Rural Entrepreneurship in the United States

Rural communities face unprecedented challenges and are in need of new solutions to strengthen their economies.

A new report by Endeavor Insight with support from Google for Startups draws lessons from successful rural founders to better understand their pathways to scale.

Entrepreneurship is a key pillar of rural economic development as it offers a more reliable and robust alternative to traditional strategies.

As rural leaders look to address the economic challenges presented by the COVID-19 crisis, traditional economic development strategies such as incentives to attract businesses may not be sufficient. Few policymakers may realize that efforts to recruit businesses to rural areas often come at a high cost and fail to produce the desired results. Workforce development or innovation initiatives are unlikely to make significant improvements to local productivity on their own in the short term.

Locally owned businesses, in contrast to satellite offices or factories, generate value for others in the community as they procure most of their staff, goods, and services from the people and businesses around them. In addition to this economic impact, local founders in rural areas play an outsized role in the lives of their neighbors and the development of their regions — many of the founders interviewed for this study noted that their main goal was to create jobs and opportunities in their communities.

Founders who scale their companies, especially ones operating in highly productive and tech-enabled sectors, can create jobs and increase productivity in rural economies.

Businesses that grow to 50 or more employees, especially ones operating in highly productive and tech-enabled sectors, have a disproportionate impact on job creation. Adding just one or two new companies that scale beyond 50 employees can significantly reduce unemployment in rural counties that typically have populations of around 15,000.
Increasing the number of entrepreneurial companies that scale in rural settings has the potential to strengthen local economies by attracting more revenue from outside the immediate region and increasing local productivity in terms of average GDP per employee.

Increasing the number of entrepreneurial companies that scale in rural settings has the potential to strengthen local economies by attracting more revenue from outside the immediate region and increasing local productivity in terms of average GDP per employee.

Founders in rural areas have access to fewer resources than their peers in urban areas and face greater challenges in scaling their companies.

Although rural areas offer several opportunities to entrepreneurs including a high quality of life and easier access to local policymakers, they face major challenges that prevent them from scaling. Access to talent was the most common obstacle cited by interviewees, particularly for skilled jobs such as engineering, finance, and management. To address this, some founders are investing in the professional development of existing local talent. Many noted the advantages that rural workforces can offer, such as higher rates of retention, and lower levels of competition over existing high-quality talent.

Access to capital was another major challenge. Equity finance is less common in rural areas, and many rural founders use alternative sources of capital or bootstrap. Most venture capital firms are located in large urban centers, so the rural founders that do secure investment need to spend a significant amount of time traveling or building relationships from afar.

Founders who have strong networks — particularly mentors and investors who can help expand businesses — are more likely to scale their companies.

A strong network is one of the key differences between rural founders who scaled their companies and those who do not. Networks often play a significant role when founders build initial relationships with investors. Professional experience prior to launching a company can be an important component in building a strong network for rural founders who may have fewer local peers with whom to exchange ideas.

Recommendations

1. Address access to talent challenges by leveraging global resources, shifting local policies to attract qualified talent, and coordinating regionally with partners on workforce development.
2. Increase access to capital by facilitating local alternatives to venture capital such as CDFIs and angel investor groups.
3. Improve the quantity and quality of mentors available to entrepreneurs by taking a regional (or global) approach and leveraging virtual connections.
4. Help entrepreneurs reach customers in new markets to increase sales, especially through digital tools such as e-commerce, and support them in navigating growth pains.
5. Take a holistic approach to developing rural entrepreneurship ecosystems by engaging with the diaspora of the community’s talent and knowledge base living elsewhere, and coordinating among the interdependent aspects such as infrastructure, educational institutions, and quality of life.