To grow middle-class jobs, shift focus from startup to scale up

When it comes to creating middle-income jobs in New York City, it’s time to think small.

An aggressive strategy to scale up more of the city’s small businesses can help create a vital source of new middle-class jobs.

New York City is humming with small-business activity. The city is home to 207,619 businesses with 20 or fewer workers, up from 195,429 in 2010. Those small firms employ 646,593 workers in a wide range of sectors, from financial technology and digital health to artisanal food manufacturing and film postproduction. Since 2008, the number of businesses employing fewer than 10 workers has increased by nearly 12 percent citywide and nearly 22 percent in Brooklyn.

As small businesses expand, they create more mid-level positions and increase benefits for their workers, including paid sick leave, paid time off and subsidized healthcare. Average wages increase, too, from $49,091 for businesses employing fewer than 20 people to $68,024 for companies with 100 to 499 workers. The bigger the company, the higher the average wage.

But despite offering fertile ground for small businesses to take root, few of the city’s emerging companies are able to grow. Our research finds that for many of the city’s small businesses, each growth spurt makes operations more difficult to manage.

For instance, although entrepreneurs are often able to start a business by tapping their personal savings and funds from friends and family, many small companies in New York struggle to secure growth capital, particularly from $50,000 up to $500,000. Growing firms face similar challenges with real estate throughout the five boroughs. The city is home to more co-working spaces and incubators than ever, but there are considerably fewer affordable options for firms seeking to graduate into larger facilities.

Companies looking to scale up also need to hire more employees, but many of the small firms we spoke with said they face daunting challenges finding skilled workers. Unlike larger businesses, small firms typically don’t have human resources departments to oversee the hiring process, and few small businesses are connected to city-run workforce training programs. And when growing businesses begin delivering more orders across the city, they are stymied by rampant traffic congestion, a dearth of loading docks, and overzealous parking enforcers. Finally, government mandates and rules – from paid sick leave to health insurance to worker compensation – become trickier and costlier for companies as they add employees.

But while small businesses face intense challenges as they try to grow, relatively few of the city’s small-business assistance programs are focused on helping companies level up. The city offers a number of excellent programs targeting small businesses. But the lion’s share focus on helping aspiring entrepreneurs and companies that are just starting out.

For the Big Apple to grow a 21st-century middle class, New York policymakers need to target the specific barriers that keep small businesses from growing and give companies new tools to help them level up. A new report from the Center for an Urban Future’s Middle Class Jobs Project suggests 11 ways to help more small businesses grow. These ideas include backing more lenders who issue small-business loans, preserving Class B and C office space so small companies have places to expand, deploying consultants to visit businesses where they are and creating more customized training programs for small-business workers.

The city should also tap more small businesses to build the New York City of the future. Procurement rules could be revised to help small companies compete for government contracts. City and state investments in infrastructure and technology – from green buildings to 3-D-printed machines – should be leveraged to create more opportunities for growing firms. And a next-generation online portal could put contracting opportunities, regulations, business development programs and consulting services all in one place.

The growth of the city’s entrepreneurial economy is a great success story of the past decade. But now is the time to shift the approach from startup to scale up. A strategy to help more small businesses grow would do more than just bolster the city’s strong economy – it could be the city’s best opportunity to boost its supply of middle-class jobs.

Charles Euchner is a senior researcher at the Center for an Urban Future, a fellow with the Center’s Middle Class Jobs Project, and the author of Scale Up New York. Winston C. Fisher is a partner at Fisher Brothers, co-chair of the New York City Regional Economic Development Council, and sponsor of the Center’s Middle Class Jobs Project.