Carolina Reid

English

Research Papers in Economics

W
hen Aregawi first came to the United States 
in 1993, he quickly realized he was a long way 
from his hometown of Addis Ababa. Arriving 
to San Francisco’s dense fog and chilly night 
sky in the middle of summer, the first shock was the weather. 
The second was the paucity of living wage jobs available to 
him, despite his engineering degree from Ethiopia. “[The 
ministry that helped us come to the U.S.] provided us with 
housing and living assistance, but the job counselors kept 
pointing me towards jobs in janitorial services or the food 
industry.  I  kept  thinking  that  cleaning  toilets  would  not 
make me a better life. I wanted to start my own business. It 
was my dream. It’s how you become rich in America.” 
Aregawi followed his dream, and today he owns two busi-
nesses, an airport limo service and a small Ethiopian grocery 
store on a “tough street” in the Bay Area. The businesses 
help him to support his family, but he is still a long way 
from striking it rich; indeed, the family relies on his wife’s 
earnings as a nanny to make ends meet, and they offset the 
cost of housing by living with other members of his family. 
The romantic vision of entrepreneurship is long gone. “My 
limo service does well. I now have three cars and two people 
working with me to help take calls at busy times. But it’s not 
an easy work. Most of the time I’m working late at night or 
early in the morning, and always on weekends. I can’t turn 
off the phone; every call we have to take or we might not 
make it [financially].” 
The store has been a particularly difficult business to sus-
tain. The monthly rental costs eat away at most of the sales 
receipts, and it has been a challenge to retain employees. 
Aregawi hires members of the local Ethiopian community 
and generally draws his employees from a vast social net-
work of family and friends, but he can’t pay salaries that 
match  the  cost  of  living  in  the  Bay  Area.  Aregawi  talks 
frankly about needing to sell the place unless business picks 
up soon. “The business is important for our community—so 
that we can maintain some of the cultural aspects of our 
country through our meals and holidays—but I don’t know 
if I can keep waiting to see if business will improve. It might 
be easier for us if we sold it.” 
Aregawi  isn’t  your  typical  entrepreneurial  “success 
story,” but his story may reflect a more truthful depiction 
of the difficulties of starting and sustaining a small business. 
The Corner Store
Investing in a “Sense of Place” 
By Carolina Reid
While the idea of entrepreneurship is beguiling—particularly 
when contrasted with the daily nine-to-five grind so acerbi-
cally portrayed in Dilbert cartoons—running a small business 
is not an easy job. The hours are long, the upfront capital 
needs are high, and the risks that the owner has misjudged 
market demand or the costs of operation are very real. In 
addition, most research on entrepreneurship shows that the 
majority of low-income entrepreneurs realize only modest 
financial returns from their businesses.1 While the micro-
enterprise field has demonstrated success in helping to al-
leviate poverty—particularly when entrepreneurs have access 
to  strong  training  and  technical  assistance—the  financial 
returns to entrepreneurship are not overwhelmingly strong. 
A recent study by the Aspen Institute, for example, found 
that while some businesses did very well, overall the median 
revenue for businesses was relatively low at $20,000. Forty-
three percent of the full-time business owners surveyed in 
the study reported drawing less income from their business 
than what they would have earned in full-time minimum 
wage work.2 
Yet there’s another dimension to microenterprise that is 
at least as important as helping to advance financial self-suffi-
ciency. As I walk down the “tough street” of Aregawi’s shop, 
it’s hard not to notice the positive changes in the neigh-
borhood, even though these impacts may not be reflected 
on his balance sheet. When Aregawi opened his store three 
years ago, his was the only shop on a block filled with aban-
doned buildings and graffiti sprayed walls. Trash collected 
in doorways and the paint on metal safety grills was chipped 
and faded. Today, there are visible signs of revitalization; 
an Ethiopian restaurant has opened nearby, as has a bakery. 
Two of the residential buildings on the block are undergoing 
renovation, and the storekeepers have developed a local part-
nership to keep the street clear of trash and to plant seasonal 
flowers in the once-barren dirt patches on the sidewalk.
By filling a once vacant storefront, bringing in goods and 
services, and creating a couple of jobs, Aregawi’s shop has 
become a community asset that is supporting the broader 
process of neighborhood revitalization. As Mihailo Temali, 
Executive  Director  of  the  Neighborhood  Development 
Center in Minneapolis and author of The Community Eco-
nomic  Development  Handbook,  argues,  microenterprises  are 
important “pivot points” in a community, in that they are 
15  Spring 2006small investments that can catalyze much greater change.3 
Lisa Servon, Senior Research Fellow at the New America 
Foundation, has similarly emphasized that microenterprise 
can serve a dual role by not only promoting the social welfare 
of individual households, but also by fostering community 
economic development. As such, microenterprise develop-
ment is both a “people–based” and “place–based” strategy. 
Evaluating the merits of microenterprise development pro-
grams on income improvement alone likely underestimates 
the impact that small businesses have in improving the well-
being of low-income households and communities.4
The idea that microenterprise can serve as the basis for 
economic growth and revitalization is gaining traction in 
the field. In particular, it is emerging as a viable economic 
development strategy in rural communities and on tribal 
reservations.5 Arguably, in a dense urban center, workforce 
development and assistance in securing a living wage job 
may be a safer choice for helping a family move out of pov-
erty. But in many rural communities, jobs are scant. Eco-
nomic anchors like local banks and “Main Street” businesses 
have disappeared, and the consolidation of farms has led to 
a loss of local employment opportunities in agriculture. As a 
result, families who do not wish to leave these communities 
are increasingly relying on self-employment and microen-
terprise as a way to supplement their incomes.6 These small 
businesses are “assets” in the same way that Aragawi’s shop 
is an asset to the low-income neighborhood in the city.
Partners  for  Prosperity,  a  nonprofit  organization  serv-
ing  sixteen  counties  in  Eastern  Idaho  and  the  Fort  Hall 
Indian Reservation, has made entrepreneurship a linchpin 
of its community development strategy. The organization 
embarked upon an ambitious effort to understand the chal-
lenges facing poor rural areas, visiting local places and asking 
residents what they felt it would take to reduce poverty in 
their communities. Rather than asking “what’s missing?,” 
Partners for Prosperity focused their questions on “what’s 
already here that we can help to support and grow?” What 
they found was a wide variety of cottage industries that were 
helping families make ends meet and serving as an impor-
tant cultural anchor for residents. Jessica Sotelo, the Execu-
tive Director of the organization, noted, “The residents we 
spoke with articulated the important cultural identity that 
goes along with living in a rural community, a ‘sense of 
place’ that residents felt it was very valuable to maintain.”
As a result of this planning process, Partners for Prosper-
ity has focused its rural economic development strategy on 
entrepreneurship rather than on attracting, for instance, a 
new ethanol factory or manufacturing plant. Helping exist-
ing informal enterprises grow and reach new markets—for 
example, by helping them to connect to a global market 
through e-commerce, by providing access to capital, or by 
building a network to new distribution channels—can deliver 
benefits not only to the business owner, but also to the sur-
rounding community. “It’s incredibly empowering to watch 
a small Latino bakery tap into a statewide market through 
a partnership with a grocery chain,” says Sotelo. “Not only 
do they increase their own income, but they create jobs 
locally. We’re helping cottage industries to become viable 
businesses, drawing on local strengths and interests. Rather 
than feeling trapped by the whims of big businesses, the feel-
ing is ‘I get to stay here and do what I love to do, and make 
a living at it.’” Sotelo points out that this type of strategy is 
an effective use of public funding because it builds on assets 
that already exist. “The business is already happening, and 
the families have been innovative in using their savings or 
EITC refund to finance it. What we do is leverage a small 
amount of dollars, for education or training, to help them 
have a greater impact in the community.” 
While the work in Idaho is just getting off the ground, 
evidence from the Lakota Fund in South Dakota shows that 
microenterprise can help to improve economic indicators 
in rural communities and on tribal lands. The Lakota Fund 
was one of the first attempts to promote microenterprise as 
a community development strategy in the United States, 
targeted largely at residents of the Pine Ridge Reservation. 
Over the past twenty years, the Lakota Fund has invested 
over  $3  million  in  reservation  entrepreneurs,  mostly  in 
small loans ranging from $1,000 to $75,000. These loans 
have helped to catalyze economic development on the res-
ervation. While poverty and unemployment remain high, 
income growth in the surrounding county has been double 
that of South Dakota since 1985, and its 80 percent growth 
in employment was the second fastest of all the counties 
in the state.7 
Like most entrepreneurs, Aregawi still is happy with his 
decision to go into business for himself. As he read an early 
draft of this article, he laughed and noted, “Did I make it 
sound so hard?,” not realizing I would focus so much on 
the financial difficulties of running a business. He’s also par-
ticularly interested in the argument that entrepreneurship 
can help low-income and rural areas maintain their cultural 
and  historical  integrity.  “Sense  of  place.  That’s  what  my 
shop provides, and why I keep the business even if it’s not 
making money. You walk in and it smells like Ethiopia. It’s 
my place.” In the end, it seems that entrepreneurship is as 
much about building individual and community identity as 
it is about building wealth, and finding ways help to sustain 
those business owners who are following their dreams is part 
and parcel of generating vibrancy in areas left behind. 
16  Spring 2006
“We’re helping cottage industries to 
become viable businesses, drawing on 
local strengths and interests.”22  Spring 2006
Small Business: An Overview
1  SBA Offi  ce of Advocacy (2005). “SBA by the Numbers.”
2  SBA Offi  ce of Advocacy (2005). “Small Business Profi  le: United States.”
3  CFED (2004). “Desktop Study: SMEs and Poverty Reduction.”
4  Clark, Peggy and Amy Keys (1999). “Microenterprise and the Poor: 
Findings from the Self-Employment Learning Project, a Five-Year Survey 
of Microentrepreneurs”. The Aspen Institute.
5  CFED (2004). “Desktop Study: SMEs and Poverty Reduction.” While the 
total share of loans under $100,000 has dropped, the volume of very 
small loans by large fi  nancial institutions has increased. This is thought 
to refl  ect increased credit card issuance. 
6  Immergluck, Daniel and Geoff Smith (2003). “How changes in 
small business lending affect fi  rms in low and moderate income 
neighborhoods.” Journal of Developmental Entrepreneruship.
7  Yago, Glenn, Betsy Zeidman, Bill Schmidt (2003). “Creating capital, jobs 
and wealth in emerging domestic markets.” Milken Institute.
8  Immergluck and Smith (2003).
9  Ely, David and Kenneth Robinson (2001). “Consolidation, Technology, 
and the Changing Structure of Banks’ Small Business Lending.” 
Economic and Financial Review, Federal Reserve Bank of Dallas.
10 Craig, Ben, William Jackson, and James Thomson (2006). “Small Firm 
Credit Markets, SBA-Guaranteed Lending, and Economic Performance 
in Low-Income Areas.” Working Paper 06-01, Federal Reserve Bank of 
Cleveland.
11 Chrisman, James (2005). “Economic Impact Of Small Business 
Development Center Counseling Activities In The United States: 2003-
2004,” www.asbdc-us.org/Impact_0916.pdf . The Chrisman Report 
estimated that the performance improvements of SBDC-counseled 
long-term clients generated $2.78 in tax revenues for every dollar spent 
on the SBDC Program in 2003, and that $2.6 billion in capital was 
raised by clients as a direct result of the assistance received from the 
SBDCs- stated another way, each dollar spent on counseling leveraged 
approximately $14.22 in debt and equity capital.
12 Ratliff, Gregory and Kirsten Moy (2004). “New Pathways to Scale for 
Community Development Finance.” Proﬁ  twise News and Views, Federal 
Reserve Bank of Chicago.
Box 1.2 
1  CFED (2004). “Desktop Study: SMEs and Poverty Production.”
2  Board of Governors of the Federal Reserve System (2002). “Report to 
the Congress on the Availability of Credit to Small Businesses.”
3  Ibid.
Microbusiness, Macro-impact: Capitalizing on Potential
1  Fund for Innovation, Effectiveness, Learning and Dissemination (FIELD) 
(2005) “Funder Guide #2:” 1. Poverty data: www.census.gov/prod/
2005pubs/p60-229.pdf; unemployment data: www.bls.gov/cps/home.htm; 
data on the unbanked: Katy Jacob, “Utilizing Partnerships to Test Emerging 
Market Strategies: A Case Study of H&R Block Initiatives in Five Cities”, 
Center for Financial Services Innovation, July 2005, www.cfsinnovation.
com/managed_documents/blockpaper.pdf; data on asset ownership: Ray 
Boshara, Reid Cramer and Leslie Parrish, “Policy Options for Achieving 
an Ownership Society for All Americans, New America Foundation.” Asset 
Building Program, Issue Brief #8, February 2005,
www.newamerica.net/Download_Docs/pdfs/Doc_File_2224_1.pdf.
2  Edgcomb, Elaine and Joyce A. Klein, “Opening Opportunities, Building 
Ownership: Fulfi  lling the Promise of Microenterprise in the United 
States.”
3  Fund for Innovation, Effectiveness, Learning and Dissemination 
(FIELD) (2005). “Funder Guide #2”.
4  Clark, Peggy and Amy Keys (1999). Microenterprise and the Poor: 
Findings from the Self-Employment Learning Project, a Five-Year 
Survey of Microentrepreneurs, 1999, (2001).
5  Else, John. The Role of Microenterprise Development in the United 
States, published in cooperation with AEO.
6  Ibid.
Box 2.1 
1  Fund for Innovation, Effectiveness, Learning and Dissemination 
(FIELD) (2005). “Funder Guide #1”.
Box 2.2 
1  Microenterprise Development Fact Sheet, AEO: 
www.microenterpriseworks.org.
The Corner Store: Investing in a “Sense of Place” 
1  Edgcomb, Elaine and Joyce A. Klein (2005). “Opening Opportunities, 
Building Ownership: Fulfi  lling the Promise of Microenterprise in 
the United States.” Aspen Institute. See also, Margaret Sherrard 
Sherraden, Cynthia K. Sanders, and Michael Sherraden (2004). 
Kitchen Capitalism: Microenterprise in Low-Income Households. 
State University of New York Press: Albany, NY.
2  The Aspen Institute (2005). “Monitoring Client Outcomes: A Report 
from MicroTest’s 2004 Data Collection,” Microtest: Performance 
Counts, September 2005.
3  Temali, Mihailo (2004). The Community Economic Development 
Handbook: Strategies and Tools to Revitalize Your Neighborhood. 
Amherst H. Wilder Foundation: St. Paul, Minnesota.
4  Servon, Lisa J.  (2005) “Policy Options to Support Entrepreneurship 
among Low-Income Americans,” New America Foundation Issue 
Brief, and Lisa J. Servon (1997). “Microenterprise Programs in 
the U.S. Inner Cities: Economic Development or Social Welfare?” 
Economic Development Quarterly 11(2): 166-180.
5  For an interesting review of this topic, see CFED and Northwest 
Area Foundation (2004). Native Entrepreneurship: Challenges and 
Opportunities for Rural Communities. 
6  Edgcomb, Elaine and Tamra Thetford (2004). The Informal 
Economy: Making it in Rural America. The Aspen Institute: 
Washington, D.C.
7  Congressional Testimony (2006). American Indian Economic 
Development – Elsie Meeks. Committee on Senate Indian Affairs, 
May 10, 2006.
Delivering Financial Return and Community Results: 
Pacifi  c Community Ventures
1  PricewaterhouseCoopers/Thomson Venture Economics/National 
Venture Capital Association MoneyTree Survey, available at 
www.pwcmoneytree.com/moneytree/index.jsp.
Endnotes

The corner store: investing in a "sense of place"

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The corner store: investing in a "sense of place"

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Research Papers in Economics