Toolkit Home | Legacy Businesses | Challenges
What challenges are legacy businesses facing?
Legacy businesses have overcome numerous challenges to remain in operation for as long as they have, but they continue to face new challenges that threaten their future. Internal operational issues contribute to some of their challenges, while others stem from external municipal or economic pressures. The following sections outline some of the more common problems legacy businesses face. To ensure the success of a legacy business program, it is essential to first understand the unique local challenges businesses face before implementation. See the Defining Problems section for more information.
Municipal Disinvestment in Communities
Divestment in communities refers to the reduction or elimination of public funding, services, or resources over time. The reasons for disinvestment are complex; it can come from budget cuts, loss of tax base, deferred maintenance, prohibitive zoning laws, biased or inequitable public policy, or poor political representation. When divestment occurs, both commercial entities and residents are negatively impacted. As resources, investment, and focus leaves a community, further divestment tends to be reinforced, making it a difficult cycle to break.
Disinvestment in a community can lead to substandard infrastructure and public services in commercial areas. Poor road conditions, limited parking, or a lack of public transportation options limit customer traffic for businesses. Negative perceptions of a neighborhood stemming from inadequate public services, including issues such as trash collection, graffiti removal, and public safety, can deter the number of customers or suppliers willing to conduct business in that neighborhood. Slow or negligible code enforcement against commercial landlords can also make it difficult to update or sustain a business. It is essential to communicate with the businesses in your neighborhood to understand whether these complex issues should be part of your legacy business program solutions.
Disinvestment hits hardest in communities that have long been underserved, deepening existing inequities and limiting opportunities for growth and resilience. Researchers from the Delft Institute of Technology studied investment and access to infrastructure in 10 major US cities. They found that the most vulnerable communities had far less access to essential public infrastructure and services compared to those with greater resources, highlighting deep disparities in support and investment.
Resource.
NNIP
For a reliable resource on neighborhood-level data regarding public spending, infrastructure, and services, visit the National Neighborhood Indicators Partnership (NNIP).
Gentrification, Redevelopment, and Rising Costs
In his book The New Urban Crisis: How Our Cities Are Increasing Inequality, urban theorist Richard Florida describes gentrification as a process where a neighborhood gains wealth and its population becomes more affluent, younger, and Whiter. By 2015, young Americans were moving back to cities, reversing a trend that had been ongoing for decades, often seeking neighborhoods with more affordable rents and unique, diverse, or authentic experiences. These can also be neighborhoods where legacy businesses are located, especially in BIPOC and ethnic communities. This influx of new residents can often lead to the exodus of existing residents and families due to rising costs and competition, with many of those leaving longtime customers of legacy businesses.
Gentrification is not necessarily detrimental to legacy businesses. It can lead to reversals in community disinvestment and increased patronage and revenues. However, gentrification poses a significant challenge for legacy businesses primarily due to rising costs and a shifting customer base. Many legacy businesses, especially in BIPOC and ethnic communities, rent rather than own their buildings, making them vulnerable to rent hikes. Additionally, as neighborhoods revitalize, outside investors are attracted to redevelopment opportunities in the area. The goals of developers may not align with community priorities, resulting in redevelopment that has fewer small commercial spaces available–making it harder for legacy businesses to find new locations if they are displaced. When gentrification and redevelopment occur, legacy businesses are often pushed out due to increased property taxes, supply costs, insurance, and rising rents.
Langston Boulevard Alliance | Arlington Virginia
In my work with the Langston Boulevard Alliance in Arlington, VA, we interviewed twenty-three legacy businesses located along the Langston Boulevard corridor. Langston Boulevard faces ongoing redevelopment and gentrification due to its desirable location near Washington, DC. Several of the business owners interviewed own their properties, but for those who do not, the rising cost of rent was their top concern, posing a serious threat to their ability to stay rooted in the community. There was also concern from both renters and owners that the ongoing large-scale redevelopment would not include smaller commercial spaces, leaving them with fewer options in the neighborhood if they were displaced.
Case in point.
Another challenge for legacy businesses is a shift in their clientele or demographics, particularly if their customer base is displaced by gentrification. Redevelopment can also increase competition, further eroding their customer base. That is not to say that legacy businesses cannot continue to be successful by adapting to changes in their surrounding neighborhoods. This adaptation, however, may involve higher prices, for both the business and the customer, or changes in goods or services, which could further alienate original residents or eliminate culturally specific offerings.
As a neighborhood redevelops or revitalizes, it is important to remember the significance of a legacy business to the community's cultural heritage, and your efforts to preserve them may or may not involve the building they are in. If the significance of the legacy business is not associated with the building, preservation may include a path to relocation elsewhere in the community. If the building is a factor, preservation efforts may include identifying assistance for the building or business owner to use with rehabilitation or facade improvements they might otherwise not be able to accomplish. Be sure to communicate with your local legacy businesses to better understand their concerns, questions, and financial impacts resulting from gentrification and redevelopment.
Revitalization may help legacy businesses in your area continue successfully, but it is just as possible that it does not. If not, the long-term goals of your legacy business program may include advocating for public policy to help mitigate rising business costs, providing business support to assist with adapting to changing clientele, or influencing local planning that creates space for legacy businesses should redevelopment displace them. This increases the scope, number of stakeholders, and complexity of your program, requiring additional upfront planning and possibly necessitating a phased roll-out of your program.
Limited Access to Capital
If legacy businesses face higher prices or increased competition, they may require access to capital through loans or outside investment. Remodeling or adding new services takes money, which many struggle to obtain. Banks or lenders tend to view older or disinvested areas of the community as higher risk, making it difficult for some legacy business owners to secure loans or lines of credit.
Be aware that limited access to capital can disproportionately impact BIPOC and ethnic communities. An Urban Institute study completed in 2016 found that Baltimore neighborhoods that were less than 50% Black received three times more capital than those that were more than 85% Black. Furthermore, the Bipartisan Policy Center found that minority business owners are more likely to be denied Small Business Administration loans, and that Hispanic and Black business owners have long paid higher interest rates.
Federal and local governments have yet to provide the necessary support to level the funding playing field. Policy changes and local funding opportunities may be crucial to the success of your legacy business program in bridging the financial gap.
Detroit Legacy Business Project
The Detroit Legacy Business Project offers a wide variety of grants to local businesses that have been in business for over 30 years in the city. These include grants covering repairs, equipment, technology, and professional services, as well as microgrants of up to $5,000 and larger grants ranging from $15,000 to $50,000. Finding additional funding resources for your legacy business program is one of the most difficult challenges you will face, but it provides the most significant impact for your business owners.
Case in point.
Sustainability
As competition increases, markets change, and consumer patterns evolve in a community, many legacy business owners may be caught off guard and put at risk by the changes in business strategy, marketing, or modernization required to remain successful. Accustomed to running their business a certain way and busy keeping the doors open, legacy business owners may not have had the need or the time to make changes in business operations or learn new skills. While many local municipalities offer business training, services or support, legacy businesses owners may not know of or have the time to utilize them. Legacy business owners in BIPOC, ethnic, and immigrant communities may face additional challenges accessing business training or services because of a lack of availability in a disinvested community, language barriers, or a mistrust in municipal governments. Additionally, legacy business owners may not fully understand or may be unaccustomed to dealing with complex municipal processes and policies. All of these challenges put your legacy businesses at risk to closure due to competition.
To overcome these challenges, your legacy business program may need to integrate with existing municipal or community-centered small business programs in your areas, and tailor or prioritize services so that your legacy business owners better understand what’s available, are more engaged with the services, and trust the services and information available to them. You may also need to examine the accessibility of municipal information on business regulations and policy to compensate for language barriers and, if this information is mainly available online, different levels of understanding or comfort with technology. If there are no existing small business programs in your area, the nonprofit SCORE offers small business services nationally. Depending on the needs of your legacy business owners and the level of service available to them, you may need to create a stepped or phased approach to the services you provide, dealing with the most serious challenges first.
Another major issue that many legacy businesses face is closure because owners may be too busy to plan for or may not have a successor available when retiring or ending their ownership. This transition of ownership is known as a succession plan, and without one in place, many legacy business owners opt to shut their doors rather than pass the business on. In fact, the 2019 STEP Global Family Business Survey found that around 70% of family-owned businesses do not have a succession plan. While it is undoubtedly the business owner’s choice, closing a legacy business has rippling effects on the economy and the culture of the neighborhood, making this an important topic to address with your legacy business program.
As you meet and talk with your legacy businesses, be sure to include succession planning in your discussions to ensure the sustainability of their business. Some municipalities, such as New York City, have established business apprenticeship programs, and national-level initiatives are also available through the Small Business Administration. One of the more remarkable training programs for business succession is the Center for Micro-Entrepreneurial Training’s (CMET) Entrepreneurship Through Acquisition program, which helps mostly women, Black, and Hispanic entrepreneurs purchase existing businesses instead of starting from scratch. This could be a good model to use in creating a similar initiative for your legacy business program.
The Allapattah Collaborative
The Allapattah Collaborative, a Community Development Corporation in Miami’s historic and culturally diverse Allapattah neighborhood, recognized that small, locally owned businesses, especially those owned by minorities, were key to the success of their local economy. To stay competitive, they created a series of business programs as part of their offerings, including assistance with creating an online presence, business training, and monthly business development workshops. Through their Thrive in Place program, they also help businesses with succession planning.