August 2024 Board Member Newsletter Article

Economic Development:
Business Growth and Retention

Matt Baumgartner
President
Duluth Area Chamber of Commerce

Economic development is a common goal for many communities, including Duluth and all of Northeastern Minnesota. It is the process by which a region improves the well-being of its residents through job creation, innovation, and wealth. Often, when we talk about economic development, we think about attracting new businesses. Headlines are made when a big company decides to open a new branch or a new industry moves into town. However, we often overlook a key driver of economic growth: the growth and retention of existing businesses. This aspect is not as flashy, but it is crucial.

When existing businesses grow, they create jobs. According to the U.S. Small Business Administration, small businesses create two out of every three new jobs in the private sector. These businesses are already rooted in the community. They understand local needs and have built relationships with customers. When these businesses expand, they often hire locally, keeping the economic benefits within the community.

For example, a local restaurant that decides to open a second location in the same city is an excellent example of business growth. This expansion creates new jobs, brings in more customers, and boosts local spending. Similarly, when a manufacturing company invests in new technology or expands its production lines, it can increase output, hire more workers, and pay more taxes, all of which benefit the local economy.

Business retention is about keeping the businesses that are already there. It’s about ensuring that they don’t move away or shut down. This is often achieved through support and incentives. Local governments can help by providing tax breaks, grants, and other financial incentives to businesses that stay and grow in the area. Additionally, offering training programs and resources to help businesses adapt to changing markets can be vital.

A study by the International Economic Development Council found that business retention and expansion programs are more effective than business attraction strategies. The study showed that 60-80% of all new jobs come from existing businesses rather than from new ones moving into the area. This highlights the importance of focusing on the businesses already contributing to the community.

Consider the state of Minnesota. The Minnesota Department of Employment and Economic Development (DEED) runs the “Minnesota Job Creation Fund,” which supports local businesses by providing financial assistance for expansion projects. Since its inception, this program has helped numerous businesses grow, creating thousands of jobs and stimulating local economies.

In Duluth, the partnership between the Duluth Area Chamber of Commerce, the City of Duluth, and St. Louis County exemplifies the power of focusing on business growth and retention. The Chamber actively supports local businesses through various initiatives, such as networking events, business resources, workforce grants, and advocacy efforts. The City and the County collaborate with the Chamber to provide financial incentives and training programs, ensuring that local businesses have the support they need to thrive.

While attracting new businesses is important, the growth and retention of existing businesses play a more significant role in economic development. These businesses are the backbone of our regional economy in Northeastern Minnesota. They create jobs, drive innovation, and keep wealth within the community. By supporting existing businesses and helping them grow, our region can achieve sustainable economic development.