to get.”
Diego Portillo Mazal, who manages ICIC’s Inner City Capital Connections program, said half of the business owners he works with say they have been turned down when attempting to access capital.
“A good number tell us they haven’t even tried,” he added. “They’re more likely to tell us they wouldn’t even get it [if they tried].”
Building business ecosystems
Launched in 2014, ICIC’s Inner City Capital Connections initiative started in three cities and included 150 companies. Today it operates in 14 cities and is expected to serve more than 900 companies. The program helps companies with access to capital, capacity-building, coaching, networking and access to contracts.
“What we see is a lot of businesses that were started by someone because they knew how to do something — how to bake, how to sell books or make clothing, and they decided they were going to put out a shingle,” Portillo Mazal says. “They employ themselves and family members. Now they’re at the point where they employ 10 or 12 people and they’re saying, ‘This is the first time I’ve had to think about how I position this as a business.’”
Helping those businesses to grow aligns with ICIC’s goal of narrowing the racial wealth gap.
“How do you do that?” Grossman says. “For us it’s creating viable, sustainable, healthy small business ecosystems.”
At the organization’s annual conference, businesses are able to network with each other, opening up opportunities for them to make sales across the country.
“They can do business anywhere,” Grossman says. “If you’re a bakery, and you’ve got a product you think you can sell online, somebody’s got to teach you how to do that — how to use social media to market your product.”
ICIC relies on referrals to enroll companies in its program, using groups such as the Urban League of Eastern Massachusetts. Grossman has also leaned on local luminaries, including District 7 City Councilor Kim Janey. Janey nominated 10 businesses last year, including Frugal Bookstore in Dudley Square.
Participants in Inner City Capital Connections are given what Grossman calls a “mini-MBA on steroids” through 40 hours of coaching, during which the business owners are given access to experts in a range of areas.
The entrepreneurs attend an opening full-day seminar with classes led by business school professionals. Throughout the program and after, they can access webinars geared toward helping them surmount business challenges. Participants also receive one-on-one coaching. The program ends with the national conference, where participants can hone their pitches for capital. They’re also able to network with other businesses from the 14 cities in the program.
“Once they graduate, they become part of the Inner City Alumni Network, which is all about continuing education and networking,” Grossman said.
Through all of its programming, ICIC has trained 2,221 businesses since 2005. Those businesses have seen an average revenue growth of 160 percent and collectively raised $1.29 billion in capital.
Members of the Boston cohort of the Inner City Capital Connections program, which includes other eastern Massachusetts cities such as Worcester and Lowell, have created 1,500 new jobs and raised more than $45 million in capital, Grossman says.
Over the last 25 years, he notes, banks have become more willing to loan to small businesses. Social impact investors — investors looking to support businesses that promote social good with modest returns on their investment — and crowdfunding also have served to increase access to capital for local businesses.
“Lenders are more confident that inner city lending or investing can earn a profit, a return on the investment,” Grossman says. “And that’s a big change from when we started this project.”
Pushing for procurement
Other initiatives ICIC is advancing include a push to get large institutions located in cities to contract with minority-owned businesses. Dubbed “anchor institutions” by Porter, hospitals, universities and other large employers can create more jobs in local communities by extending contracts to minority- and woman-owned firms.
“For every $1 million of procurement locally, it creates six to eight jobs,” Grossman says. “It’s hard to get anchor institutions to change their purchasing habits because they have a lot of national contracts. They think it’s more expensive to deal locally, you have to use more suppliers, and many of these companies have shrunk their procurement departments down, so it creates more work for them.”
But, Grossman argues, the societal benefits are worth the extra work.
“The benefits far outweigh whatever extra costs or expense in what would be involved in purchasing from local companies,” he says.
Grossman says ICIC’s victories so far show that narrowing the racial wealth gap is possible.
“We’ve got a long way to go,” he says. “Narrowing the racial wealth gap, dealing with the challenges of businesses in under-resourced communities — this is a long-term set of challenges. But the growth, the quality jobs, the access to capital, at least demonstrate to us that we’re on the right track. And we’re hoping that as we grow in impact and the alumni network continues to relate to each other — that kind of connectedness breaks down barriers.”