💰 quantitative finance

The Impact of Publicly Funded Small Business Advisory Services: Firm Take-up and Performance in the United States

Using a novel administrative dataset and a quasi-experimental design based on Small Business Development Center closures and openings, this paper provides causal evidence that reducing geographic distance to publicly funded advisory services significantly increases firm engagement, which in turn leads to substantial gains in annual revenue and employment for US small businesses.

Original authors: Scott Kaplan, Ryan Raimondi

Published 2026-07-10✓ Author reviewed ⓘ

📖 5 min read🧠 Deep dive

CC BY 4.0

Original authors: Scott Kaplan, Ryan Raimondi

Original paper licensed under CC BY 4.0 (http://creativecommons.org/licenses/by/4.0/). ✨ This is an AI-generated explanation of the paper below. It is not written by the authors. For technical accuracy, refer to the original paper. Read full disclaimer

Imagine you're running a tiny lemonade stand, but instead of just squeezing lemons, you're trying to figure out how to expand to a whole row of stands, hire a few friends, and maybe even sell cookies too. You know you need a coach, but who do you call? In the United States, there's a massive network of free coaches called the Small Business Development Center (SBDC). Think of them as the "Yoga Instructors for Business": they don't do the push-ups for you; they teach you the moves, help you plan your routine, and spot you so you don't hurt your back.

But here's the big question: Does it actually matter if your coach lives next door or if you have to drive an hour to see them? And does actually talking to them make your lemonade stand (or your tech startup, or your bakery) make more money?

A team of researchers decided to find out by looking at a giant dataset from Northern California covering 18 years of business coaching. They didn't just ask people, "Did you like your coach?" (because maybe the most motivated people are the ones who show up anyway). Instead, they played a clever game of "musical chairs" with geography.

The Great Center Shuffle
Over nearly two decades, these coaching centers moved, opened new locations, or closed down. Sometimes a center would pack up and move 20 miles away; other times, a new one would pop up right next door. The researchers treated these moves like a natural experiment. If a business suddenly found its coach 20 miles farther away, did they talk to them less? And if they talked to them less, did their business suffer?

The Main Finding: Proximity is Power
The answer is a resounding "yes." The study suggests that geography really matters. When a business got 20 miles closer to its coach (that's about one standard deviation in distance), they ended up spending an extra 0.15 hours (about 9 minutes) per year talking to them.

It's not just about saving gas money, though. The researchers found that this extra time adds up to real growth. For every single hour of extra consulting time a business got, their annual revenue jumped by 3.6% to 5.2%, and they hired 1.6% to 2.9% more people.

To put that in perspective: The average business in this study made about $18,200 a year and had 1.5 employees. So, just one extra hour of advice could potentially bring in an extra $655 to $946 in revenue and help them hire a tiny fraction of a new employee (about 0.024 to 0.043 of a person). While that sounds small for one hour, the math suggests these services are a great deal for the public money spent on them.

The Rural vs. Urban Twist
Here's where it gets interesting. The study suggests that distance matters more for businesses in the countryside than for those in the city.

In rural areas: A 20-mile increase in distance cut consulting time by 0.22 hours.
In urban areas: The same 20-mile hike only cut time by 0.09 hours.

Why? The authors suggest that rural businesses rely much more on face-to-face meetings. In the city, you might hop on a Zoom call, but in the country, you might need to drive to the coach's office. The study suggests that even in cities, being close still helps (likely because local coaches know local rules and networks), but the "drive" factor is a much bigger deal for the folks out in the sticks.

What They Ruled Out
The researchers were careful to make sure they weren't just seeing a pattern where "successful businesses happen to live near coaches." They checked if centers moved because a neighborhood was booming or dying. They found no evidence that a center moved because the businesses around it were suddenly doing great or terrible. The moves were usually about leases, funding, or administrative changes, not about the businesses' performance. This gives them confidence that the distance changes were random enough to prove cause and effect, rather than just a coincidence.

How Sure Are They?
The paper doesn't claim to have solved the mystery of business success forever. Instead, it uses a method called "instrumental variables" to suggest a strong link. They measured the impact using real data from 2006 to 2023, involving 88,734 unique businesses and 50 different centers.

They ran the numbers through various checks:

They looked at what happened before the centers moved to make sure the businesses weren't already on a different path.
They checked if the results held up when they ignored the weird pandemic years (2020–2023) when everyone was on Zoom. The results stayed strong.
They even checked if the results changed if they only looked at businesses that moved a short distance versus those that moved 300 miles. The effect seemed even stronger for moderate moves.

So, while they can't say "This is 100% the only reason businesses grow," the evidence strongly suggests that having a local, accessible coach who knows your neighborhood is a key ingredient in helping small businesses thrive. The study suggests that if you want your small business to grow, don't just look for a coach; look for one who is close enough that you can actually get to them without a road trip.

Technical Summary: The Impact of Publicly Funded Small Business Advisory Services

Problem and Motivation
While extensive literature establishes the link between firm productivity, management practices, and economic development (Bloom et al. 2010; Bloom and Van Reenen 2007), and studies in developing economies have demonstrated the benefits of business training for small firms (Bloom et al. 2013; McKenzie and Woodruff 2017), there is a notable gap in causal evidence regarding the take-up and performance impacts of publicly funded advisory services in developed economies. Although nearly every developed nation offers such services, their cost-effectiveness and the specific mechanisms driving firm engagement remain under-explored in the US context. This paper addresses this gap by evaluating the Northern California (NorCal) Small Business Development Center (SBDC) Network, a publicly funded system providing management and technical assistance to entrepreneurs.

Data and Institutional Context
The study utilizes a novel administrative dataset covering all firm-center interactions within the NorCal SBDC Network from 2006 to 2023. The dataset includes time-invariant firm characteristics (location, industry, establishment date) and a complete log of advisory sessions, detailing contact time, preparation time, and specific center assignments. Crucially, the data includes annual revenue and employment figures, though these are observed less frequently than session-level data.

The identification strategy relies on exogenous variation generated by the dynamic nature of the SBDC network. Over the 18-year period, the network experienced numerous center closures, openings, and relocations driven by funding fluctuations, lease expirations, and a 2020 Request for Proposal (RFP) process. These structural shifts altered the geographic proximity between firms and their assigned advisory centers, creating a natural experiment.

Methodology
To address the endogeneity of firm engagement—where motivated firms may both seek more advice and perform better—the authors employ an Instrumental Variables (IV) strategy.

Instrument: The change in geographic distance between a firm and its paired center resulting from center closures, openings, or relocations.
First Stage: A firm-year panel regression estimates the effect of distance changes on annual consulting hours. The model includes firm, center, and year fixed effects.
Second Stage: Due to the lower frequency of revenue and employment data compared to session data, the authors aggregate outcomes at the industry-county-year level. They use the predicted consulting hours from the first stage to estimate the impact on average annual revenue and employment. This approach mirrors existing literature that aggregates micro-level first-stage variation to match coarser second-stage outcome data (Frankel and Romer 1999; Keller and Shiue 2013; Allcott and Wozny 2014).

Identification Validity
The authors provide evidence supporting the validity of the instrument:

Relevance: Firms generally choose the geographically closest center, and distance changes significantly predict consulting hours.
Exogeneity: Event-study specifications and linear probability models show no evidence that center openings or closures are predicted by lagged firm performance (revenue or employment) or that treated firms exhibit differential pre-trends compared to control firms. This suggests that center movements are not systematically correlated with unobserved local economic shocks or firm-specific performance trajectories.

Key Results

Take-up (First Stage): A one standard deviation reduction in distance (20 miles) increases expected annual consulting time by 0.15 hours (a 7.5% increase for the median firm). This effect is heterogeneous: a 20-mile reduction increases consulting time by 0.22 hours for rural firms versus 0.09 hours for urban firms. This aligns with institutional reports that rural firms rely more heavily on in-person meetings.
Performance (Second Stage): Increased utilization of advisory services leads to significant performance gains. For every additional hour of annual consulting time:
- Average annual revenue increases by 3.6–5.2%.
- Average employment increases by 1.6–2.9%.
- For the median firm ($18,200 revenue, 1.5 employees), one additional consulting hour generates approximately $655–$ 946 in additional annual revenue and 0.024–0.043 additional hires.
Cost-Effectiveness: Back-of-the-envelope calculations suggest these services are cost-effective. In 2023, the average cost per advisor-hour was $230.60, with only half funded by federal tax dollars due to the SBDC matching model.

Significance and Contributions
The paper makes three primary contributions to the literature:

Causal Evidence in Developed Economies: Unlike previous US studies (e.g., Fairlie, Karlan, and Zinman 2015) that found limited long-run performance gains from randomized training programs, this study exploits quasi-experimental geographic variation to identify both take-up and performance effects of an established advisory system.
Complement to Developing Economy Literature: While existing reviews (McKenzie and Woodruff 2014; McKenzie 2021) focus on low-baseline adoption in developing nations, this study examines an established system in a developed economy with different institutional structures and firm characteristics, leveraging continuous, geographically-driven variation.
Geographic Proximity and Public Services: The study contributes to the literature on public service take-up (Rossin-Slater 2013; Deshpande and Li 2019; Bitler et al. 2025) by demonstrating that physical distance and localized expertise are critical determinants of small business outcomes, even in a developed economy with access to virtual communication.

The authors conclude that the findings highlight the importance of both physical proximity and localized expertise in shaping small business outcomes, providing novel causal evidence on the effectiveness of publicly funded advisory services.

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