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- Alex Montgomery is a city policy associate at the Institute for Justice in Arlington, Virginia
- Daryl James is an Institute for Justice writer.
Highland Park in north Des Moines has always felt like home to Sara Hopkins. She grew up in the neighborhood, and in 2020 she decided to renovate a vacant, dilapidated building in a commercial corridor near her childhood home for a new real estate business.
Opening a brick-and-mortar enterprise during the COVID-19 pandemic presented challenges. But as Hopkins moved forward with her project, she realized that her biggest obstacle was not the economic uncertainty that came with the pandemic, but City Hall. Des Moines requires aspiring entrepreneurs to navigate a long, complex and expensive approval process that shuts down many ventures before they get started. “It felt like the rules were designed to make it difficult for someone like me to start up,” Hopkins says.
“Barriers to Business,” a new report from the Institute for Justice, shows just how bad things have gotten for aspiring business owners. The study, published Feb. 8, 2022, analyzes city codes and startup requirements for five common business types in 20 U.S. cities, including Des Moines.
Making sense of all the rules is difficult. Opening a restaurant, for example, is a 66-step process in Des Moines. When diagrammed, the flow chart looks like a tangled mess. Those who attempt the feat must fill out 12 forms, pay 10 fees, make eight in-person visits to government offices, and interact with six different city and state agencies.
Opening a barbershop is similarly daunting. The process involves 64 steps, 11 forms, 11 fees, nine in-person activities and six different agencies.
Even launching a basic retail outlet with minimal health or safety risks requires skillful navigation in Des Moines. Rather than documenting the startup process for a real estate office like the one Hopkins opened, the report uses a hypothetical bookstore. Des Moines applicants must complete 22 steps, fill out six forms, pay four fees, make three in-person visits and deal with seven different agencies.
Some entrepreneurs, hoping to avoid the challenges associated with a brick-and-mortar business, start smaller with a mobile or home-based enterprise. But even setting up a food truck involves significant hassle in Des Moines, and many home-based business activities are not even legal. Zoning restrictions even prevent home-based business owners from having client visits, on-site sales and nonresident employees without obtaining an onerous conditional use permit.
Des Moines is not alone. Some cities are friendlier than others, but going from concept to grand opening is difficult everywhere.
Most entrepreneurs are eager to comply with municipal rules and regulations. People who invest their life savings in a project want it to be legitimate. But they struggle to know what the procedures are — and in what order to complete them — because many cities do a poor job communicating requirements. Instead, regulators wait for people to make mistakes and then impose punishments.
The report likens the process to death by a thousand cuts. No single step is fatal in isolation, but the cumulative effect can be overwhelming. Aspiring entrepreneurs with fewer resources and limited access to capital suffer the most. Many must choose between giving up altogether or operating in the informal economy.
Even when entrepreneurs overcome the hurdles, the necessary effort represents significant waste. Resources spent deciphering cryptic rules are not spent on core business activities. Time, energy and money must be diverted.
Des Moines can do better. The report recommends policy changes to make the startup process cheaper, faster and simpler. Specifically, Des Moines should create a one-stop shop for starting a business. A single website should provide step-by-step guides and information covering city, county and state requirements. The city also should lower fees and reduce the number of steps involved in the startup process.
Hopkins persevered and opened her shop. But other entrepreneurs still face a startup process that is too expensive, time-consuming and complex. Starting a business is hard enough without the extra challenges. Des Moines should help, not hinder the effort.
Alex Montgomery is a city policy associate at the Institute for Justice in Arlington, Virginia, and co-author of “Barriers to Business.” Daryl James is an Institute for Justice writer.
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