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The State of Small Business: District of Columbia

Ryan Fallon

As part of our project "," Business News Daily plans to report on the small business environment in every state in America. In this installment, we asked a few of Washington, D.C.'s more than 71,146 small business owners about the challenges and opportunities of operating in their territory. Here's what they had to say.

Washington, D.C. is a world-class city that boasts tremendous assets and opportunities for businesses. The Office of the Deputy Mayor for Planning and Economic Development characterizes D.C. as boasting "a highly educated workforce, a prosperous business climate, and a hub for the world's most influential decision makers and innovators."

Home to 16 universities and several hundred government and private-sector research institutions, the District is a global hub for technological innovation, policy, finance and a litany of other disciplines. Governors, mayors, heads of state, university presidents, CEOs of energy companies, utilities, diplomats and hospital groups — all of these decision-makers come through Washington on a regular basis, making D.C. a prime environment for relocation.

Here are a few key factors impacting the small business climate in the District of Columbia, and what potential entrepreneurs can expect when they launch their business there.

The regions of Washington, D.C.

Many organizations such as law firms, independent contractors (both defense and civilian), nonprofits, lobbying firms, trade unions, industry trade groups and professional associations have their headquarters in or near the District to be close to the federal government. When choosing the District of Columbia as a locale for your small business, location is critical. D.C. is divided into four quadrants (Northwest, Northeast, Southwest, Southeast) along North Capitol, East Capitol and South Capitol Streets.

Northwest D.C. houses the National Mall, Georgetown, Embassy Row, The Naval Observatory, the 14th Street Corridor, the U Street Corridor, Columbia Heights, Farragut, McPherson Square, Watergate and Dupont Circle. As the economic, social and cultural hub of the District, the Northwest quadrant has exorbitant rents and steep economic competition from long-established proprietaries, which makes particularly challenging for retail outlets and restaurants. Notwithstanding these challenges, Northwest is the pre-eminent locale for business within the District.

Northeast D.C. is a burgeoning location for restaurants, breweries, nightclubs, bicycle shops, nonprofits and media companies, and is within reach of WMATA Metro's Red Line. Three distinct neighborhoods lead Northeast in growing economic vitality – Brookland, Edgewood and the H Street Corridor. Brookland welcomed four new restaurants along the previously residential 12th Street Northeast in 2015. Edgewood houses the Monroe Street Market, attracting farm-to-table restaurants and pop-up art galleries. Northeast's H Street Corridor is home to the famed Atlas District, a hub for performing arts. It has benefited from the recent installment of a streetcar line stretching from Union Station to Benning Road, and houses 32 restaurants and bars in a cluster between 4th and 12th Streets.

Until the construction of Nationals Park on South Capitol Street in 2008, Southwest D.C. was regarded as the forgotten quadrant. D.C.'s smallest quadrant was limited to the presence of Fort Lesley J. McNair (both the Joint Force Headquarters National Capital Region and the main campus of the National Defense University are located here) and Joint Base Anacostia-Bolling (the recent combining of Anacostia Naval Base and Bolling Air Force Base) – all of which take up a lot of space. A decade of development along Southwest's Waterfront has seen substantial growth in commercial and residential properties. The Southwest Neighborhood Assembly provides resources and information for businesses wishing to relocate to this quadrant.

Isolated from the rest of the District by way of the Anacostia River, Southeast D.C., or Anacostia, is perhaps the most unique neighborhood in D.C. Formerly known as Uniontown, this neighborhood housed workers at nearby military and manufacturing sites. The Anacostia Historic District was placed on the National Register of Historic Places in 1978, but the area's decline continued into the 1980s and '90s as destitution, systemic lack of public services, urban dysfunction and crime plagued the neighborhood.

With low property values and space for growth, Anacostia's urbanscape looks poised to change in forthcoming years. There is a great need for small business owners looking to relocate to Anacostia to recognize the neighborhood's unique place in the District as well as understand residents' desire for a positive impact from development.

All the while, Anacostia's residents look to retain the integrity of their community. Charles Wilson, the Advisory Neighborhood Commission's envoy for Southeast, outlines the overall outlook on development as seen by Anacostia's residents: "There's that anticipation, but also a sense of anxiety because Anacostia's residents want positive change, but they want to be included in that change," said Wilson.

He noted that Anacostia's predominantly African American residents hope that the neighborhood retains its "unique flavor," wary of gentrification that has transformed the fabric of U Street Corridor into a largely mixed part of the District.

Opportunities & challenges

Unique business niches

Federal contracting: In 2012, general services within the federal government accounted for about 29 percent of the jobs in Washington, according to D.C.'s Department of Employment Services. Bolstered by this backbone in employment, the District is perceived to be immune to national economic downturns as the federal government continues operations even in recession. Notwithstanding this common perception, sequestrations may cause staggering disruptions for federal contractors, as they are directly linked to congressional oversight for their continued business. 

Tourism and hospitality: According to Perry Stein of the Washington Post, more than 19.3 million domestic tourists visited D.C. last year — a record-breaking number that makes tourism and hospitality D.C.'s second-largest industry. Furthermore, the District's Tourism Bureau - Destination D.C., reported 2015 as the sixth-consecutive record year for domestic tourism in the nation's capital. 

Stein states that tourists from abroad are especially coveted because of their propensity to stay in D.C. longer, and thereby spend more on hospitality, food and beverage, and logistics. Tourists are attracted to the District for the proliferation of museums, memorials and public sites that charge no admission for access as well as to garner a greater understanding for civics and history.

Legal cannabis: The passing of Initiative 71 legalized cannabis for personal use within the District. (It permits the use of up to two ounces of marijuana and the possession and cultivation of up to three marijuana plants). Since then, small businesses founded in servicing an emerging cannabis market have woven themselves into an immensely complicated relationship between federal and local law.

While the federal government places THC on a Schedule I designation through the Drug Enforcement Administration, several startups specializing in medicinal marijuana have blossomed within the District. Regulations for cannabis on a personal use level limit the transfer of marijuana under a gifting policy. Cannabis retailers charge for other items, including, art, jewelry, food, and crafts, with the transferring of marijuana as an additional "gift" to abide by the framework of the law.

Legal risks that span from federal prohibition make cannabis in D.C. a high-risk venture. Even low-risk ventures require a great deal of diligence and caution in understanding the District, one of the most complex jurisdictions in the United States.

Lack of access to capital

While operating a business in the shadow of the federal government might provide a veneer of security, local small businesses in the region have seen a worrying trend in terms of access to capital. Since 1999, the number of banks headquartered in the Greater Washington region has dropped by half – 70 to 36 – according to Federal News Radio's Barbour Ulrich. Ulrich attributes this to a national trend in financialization, where small branches and local lenders have been replaced with services provided by larger, multinational corporations and conglomerates.

Nonetheless, Ulrich states that private investors have flocked to the District in recent years, finding a niche in a highly trained talent pool and untapped services, especially in the field of technology.

A burgeoning, female-heavy tech community

Lisa Throckmorton, COO of tech communications firm SpeakerBox, spoke on D.C.'s burgeoning entrepreneur community, particularly in regard to women's involvement in the industry. For Throckmorton, the technological ecosystem within the District has discovered new life compared to previous decades, where most technological ventures were chiefly in the hands of the federal government. Now, a blossoming tech culture has taken shape in the District over the last five to eight years.

Throckmorton contended that this new life has made the area a haven for entrepreneurial engagement among millennials and Gen Xers. To Throckmorton, Washington D.C. is "largely known as a seed-stage environment for startups, some people look at that potentially as a ding," but outside companies and investors are "really starting to understand how to connect with the entrepreneurship community here."

"I know in the past couple of years, D.C. has emerged on the national scale — in publications like Inc. and Forbes — and is making lists for its pro-female entrepreneur environment," Throckmorton said. "There has been a huge mobilization of women in this community to really draw out the entrepreneurs [and] technologists."

Throckmorton points to the Vinetta Project as a critical fixture for the engagement of women within the tech industry: "Their mission is to spur startup growth and investment in female founders. They're a national organization that launched a D.C. chapter, and literally within this past year, have become the model for their entire organization," she said.

The District of Columbia is a political entity unlike any other in the United States. Operating a business within D.C. is not without challenges, but it also offers unique niches, opportunities for dynamic growth and access to a talented labor pool. Small business owners should canvass every local law, federal regulation, employment trend, industrial metric and quadrant before relocating to the District of Columbia.

Resources for small businesses in Washington, D.C.

A litany of resources for establishing a small business in the District of Columbia can be found through the Small Business Development Center, the Department of Small and Local Business Development, and the Washington District Office of the U.S. Small Business Administration.

Ryan Fallon Member
<p>Ryan Fallon is a freelance writer and consultant based in Richmond, VA. Like many New Jersey transplants living in the area, his gripes mainly center around a lack of shoreline and bad pizza. A graduate of Virginia Commonwealth University,&nbsp;his areas of expertise include federal policy, nonprofit organizations,&nbsp;computational linguistics&nbsp;and international relations.&nbsp;</p>