When assessing a regional economy, it is important to consider the role played by entrepreneurs and small businesses, particularly with respect to innovation. Shelby County, Tennessee, home to Memphis, is an important case study for the forces that shape small business development, entrepreneurship, innovation, and regional economic growth.

Why This Matters

Shelby County hosts nationally recognized firms yet faces a trend of economic stagnation. Our analysis found that Shelby County is underperforming compared with its peers in supporting prospective entrepreneurs and young, small firms, for which job growth is limited and firm survival is declining. Entrepreneurship may represent economic necessity—a lack of well-paying or flexible work—more than market opportunity to a greater degree in Shelby County than elsewhere. A combination of strategies is likely needed to empower entrepreneurs with near-at-hand market potential and to invest in the talent development and employment of others. The small and midsize firms of today may be the regional growth engines of tomorrow. But without adequate resources, their ability to reach their potential may be stifled.

What We Found

We analyzed how Shelby County measures against the 100 largest counties in each of six factors that stand out for assessing innovative regional economies:

• Sole proprietorship representation. More small businesses does not necessarily indicate more economic strength. A high rate of sole proprietorship may indicate a stagnant job market and insufficient funding for entrepreneurs to scale and grow. Shelby County has a very high rate of nonemployers.
• Employment in young, small firms. Although small businesses are understood to be drivers of economic growth, young, small firms in particular are associated with higher rates of growth and innovation (Audretsch 2002). Measuring employment in young, small businesses is a good way to understand the strength and potential of this sector. Shelby County has relatively lower employment in these firms.
• Net job creation for young, small firms. We look at the extent to which young, small businesses create more jobs than are destroyed. Shelby County lags other large counties in net job creation for young and small firms.
• Incorporation of new C-corp and S-corp establishments. A proxy indicator of economic growth potential is the formal incorporation of new C- and S-corp establishments, as this is associated with innovation and entrepreneurs’ beliefs that they have scalable businesses. Tennessee ranks lowest in this measure among all US states.
• A stable rate of new firm survival. To grow, firms first need to survive. Firm survival rates rise and fall with economic cycles, but it is useful to compare places to each other during a particular economic cycle. The new-firm survival rate in Shelby County fell following the COVID-19 pandemic while it increased in other counties, suggesting a high degree of necessity entrepreneurship in reaction to economic shock.
• Representation within growing sectors. Sectors of the economy vary in their growth rate. Of the 50 largest sectors in Shelby County by employment, 8 are high growth based on national data. On average, most sectors in the county are growing more slowly than the rest of the nation.

How We Did It

We gathered publicly available county-level national data from the US Census Bureau and US Bureau of Labor Statistics about business ownership, employment, age, and sector. We compared Shelby County, Tennessee, to the average of the remaining 100 largest counties in the country by population to assess the county’s regional economic development across several quantitative metrics.