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A Conversation with Next Street's Charisse Conanan Johnson

Below is the Nowak Metro Finance Lab Newsletter shared biweekly by Bruce Katz

 

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Lancaster Avenue Commercial Corridor

One of the best parts of my job is the chance to work with reflective practitioners from around the world. These individuals are often at the vanguard of problem solving in our societies, given their unusual combination of subject matter expertise and hard-earned practical experience. This is the essence of New Localism and helps explain the rise of city and metropolitan networks as key agents of change.

Given the disparate impact that multiple pandemics have had on Black- and Brown-owned small businesses, I thought it would be important to hear directly from an exceptional leader, Charisse Conanan Johnson, a Managing Partner at Next Street. I have watched the evolution of Next Street since its founding by Tim Ferguson in 2005 and believe the firm brings a completely distinctive perspective on small business policy and practice that fits perfectly to this moment.

Here is our conversation:

Charisse, thank you for virtually joining me today. To bring all our readers up to speed, can you tell me a little about Next Street?

Next Street was founded in 2005 with the belief that small businesses are the engines of inclusive growth, particularly in underserved markets. We serve as a trusted advisor to some of the country’s most dynamic organizations to help fuel that engine. We pride ourselves on being a mission-driven advisory firm as a certified B Corporation. We are also a company dedicated to the pursuit of racial equity and our clients depend on that expertise. Specifically, we are an anti-racist organization. We seek to revolutionize how our clients provide capital, customers, and services to small businesses and entrepreneurs. With small businesses under so much pressure right now, and as someone who has founded and runs a small business, I couldn’t see myself in more fulfilling professional work.

And to add a bit more color, we provide our clients with more than advice, but with strategies and tools to create a more inclusive US economy for everyone. One of our most unique attributes as an advisory firm is that we put our strategy into practice. Next Street serves hundreds of individual businesses every day through tailored small business development services and programs, such as the NY Business Solution Centers in Manhattan and Queens and the Beverly Gray Center in Buffalo.

There is more I could say, but I’ll wrap up with this thought — as more people become aware of the widening wealth gap in our country and the catastrophic impact that COVID-19 is having on small businesses, especially those owned by people of color, it becomes even more important to view entrepreneurship as a means of wealth generation, providing accessible pathways for businesses owners to flourish.

So, supplier diversity and procurement is a hot topic right now. What role does supplier diversity play in creating economic equity for small business?

It is, and for good reason. First, let’s define ‘diverse suppliers’ — this could mean small business, woman-owned business, HUBZone business, veteran-owned business, LGBTQ-owned business, and disability-owned business. Getting to specificity about what we mean by supplier diversity is tantamount upfront.

Supplier diversity can provide an opportunity for organizations to positively impact the social and economic challenges mentioned earlier. And, supplier diversity is just that — an opportunity to help drive profitability and impact goals. But for that to happen, supplier diversity initiatives have to be supported by and be maintained as, a key initiative of the top senior management leaders, and ideally, the CEO.

Supplier diversity can’t just be a stand-alone, one-off initiative either; it has to become part of the DNA of how the organization does its procurement. For example, companies working with diverse suppliers should think creatively about how and when contracts are awarded to their diverse suppliers. For small businesses, many do not have the cash or access to quick, inexpensive capital that allows them to upscale operations, add staff, or equipment in order to fulfill contracts immediately. It would be extremely impactful if more corporations and other institutions looked at their total spending power for certain goods and services, and how much of this spending power is really “addressable” and then made a commitment to make a portion of this available for small businesses, especially those owned by people of color. This would provide the “soft” support smaller businesses may need to be successful as they scale their operations to meet the often higher volume requirements of larger corporations.

There are other important initiatives happening across the nation from a broader, intersectional context as well. For instance, I commend the City Accelerator work done by Living Cities, the Citi Foundation, GOVERNING Institute, and Griffin & Strong, P.C. This is a good example of procurement efforts that put economic equity and the lives of residents at the forefront while driving innovation across several cities. The progressive procurement strategies found in that guide are a great reference for anyone building a comprehensive and implementable approach.

Finally, it is important that large buyers — corporations, universities and hospitals — consider putting explicit targets in place. For example, our founder and chairman, Tim Ferguson, had a conversation almost 2 years ago with the head of procurement of a large corporation in Minneapolis. She told him that the CEO had set a target of 10% for procurement with minority-owned small businesses and that her goal was to move for 6% to 10% as quickly as she could, and their approach included the possibility of taking equity positions in businesses that she determined could scale to meet their needs. Tim was floored as this showed that when an executive’s targets are changed, the behavior of their firm changes too. You know the saying — ‘what gets measured, gets managed.” And, when we set up performance incentives around what gets managed, the system begins to change.

As you mentioned, Next Street has been doing this sort of work for some time. What else has Next Street been working on and where has that work taken you?

While we have offices in New York City, Buffalo, and Chicago, we serve clients across the country. It provides us with a great platform for unique, national perspectives and insights. In fact, by early 2021 we will have completed more than 25 small business and community investment ecosystem projects in cities from Dallas to Columbus to Boston. Through these extensive and collaborative projects, we conduct qualitative and quantitative analysis on the current state of a city or region’s small businesses and entrepreneurship, identify the challenges they face to grow, and understand the support services and capital they currently have access to. From there, we provide recommendations to accelerate the good and rectify the challenges. We often see organizations struggle with execution — through this work, we are able to bring together the key stakeholders and the community leaders so that everyone has a united roadmap to follow. In Columbus, for example, our work there over the last 18 months prepared us to help launch the Columbus-Franklin County COVID-19 Small Business Response and Recovery Fund, a $10.75M fund focused on providing grant funding, loan funding, and technical assistance to small business owners during this COVID-19 crisis.

We are also currently partnering with Urbane Development, SourceLink, and eConsult Solutions on an ecosystem assessment project for the United Way of Greater Philadelphia and Southern New Jersey, PIDC, and the Philadelphia Department of Commerce, to assess local and national ecosystems for Black-, Immigrant- and People of Color-owned small businesses in order to better serve small businesses and entrepreneurs in Philadelphia. This work is a great example of what I mentioned earlier. It leverages best practices from other cities and brings together traditional local stakeholders alongside a cross-section of local small business owners and small business support organizations to all serve as integral voices within the research and solution design.

You’ve clearly seen a lot of what is going on beneath the surface over the years. If you had to share a few key things, what would you say Next Street has learned most from its work?

Well, we know now more than ever that creating equitable opportunities for small businesses requires working at the ecosystem level, meaning we need to focus not just on understanding the small businesses themselves, but the services available to them, the capital they have access to, and the customers they are able to secure. Across ecosystems, we consistently see some of the same themes:

1.   Most cities lack a central entry point for a small business to reach business support service and capital resources, and then business training organizations and capital providers do not coordinate effectively;

2.   Social networks critical for early entrepreneurial success are often unavailable to people of color;

3.   Underwriting based on credit scores disproportionately restricts capital to people of color; and

4.   Small business services are often not specialized enough to be useful for established businesses.

Our work has also put a spotlight on how much small businesses, especially those owned by women and people of color, struggle to find the right capital to meet their needs. We consistently see an outsized demand for grant, equity, and revenue-based financing compared to debt capital, which is often inflexible and unattainable for them. Change across all these areas is a moral imperative and an economic one — these are dynamic people who are contributors and innovators worth billions in additional revenue and deserve an equitable opportunity like everyone else.

From a supplier diversity standpoint, we see executives and other leaders asking the right questions about the impact of procurement and supplier diversity efforts. The opportunity to create a regenerative supplier network makes sense — one that builds up local and diverse businesses through their purchases that then feeds the local economy which leads to stronger sales for those growing businesses and a healthier community — but it takes collaborative effort, influence and experience to restructure systems that haven’t worked this way traditionally. In the past, we helped launch anchor collaboratives such as Chicago Anchors for a Strong Economy and worked closely with others such as the Baltimore Integration Partnership, which are all focused on challenging the status quo.

Exactly, but some might say this type of change is wishful thinking. From your perspective, how do we really get from here to there? What are some federal and local actions that could support these efforts?

Well, everyone can do something, but if I were to highlight a few things, I would say, at the federal level, we need to ensure that all requirements for procurement from minority-, women-, veteran-, and disabled-owned small businesses are complied with. Currently, the federal government has a goal of awarding at least 23% of all federal contracting dollars to small businesses, right? Well, we think that should be increased to 35-50%. Furthermore, the federal government should ensure that it pays its small business suppliers within 30 days. This would make such a difference for small businesses!

Another avenue, the 8a Business Development program also has great potential for increased impact. This program should be expanded, and the government should ensure that the appropriate funds are made available for ongoing education and advice for these businesses. The government could also introduce an ongoing support program to ensure that businesses continue to be successful at the end of the period of 8a eligibility.

Lastly, the SBA should consider a new “guarantee” program to allow for contracts to be paid in advance of the work being done, thereby allowing cash to flow to the business to allow investments in people and equipment.

On a local level, we should be encouraging State and City governments to make many of these same changes. At the moment there is enormous disparity in local small business spend goals by city, ranging from a city like Boston with a goal of 7% to Chicago, which has a goal of 37%. I could go on, but for those few actions, it would be great to see some meaningful local and federal change.

Last questions, to look at this from another level, how should other prominent voices show up? For instance, what should a CEO of a major corporation do to support small business? Or hospital leadership?

It is certainly an all-hands-on-deck situation for our country right now. The CEO, Executive Director or President in companies, hospitals, universities, and other major institutions have to make local, diverse suppliers a key strategic initiative. We cannot miss our moment to get this right or have to revisit these same issues in the future because leaders haven’t done what they said they would do. As a Black woman, I have been personally affected by the changing whims of corporate America — as a consumer and a worker. So, leaders must set the tone and need to hold the executives responsible for developing a long-term plan, and then hold themselves accountable for sustainable results. Leaders need to understand the nature of the challenge and what it is going to take to make the changes that will be needed within an organization.

Due to the pandemic, we do see various institutions providing resources, raising and directing capital, extending their brand equity, and sharing their platform to empower and support small businesses in a way that hasn’t been done before. When done well, these programs will become mutually beneficial. They uplift diverse, small business owners, they impact the communities where business is being done, and perhaps not right away, but eventually, they provide a brand or revenue ROI. Striking this balance will help create returns beyond the pandemic recovery for both parties, producing a more inclusive and resilient economy overall.

I remain hopeful!

Thank you, Charisse. This has been an invigorating conversation and we will be following your work in Philadelphia and other cities around the country.