29 industry accounts for approximately 3% of GSP and is also a key employer, creating one of every six jobs in the state. On a similar note, one in ten jobs and 3.5% of the GSP stem from tourism (Guettabi, 2020). Still, large-scale dependence on oil continues to hinder the diversity of the Alaskan economy. In 2018, Alaska ranked forty-ninth in the US for state economic diversification (Benway, 2020). Oil’s long-term decline creates a need for economic diversification, which can be found in small, niche, high-growth businesses (Resource Development Council, 2021). Overall, Alaska’s small business environment is similar to that of the rest of the US. Nationwide, about 80% of small businesses survive 1 year, 50% for 5 years, and just 20% beyond 10 years (Gustafson, 2022). From 1994 to 2019, Alaska kept pace, averaging survival rates of 77.9%, 49.3%, and 35.6%, after 1, 5, and 10 years, respectively (U.S. Bureau of Labor Statistics, 2021a). Each economic quarter since 1994 has seen more than 400 new start-ups in Alaska, while about 350 businesses close their doors each quarter, for a net gain of roughly 200 small businesses annually. However, Alaska’s 400 start-ups represent only 0.18% of the average 220,000 nationally each quarter, below Alaska’s 0.22% population share. These businesses are key for diversification away from oil but must overcome many challenges to reach their full potential (U.S. Small Business Administration, 2019). Barriers to Small, High-growth Business Alaska’s inaccessibility, large size, and low population density have led to a combination of barriers for small, high-growth businesses. The key issues are human capital scarcities, an inconsistent customer base, overall higher costs, and land unavailability. Small businesses in Alaska struggle to maintain a qualified workforce, in particular college-educated talent. Nationwide, 35% of adults 25 and older have a bachelor’s degree; only 29% do in Alaska. In the past, the lucrative oil sector was able to offer premium wages to entice workers to move to the state (Fried & Huff, 1982). However, many developing small businesses cannot afford such a strategy. Offered only average wages, individuals prefer to avoid the cold and dark winters, isolation, and high cost of living (Johnston, 2016). Consequently, 53% of Alaskan small businesses claim their number one struggle is the inability to find qualified applicants (2019 Alaska Small Business Survey, 2019). This inability to attract and keep individuals living in Alaska also hurts small businesses by limiting the local customer base. In-state sales can avoid the high shipping costs that make Alaskan products unable to compete nationwide. Yet, the customer base in Alaska is cyclical, following the tourist seasons. Pre– COVID-19, tourists annually numbered at least three times the population of Alaska. When the pandemic kept tourists from coming, the results were disastrous. An estimated 27,800 jobs were lost, and visitor spending decreased by over $2B (McKinley Research Group, 2020). Compounding the cost problems, limited manufacturing in Alaska means that raw materials and finished goods must be shipped in, leading to both higher costs of living and smaller profit margins for small businesses (U.S. Bureau of Labor Statistics, 2021b). Additionally, Alaska has the most expensive health care among US states and is second to Hawaii in both groceries and utilities costs (Economic Research and Information Center, 2021). Alaska imports nearly 95% of its food (Harvey et al., 2021). The cost comes from the distance and difficulty of transportation from the farm to the Alaskan household (APEC CEO Dialogues, 2021). To account for the high living costs in the state, employers must pay wages close to 24% higher than the national average (Simpson, 1998). Higher material and labor costs are a competitive disadvantage before a product is even completed. Alaska’s higher utility prices also can be difficult for small, high-growth businesses but vary widely dependent on location. Alaska having the second highest utility costs in the nation is an overgeneralization. Utility costs are high in the less accessible areas lacking infrastructure. However, utility costs in Alaska’s main cities are comparable to nationwide averages (Economic Research and Information Center, 2021). A similar bifurcation plays out for another potential barrier to small business, poor internet connectivity (see article by Carr in this volume). For high-growth businesses in urbanized areas, where approximately two-thirds of the population live, internet connectivity and utility costs are not major difficulties.
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