We’re working against a hard, ingrained problem that’s existed since before we were founded – it’s the problem of building and shaping an economy that first and foremost creates good-quality jobs. In the introduction to PCV’s first social impact report from 1999, our founders Bud Colligan and Penelope Douglas wrote, “No one could ask for more business activity than the country has seen in the last eight years, and yet lower-income people are not any better off. While the Bay Area economy has flourished over the last decade, many communities have failed to truly benefit from this wave of prosperity.”
This year the U.S. unemployment rate dropped to a 17-year low, and thanks to state and local minimum wage increases, real incomes rose slightly for the first time in decades. Yet almost half of American workers are stuck in low-wage jobs at places like strip malls and fast food restaurants. The number of small businesses is at an all-time low, and race or where you’re born are the biggest factors for financial success in life. It’s a tale of two Americas, where far too many workers and communities are being left behind.
This year is Pacific Community Ventures 20th anniversary. Here’s what we’ve learned after two decades on the front lines of the CDFI and impact investing movements.
Small Businesses are the Bellwether of Prosperity
Small businesses are important job creators in America. There are approximately 5.6 million small business owners in the U.S. who collectively employ 32.5 million people. That’s more than work in all federal, state, and local governments combined. It’s not just the number of jobs that small businesses create, though. Small businesses create enduring, quality jobs with living wages and growth opportunities for workers that can’t be off-shored or shed only because of shareholder demand.
Building a successful small business involves overcoming many challenges, and it’s even harder if you’re new to the country or don’t have money from your family to help you get started. Our friends at The Association for Enterprise Opportunity have found that 2.2 million small business owners from underinvested communities are declined by banks for loans every year. African-American women are 300% more likely to launch a new business than a white person, and Latinas are 180% more likely – but both groups are also far more likely to fail. They’re 3-5 times more likely to be denied loans from traditional banks and have to turn to predatory online sources or fold their ventures.
It’s Not Just Financial Capital That Matters
Small business owners need more than money. They often want help in areas less familiar to them but don’t have access to affordable advisors or the kinds of business networks that can help. The actual day-to-day needs of growing your business, and making that growth sustainable, are beyond the skills of any one person. For example, you may have made a name for yourself and at farmers’ markets around the area, or maybe with a food truck or popup. But now that you’re ready to open a storefront, how do you find investors? Write a business plan? Offer benefits? Navigate city permitting? And who has the time for all this?
Nearly half of women and one-third of minority small business owners say they lack available mentors — yet its the new business owners with a mentor who are the ones that make it — literally double that of non-mentored businesses. In fact, during the first year of the Recession the companies we invested in and paired with free advisors actually had job growth levels at 12%, while average companies across California and in every other state reported job losses.
Our founders connected the dots: small businesses are the engine of quality job creation in America, the heartbeat and character of our communities. The bakery that makes your favorite muffins, the store that sells those one-of-a-kind-shirts you love, the coffee shop you go to every weekend. That list goes on and on. Small businesses make your neighborhood, town, or city unique, but too many of them fail because they can’t access the resources they need to succeed. Pacific Community Ventures was an innovation that provided venture capital, mentorship, and networks to Main Street businesses looking to grow and create jobs.
Small Business Owners Don’t Need Political Lip Service
Small local businesses play a central role in healthy communities and are among the best engines cities and states have for advancing economic opportunity. Small business ownership has been a pathway to the middle class for generations, and continues to be a crucial tool for building wealth and community self-determination. Contrary to popular perception, the decline of small business isn’t because local businesses aren’t competitive. In many cases, it’s because public policy and concentrated market power are working against them.
In the last year we’ve read an avalanche of stories about states and cities clamoring to give massive multi-billion dollar tax breaks to corporations like Amazon just to land a few thousand jobs, while support for local businesses and communities disappears. This is all a race to the bottom: most of today’s distressed communities have seen zero net gains in employment and business establishment since 2000. In fact, more than half have seen net losses on both fronts.
CDFIs and community impact investors like Pacific Community Ventures are doing our part to build a better economy for workers and for businesses. But our quality jobs problem is too large and complex for the social sector or individual businesses and investors to confront on their own. While small businesses are the biggest source of job creation, government programs can incentivize investment that leads to more jobs and to higher quality jobs.
Politicians at all levels routinely praise small businesses, but states actually give big businesses 70 percent of “job creating” tax cuts and incentives and 90 percent of the dollars — and a lot of those deals and awards have barriers to entry that exclude small businesses entirely. To build strong economies, states should focus on producing more home-grown small businesses and on helping young firms already located in the state to grow. Economic development policies that ignore these fundamental realities about job creation are bound to fail working families. If we help empower small business owners to increase their competitiveness while at the same time creating quality jobs with better wages, then every community and worker in America benefits.
Investing Should Start With the Community
When we talk about overcoming structural barriers to creating good jobs in underinvested communities, we’re talking about unwinding a very real history of racism and sexism in public and private investments, and getting past the idea that corporations and investors should do nothing but maximize shareholder profits at every turn. Those mentalities led to things like red lining (blocking investment in communities of color) and off-shoring middle-class jobs to exploitative low-wage parts of the developing world.
Pacific Community Ventures believes that we all play a role in creating equitable communities, where everyone has access to a good job, healthcare, affordable housing, and healthy food. We were one of the first investors to prove you could create social impact and environmental good with your money while also making a return on your investment. When we started our work two decades ago we called that practice “community investing,” which later came to be called “impact investing.”
Our ideas worked. And for more than twenty years we’ve used what we’ve learned to show investors, pension funds, foundations, and others how to put their dollars to work benefitting working families, our environment, and our local communities. And we weren’t the only one. Around the same time, many like-minded investors, businesspeople, and policymakers began to see the declines in real wages and the increasingly real threat of climate change, and arrived at a new path.
Coined by Antony Bugg-Levine and former PCV board member Jed Emerson, impact investing is built on the belief that private capital can play a powerful role in solving the massive global challenges of our day, and that capital markets should work for good as well as profit. This vision is realized through investments made into companies, organizations, and funds with the intention to generate measurable social and environmental impact alongside a financial return.
What the Next 20 Years Holds
This all ties back to the big reason we support small business owners: good-quality jobs. Imagine what life is like when you don’t know where your next paycheck is coming from, or knowing that your current paycheck doesn’t pay the bills for yourself or your family.
Pacific Community Ventures knows that with equitable investments in small and socially-conscious businesses we can create jobs with good wages, benefits, and other aspects like profit-sharing and flexible schedules. Investors and the businesses they support should strive to foster incremental improvements in job quality, raising standards in deliberate yet meaningful ways for employees. Improving job quality for workers can help businesses in achieving better financial results and have a ripple effect on bottom lines and local economic growth.
So where do we go from here?
Investing in good-quality jobs and stronger, healthier communities has been woven into our DNA from the very beginning – and we’re only adding more fuel to that drive. In the last year, we’ve received investments from the New World Foundation’s Quality Jobs Fund, JP Morgan Chase’s Entrepreneurs of Color Fund, Citi Group’s Community Progress Makers Fund, and the CDFI Fund at the US Treasury Department, among many others. These investments are accelerating our work.
We’ve launched a national initiative to engage foundations, CDFIs, and other impact investors — as well as policymakers, community advocates, government, and business — around the idea that, as a society, we simply must do better at creating jobs that are good for workers, good for businesses, and good for communities.
PCV has conducted field-leading research around quality jobs (Moving Beyond Job Creation, 2016; and Public Policy and Investments in Quality Jobs, 2017), and we’re now piloting Good Jobs, Good Business: a practical toolkit to help small business owners create jobs that boost the bottom line. The toolkit provides practical solutions and examples for boosting revenues and reducing staff turnover by creating jobs that pay higher wages, offer benefits, provide stable schedules, and help employees build both skills and wealth. We’re planning to pilot the toolkit with small businesses in the retail sector. More than one in ten Americans work in retail — more than are in manufacturing, construction, or mining — but the industry also currently has a high concentration of low-quality jobs.
Getting capital into the hands of job-creating small businesses who have been let down by the traditional financial system is another major priority: we’re growing our funding program to fill the “missing middle” – that space between startup capital and the larger amounts that banks will provide – and focusing on women business owners, business owners of color, and business owners from underinvested areas. Those business owners will also work with our pro bono mentors to implement Good Jobs, Good Business, and what we learn along the way will be shared with CDFIs across America to help them in their own work advancing good-quality jobs.
While we work with small businesses and community organizations to create good-quality jobs, we’re also ramping up our work with investors across America to shake up the status quo and re-shape investment markets and policies to better serve working families, our environment, and our local communities. Our work over the next five years will unlock the potential social impact of tens of trillions of dollars in capital. That means working with mission investors and foundations, pension funds, investment managers, and faith-based investors to deploy more impact capital, more effectively, in economically distressed communities, with selective field building research that ultimately drives more impact measurement and management.
There’s no one cause behind rising inequality and the expanding number of working poor. Stagnant wages, rising housing costs, expensive and segregated education, policies that favor globalized corporations over local economies, neglected transportation infrastructure — it all adds up. At PCV we’re investing in a new quality jobs economy as a way to help turn the tide. We hope that you will join us in this journey.
The full and original article can be viewed on PacificCommunityVentures.org
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