02/13/2013 10:50 am ET Updated Apr 15, 2013

The Secret to Building Strong Urban Businesses

What could Cherokee Data Solutions in Claremore, OK, Castle Business Solutions in Dallas, TX and Taza Chocolates in Somerville, MA possibly have in common? These are all successful small businesses that contrary to "conventional wisdom," exist, grow and prosper in economically disadvantaged communities. Where others see poverty, crime and inner city decline, the founders of these companies see opportunity. They celebrate the virtues of their urban location. They build business models around the competitive advantages America's inner cities offer: access to a diverse workforce, a central location that can serve the business district as well as the region, and an underserved local market for goods and services.

These businesses often become beacons of hope. They bring jobs to the local community and provide much needed goods and services. But they go much further than that: often the CEOs of these small businesses become community leaders. They focus on improving the environment for doing business and in the process anchor economic development within their community. They create a local taskforce to take on crime. They ensure the roads are paved and their trucks can make delivery. They hassle local government to improve services, provide security, fix the street-lights. They remove graffiti, rehab abandoned buildings and bring in much-needed retail. Most importantly, they tend to hire locally.

When these businesses grow, the community grows with them. But herein lies the rub: growth does not come easily to businesses operating out of a distressed urban location. Such business leaders often lack the networks required to grow to scale and acquire growing numbers of large clients from the central business district or the region. Very often the businesses are funded by friends and family with little access to growth capital, both debt and equity. If city officials do not spot their potential and help improve the business environment, these companies struggle with issues such as a lack of space for expansion; a higher cost of doing business if crime in the area is high; and an inability to attract talent to work at the urban location.

So how does adversity--such as the Great Recession--impact such businesses and their communities? It's no secret that recessions hit inner city economies hard--harder than the surrounding metropolitan economy. Most inner cities lag in the recovery phase, taking much longer to recover than the surrounding urban areas. But a new Interise study, Navigating Uncertainty and Growing Jobs, shows that some inner city companies show a surprising "resilience" - despite economic uncertainty, a slowdown in their industry and/or a decline in their community, these companies continue to thrive--in many cases even add jobs.

The research focused on 374 firms who have undergone Interise training programs. All these firms are located in low and moderate-income census tracts. These businesses come from across the country, and represent many different industries. They range in size from annual sales of $300,000 to $18 million. The data shows that of the 375, some companies showed "resilience"--they either maintained or added jobs even as the industry and/or city they operate in lost jobs. What sets such companies apart? The Interise study identifies five key areas that distinguish resilient companies:

• "Measurable Indicators: Resilient firms make effective use of measurable indicators, using them to build internal structures and create firm opportunities rather than simply focusing on survival."
• "Assess strengths: Resilient firms correctly assess strengths and the business environment, identifying possible responses rather than relying on formulas and planned strategic growth schemes."
• "Plan Effectively: Resilient firms plan effectively, identifying alternative responses to dramatic change and demonstrating how these new approaches will add value instead of soliciting assistance without a clear vision of sustainability."
• "Creativity under Pressure: Resilient firms demonstrate creativity under pressure, trying new ideas that respond to the unexpected opportunities brought on by the market volatility instead of relying on normal business routines or established strategic growth plans."
• "Adaptability: Resilient firms are adaptable, commitments to firm improvement and able to dynamically revise aspects of the firm's strategic positioning in response to market shifts rather than sticking to a conventional business routine or adopting a reactive posture. Adapatability also requires at least some competency in the aforementioned capabilities."

To be sure, there is cause and effect at play here. These resilient firms may show at least some of these characteristics because they underwent the Interise Streetwise MBA program--a program designed to help inner city business leaders gain access to the tools they need to grow into companies of size and scale. But the research underscores the importance of providing inner city entrepreneurs with the right tools to grow. Of the five attributes identified by the research, three areas that all business owners can be trained on or coached on are the ability to measure indicators, the ability to assess their own strengths and the strengths of the business environment; and the ability to plan effectively.

The last two attributes--creativity under pressure and adaptability--can be improved and built on in most leaders, but they are trickier. Many entrepreneurs are creative--the very act of coming up with your own business idea is creative--but only a few are creative under pressure. And adaptability is a hard lesson for all businesses, big or small. Many a business enterprise stumbles because its leader failed to read or react to the signs of a changing market. As a consequence of these two attributes, not every entrepreneur will become a "resilient" leader--but every entrepreneur can continue to protect and grow their business by learning at least the first three tools for survival.

America prides itself on its resilience--and its commitment to promoting entrepreneurship is second to none in the world. By combining the two, resilience and entrepreneurship, even the most disadvantaged communities in the United States can lift themselves out of poverty and distress. Identifying, celebrating and encouraging businesses in low-income communities to grow--these are powerful weapons in America's war on poverty.

- Manjari Raman

Manjari Raman is the Program Director and Senior Researcher on Harvard Business School's Project on U.S. Competitiveness. She is the former Senior Vice President at the Initiative for a Competitive Inner City. Currently, she serves on the Interise board.