Note: Memphis’ hub of innovative thought and action about the underperforming local economy is headquartered at Start Co., which recently commissioned a report by the highly respected Urban Institute about the state of a local entrepreneurial-driven economy.  The last blog post here set out the dimensions of our economic challenges and the troubling context for young firms and entrepreneurs.  This blog post wraps up the state of play and what we need to do moving forward.

**

The introduction of the Urban Institute report commissioned by Start Co. summed up the troubling dimensions of our economy and sets the stage for the future.  Here it is:

“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.”

Incorporation: A Red Flag for Tennessee

Another indicator of entrepreneurial ambition is the rate at which new businesses incorporate as C- or S-corporations. These are often associated with firms that intend to scale, hire, and attract investment.

While county-level data are not available, Tennessee ranks last among 50 states in the share of new establishments that incorporate as C- or S-corps – just 2%, compared with a 5% national average.

That statistic does not prove that Shelby County’s entrepreneurs lack ambition, because state corporate law may influence incorporation decisions; however, it does raise questions about whether entrepreneurs here are launching firms with growth in mind – or simply launching quickly and informally to generate income.

If Memphis wants to compete as a regional innovation hub, this is not an encouraging sign.

Survival Rates Took a Pandemic Hit

Business survival is another telling – and troubling – indicator.

Across most large counties, about 64% of firms survive their first five years. Shelby County saw a sharp decline in new firm survival after the COVID-19 pandemic – at a time when other counties were stabilizing or improving.

The report said this was evidence of necessity entrepreneurship during the economic shock. Many people started businesses during the pandemic, perhaps after losing jobs, but a significant share of those businesses did not last.

When entrepreneurs launch out of desperation rather than opportunity, failure rates tend to be higher. That churn creates instability and does little to build lasting wealth.

Sector Growth: Slower Than the Nation

It’s not that Shelby County is devoid of growth sectors. Among the 50 largest industries by employment, eight qualify as high-growth nationally. Four – Management of Companies and Enterprises, Warehousing and Storage, Offices of Physicians, and Outpatient Care Centers – rank among the county’s top 20 industries.

Logistics remains a defining strength. General Freight Trucking, though 19th by employment, is highly specialized locally.

Yet even here, the numbers are disappointing.

From 2022 to 2023, the top 20 industries in Shelby County lost 2.3% of employment, while those same industries grew 0.8% nationally. Among the top 50 industries, local growth averaged 1.1% versus 2.2% nationally.

The fastest-growing large sectors locally – Offices of Physicians and Services to Buildings and Dwellings – are not typically high-wage, innovation-intensive engines. Meanwhile, other large sectors are shrinking.

The broader pattern suggests Shelby County is present in many industries but not outperforming in them.

What This Means for Memphis

For years, civic leaders have celebrated major employers, logistics dominance, health care anchors. Those firms matter, but the report underscores a deeper issue: an ecosystem problem.

Shelby County has:

  • More nonemployers.
  • Fewer young employer firms.
  • Lower net job creation among small businesses.
  • Weak incorporation rates at the state level.
  • Declining survival rates post-pandemic.
  • Slower sector growth than national averages.

Taken together, this paints a picture of underperformance relative to peer counties.

Entrepreneurship here appears more reactive than proactive. It fills gaps rather than drives transformation.

That does not mean Memphis lacks talent or ambition. It does mean the system may be failing to support entrepreneurs who have scalable ideas.

Access to capital, mentorship networks, procurement pipelines, regulatory frameworks, and talent development all shape whether a startup survives and grows. If even promising firms struggle to create net jobs, something in that chain is weak.

The Path Forward

The report does not prescribe a single silver bullet—and there likely isn’t one.

Shelby County needs:

  • Better access to growth capital, not just microloans.
  • Stronger connections between universities, hospitals, and startups.
  • Policies that encourage incorporation and scaling.
  • Targeted support for young firms during their fragile early years.
  • Workforce pipelines aligned with high-growth industries.

Most importantly, local leaders must shift from counting business licenses to measuring outcomes: survival, scaling, and sustained job creation.

The small and midsize firms of today could become tomorrow’s growth engines. But that future is not automatic. Without deliberate investment in the ecosystem, Memphis risks remaining a city of necessity entrepreneurs and dominant legacy firms—rather than a dynamic hub of innovation.

The Urban Institute’s brief should not be read as a condemnation. It is a diagnostic. And diagnoses, if taken seriously, can lead to treatment.

The question is whether Shelby County is ready to confront what the data show—and act accordingly.

***

Join us at the Smart City Memphis Facebook page and on Instagram for daily articles, reports, and commentaries that are relevant to Memphis.