The State of Startups and Small Businesses in Rural America

In the last few years, before the pandemic, startup data pointed to an uptick in entrepreneurship in the U.S. But that level of growth was not necessarily in the non-traditional populations, such as rural areas.

A report by the Kauffman Foundation found that the share of new startups forming in rural areas had been declining since the 1980s, from approximately 20 percent to 12 percent in 2019.

“But there’s a quiet and enterprising movement gathering steam among rural leaders to encourage local entrepreneurship and attract residents who’ll start businesses,” writes Chris Farrell in Forbes. “And it’s working.”

Net New Rural Businesses

More recently, and notably during the pandemic, many rural communities are reporting net increases in businesses, according to a December survey by the Chicago-based nonprofit Main Street America.  

“If we take our survey respondents to be typical of our network of communities, we’re talking about 5,300 business closures and 5,900 business starts over the course of the pandemic thus far,” says Main Street research director Michael Powe in a Los Angeles Times story by Eryn Brown.

The organization works with local partners to revitalize downtown districts of communities across the U.S. The survey involved nearly 6,000 small businesses in late March and early April, according to the LA Times story.

Important to Rural Towns

People in rural communities, and for some city neighborhoods, depend on small businesses, and vice versa.

The relationship between towns and their small businesses goes beyond dollars and cents, Brown writes in the LA Times story. “Small businesses cement communities,” she says.

“Local business creates a virtuous circle, plowing money and resources back into the community,” she writes.

“A big-box store might shell out payments to accountants in Arkansas and lawyers in New York but a small local shop is likely to patronize service providers in the neighborhood. Local businesspeople have a stake in community welfare.”

Rural Innovation

After generations of disinvestment, rural America might be the most innovative place in the U.S., says a recent headline in the Kauffman Foundation newsletter Currents.

“We must recognize that innovation, diversity of ideas and people, and new concepts don’t need to be imported to rural communities – they’re already there,” writes Chris Harris, a senior program officer in entrepreneurship at The Kauffman Foundation, in a December 2020 article.

“Rural entrepreneurs and community leaders have always, by necessity, been innovative,” he says.

Entrepreneurs who start businesses in rural areas aren’t typically looking to emulate big-tech entrepreneurship. Their business models are often different than their big-city counterparts, says Mary Ann Kristiansen, founder of the Hannah Grimes Marketplace and the Hannah Grimes Center for Entrepreneurship in Keene, N.H.

They may set out to stay a solopreneur or start a business that grows slow and steady, eventually employing 10 to 50 people.

“Often, people have a good idea, or a good skill and they’re not trying to scale it and replicate it, but start a business, maybe pass it along to the employees or family,” says Kristiansen in the Forbes post.

Relocating Entrepreneurs

Some of the newest businesses in rural areas are being started by experienced entrepreneurs who’ve chosen to relocate to the small community.

These entrepreneurs have “the best of life,” says Elizabeth Isele, founder of the Global Institute for Experienced Entrepreneurship.

“They are where they want to live and doing what they want to do. They are creating economically sustainable businesses and they are providing a boost to the rural economy.”

Increased Interest in Rural Living

New startups in rural areas follows a pandemic-era trend of increased interest in relocating to these smaller communities.

Preference for rural living has been on the rise during the pandemic. There has been a "flip" to demand in rural areas and away from cities, according to Redfin CEO Glenn Kelman, quoted in a Main Street America blog last summer.

Early on in the pandemic, Redfin reported its year-over-year change in pageviews show searches for rural areas are up by 115 percent and searches for small towns are up by 88 percent. 

“Small towns and rural areas may be set to boom in the wake of the coronavirus outbreak,” wrote Tim Ellis in a post for Redfin.