MINNEAPOLIS—Debbie Carlson’s makeup school, Faces Etc of MN, is exactly the kind of business Minneapolis should want to attract. Debbie noticed a gap in the market—makeup schools that do not teach cosmetology skills makeup artists do not need are few and far between—and took action, only to learn that regulatory processes made creating her dream business a serious challenge.
First, she was denied a license by the Minnesota Office of Higher Education. After pushing back and educating officials on her business model, she was issued a license that costs $1,350 annually. On top of that, the Minnesota Board of Cosmetology began harassing practitioners in Debbie’s industry to force them to become licensed cosmetologists. Her story illustrates how regulatory burdens complicate entrepreneurs’ desire to earn an honest living.
Barriers to Business: How Cities Can Pave a Cheaper, Faster, and Simpler Path to Entrepreneurship reveals the costs, delays, and complexity that cities pile on entrepreneurs seeking to start small businesses. The report contains key takeaways for how Minneapolis needlessly complicates entrepreneurship, and provides specific, workable solutions to help Minneapolis become an easier place to start a business.
“Forced to navigate tricky rules on their own, entrepreneurs often find compliance challenging as they attempt to make their way through the maze of steps, forms, and registrations,” said IJ City Policy Associate Alex Montgomery, one of the report’s co-authors. “These high price tags and burdens most harm those with the fewest resources at their disposal. Minneapolis officials should make it cheaper, faster, and simpler to get up and running so all entrepreneurs have the opportunity to earn an honest living—especially during these challenging economic times.”
The report provides a first-of-its-kind, in-depth analysis of regulations governing small businesses in 20 U.S. cities and the real-world process of starting five common business types from the entrepreneur’s perspective. Key findings for Minneapolis include:
- Entrepreneurs in Minneapolis often encounter high licensing and permitting fees. For example, brick-and-mortar businesses sometimes must pay a Sewer Availability Charge—absent in many other cities—that can add thousands of dollars to the cost of starting up. This means a restaurant must pay a staggering $13,973 to get to opening day.
- Verifying zoning for the ideal property can be tricky—and unforeseen restrictions in the code, such as needing to apply for a conditional land-use permit, can delay the regulatory process for entrepreneurs.
- An aspiring restauranteur must go through a lengthy process to complete 69 steps—including completing 18 forms and interacting with 14 agencies—to get started; for a barbershop, those numbers reach 58 steps, 18 forms, and 12 agencies. Additionally, with 115 categories on the books, Minneapolis’s business licensing burdens outweigh those of most of the cities studied in this report. High numbers of license categories make it more complicated for entrepreneurs to determine which license (or licenses) they need to start their business.
“Minneapolis can do more to support entrepreneurs than simply providing them with technical assistance and small-business resources. Minneapolis must invest in small businesses by removing barriers that are already on the books,” said IJ Activism Associate Andrew Meleta, the report’s other co-author. “When thinking about easing the cost of doing business for entrepreneurs, many policymakers focus on federal and state-level reform efforts. But by pursuing our targeted recommendations for local reform and following best practices from across the country, city officials can make a truly impactful difference for Minneapolis entrepreneurs.”
Two years into the COVID-19 pandemic, America’s downtowns and small-business corridors continue to struggle with reduced hours and vacant storefronts. “It is hard enough turning an innovative idea into a successful small business, but local regulatory hurdles further complicate an entrepreneur’s startup journey,” Montgomery said. “This forces many aspiring small-business owners to choose between operating in the informal economy or giving up altogether.”
By removing the legal and regulatory obstacles that make it challenging for small businesses to open and operate, officials can bolster—rather than hinder—entrepreneurs who are seeking to revitalize beloved city blocks and neighborhoods. This report provides specific guidance to cities seeking to better support their entrepreneur communities by pinpointing specific barriers to small-business ownership and identifying best practices and policy solutions to lower the cost of doing business, cut down on regulatory delays, and streamline requirements for license and permit applicants.
The release of this study marks the launch of Cities Work, an initiative dedicated to making the process cheaper, faster and simpler to start a business in cities across the country. The initiative builds on years of IJ’s work in Washington, D.C., and Chicago, collaborating with city officials to enact regulatory reforms that support aspiring small-business owners. The Cities Work team will expand the lessons learned to cities and towns nationwide, organizing entrepreneurs at the grassroots level and pursuing needed policy and legislative change.