That kind of barrier would have been unfamiliar for much of American history. Many of the country’s most recognizable companies began at home or in small workshops. Harley-Davidson started in a backyard shed. Mattel began in a garage. The Dell computer company was launched from a college dormitory room.
That was not unusual. For generations, starting a business did not require a lease, a loan or a storefront. It started at home. Shopkeepers lived above their stores, bakers sold from kitchen windows and small workshops operated out of garages and sheds.
Even today, that model persists. Around half of U.S. businesses are home-based, and more than half of sole proprietorships operate from a residence. Many require only a few thousand dollars to launch, while opening a storefront can exceed $100,000 once rent, build-out and permits are included.
In much of the country, however, that path is difficult to follow. Modern zoning laws, many rooted in early 20th-century frameworks separating where people live from where they work, make it difficult or impossible to run even modest businesses from home. Rules often require businesses to be “incidental” to residential use, prohibit customer visits, limit the number of employees and restrict visible activity.
In many communities, operating a home-based business legally requires formal approval. A study of small-business regulations across 20 U.S. cities found that many require special zoning permits for home-based businesses and impose restrictions on client visits, employee numbers or even how much of a home could be used for business activity. Home-based businesses that require special zoning approval, according to the study, must interact with, on average, nearly six different agencies before being allowed to open. Other research comparing metropolitan areas finds that less-restrictive local governments produce roughly twice as many new firms as more-regulated ones.
That structure shapes how communities meet basic needs. In sectors like child care and food, where demand can shift quickly, barriers to small-scale entry limit how fast supply can respond, helping drive up costs and slow responses.
In response, some states and local governments have begun to lower those barriers. Legislation introduced this year in Colorado, for example, would loosen the state’s “cottage food” law, allowing more foods to be prepared and sold from home with fewer licensing requirements.
Other changes in recent years have focused on child care. States including California, Minnesota and Virginia have passed reforms allowing more in-home child-care businesses to operate by right in residential areas, increasing capacity without large upfront investment. California’s SB 234, for example, allows large family day-care homes in residential zones without discretionary approval, expanding child-care availability.
Local governments including Minneapolis, Phoenix and San Diego have also begun simplifying permitting, reducing fees and allowing low-impact home businesses to operate without discretionary approvals.
These changes aren’t huge, but they point to something important. When the cost of starting small is too high, fewer people can participate and communities have fewer ways to respond to changing needs.
For much of American history, small-scale, home-based enterprise was not an exception; it was the starting point. If local governments want more businesses, more entrepreneurship and more responsive local economies, one of the most direct steps is also one of the simplest: Make it easier to start small.
Westley Sturhan is a research analyst with the Montgomery County, Md., Economic Development Corp. His writing on planning and development issues has been published in Greater Greater Washington.
Governing's opinion columns reflect the views of their authors and not necessarily those of Governing's editors or management.
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