Fintech, Small Business & the American Dream describes the needs of small businesses for capital and demonstrates how technology—novel data sources, artificial intelligence, machine learning—will transform the small business lending market. This market has been plagued by frictions: it is hard for a lender to determine which small businesses are creditworthy and it is difficult for business owners to understand their own cash flow and prospects. Now the fintech innovation cycle is at an inflection point—new streams of data have the power to illuminate the opaque nature of a small business’s finances. The playing field is wide open, with technology companies like Amazon and Square, new fintech entrepreneurs, and banks—small and large—vying for a position. Fintech, Small Business & the American Dream grapples with the broad significance of small business to the economy, the historical role of credit markets, the dynamics of innovation cycles, and the policy implications for regulation.
Karen Gordon Mills is a Senior Fellow at Harvard Business School and a leading authority on U.S. competitiveness, entrepreneurship, and innovation. She served in President Barack Obama’s Cabinet as the Administrator of the U.S. Small Business Administration (SBA) from 2009 until 2013, and was a member of the President’s National Economic Council. At SBA, she led a team of more than 3,000 employees and managed a loan guarantee portfolio of over $100 billion. At the height of the Great Recession, she took steps that led to record-breaking years for SBA lending and investments in growth capital. Additionally, Mills’ efforts helped small businesses create regional economic clusters, gain access to early-stage capital, boost exports, and tap into government and commercial supply chains. She is the author of the book Fintech, Small Business & the American Dream: How Technology is Transforming Lending and Shaping a New Era of Small Business Opportunity (Palgrave Macmillan, 2019), as well as numerous other publications on fintech, innovation policy, and the supply chain economy.
Mills is a venture capitalist and the President of MMP Group. She is the Vice Chair of Envoy, an immigration services provider, and a Director of several Churchill Capital entities. She is also a Director of the National Bureau of Economic Research (NBER) and Chair of the Advisory Committee for the Private Capital Research Institute (PCRI). Mills is a Member of the Harvard Corporation and a past Vice Chair of the Harvard Overseers.
Mills earned an AB in economics from Harvard University and an MBA from Harvard Business School, where she was a Baker Scholar. She received the U.S. Department of the Navy’s Distinguished Public Service Award for her work in innovation, and is a frequent guest on radio and news outlets, including SiriusXM, Bloomberg TV, Yahoo Finance and CNBC, with recent articles in American Banker, Fortune, Inc., and the Harvard Business Review.
- Featured Work
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Small business lending has remained unchanged for decades, laden with frictions and barriers that prevent many small businesses from accessing the capital they need to succeed. Financial technology, or “fintech,” promises to change this trajectory. In 2010, new fintech firms emerged to combat the market gaps in small business lending. These firms rely on Big Data and artificial intelligence to build automated underwriting processes and create a more streamlined customer experience. Since the initial fintech boom, incumbent banks and Big Tech platforms have followed suit and developed new products and services to better support small business customers. The data-driven technology used to optimize underwriting can also power a dashboard for small business owners—one that offers visibility into their cash flows and helps them run their businesses. This product-service ecosystem, which we call “Small Business Utopia,” has the potential to transform the world of small business by providing capital and insights to ensure these businesses can prosper and contribute to economic growth, productivity, and innovation.Over the last few decades, the U.S. economy has exhibited a significant shift from manufacturing towards services. This transition has been particularly prominent in an important subcategory of services industries that drives innovation and employs many high-wage workers: Supply Chain Traded Services. In this chapter, we explore the role of startups versus incumbent firms in driving the transition from manufacturing to Supply Chain Traded Services between 1998 and 2015.The heterogeneity of America’s small businesses has led to some confusion and missteps in policy circles regarding the best strategies to promote entrepreneurship and innovation. We describe three policy areas: improving access to capital, delivering entrepreneurship advice and education, and creating entrepreneurial ecosystems, and show how policy solutions that drive innovation differ from support for Main Street small businesses.Karen Mills, the SBA Administrator under President Barack Obama, says the tea leaves suggest small business will be key to Biden’s economic agenda.For small businesses that have survived the coronavirus so far, what’s next? Karen Mills outlines steps that business owners and government should take immediately.Former SBA Administrator Karen Mills explains why access to capital will be key to the small business recovery and the best policy actions to keep credit flowing.What worked and what didn’t in the first two rounds of PPP? Karen Mills presents recommendations for how to increase the program’s reach to the smallest and most vulnerable businesses.Karen Mills, Former Small Business Administrator and Senior Fellow at Harvard Business School, on the landscape for women entrepreneurs.Karen Mills speaks at an FDIC webinar addressing policy and consumer impact perspectives on enabling “open banking” through APIs, national vs. state privacy laws, data ownership, and liability standards.As technology opens the doors to vast troves of data, opportunities are emerging to create new insights on a small business’s health and prospects. Insights from this data have the potential to resolve two defining issues that have faced lenders and borrowers in the sector: heterogeneity—the fact that all small businesses are different, making it difficult to extrapolate from one example to the next—and information opacity, the fact that it is hard to know what is really going on inside a small business.The former head of the Small Business Administration and current Harvard professor says data sharing can be transformational for banks.Karen Mills, former director at Small Business Administration, discusses the influence of smaller financial technology companies on big banks and how the U.S. government could help small businesses.Small businesses are core to America’s economic competitiveness. Not only do they employ half of the nation’s private sector workforce – about 120 million people – but since 1995 they have created approximately two‐thirds of the net new jobs in our country. Yet in recent years, small businesses have been slow to recover from a recession and credit crisis that hit them especially hard. This lag has prompted the question, “Is there a credit gap in small business lending?”
This paper compiles and analyzes the current state of access to bank capital for small business from the best available sources. We explore both the cyclical impact of the recession on small business and access to credit, and several structural issues in that impede the full recovery of bank credit markets for smaller loans.In cities and metros across the United States, leadership from government, business, labor, education, and the nonprofit sector have started to work together across sectors to bolster communal resources. These cross-sector collaborations are diverse in nature, and often are responses to specific local conditions. Furthermore, they are pushing the boundaries of traditional public-private partnerships: the engagements are driven neither by civic duty or short-term transactional benefit, like they often were in the past. Instead, businesses see them as in their longer-term strategic interests.David Mindell, Karen Mills and Robert Solow discuss what we can learn from past examples of massive disruption in the workforce. Which lessons apply today, and where might we be in uncharted territory.
April 11, 2018 - Karen Mills leads a discussion between Detroit Mayor Mike Duggan and JPMorgan Chase's President and CEO Jamie Dimon and Head of Corporate Responsibility Peter Scher for a discussion on cross-sector collaboration to drive economic opportunity in America's cities. The discussion, which was hosted by the John F. Kennedy Jr. Forum at the Harvard Kennedy School's Institute of Politics, looks at how partnerships like the one between JPMorgan Chase and the City of Detroit are succeeding at addressing community challenges and creating pathways to greater economic opportunity for individuals and families.In June 2015, 73 chief executives, mayors, governors, university presidents, economists, and thought leaders from across the political spectrum gathered at Harvard Business School to work on a question of deep and growing concern in the United States: How can our nation continue to grow while also providing a path to prosperity for more Americans? This briefing shares the highlights of the group’s deliberations. - Books
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- Mills, Karen G. Fintech, Small Business & the American Dream: How Technology Is Transforming Lending and Shaping a New Era of Small Business Opportunity. Palgrave Macmillan, 2019. View Details
- Book Chapters
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- Mills, Karen G., and Annie Dang. "Building Small Business Utopia: How Artificial Intelligence and Big Data Can Increase Small Business Success." In Big Data in Small Business, edited by Carsten Lund Pedersen, Adam Lindgreen, Thomas Ritter, and Torsten Ringberg. Edward Elgar Publishing, 2021. View Details
- Delgado, Mercedes, J. Daniel Kim, and Karen G. Mills. "The Servicification of the U.S. Economy: The Role of Startups versus Incumbent Firms." In The Role of Innovation and Entrepreneurship in Economic Growth, edited by Michael J. Andrews, Aaron Chatterji, Josh Lerner, and Scott Stern. Chicago: University of Chicago Press, 2022. View Details
- Mills, Karen G., and Annie Dang. "Creating 'Smart' Policy to Promote Entrepreneurship and Innovation." In The Role of Innovation and Entrepreneurship in Economic Growth, edited by Michael J. Andrews, Aaron Chatterji, Josh Lerner, and Scott Stern. Chicago: University of Chicago Press, 2022. View Details
- Journal Articles
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- Mills, Karen G. "How AI Could Help Small Businesses." Harvard Business Review Digital Articles (June 3, 2019). View Details
- Delgado, Mercedes, and Karen G. Mills. "The Supply Chain Economy: New Policies to Drive Innovation and Jobs." Economía Industrial, no. 421 (December 2021). View Details
- Delgado, Mercedes, and Karen G. Mills. "The Supply Chain Economy: A New Industry Categorization for Understanding Innovation in Services." Research Policy 49, no. 8 (October 2020). View Details
- Mills, Karen G., and Chris Rudnicki. "How Companies Can Help Rebuild America's Common Resources." Harvard Business Review (website) (September 21, 2015). View Details
- Working Papers
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- Mills, Karen Gordon, and Brayden McCarthy. "The State of Small Business Lending: Innovation and Technology and the Implications for Regulation." Harvard Business School Working Paper, No. 17-042, November 2016. View Details
- Mills, Karen G., and Brayden McCarthy. "The State of Small Business Lending: Credit Access During the Recovery and How Technology May Change the Game." Harvard Business School Working Paper, No. 15-004, July 2014. View Details
- Cases and Teaching Materials
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- Mills, Karen, Caroline Elkins, Vikram Gandhi, Gabriella Elanbeck, and Zeke Gillman. "Pittsburgh: A Successful City?" Harvard Business School Case 322-080, March 2022. (Revised April 2022.) View Details
- Mills, Karen G., Scott Duke Kominers, Christopher Stanton, Andy Wu, George Gonzalez, and Gabriella Elanbeck. "Zoom Video Communications: Building a Culture of Diversity, Equity, & Inclusion During COVID-19." Harvard Business School Case 322-031, August 2021. View Details
- Mills, Karen G., Jeffrey J. Bussgang, Martin A. Sinozich, and Gabriella Elanbeck. "The Black New Venture Competition." Harvard Business School Teaching Plan 821-094, March 2021. View Details
- Mills, Karen, Jeffrey J. Bussgang, Martin Sinozich, and Gabriella Elanbeck. "The Black New Venture Competition." Harvard Business School Case 821-029, September 2020. View Details
- Mills, Karen G., and Annie Dang. "First Aid Beauty." Harvard Business School Teaching Note 321-013, September 2020. View Details
- Mills, Karen G., and Annie Dang. "Intrapreneurship: Leading Innovation Efforts in Established Organizations." Harvard Business School Technical Note 820-096, March 2020. View Details
- Mills, Karen, and Jan W. Rivkin. "Amazon's HQ2 (C): Choices." Harvard Business School Supplement 719-465, May 2019. View Details
- Mills, Karen, and Jan W. Rivkin. "Amazon's HQ2." Harvard Business School Teaching Note 718-507, May 2018. View Details
- Mills, Karen, Manjari Raman, and Jan W. Rivkin. "Amazon's HQ2 (B): Utah." Harvard Business School Supplement 718-503, March 2018. View Details
- Mills, Karen, and Jan W. Rivkin. "Amazon's HQ2 (A)." Harvard Business School Case 718-494, February 2018. (Revised August 2019.) View Details
- Hamermesh, Richard G., Karen Gordon Mills, and John P. Reed. "Crown Cork & Seal Co., Inc." Harvard Business School Case 378-024, August 1977. (Revised April 1987.) View Details
- Mills, Karen, and Annie Dang. "First Aid Beauty." Harvard Business School Case 319-082, January 2019. View Details
- Mills, Karen, and Aaron Mukerjee. "University of Michigan Men's Basketball: A Series of Fortunate Events?" Harvard Business School Teaching Plan 319-028, July 2018. View Details
- Mills, Karen, and Aaron Mukerjee. "University of Michigan Men's Basketball: A Series of Fortunate Events?" Harvard Business School Case 319-027, July 2018. View Details
- Mills, Karen, Dennis Campbell, and Aaron Mukerjee. "Eastern Bank: Innovating Through Eastern Labs." Harvard Business School Teaching Plan 319-037, September 2018. (Revised May 2021.) View Details
- Mills, Karen, and Aaron Mukerjee. "The River Café." Harvard Business School Teaching Plan 318-106, February 2018. View Details
- Mills, Karen, Dennis Campbell, and Aaron Mukerjee. "Eastern Bank: Innovating Through Eastern Labs." Harvard Business School Case 318-068, October 2017. (Revised April 2019.) View Details
- Mills, Karen G., Ben Arnstein, and Rafiq Ahmed. "The River Café." Harvard Business School Case 318-064, September 2017. View Details
- Mills, Karen. "The Maine Food Cluster Project." Harvard Business School Teaching Plan 317-107, March 2017. View Details
- Mills, Karen, and Aldo Sesia. "The Maine Food Cluster Project." Harvard Business School Case 316-008, October 2015. View Details
- Applegate, Lynda M., Karen Gordon Mills, Lena G. Goldberg, and Annelena Lobb. "The Grommet - Video Supplement." Harvard Business School Multimedia/Video Supplement 815-703, November 2014. View Details
- Other Publications and Materials
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- Fuller, Joseph B., Karen G. Mills, and Jan W. Rivkin. "A Real Path to Shared Prosperity in America." Politico (September 20, 2015). View Details
- Mills, Karen G. "Being an Entrepreneur: A Right Only for America's Well-connected?" Fortune.com (September 17, 2015). View Details
- Mills, Karen G. "Growth & Shared Prosperity." Report, U.S. Competitiveness Project, Harvard Business School, Boston, MA, September 2015 (With contributions from Joseph B. Fuller and Jan W. Rivkin.) View Details
- Rivkin, Jan, Karen G. Mills, and Michael E. Porter. "The Challenge of Shared Prosperity: Findings of Harvard Business School's 2015 Survey on U.S. Competitiveness." Report, Harvard Business School, Boston, MA, September 2015 (With contributions from Michael I. Norton and Mitchell B. Weiss.) View Details
- Mills, Karen G., Elisabeth B. Reynolds, and Andrew Reamer. "Clusters and Competitiveness: A New Federal Role for Stimulating Regional Economics." Blueprint for American Prosperity, Brookings Institution, Metropolitan Policy Program, April 2008. View Details
- Research Summary
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Fintech, Small Business & the American Dream describes the needs of small businesses for capital and demonstrates how technology—novel data sources, artificial intelligence, machine learning—will transform the small business lending market. This market has been plagued by frictions: it is hard for a lender to determine which small businesses are creditworthy and it is difficult for business owners to understand their own cash flow and prospects. Now the fintech innovation cycle is at an inflection point—new streams of data have the power to illuminate the opaque nature of a small business’s finances. The playing field is wide open, with technology companies like Amazon and Square, new fintech entrepreneurs, and banks—small and large—vying for a position. Fintech, Small Business & the American Dream grapples with the broad significance of small business to the economy, the historical role of credit markets, the dynamics of innovation cycles, and the policy implications for regulation.Small business lending has remained unchanged for decades, laden with frictions and barriers that prevent many small businesses from accessing the capital they need to succeed. Financial technology, or “fintech,” promises to change this trajectory. In 2010, new fintech firms emerged to combat the market gaps in small business lending. These firms rely on Big Data and artificial intelligence to build automated underwriting processes and create a more streamlined customer experience. Since the initial fintech boom, incumbent banks and Big Tech platforms have followed suit and developed new products and services to better support small business customers. The data-driven technology used to optimize underwriting can also power a dashboard for small business owners—one that offers visibility into their cash flows and helps them run their businesses. This product-service ecosystem, which we call “Small Business Utopia,” has the potential to transform the world of small business by providing capital and insights to ensure these businesses can prosper and contribute to economic growth, productivity, and innovation.An active debate has centered on the importance of manufacturing for driving innovation in the U.S. economy. This paper offers an alternative framework that focuses on the role of suppliers of goods and services (the “supply chain economy”) in national performance. We identify three conceptual attributes of suppliers that make them important for innovation: they produce specialized inputs; have more downstream linkages with other industries; and benefit especially from co-locating with their customers, creating externalities. Using the 2002 Benchmark Input-Output Accounts, we estimate a new industry categorization that separates supply chain (SC) industries (i.e., those that sell primarily to businesses or government) from business-to-consumer (B2C) industries (i.e., those that sell primarily to consumers). We find that the supply chain economy is a distinct and large segment of the economy that includes primarily service providers. The SC industries, especially traded services, have higher average wages than B2C industries. The supply chain economy also has higher innovative activity as captured by the concentration of the vast majority of STEM jobs (primarily in traded services) and patents (in manufacturing). Finally, we find that employment in the economy has evolved from manufacturing into two distinct types of services (1998–2015): SC Traded Services (with the highest STEM intensity and wages) versus B2C Main Street (with the lowest STEM intensity and wages).Over the last few decades, the U.S. economy has exhibited a significant shift from manufacturing towards services. This transition has been particularly prominent in an important subcategory of services industries that drives innovation and employs many high-wage workers: Supply Chain Traded Services (Delgado and Mills, 2020). These industries provide specialized service inputs to organizations and are characterized by high upstreamness, which allow innovations to cascade down to other buyer industries. In this chapter, we explore the role of startups versus incumbent firms in driving the transition from manufacturing to Supply Chain Traded Services between 1998 and 2015. Using the Longitudinal Business Database of the U.S. Census Bureau, we find that startups experienced a large decline in Supply Chain Traded Services, both in terms of entry of new firms and growth of young firms. Instead, job growth in this sector has been led by established firms: the transformation of incumbent manufacturing firms towards services (e.g., Intel), and the growth of incumbent Supply Chain Traded Service firms (e.g., Microsoft). To complement our empirical findings, we discuss potential barriers for entrepreneurial firms, and illustrate the servicification efforts of several established firms. We conclude by offering broad policy implications.Entrepreneurship is a key to unlocking innovation and fostering regional and national economic productivity. Extensive studies demonstrate that small and young firms contribute to innovation and employment growth. But which of the many types of small firms are responsible? Of the over 30 million U.S. small businesses, most are sole proprietorships or local Main Street shops, and only a small number are high-growth businesses. The heterogeneity of America’s small businesses has led to some confusion and missteps in policy circles regarding the best strategies to promote entrepreneurship and innovation. We describe three policy areas: improving access to capital, delivering entrepreneurship advice and education, and creating entrepreneurial ecosystems, and show how policy solutions that drive innovation differ from support for Main Street small businesses.Small businesses were among the hardest hit in the Great Recession, accounting for more than 60% of the total jobs lost. The economic crisis was one focused on the banking sector, which is one reason for the disproportionately high impact on America’s small businesses, which tend to be heavily credit dependent. While some aspects of the economy have recovered in the years since, small businesses have struggled, primarily due to a lingering credit gap that is the result of banks being less likely to make the smaller dollar loans—those less than $250,000—that small firms (more than 70%) seek. A rapidly growing financial technology (fintech) sector has quickly stepped in to fill this gap, and incumbent banks are exploring a variety of partnership strategies with the new entrants. Yet, while the much needed increase in sources for financing has been welcome by small businesses, these innovative fintech lenders have sparked concerns around transparency and the high costs charged to borrowers. These concerns are exacerbated by a “spaghetti soup” of regulators, where no one federal entity has oversight, and protections around small business borrowing slip through the cracks. This paper takes a detailed look at the current state of small business lending, the causes for the persistent low-dollar loan gap, the solutions being driven by innovative fintech lenders, and the key concerns around oversight and regulation. Finally, our objective is to provide regulatory recommendations that will protect small business borrowers and not dampen the innovation that has proven so promising for filling the gap in small business access to credit.
Small businesses are core to America's economic competitiveness. Not only do they employ half of the nation’s private sector workforce—about 120 million people—but since 1995 they have created approximately two-thirds of the net new jobs in our country. Yet in recent years, small businesses have been slow to recover from a recession and credit crisis that hit them especially hard. This lag has prompted the question, “Is there a credit gap in small business lending?” This paper compiles and analyzes the current state of access to bank capital for small business from the best available sources. We explore both the cyclical impact of the recession on small business and access to credit, and several structural issues that impede the full recovery of bank credit markets for smaller loans.
In June 2015, 73 chief executives, mayors, governors, university presidents, economists, and thought leaders from across the political spectrum gathered at Harvard Business School to work on a question of deep and growing concern in the United States: How can our nation continue to grow while also providing a path to prosperity for more Americans? This briefing shares the highlights of the group’s deliberations.
- Additional Information
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Op-eds
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LinksSpeeches- Fundación Rafael del Pino Keynote Address
- MIT Work of the Future: Perspectives from Business and Economics
- Invested in Detroit
- Fintech and Washington: Defining the Future of Small Business Lending
- Lectures that Last
- Walk Through That Doorway of Opportunity…But Be Sure to Reach Back
- The Small Business Banking Conference
- In The News