In tough economic times, starting a business may seem like a risky venture, especially in a low-income neighborhood. Darden professor Gregory Fairchild (GSBA ‘92) sheds light on the value of businesses in these communities and how entrepreneurs can secure financing. “I am very interested in how business changes and affects people’s lives,” says Fairchild.
The inspiration for Fairchild’s research has come from finding commonalities in unexpected—and far-flung—places. As a Darden student in 1991, Fairchild traveled to the then Soviet Union to observe Pizza Hut enter a new market. “Managers were faced with the challenges of a market where so many of the expected inputs weren’t a given: customer tastes, supply chains … even the use of currency—hard and soft—had to be adjusted,” says Fairchild.
Years later, when he was doing research for his doctorate, he interviewed 100 business owners in Harlem’s historic African-American business district, where a large chain store had recently opened its doors. The local businesses that survived were ones better adapted to the neighborhood’s changing demographics.
“They were both communities in transition,” says Fairchild. “[In both places] a lot of the social problems were created by lack of jobs and wealth. You could solve those problems through training, through the redistribution of income, or by starting new businesses in these areas. I was very interested in the last approach.”
Research that explores the links between the welfare of a community and the success of small businesses is rare in a field that tends to emphasize big business.
“Much of the research done in business schools focuses on topics like initial public offerings and CEO behavior in large organizations,” Fairchild said. “I’m interested in the interactions between businesses and communities—how the business sector influences the lives of poor and middle-income people, and how the social and cultural dynamics of ‘main street’ communities affect the businesses in their midst.”
In 2007, the John D. and Catherine T. MacArthur Foundation presented Fair-child with an $850,000 grant to support the study of community development financial institutions.
Though they don’t get a lot of attention, there are more than 1,100 small banks, credit unions, loan funds and private equity firms that are regulated and certified community development financial institutions across the country. “The MacArthur Foundation was interested in evolution—how these organizations came to be, how they grew, why some became big and how they were faring during the [financial] crisis,” says Fairchild.
The research has shown that the most successful community development financial institutions find “holes” in the financial services marketplace and provide innovative solutions to fill them. “Their innovations became demonstration projects that could eventually influence social and public policy,” says Fairchild. “However, the report includes some cautionary tales as well. Some leading CDFIs let their penchant for social change lead the realities of fiduciary risks, and as the economy soured, their institutions and the programs they had created were lost.”
In addition to doing research and teaching, Fairchild is the director of the Tayloe Murphy Center, where, he says, “we seek to conduct research that can create economic and community uplift and transform underserved areas and groups.”
The Tayloe Murphy Center hosts the Resilience Awards, which showcase successful businesses in low-income areas in Virginia. Each year approximately 100 applicants are judged by a panel, including Tayloe Murphy Jr. (Law ‘60). The 2011 recipients will be announced on Sept. 7 during a ceremony at the Rotunda.
The center also offers educational opportunities for small business owners and entrepreneurs from low-income areas.
For Fairchild, these initiatives fit naturally with his research.
“The MacArthur Foundation work is about how you fund growth in low-income communities,” he says. “At the center, I am looking at ways UVA can be helpful in those communities.” —Melissa V.P. Rossow