Posts Tagged ‘threshold analysis’

First know your threshold — then beat the odds

December 31st, 2008

Does your community have enough residents to support a hardware store, or a restaurant, or grocery store?  There are no easy answers to these questions, but a recent publication from South Dakota State University offers some important insights.

Titled “Threshold Levels for Selected Rural South Dakota Retail and Service Business” the report focuses on the population levels (called thresholds) that are necessary for retail and service oriented businesses to succeed in rural places.  For instance, the report suggests that communities need approximately 952 residents in order for a full-scale restaurant to stay in business.  

The report applies only to South Dakota’s most rural counties, and is intended to help rural community leaders and entrepreneurs figure out what types of businesses will most likely succeed. 

Why’s the information important?

I appreciate this report, prepared by Mike McCurry, Saileza Khatiwada and Trevor Brooks of SDSU’s Rural Life and Census Data Center, because this type of information is typically available only to urban economic development professionals.  Without it community leaders and entrepreneurs are often left to determine these issues by comparison:  “If a flower shop can make it in Community X, then it ought to be able to make it in our town because we’re about the same size,” people will reason.

While threshold analysis is valuable information, the report cautions that other factors including geographic location, access to highways, and other demographic information affect the success and failure rates of businesses.  In other words, threshold analysis is just one tool rural community leaders and entrepreneurs should use in their decision-making process.  I believe there are two additional factors that are critical to this decision-making process.  Let me explain.

The Entrepreneur Factor

In 2002, Howard’s only hardware store closed.  The threshold calculator indicates that 3,636 people are needed to support a successful hardware store. With a town population of around 1,000 people in a county of only 2,800, Howard should not, by this analysis, be able to support such a store. 

The hardware store did reopen a year-and-a-half later, and today it’s doing very well.  Probably better than ever.  This story might just be an anomaly, but I don’t think it is. While population is important, the people who own and operate the store are far more important.  Are they hardworking, creative, good community members? Howard was lucky that the answer to these questions were “yes”.

The Community Support Factor

There is also a second factor that’s very important - how committed is the community to supporting that store?

In 1996, Howard High School students began an effort to raise community awareness about the importance of local spending.  The students sent surveys to each community member, drew conclusions based on the data they collected, and presented their results to the community. Those efforts have helped produce steadily growing sales within the community every year since.  In other words, the residents buy more locally than they once did because they understand its importance to the community’s wellbeing. 

The threshold analysis provided in the report is a great starting point.  Individuals should look at the threshold number, and then adjust it up or down depending on the specifics of the community.  Location and demographic features are important, but if you ask me, the abilities of the entrepreneur and the commitment of the community to support local businesses are even more important.

At the end of the day, wouldn’t it be great if more communities could beat the odds of the threshold analysis!

   

Note:  Before publishing this post, I contacted Mike McCurry at SDSU with several questions, which he graciously answered.  In answering one question, Mike noted that the high percentage of seniors and high levels of “social capital” may enable some businesses to succeed when population levels are lower than the threshold. 

I was very impressed with Mike’s rapid response, and would encourage people with additional questions to contact him at (605) 688-4899 or sdsudata@sdstate.edu.  You can learn more about the “SDSU Rural Life & Census Data Center” at http://sdrurallife.sdstate.edu/

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Posted in Community Development, Leadership, Rural, Rural Life | Comments (1)