The best cities and the most effective mayors are addressing these problems head on. Once they do, inner city business development can thrive. For example, in my hometown of Boston, we have an unusual situation. Economic growth in the inner city is outpacing growth in the rest of the city (for our working definition of an inner city, see "What Is an Inner City Company?" on page 94). Mayor Thomas Menino deserves a good deal of credit for this feat. Recognizing that inefficient government departments and processes were stifling entrepreneurship, Menino streamlined city licensing procedures and created the BackStreets program as a one-stop shop to serve the needs of the city's more than 4,000 business owners. Mayors nationwide should follow his lead.
Old Perceptions Die Hard
Despite the Inner City 100 and other evidence on inner city economic potential, business development in inner cities is also limited by persistent negative perceptions. One myth that persists: Inner city residents make bad employees. Fortune 1000 representatives, asked in a survey what they considered the biggest obstacle to increasing business development in inner city areas, responded that they perceived the main barrier to be an undereducated or unskilled work force. Yet Inner City 100 entrepreneurs who actually operate there consistently tell us that local residents make loyal and diligent employees and directly contribute to business success. In fact, many of the 2005 Inner City 100 winners ranked the availability of a diverse work force as the top advantage of their location. The average employee turnover of these businesses is 15%, compared with the national average of 25%.
Misperceptions also endure about the extent of crime in inner city areas. Of course, crime remains a concern. But public safety officials across the country have made substantial progress in the past decade in reducing urban crime. Moreover, the impact of crime on businesses is often overstated. In 2005, only 11% of Inner City 100 companies cited actual crime as a serious problem. Yet some 27% said the perception of crime caused them grief. In other words, it was a barrier in recruiting employees or it made a potential customer reluctant to do business with them. Many inner city businesses are a force for change in improving public safety. Perhaps the most dramatic illustration of this is Sneaker Villa (No. 54), a retail chain with locations in cities such as Philadelphia and Pittsburgh that participates with local police in a "Turn Your Guns In" program that swaps guns for Sneaker Villa coupons.
A third misperception is that the inner city is not a viable market because residents are poor. Yet the retail market in the inner city is worth $90 billion a year, and the national inner city population is equal to that of the state of Texas. Because of the high population density of inner city areas, average resident retail spending is $36 million per square mile, compared with $3 million per square mile for the rest of the metropolitan area. Yet many retailers and financial services providers have not addressed this obviously underserved market, though there are emerging signs of progress.
Business services companies have largely overlooked the inner city market too. They are missing the fact that, according to our latest research, more than 814,000 businesses make their homes in inner cities -- 80,000 of them with annual sales of more than $1 million. Both debt and equity providers have been slow to seize the opportunity to provide start-up and growth capital to these businesses, despite the fact that the average bankruptcy rate among inner city businesses is only one-tenth of a percent higher than it is in the rest of metropolitan areas.
A good example is Miami-based military housing contractor Kira (No. 95). It took Kira three years to get its first line of credit. As many as 24 banks in Florida rejected the company, until finally a bank in Washington, D.C., agreed to extend it a modest $100,000 credit line. Today Kira's credit line is $10 million, and its annual sales top $20 million.
Why These Companies Matter
In many ways, inner cities represent a microcosm of the emerging American economy, and that is why the health of the growth companies that take root in these neighborhoods is a matter of national, rather than local, concern.
The diverse, multilingual, multiracial, immigrant-friendly nature of inner city communities means that they are a window onto the future. Every minute an entrepreneur spends worrying about parking or a building permit, he or she is not figuring out how to expand the business and, with it, the well-paying jobs that transform urban neighborhoods.
If negotiating with community groups over land usage drags on, then there is less time to learn how to best serve local consumers.
The strategic location of inner cities aligns with the demands of a high-service, just-in-time, integrated, global business environment. And yet if a city's transportation infrastructure bypasses urban neighborhoods, or if trucks are not able to get to warehouses, then companies cannot derive the benefits of a central location.
If we can shed old perceptions and focus on the economic opportunity in America's disadvantaged communities, the stubborn challenge of reducing economic inequality can be met. Changing minds is never easy or immediate. But if this can be done it will unleash the nation's most effective jobs program, and its strongest safety net. We need to build on the greatest American strengths -- entrepreneurship and the market system -- and extend the fruits to every citizen.
