DETROIT—Barriers to Business: How Cities Can Pave a Cheaper, Faster, and Simpler Path to Entrepreneurship reveals the costs, delays and complexity that cities impose on entrepreneurs seeking to start small businesses. The report contains key takeaways for how Detroit needlessly complicates entrepreneurship, and provides specific, workable solutions to help Detroit become an easier place to start a business.
Detroit entrepreneurs face significant regulatory hurdles getting their businesses off the ground. While the city’s website features step-by-step guides for permit and license applications, entrepreneurs are held back by an array of regulatory hurdles and complications. In Detroit, aspiring small-business owners who owe any type or amount of debt to the city are prevented from obtaining a business license, a hurdle acutely felt by lower-income residents and citizens returning from incarceration—often those most in need of economic opportunity. Detroit also prevents food trucks from operating within 100 feet of any established business that sells the same goods. These and other issues are detailed in a new report by the Institute for Justice (IJ).
The report finds that Detroit entrepreneurs must navigate a web of high fees, long wait times and complex paperwork—collectively creating something akin to death by a thousand cuts—before reaching opening day, and before they have made a dime or had the chance to test the viability of their idea.
“You shouldn’t need a pile of cash and a law degree to start the small business of your dreams,” 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. Detroit officials should make it cheaper, faster and simpler to get up and running so that 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 Detroit include:
- Fees for licenses and permits are comparatively high in Detroit. For example, an aspiring restaurateur must pay 15 different fees totaling $6,545 to get started—driven in large part by the need to pay nearly $1,500 for food plan reviews and permits.
- Determining how the building permit process works is difficult and confusing. Getting to opening day takes longer than necessary, frustrating applicants who get stuck in back-and-forth communication with agency officials.
- Regulatory processes are step-heavy. It takes 77 steps to start a restaurant in Detroit—more than in all but one of the other cities studied. With 69 categories on the books, Detroit forces a relatively high number of business types to obtain a city business license before starting up.
“Detroit can do more to support entrepreneurs than simply providing them with workarounds to complicated processes. Detroit 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 Detroit 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, reduce regulatory delays, and streamline requirements for license and permit applications.
The release of this study marks the launch of Cities Work, an initiative dedicated to making it cheaper, faster and simpler to start a small 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.