116 3rd St SE
Cedar Rapids, Iowa 52401
Iowa’s small towns face big hurdles in nurturing businesses
Incentives can lure businesses but they don’t guarantee vitality
By Lyle Muller - IowaWatch
Oct. 8, 2021 7:00 am
Amanda Pasket had been running a specialty visuals company from her Elgin home since 2018 but decided a storefront in the nearby Northeast Iowa town of Fayette would be better for business.
Fayette had life lines, with financial incentives for new businesses from three sources: a city fund for new construction, a U.S. Department of Agriculture rural development program and a city fund for marketing.
“That did really help drive my decision,” Pasket said about moving her business, The Visual Element. “I was looking for a more open, welcoming community that wanted to grow.”
While local incentives can lure businesses to small towns, they are no guarantee alone that the town can be vital or attract visitors, according to a four-month IowaWatch investigation of towns with fewer than 5,000 people. The reasons vary, including difficulty businesses have in finding workers, enough customers to sustain a business or attraction, and general interest among the public in a town.
That leaves those who try climbing an uphill road.
“I don’t want that to sound pessimistic because we keep trying, but I think it’s a huge challenge,” Fayette Mayor Andrew Wenthe told IowaWatch. “I think until … foundations or state governments or the federal government really starts to invest in keeping smaller communities livable, you’re going to start to see this hollowing out of these smaller communities.”
Meanwhile, most small Iowa towns are getting smaller. An IowaWatch analysis of census data released in August showed that 636, or seven of every 10, of the state’s 923 towns with fewer than 5,000 people lost population or made no gains since 2010.
One of every four small towns gained population since the 2010 census. IowaWatch spent four months visiting 58 of those towns with fewer than 5,000 residents to understand why they bucked trends of declining populations, decaying downtowns or struggling schools.
IowaWatch reported in August that these towns had one or more factors working to their benefit, including creative businesses, updated infrastructure, readily available health care, child care, the arts, recreation, a sense of being safe, strong local schools and a sense of community pride.
Fayette’s 2020 census count of 1,256 is down from 1,338 in 2010, new data show. Fayette County, overall, lost 1,371 in population from 2010 to 2020 to 19,509 in last year’s count.
“There are limitless challenges,” Wenthe said. “Anybody who’s run a business knows it’s not a 9-to-5 type of thing in most cases. So if you’re running into any kind of challenges outside of even the business’ success, keeping it open can be a challenge.”
U.S. Bureau of Labor Statistics data show one of every five new small businesses in Iowa since 1994 died within a year. Almost half were gone in five years, the data show.
The U.S. Small Business Administration reported that 7,713 small businesses — identified by the SBA as being independently owned and operated, not nationally dominant — were the vast majority of the 7,911 new Iowa businesses opening between March 2019 and March 2020. The 7,514 that closed in that span also were the vast majority of 7,679 businesses in the state that closed, the SBA reported.
Available data do not break down a rate for towns of 5,000 or fewer people, but being in a small town adds hurdles to staying open.
“I don’t know that it’s a big mystery that people are just leaving rural communities to go to more urban areas,” Wenthe said. “And I think that is, in large part, due to jobs and opportunities. So if there’s a hurdle, if there’s a row of hurdles we’re chasing, that’s the tallest one.”
In Fayette, Pasket’s business produces visual materials such as billboards, business cards, ebooks, flyers, digital GIFs, logos and banners for businesses and nonprofits.
“Like every entrepreneur, I think I wanted to be my own boss but, at the same time, create an entity that was more people-oriented and less corporate America,” the Upper Iowa University graduate said. Upper Iowa is in Fayette and Pasket is taking online courses from there for a master’s of business administration degree.
Business has been good since opening the downtown store, next to City Hall, in June, she said. “It’s fun to meet new people with interesting projects,” she said. For example, a customer came into the store needing to restore and duplicate a map of a Fayette County cemetery, she said.
“A lot of people come to us but I don’t think a lot of people know about us,” she said. Some older businesses with a “we’ve always done it this way” mindset aren’t open to innovation and change, she said.
“I’m in the business to build businesses, so I think it’s kind of perfect for a small town,” she said. However, the relatively small number of people in town means the pool of people starting new businesses is smaller than it would be in a larger town. “It’s challenging to find entrepreneurs and people that want to start businesses,” Pasket said.
Fayette is not near a larger metropolitan area. But Riverside, in northern Washington County, is a 30-minute drive south of Iowa City. Still, Morgan Rodgers feels the need to work extra hard to keep her Riverside coffee shop, Madeline’s Coffee, going. Business has been slow and steady, Rodgers said.
Rodgers opened the coffee house in May 2019 with her husband, Andy, and immediately ran into challenges. In her first year, Riverside rebuilt part of the road and walkway area in front. The next year — 2020 — brought COVID-19.
“We just had carryout, and it all worked out,” she said. “People were patient.”
Riverside’s population in the 2020 census was 1,060, up from 993 in 2010 and 928 in 2000. The town has been growing since its founding in the 1870s.
Riverside claims to be the future birthplace of the fictional Star Trek Capt. James T. Kirk and stages an annual TrekFest that draws people from out of state. It also has a nearby casino, which has jobs and a foundation that has pumped almost $10.9 million into county and town governments and almost $36 million into nonprofit organizations since 2006.
Rodgers’ shop is named after her grandmother, Madeline Lillie of Marengo, with whom she baked as a child. Lillie died in 2016. Rodgers makes food from scratch, using items purchased from local businesses. “We don’t support each other, we’re not going to make it,” she said.
Rodgers goes to work at 5:30 a.m. to be open from 7 a.m. to noon every day except Saturdays, when she stays open until 1 p.m., and Mondays when the shop is closed. Andy helps on weekends.
Labor of love
David Peterson didn’t start a business to give the Western Iowa town of Boxholm a local attraction. Instead he opened the Boxholm Museum, atop a small hill in the town’s one-block downtown.
Peterson has spent a lifetime collecting and preserving artifacts. A bachelor and history buff, he said he has no one in his family to take the items as hand-me-downs. He opened the Boxholm Museum in his hometown of 181 people 20 years ago for anyone interested in seeing a piece of the town’s past. But he estimates that three of every four residents haven’t been there nor do they care to ever go, he said.
Boxholm is losing people. Its population was 195 in the 2010 census and 215 in 2000.
“The old Boxholm that I lived in doesn’t exist anymore,” said Peterson, 73, whose great-grandfather was the first permanent settler in 1867. Boxholm’s newest residents have moved to town for cheap housing and low taxes, he said, not a sense of its history.
Boxholm, which had 300 people in 1950, isn’t dead but isn’t lively, either, Peterson said. Formerly thriving local businesses are closed.
Peterson opened his museum after saving the Building from demolition and buying it in 1991. It’s a not-for-profit labor of love that houses his artifacts, old local records and more than 3,000 obituaries. People may see the items by private appointment. The museum doesn’t have regular hours.
“It’s one man’s efforts to preserve a small town’s history,” said Peterson, a retired U.S. Gypsum Co. worker.
While Peterson’s museum is a labor of love, other Iowans in small towns take a risk when opening a specialized business.
Dimitri Makedonsky saw an opportunity in 2004 at the Ladora Savings Bank Building. The bank, on Highway 6 in Ladora, an Iowa County town of 255 people, was long gone. But the chance to remodel and open a bistro existed.
Ladora Bank Bistro was first. Then in early 2019, the re-imagined Caucus Bistro opened. The doors closed October 2019. Makedonsky said he shut the business down for good and sold the Building to an out-of-state buyer.
The Ladora Bank Bistro was successful for many years, he said, but keeping a business open while living an hour-and-a-half west was not sustainable and the customer experience wasn’t what he wanted. “In a nutshell, it’s extremely difficult to find quality workers for an upscale wine bar/bistro in rural Iowa,” Makedonsky wrote in an email.
Ladora’s population dropped to 229 in the 2020 census. It was 283 in 2010 and 287 in 2000.
Several towns IowaWatch visited have tried different ways to keep businesses.
Belmond, in north-central Iowa, distributed about $73,000 to businesses from a COVID-19 relief fund this past year to help during the pandemic, said Wright County Economic Development Director Darrel Steven Carlyle.
The money came from local foundations, including about $50,000 from the Richard O. Jacobson Fund for Belmond, established by the late businessman who made a name for himself in shipping and logistics in Des Moines. The rest came from the Luick Memorial Trust Fund, established by a prominent local agricultural family.
“The ones we were really focusing on were the ones that were impacted most by the government shutdown — the bars, the restaurants, the small businesses,” said Carlyle, who was Belmond’s city manager until moving into his new role at the end of summer.
Plenty of other rural areas have local business development efforts that include incentives to locate there.
Winn-Worth Betco, for example, is a collaboration of Winnebago and Worth counties along Iowa’s northern border with Minnesota with a variety of incentives ranging from revolving loans to low cost energy. The two counties’ boards of supervisors are the Winn-Worth board. The largest town in the two counties is Forest City, home to Waldorf University and 4,285 people in 2020, up from 4,151 in 2010.
Guttenberg, with 1,817 people in Northeast Iowa’s Clayton County, has a local business accelerator fund. Guttenberg is the county’s largest town but lost population, from 1,919 in 2010. Manning, population 1,455 in 2020 and down from 1,500 in 2010 in Western Iowa’s Carroll County, has a revolving fund, too, and community betterment foundation. Walnut, in Southwest Iowa, has a small business startup fund that grants businesses up to $5,000 to locate in the Pottawattamie County town of 747 people, down from 785 people in 2010.
State grants are available to help small businesses, including Iowa Rural Business Development grants, Main Street Iowa challenge grants and an assortment of other incentives into which small Iowa towns can tap.
Over the past five years, Fayette has used town-funded grants and a renewed focus on attracting new businesses. This followed a stretch of losing several businesses and seeing more empty storefronts. Having Upper Iowa University in town did not guarantee vitality.
Fayette has a $1 million David Bolger Fund, named after an East Coast businessman and philanthropist who helped bail out Upper Iowa in the 1970s when it struggled financially. Bolger took a liking to Fayette in his visits to Iowa, eventually earning the moniker, “Honorary Mayor of Fayette.” He died as 2018 was coming to a close.
Wenthe, the town’s mayor, said efforts like the city’s financial incentives are needed constantly. In 2018, the city noted in a news release that seven new businesses had opened and one had expanded in the previous two years. One since has relocated and the other folded when an owner had to deal with personal matters, Wenthe said.
Three new Fayette businesses, including The Visual Element, have opened this year. Wenthe, a former Iowa legislator, said government at the local, state and federal level are key to helping others open and thrive, not just in Fayette but in any small, rural Iowa town.
“I think it’s time to kind of sound the alarm bell a little bit with folks that truly care about rural communities and want to see strong rural communities, where the school districts thrive, because we’re not on a real positive path forward,” he said.
“And I think a lot of these small communities are really going to struggle if we don’t look at policies that are proactive toward supporting rural growth.”
Pat Kinney of IowaWatch’s “Small Town Solutions” project, contributed to this report. IowaWatch reporting in this project was made possible by support from the Solutions Journalism Network, a nonprofit organization dedicated to rigorous and compelling reporting about responses to social problems. IowaWatch-The Iowa Center for Public Affairs Journalism is a nonpartisan, nonprofit news outlet that strives to be the state's leading collaborative investigative news organization. Read more or support its mission at iowawatch.org.