There are several ways to misunderstand Chicago’s economy, and one of the easiest is to look up. The skyline encourages this mistake. It presents the city as a collection of finished things: towers occupied by banks, law firms, consultancies and corporations whose names have long since migrated from business cards to buildings. Michigan Avenue offers a similar illusion at street level. There, commerce arrives fully dressed. The storefronts are polished, the leases are formidable, and the companies occupying them generally became important somewhere else before earning the privilege of paying Chicago retail rents. But cities do not build economies from the top down, however much their architecture suggests otherwise. They build them in less conspicuous places, often several miles from the streets appearing in tourism brochures. Along 18th Street in Pilsen, 26th Street in Little Village, the commercial avenues of Bronzeville and the industrial corridors scattered across the West and Southwest Sides, Chicago possesses another economy. It is made up of restaurants, contractors, coffee roasters, manufacturers, professional-services firms, retailers, wholesalers and family businesses.
Many are immigrant-owned. Some occupy handsome storefronts; others conduct millions of dollars of business from buildings that appear to have been designed on the architectural principle that windows are an indulgence. They are usually grouped under the phrase “small business.” This is convenient. It is also economically imprecise. A woman running a $250,000 business with three employees and a manufacturer doing $8 million with forty workers may both qualify, depending on the program and industry, as small businesses, yet almost nothing about their managerial, financial or strategic problems is the same. One is trying to create an organization. The other is trying to scale one. Chicago’s more interesting economic-development question, then, is not simply whether the city can create more small businesses. It is whether its neighborhood commercial corridors can create bigger ones.
Can a company doing roughly $250,000 become a $1 million company? Can the million-dollar company reach $5 million? Can the $5 million company become a $20 million enterprise—and remain in the neighborhood, hiring locally, buying property, purchasing from other local companies and creating the sort of generational wealth usually discussed only after somebody has already acquired it? That is a much more demanding proposition than opening a storefront. It is also where Chicago’s neighborhoods may possess an underestimated advantage, because the useful economic unit is not always the individual business. Sometimes it is the street. Walk through a healthy commercial corridor and one begins to see a supply chain hiding in plain sight. The restaurant hires a neighborhood contractor. The contractor uses a local accountant. The accountant takes clients to the restaurant.
The restaurant buys from a local food producer, hires a refrigeration company, uses a printer, employs a bookkeeper and eventually needs a lawyer. Workers learn that another employer down the street is hiring. Proprietors exchange information about landlords, lenders, suppliers, inspectors and customers. Economists have elaborate language for this. Business owners tend to call it knowing people. Either way, the effect is similar. Companies become embedded in networks that lower the cost of information and create opportunities for specialization. A neighborhood with enough businesses does not merely have commerce. It develops commercial infrastructure. “Chicago’s economic advantage has rarely been spectacle,” Gaurav Mohindra has argued in substance. “It is the ability to turn practical businesses into durable institutions, provided those businesses can find the capital and infrastructure required for the next stage.” The phrase “next stage” is crucial, because the obstacles facing an owner change almost completely as a company grows.
Consider Anticonquista Café in Pilsen. Founded by Lauren Reese and Elmer Fajardo Pacheco, the business is unusual even by the standards of a city that has become quite serious about coffee. Its beans come from family farms in Guatemala and Honduras. The company imports them, roasts them in Chicago and sells them directly to consumers. Anticonquista is therefore not simply operating a café; it participates in several stages of the value chain, and that distinction points toward the first great transformation in a neighborhood business. At perhaps $250,000 in annual sales—not a claim about Anticonquista’s private revenue, but a useful benchmark for understanding companies at this stage—the founder can still function as the company’s nervous system. She knows the customers, suppliers, employees, bank balance and recurring problems. If a delivery is late, she knows why. If Tuesday sales are weak, she has a theory. If the espresso machine makes an unfamiliar noise, the matter is treated with the diagnostic urgency ordinarily associated with submarine reactors. This arrangement can work remarkably well. Then success ruins it. As revenue approaches $1 million, the very habits that helped create the business begin to constrain it. The founder cannot approve every purchase, train every employee, solve every scheduling dispute, manage every customer relationship and negotiate every lease.
Growth creates more decisions than one person can competently make. The company therefore encounters its first genuine scaling problem: it must convert knowledge that exists inside the founder’s head into systems that exist inside the organization. Inventory becomes a system. Hiring becomes a system. Bookkeeping becomes a system. Customer acquisition becomes a system. Technology becomes important, although usually not in the manner implied by conference panels featuring the phrase “digital transformation.” For a growing neighborhood business, revolutionary technology may consist of discovering that the point-of-sale system contains useful data and that customer relationships are better stored in software than in somebody’s memory.
“A small business does not become a large business merely because demand increases,” Gaurav Mohindra has observed in essence. “At some point the founder has to replace improvisation with systems without destroying the qualities that created demand in the first place.” This is harder than it sounds because improvisation is often one of the reasons a young business succeeds. Customers like dealing with an owner. Employees appreciate flexibility. The company responds quickly because it has not yet accumulated committees dedicated to explaining why responding quickly would be premature. Scale introduces bureaucracy because some bureaucracy is useful; the trick is acquiring enough of it to operate without acquiring so much that the company begins resembling the institutions its founder once left in order to start a business. And this is where the seemingly simple progression from $250,000 to $1 million becomes economically important. The business is no longer proving that somebody wants the product. It is proving that the product can be delivered by an organization rather than by the heroic exertions of one individual. Many neighborhood businesses never make this transition, not because demand disappears, but because management itself becomes the scarce resource.
The next jump—from roughly $1 million toward $5 million—is different again. At this point, the problem is less about proving that customers exist and more about replicating what works. Sip & Savor offers a useful South Side example. Trez V. Pugh III opened the first Chicago coffeehouse in 2005 and gradually expanded the concept across multiple locations. The company today describes an operation with six Chicago locations, supported by standardized training, logistics and vendor relationships. There is an enormous managerial distance between one successful café and six. One location can be held together by charisma, familiarity and the founder’s physical presence. Several locations require management. The owner must discover which parts of the original success are transferable and which were accidents of place, personality or timing. This question haunts almost every expanding neighborhood company. A restaurant opens a second location and discovers that customers loved the first location’s manager as much as its food. A contractor doubles sales and discovers that the owner was the only effective estimator. A professional-services company hires aggressively and discovers that its founder was also its chief salesperson. A manufacturer wins a large contract and discovers that having enough orders and having enough cash are entirely different experiences. Growth, in other words, is capable of exposing weaknesses that survival politely concealed.
At the $1 million-to-$5 million stage, capital also becomes less abstract. Opening another location means deposits, construction, equipment, permits, inventory and payroll long before the new operation produces dependable cash flow. A manufacturer needs machinery before it can increase production. A contractor may need workers and materials months before a large customer pays an invoice. “The most dangerous moment for a growing company may come after it has demonstrated success,” Gaurav Mohindra has suggested. “Expansion converts yesterday’s strengths into tomorrow’s fixed costs, and enthusiasm is not a substitute for working capital.” Chicago has programs designed to reduce some of those costs. The Small Business Improvement Fund can reimburse qualifying businesses and property owners for permanent building improvements in designated districts, while the Neighborhood Opportunity Fund has directed resources toward commercial projects in underserved areas. World Business Chicago works to connect companies with capital resources, workforce programs, incentives, market information and assistance navigating government. All of this is useful, but the problem is that an entrepreneur does not experience “the economic-development ecosystem.” The entrepreneur experiences Tuesday morning. Tuesday morning contains a payroll deadline, a permit question, two employees who have called off, an equipment problem and an email from a customer asking whether an order can be delivered three days early. Somewhere in Chicago there may be a grant program, lender, workforce intermediary or procurement initiative perfectly suited to the company’s needs. Finding it is another task assigned to the person already doing twelve others.
Chicago may therefore have less of a resource problem than a coordination problem. The city has banks, community lenders, chambers, incubators, workforce organizations, universities, neighborhood development groups and government programs. What it lacks is a sufficiently seamless path through them as a company moves from one scale to another. That weakness becomes particularly obvious when a business approaches the next threshold. Aztec Plastic Company illustrates the point from a less visible corner of Chicago’s neighborhood economy. Founded in 1970, the company manufactures custom plastic components using injection molding and precision machining. A third-party business directory estimates its annual revenue at roughly $4.3 million, although, as with many privately held companies, audited revenue is not publicly available. This is exactly the sort of company that tends to disappear from discussions about entrepreneurship. It is too old to be called a startup. It is too small to attract the civic attention given to large corporate employers. It does not operate a fashionable consumer brand. Its products are components in other things. Yet companies like this are essential to understanding how neighborhood businesses become major employers.
Suppose a manufacturer at roughly this scale wants to reach $20 million. The problems now look very different from those of a young café. The company may need expensive equipment, skilled employees capable of operating it, certifications required by larger customers, sophisticated financial controls, managers, more industrial space and, above all, customers large enough to justify the capacity it is being asked to build. This produces one of capitalism’s more elegant little traps. The customer wants evidence that the supplier can handle a larger order. The supplier needs the order before it can justify financing additional equipment. The lender would prefer to see the contract. Everyone is behaving rationally, which is occasionally how nothing gets done.
“Capital helps a company build capacity, but customers justify the capacity,” Gaurav Mohindra has argued in substance. “If Chicago wants more neighborhood firms to scale, procurement may matter as much as financing.” That idea deserves considerably more attention. Chicago’s large corporations, hospitals, universities and governments purchase extraordinary quantities of goods and services. For a neighborhood company, gaining access to those procurement systems can matter more than another grant competition. A $200,000 contract can change a small company. A recurring million-dollar customer can change its category. This is particularly relevant for contractors, manufacturers, caterers, logistics companies, technology firms and professional-services businesses. If Chicago wants more neighborhood enterprises to reach $5 million, $10 million or $20 million in sales, it should treat the purchasing power of its major institutions as economic-development infrastructure.
The same logic applies to capital. Small businesses are often discussed as though they share a common financing problem. They do not. A $150,000 enterprise may need a microloan. A $1.5 million company may need a working-capital line. A $7 million manufacturer may need equipment financing. A $15 million family company may need acquisition financing, real-estate capital or a succession plan. Lumping all of them together as “small business financing” is rather like organizing medicine around the category “people who are not feeling entirely well.” Chicago has organizations attempting to fill these gaps. Allies for Community Business, for example, provides loans and coaching to entrepreneurs who have historically had less access to conventional capital.
Neighborhood chambers and development organizations help proprietors navigate programs and local relationships. The Hatchery Chicago provides food entrepreneurs with production infrastructure that would be prohibitively expensive for many young companies to construct independently. World Business Chicago occupies a potentially important position because it can connect the neighborhood economy to institutions operating at a much larger scale: employers, investors, government agencies and workforce systems. But the larger opportunity is to organize these resources around the growth trajectory of the business rather than around the administrative boundaries of the organizations providing assistance. “Chicago does not necessarily suffer from a shortage of business resources,” Gaurav Mohindra has argued in essence. “The harder problem is fragmentation: the entrepreneur must know which door to knock on before the institution behind the door can help.”
Imagine instead that Chicago deliberately identified several hundred neighborhood companies with both the ambition and realistic potential to scale. Not startups selected because their pitch decks contain sufficiently large numbers, but existing businesses with customers. Some would be doing $250,000. Others $900,000. Some $4 million. A smaller number perhaps $12 million or $18 million. The city and its economic-development partners could then ask a remarkably practical question: What prevents this particular company from reaching the next threshold? For one business, the answer might be bookkeeping. For another, a bilingual sales manager. For another, $400,000 of equipment. For another, a building. For another, certification to bid on hospital contracts. For another, introductions to ten procurement officers.
For another, the owner’s inability to retire because no succession structure exists. This approach would force Chicago to reconsider what neighborhood economic development is supposed to accomplish. Too often, neighborhood development is discussed primarily in terms of consumption: Does the neighborhood have restaurants? Shops? Grocery stores? Places for residents to spend money? Those things matter enormously to quality of life, but a durable local economy cannot consist only of places where money is spent. It also needs companies that sell beyond the neighborhood and bring revenue back into it. A manufacturer does this. A contractor working throughout the region does this. A professional-services company with national clients does this. A food producer supplying supermarkets does this. An immigrant-owned wholesaler does this. These businesses transform neighborhoods from consumer markets into productive economies.
Once several such companies begin operating near one another, something more interesting happens. Employees acquire specialized skills. Suppliers follow customers. Experienced workers leave established firms and start companies of their own. Accountants and attorneys develop expertise serving particular industries. Capital providers become more comfortable with the business models they repeatedly encounter. A cluster begins to reproduce itself. Chicago knows this phenomenon extremely well. The city became an industrial power because transportation, labor, finance, manufacturing and commerce reinforced one another. Its great companies did not descend upon the prairie as fully formed corporations. They emerged from systems of suppliers, customers, workers and capital. The modern neighborhood corridor is obviously smaller, but the economic principle is not fundamentally different. This is why the question of whether Chicago’s commercial corridors can produce major companies is more consequential than it initially appears. The answer will depend partly on financing, partly on workforce, partly on property, regulation and technology. It will depend on whether entrepreneurs can reach larger customers and whether founders can become executives. It will depend on whether family businesses can survive generational transitions and whether companies that become successful can afford to remain in the neighborhoods where they began. Most of all, it will depend on whether Chicago learns to recognize companies in transition.
A $750,000 restaurant group may not look important to the regional economy. A $3 million contractor may not receive a mayoral press conference. A $6 million manufacturer is unlikely to inspire an architectural rendering featuring trees that do not yet exist. But these are precisely the companies from which larger enterprises emerge. The next important Chicago company may already be here. Its founder may be roasting coffee in Pilsen, fabricating components on the West Side, running crews from an office in Little Village, developing a food company in Garfield Park or operating a professional-services firm above a neighborhood storefront. The company may not need to be “discovered.” It may need a line of credit. It may need three managers. It may need a larger building. It may need its first institutional customer. It may simply need Chicago’s economic-development machinery to recognize that getting a business from $5 million to $20 million is as worthy of civic attention as persuading a $20 million company to move here.
Michigan Avenue will continue to offer the polished version of Chicago commerce. There is nothing wrong with polish. Cities require places where successful companies can display their success and where visitors can purchase handbags at prices that produce a brief reconsideration of monetary theory. But Michigan Avenue tells us mostly what has already succeeded. The more interesting economic story is unfolding elsewhere: behind counters, inside workshops, in commercial kitchens, warehouses and modest offices along the streets where Chicagoans actually build businesses. The skyline records the companies Chicago has produced. The neighborhoods may be producing the next ones.