The Business Case For Workforce Development

When we talk about workforce development, we usually mean creating more workers to fill necessary jobs. Clean energy, the skilled trades, healthcare services, education and tech all have critical worker shortages. Some of those issues are systemic – healthcare and education are notoriously underpaid, while the skilled trades have shrunk as the college bound population rises. To help mitigate these issues, there has been a huge influx in funding for programs that upskill and reskill workers that could fill jobs in these industries. 

But what we don’t often talk about is where the jobs for those workers are coming from. Entry level jobs are notoriously hard to find these days, and ⅔ of new entrants to the workforce are employed at small businesses. While nearly all businesses are considered small by the department of labor, the majority of businesses have less than 5 employees.

Consider this chart, published last month by the Bureau of Labor Statistics. It segments key industries by business size. Blue is less than 5 employees, while red is less than 10.

The businesses with less than 10 employees are the places where workforce development can have the largest impact. For a local community, 5 businesses adding 3 jobs each creates more economic resilience than a single business creating 15 jobs. In this chart, businesses with no employees aren’t broken out into their own category, but employees are a crucial way for industry knowledge to pass down over time. Businesses without employees don’t have a succession plan, and when their owners retire or close shop, communities lose that good or service. On top of this issue, nearly half of businesses started close within the first five years

So what’s happening? A local entrepreneur decides to start a business that’s hard to run with a single person. Maybe it’s a retail store or a restaurant. It could be a home health care company or an elder care facility. Crucially, these businesses often provide a service or resource to the wider community beyond simply creating jobs. The entrepreneurs themselves may know a lot about their industries, but not nearly as much about running a business. Many have never been a manager before, and even fewer have bookkeeping or legal experience. 

A typical pattern looks something like this:
Year 1, the business owner starts their business, finds a space to host it, and hires staff. They are learning a lot about how to start a business and focusing mainly on getting the word out about their business. 

Year 2, the business owner is making some revenue and needs to start thinking about how to run their business efficiently. They need to stabilize their cashflow, and ensure they can meet payroll while paying for other business expenses.

Years 3 to 5, the business owner follows one of two paths:

  • The cashflow stabilizes, the business owner is able to maintain their existing staff and potentially hire more. 
  • The business owner can’t stabilize the cashflow, doesn’t turn a profit, lays off staff, and eventually closes. 

The specific reasons for failure are varied. Some entrepreneurs don’t have hiring experience, and bring on the wrong people for the job. Others can’t get the capital support they need for building alterations or equipment. In other cases, the business couldn’t scale fast enough to be able to pay for the necessary staff to run the business. (This is especially common for industries with thin margins, such as food service.) The range of causes makes it difficult for individual communities to provide resources that will help. Further complicating the issue, societal factors like the cost of housing and commercial real estate availability can affect business growth in unpredictable ways. 

As we invest more into workforce development, it’s important to remember to support the businesses who will hire our newly trained workers. Programs like Colorado’s Skill Advance provide funding at the state level for businesses to plan for a new hire, and defray the costs of training that new staff. Rural accelerator programs like SCAPE prepare investable businesses for investor meetings, increasing the likelihood of success and bringing non-local revenue into rural communities. 

Recently, I had a chat with Maddie, one of the co-founders of the Yarrow Taproom in Austin, CO. Austin has a population of 1800, and has virtually no tourism industry. Two years in, business is booming. Maddie and her co-founder Jess bought the building they’re housed in, and have started the process to buy the vacant space next door. But they know that with this expansion, they’ll need additional staff. The business is there, but they’re nervous about the transition. 

Currently, food trucks and pop up guest chefs provide most of the food options. Maddie and Jess run the bar themselves, trading dish duty, bartending, and running the POS system around as needed. On nights with big events, they’ll bring in friends to help out. Yarrow is closed on Tuesday and Wednesday, but that may change once the expansion is complete. Without more permanent staff, they won’t have time to both run the front end of the business and still have time to do the necessary back end tasks like ensure health code compliance, balancing the books, and managing inventory. 

Exploring options through the local workforce center can help them get staff trained and ready to go while they get the new space set up. By expanding, Maddie and Jess are building new opportunities for the county. They’re proving that a niche taproom can succeed in an area with a median household income just 80% of the national average, while simultaneously keeping money in the community. In short, they’re achieving the American Dream – and with a little help, they can use that success as a jumping point for bringing others with them. 

  1. […] of our economy. In real terms, we covered how vital small businesses are to workforce development last week, and how they account for nearly 50% of the workforce. Organizations like the Small Business […]

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