Third places — gathering spots outside of work and home — have long been shown to help people maintain friendships, exchange ideas, and build community. New research from Columbia Business School suggests Starbucks cafes could increase the number of startups launched in neighborhoods as well, by offering a place for networking and signaling growth potential.
Major metropolises like Chicago, New York, and San Francisco are typically seen as hubs of entrepreneurship, but according to CBS Professor Jorge Guzman, entrepreneurship is a local phenomenon.
“Almost all entrepreneurship activity is defined at the neighborhood level, not the metropolitan level,” Guzman says. “But we know very little about what makes neighborhoods successful in entrepreneurship.”
To understand how some neighborhoods can foster entrepreneurship when others don’t, Guzman turned to so-called third places like libraries, parks, marketplaces, and neighborhood cafes. Sociologists have demonstrated that third places can be significant contributors to the social fabric of a community, by helping people maintain and use their network ties. However, it was unclear if those spaces played a role in an area's economic growth.
Key Takeaways:
- Creating a third place has the potential to increase entrepreneurship in individual communities. The research showed that the introduction of a new Starbucks cafe increased entrepreneurship in US neighborhoods by between 2.3 percent and 11.8 percent.
- The effect was present only when there were no other cafes or other organizations serving a similar function in a neighborhood.
- There are economic benefits to creating community spaces — not just social benefits. Neighborhoods can be improved by building spaces that encourage people to build capital.
How the research was done: Drawing on business registration data from all 50 states between 1998 and 2019, Guzman and his co-authors mapped the establishment of Starbucks cafes in individual neighborhoods. They compared the number of startups founded in those neighborhoods to census tracts that were slated to have Starbucks added but ultimately did not receive those cafes.
The team performed difference-in-differences statistical analysis using the neighborhoods that did not receive Starbucks as controls. When looking at a neighborhood that got a Starbucks, “you cannot know how this place was going to be without the Starbucks,” Guzman explains. “But if you have two places that look pretty similar and one gets a Starbucks and one doesn't, then you can use one to assess how the other one does.”
What the researchers found: In census tracts that previously had no coffee shops, the introduction of a Starbucks increased the number of startups by between 2.3 percent and 11.8 percent, or 0.8 to 4.1 firms per year, on average, during the seven years after the Starbucks opened. And it wasn’t just side gigs.
“You might imagine they're going to be like work-from-home, really local businesses from people with kids that are just going for the flexibility,” Guzman says, “but it turns out that we do find large effects for more growth-oriented startups, including tech, and companies that register in Delaware.”
Larger and busier Starbucks had a greater impact on their neighborhoods, as did those that opened in underprivileged neighborhoods. But the study found that Starbucks cafes didn’t have a compounding effect: Neighborhoods that already had a Starbucks didn’t experience the same boost when they got a new one. It also found that, perhaps contrary to popular belief, the introduction of a Starbucks did not increase real estate investment in the neighborhoods.
Why the research matters: This study gives entrepreneurs, developers, urban planners, and policymakers new tools to understand the roles that third places can play in a community. It provides new evidence of the importance of local businesses to neighborhoods’ economic growth.
“It implies that neighborhoods can be improved,” Guzman says, “and that creating a community space where people can come together, share ideas, and build social capital actually leads not only to higher well-being but higher economic opportunity for those residents.”
Adapted from the working paper “Third Places and Neighborhood Entrepreneurship: Evidence from Starbucks Cafés” by Jinkyong Choi, Jorge Guzman, and Mario Small of Columbia Business School.
