Archive for the ‘small business formation’ Category

INNOVATIVE COMMUNITY…are you one?

August 8, 2016

Smart PlacesTHE SMARTEST PLACES ON EARTH   Why Rustbelts are the Emerging Hot Spots of Global Innovation 

Antoine van Agtmael and Fred Bakker

2016 Public Affairs Perseus Books Club, New York

It’s every Mayor’s goal…an innovative community that surpasses social and economic threats producing social and economic prosperity.

There are 100’s of books telling how to do this…describing public, and yes, private programs to achieve this.

One of the newer contemporary suggestions – innovation – put forth by Antoine van Agtmael and Fred Baker in their book “The Smartest Places on Earth” add to the wealth of ideas and techniques for socio-economic sustainability.

They proffer that “brainsharring” for the new economy, the “reinventing of local economies by developing new products, technologies that will eventually transform daily life, is the solution to economic repurposing of our rust belt impacted communities and surrounding regions”.

Through visitation and personal interview among a select group of economically reinvented former “rust belt” global communities, they identified “keys” to successful economic reinvention.

Here are a few “takeaways” from reading:

PAST HISTORY IS UNDERSTOOD AND FUTURE REOCCURRENCE IS PREVENTABLE
Successful “brainsharing reinvention” begins when communities acknowledge the historic economic malaise and generate a strong sense of action to prevent reoccurrence – the “communitywide recognition that economic improvement action is necessary”.

AN ECONOMIC PATHWAY IS PRESENT AND UNDERSTANDABLE
Coupled with the attitude ‘it won’t happen again” is the notion of a new direction – “a pathway to economic revitalization that repurposes the local economy producing a sustainable future”; one that is also easily understandable to a wide spectrum of constituents”.

MULTIPLISTIC SUPPORT MAGINFIES SUCCESS
Brainsharing across public and private entities is a must and typically arranged, facilitated and mentored by a “connector”, one, or more, individuals who bring together, normally separate interest groups to collaborate and then serve as their “shepherd” leading them to a specific goal.

NARROWISM SUCCEEDS
While there are many pathways, concerted effort on 1 or 2 reinvention strategies leads to greater chance of success compared to expending a “little bit of effort on a wide variety of strategies”.

For those interested in economic reinvention of local economies, this book will stimulate some interesting thoughts about the “new economy philosophy” of economic development and job creation.

Economic reinvention comes with destruction and replacement of current socially accepted community thinking.

Maybe more important for action is the “continued fear that a significant economic down turn event can happen again and we can’t let that happen”.

It also shows that reinvention must happen regardless of its hard work and realistically, is bigger than our community alone…calling on us to cooperate on a larger regional scale.

An innovative community is one which welcomes technological destruction, shows a willingness to sponsor “brainsharing” for the purposes of producing new businesses creating new economy jobs and investment.

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GOVERNMENT POLICY AGAIN DIFFERENTIATES GROWTH VS. DECLINE

April 25, 2012

For the fifth year in a row, government policies differentiate growth in state economic performance.

Arthur Laffer and Stephen Moore, again in their American Legislative Exchange Council Rich States – Poor States Economic Competitive Index, document key government actions that encourage and restrict economic vitality.

 Policies for growth include –

  •     Lower personal income taxes
  •     Lower corporate income taxes
  •     Lower sales taxes
  •     Right–to-Work business cost advantages

According to Laffer and Moore, the opposite of these growth policies are the “growth killers” with death taxes being added to the “killer” list by them.

Laffer and Moore provide a strong argument that “low taxes, limited government and fiscal discipline are a recipe for job creation”, the benefits of supply-side economics.

They present a convincing argument for the conservative republican based economic platform being played-out in the election rhetoric and in the news media.

They conclude “no income tax states outperform their higher tax counterparts across a board in gross state product growth, population growth, job growth, and perhaps shockingly even in tax receipt growth”.

Using fifteen policy variables they have ranked each state economic outlook and encourage the reader “to read the evidence and learn about the proven principles, which lead to economic growth, job creation and higher standards of living”.

Of importance to us Midwesterner’s is how does Illinois, Indiana, Michigan and Ohio “stack-up” with other states; the 50-state ranking data for each –

 

                           2012     2011   2010    2009    2008

  • Illinois            48        44        47        44        43
  • Indiana           24        16       20         17        12
  • Michigan        17        25       26         34        47
  • Ohio              37        38       42         45        47

According to the 2012 rankings, Illinois would be noted as the worst with Michigan being the best; a result of Illinois increasing and Michigan lowering business taxes. 

Ohio while improving, remains behind Michigan and Indiana.

They note that Indiana’s ranking will likely improve in subsequent rankings due to the passage of Right-to-Work legislation not recognized in the current ranking.

It’s interesting to note that the best states are principally located in the south and western United States – Utah, South Dakota, Virginia, Wyoming, North Dakota, Idaho, Missouri, Colorado, Arizona, and Georgia, being the top ten states.

These states have –

  •   Population in-migration
  •   Lower tax burden
  •   Are Right-to-Work states
  •   Increasing their proportion of US GDP

I subscribe to this pro-growth low tax – less expense line of thinking.

After 30+-years as a community planner, economic developer and entrepreneur, it is evident to me that business and people “vote with there feet” and seek to live and work in communities that provide employment opportunities and lifestyles that meet or exceed their economic goals.

In this line of thinking, when all is equal, people will migrate to communities where personal economic benefits are greater.

Therefore, the notion that governmental policy that directly impact the personal or business “pocketbook” will influence where one chooses to locate influencing the economic vitality of the community.

FOSTERING ENTREPRENEURIALISM: THOUGHTS ABOUT ECONOMIC DEVELOPMENT GARDENING

March 9, 2012

Every community wants new businesses.  Not only do new businesses create jobs but they give a public demonstration of a growing prosperous community. 

Academic research provides strong evidence that small young businesses lead job creation when exiting a recession.  Local economic developers have taken note and many incorporate specific work tasks called “economic gardening” designed to assist new business formation as an element in the overall community economic development strategy.

However, community economic development work tasks that make a significant contribution to the formation of new businesses are a little more difficult to identify.

Here are ten thoughts to consider when forming your community based new business economic development “gardening” strategy:

1.  Recognize Individualism

The decision to start a business is a personal decision.  Whether the decision is made by an employee that says “I can do this better” and wants to create the next “Apple Computer”, the laid-off manager that begins offering consulting services,  or the housewife that begins to sell cosmetics, the final decision to go into business is an individual decision.

It’s easy to understand that a decision of this type will be stressful, effecting personal income and the family lifestyle.

Work program suggestion –

Provide access to personality assessment services that determine ability to accept risk and manage risk.

2. Help Surmount the Hurdles

Forming a business is much more than making a product or offering a service and collecting money. It gets involved with complex things as 1) what form of legal entity do I need, 2) what are my federal, state and county business identification obligations, 3) how to I complete my accounting to comply with tax obligations, 4) what licenses and permits are required, 5) what insurances coverage is needed, 6) how to get start-up funds, among other things.

Each poses a hurdle challenging the entrepreneur.

Work program suggestion –

Sponsor how to go into business for yourself programs, offered by local SBA sponsored Small Business Development Centers. Often local colleges and universities are available to assist with these challenges.

3. Make Entrepreneurialism Part of Junior and High School Education

Is entrepreneurialism a learned desire?  Some academics believe so.  Under this assumption, the role of entrepreneurialism as taught in the classroom is important to the early introduction that “going into business for yourself” can be a career providing great personal and financial reward.

Work program suggestion –

Make Junior Achievement and similar programs available in all schools.

4. Host Entrepreneurial Cafes

There is strong evidence that certain entrepreneurial camaraderie exists, especially among today’s “younger generation” computer based entrepreneurs. In fact a recent study found that over 50% of the Gen-Z’ers, Gen-X’ers and millennials plan to start their own business some time.

The older form of dedicated office space to many younger entrepreneurs is a “thing of the past” and the new office can be any location having internet connectivity. An entrepreneurial café, being a location where resources can be found and where entrepreneurs congregate can provide the necessary networking and social support structure sought after by those considering entrepreneurship.

Work program suggestion –

Create a café and virtual office providing a physical location for business and social needs of emerging entrepreneurs.

5. “Carve-Out” opportunities within the economic landscape.

There are numerous magazines touting the next great business opportunity.  However little research is completed on a communitywide scale to identify what businesses opportunities are likely destined for success based on the current and future projected local economy.

Most times identification of the business opportunity is left to the entrepreneur and made by “gut instinct” without a formal examination or market study.

There are resources, such as Nielsen-Claritas data that can help identify “opportunity gaps” in consumer purchasing patterns for retail and household goods which when used by  entrepreneurs can help identify certain small business opportunities.  Today, almost every university has some type of research assistance mechanism that can aid an entrepreneur in identifying market opportunities for more complex business ventures.

Work program suggestion –

Create, typically a university sponsored, entrepreneurial investigation research team to identify local community needs and opportunities that can be served by new businesses, including providing private sourced socio-economic data for use by entrepreneurs when needed.

6. Raise Capital Create a “Shark Tank”

One reason given for new businesses failure is the lack of capital.  This is especially true today where commercial lenders and the US Small Business Administration have reduced lending to small businesses.  Today, it’s a rare exception to find a commercial lender interested in financing a new business “start-up”.

The need for entrepreneurial financing has been popularized on television by “Shark Tank” a program where entrepreneurs “pitch” there new business idea to potential investors, in an effort to seek needed capital for business start-up and expansion.

Work program suggestion –

Community economic development strategies may require assembling social venture capitalists a new bread of investor typically organized in the form of an LC(3) – Low-profit Limited Liability Company to provide new business start-up financing.

7. Play the Numbers

Academic research documents nationally that 32 of 100,000 people will start-up a business, each month. Indiana and Michigan while being slightly lower than this ratio, still demonstrates a strong propensity for new business formation.

But a strong propensity does not automatically result in new businesses contributing jobs to the local economy; that being the goal of a community based economic development program. An economic development program that “mines the data” focusing on the population groups that have propensities to form new businesses is called for to help create these new businesses.

The key entrepreneurial characteristics include:

  • ·         One, or more, parents being entrepreneurs,
  • ·         Childhood small business experiences,
  • ·         Personality traits that accept risk,
  • ·         Personal predisposition to succeed in face of adversity.

Work program suggestion

Programs that create interest aimed at certain population groups, such as Gen-Z’ers,  Gen-X’ers and millennial’s  which have higher propensity to form new businesses should be part of the community economic development program.

8. Support Population Diversity

Entrepreneurial population studies document that certain demographic sectors have a greater propensity to from new businesses, especially Hispanics and recent immigrants. 

Work program suggestion –

Support program that celebrate population diversity embracing population groups that have a higher propensity to form new businesses.

9.  Create a “Match-Up” Market Place

Forming a business is a “team effort” needing different “skill sets” and talents, all which must be assembled by the entrepreneur.   

Work program suggestion –

Create a “wants and needs” bulletin board to match entrepreneur business needs with available support capacities.

10. Celebrate Success – Achieving Entrepreneurial Notoriety

Nothing breeds success more than success.  Being noted in state and national media as a community hosting new business formation not only demonstrates success but encourages others to consider “going into business themselves” or to take permanent residency in a location where new business formation is thriving.

Work program suggestion –

Create a media program announcing new business formations on a regular basis to create a statewide and national recognition as a geographic location for “new business start-up”.

Finale

Today, everyone talks about “economic gardening”, the notion that government sponsored local community economic development programs can cause people to start new businesses that eliminate unemployment and create community economic prosperity. 

Philosophically, the creation of an environment that embraces entrepreneurism should be a goal of every community economic development strategy.

However, it is still an individual decision whether someone actually starts a business.

Adding some or all these suggestions to your economic development strategy will “enrich the soil for planting the seeds of new businesses”.

 

Author note:  This was first prepared presentation at the Purdue University North Central “Topics in Regional Economic Development” class, Spring 2010.

THE COMING GLOBAL JOB WARS – ARE YOU PREPARED?

February 16, 2012
  
Gallup pollster Jim Clifton shares some
interesting global facts:
 
7b people
3b want to work
1.2b formal jobs exist
1.8b jobs shortfall
50+% deficit of full-time jobs
 
Scary information – to say the least!

Jim Clifton (Chairman of Gallup), in his newly released book “The Coming Job Wars” states that globally, politics will focus on this dilemma ….how to double the number of globally available good full-time and part-time formal jobs defined as 30-hour weekly employment paying living wages.

In the future the United States will compete, along with every country, state and local territory for these new jobs.

Clifton opines, since 70% of US GDP (Gross Domestic Product) is based on consumer spending any solution to job creation “requires consumer spending and any solution to job creation requires a lot of consumer spending or the GDP falls leading to less spending and higher unemployment”.

He concludes the US GDP growth rate is most important to job growth and, in the future, US GDP growth will come from global customer demand.

What’s needed today to remedy US and global unemployment according to Clifton, is a “transformational event that will cause a sudden extra ordinary surge of entrepreneurship and innovation just like the introduction of new technologies 30-years ago that saved America from the 1970’s recession” a technology transformation which created new global customer demand.

He further states the US has an oversupply of innovation and an undersupply of entrepreneurship; “innovation is not rare in America, neither is creativity, rather there is mass shortage – a significant undersupply – of successful business models”.

According to Clifton, “America’s job creation needs to focus on the connection between innovation and entrepreneurism – the person – the entrepreneur”.  He states that entrepreneurs are rare – “lots of people have good ideas, but most new businesses fail.  It’s not for the will or passion, but the lack of customers “and business knowhow.

While most Americans believe the US is run by “big business” in reality America is dominated by small and medium sized businesses – those with less than 500 employees which represent 99% of the proximate 6 million businesses with at least 1 employee.

Clifton believes it is here, these small to medium sized businesses along with entrepreneur formed new businesses is where job creation is most likely to occur.

He further opines that US GDP must grow at a minimum of 5% in order to create sufficient jobs to remedy present unemployment…this being double the near-term best future growth rate offered by leading economists.

This is how we get there –

1. Make Entrepreneurism a #1 Public Priority

The goal of economic policy must embrace the notion that private sector employment is most important.  Clifton opines that “if the overwhelming majority of Americans are not working outside of government jobs, America will go broke”.  He further states that “when GDP falls so does the amount of money government’s share [used] to fund services” 

The solution is to create new businesses which will create “new jobs” thus increasing GDP.

2. Seek Early Identification of Individual Entrepreneurial Potential

Researchers have documented a number of characteristics of people that start businesses.  The most common entrepreneurial traits include 1) parents that are entrepreneurs, 2) early age business involvements, 3) ability to take risk and 4)  an individual stick-to-itiveness personality trait.

According to researchers, these traits can be identified in youngsters aged 8-12 years when early education and mentoring can be provided to encourage them to consider entrepreneurship and business ownership as a chosen career choice.

The solution is to test and identify entrepreneurship personality traits of young people, most likely, as part of current K-12 student education testing programs.

3. Introduce Entrepreneurship as a Career Choice in Early Education

Today’s education system is designed to prepare youth for many types of careers, but often does not provided encouragement nor specific training for entrepreneurial careers.

There are a number of educational program designed to remedy this deficiency, however educational programs seldom integrate these into the classroom experience.

The solution is to redesign current K-12 educational programs to integrate entrepreneurship course content as a career choice equal to the emphasis given to college preparation course content.  

 4. Provide Our Youth Entrepreneurial Opportunities

A 2010 Kaufmann Foundation sponsored study survey shows that “interest in starting a business is consistent among tweens (eight- to 12-year-olds – 39 percent), teens (13- to 17-year-olds – 39 percent), and young adults (18- to 24-year-olds – 41 percent). Males (45 percent) are more likely than females (35 percent) to be attracted to business ownership.

The research concluded that “youth who personally know another entrepreneur have the strongest interest in starting their own businesses. Among youth who know an entrepreneur, almost half (46 percent) would like to start, or already have started, businesses, compared to only one-third (31 percent) of the young people who do not know a business owner”. (Underline added)

The importance of business owner contact and actual business experience contact is critical to shaping the personal characteristics and propensity for young people to pursue entrepreneurship and as career choice.

The solution is to provide business owner contact and business experience for young people – more Junior Achievement programs – more child operated lemon aid stands please.

5. Reformulate Government Assistance Programs to Reduce New Venture Risk

Starting up a business is costly.  Start-up costs many times include attorney, accounting, monthly banking fees, plus computer software purchases that can easily add up to $1,000 in the first year, more if you have partners in your business requiring partnership agreements, filing incorporation paperwork, etc.

All of these require immediate cash payments, always coming from the entrepreneur’s pocket.

Young businesses need cash, typically more than planned.  Elimination or deferral of startup expenses may be the difference between success and failure in the first year of operation.

The solution to encourage new business formation is to remove these start-up costs or allow payment of them upon the first anniversary of the business formation.

6. Incent Commercial Lenders and Investors to Accept New Business Start-up Risk

Lenders and investors are, by their very nature, adverse to accepting risk. They are trained to identify how and why a business can fail and to install loss prevention programs for any investment they make in a business.

While business risk aversion is a good thing the amount of risk lenders and investors are willing to assume varies.  Risk is measured by commercial lender interest charged for use of funds or investor dividends paid and resultant increased value of their investment in the business.

New business start-ups being “more risky” imply greater risk requiring higher interest charges, higher dividend payments and higher business ownership valuation to secure business start-up funding.

Since interest, dividends and capital gain on the sale of business interests are all taxable – federal, state and, where applicable, locally – after tax return on investment becomes the final measurement of the investment in a new start-up business.

The solution to expanding the amount of capital dedicated for new business start-ups is to reduce or eliminate taxation for a period of time for funds loaned or invested in new start-up businesses.

Last Thoughts

Today job creation is caused by a “rare breed of people” those of a certain state of mind having a business plan of action, a totally consuming idea resulting in unstoppable determination and optimism, an unwavering confidence in their personal business skills plus understanding of what customers really want.

These rare soles understand that customer relationships “trump” all business challenges and leads to identification of new products and services desired by customers and when provided by the business assures success.

It’s these “rare soles” that ultimately produce additional GDP, by creating innovative products and services for which new jobs will be required to produce and deliver the products and services to the customer.

If Clifton is correct, and a new transformational innovation is required to fill the global job deficit, it will most likely come from a start-up business idea.

RIGHT-TO-WORK TO INTENSIFY MI-IN ECONOMIC DEVELOPMENT BORDER WAR

February 4, 2012

Indiana will be the only right-to-work state to be completely surrounded by non-right-to-work states ….I recently talked to my counterpart at the Michigan State Chamber of Commerce on the phone who said if we [Indiana] pass right-to-work you’r going to kill us in the economic development wars.

http://www.insideindianabusiness.com/video.asp?id=-1&v=1559

Effective today (February 1, 2012), Indiana’s new right-to-work law will intensify the age old Michigan vs. Indiana economic development war over new jobs and business investment.

For economic development practitioners it’s time to think about the impact of having the first Midwest right-to-work state at our border to Michigan’s competitive position for creating new jobs and business investment.

Lets first forget the pros and cons of right-to-work; it’s passed and now is part of the new landscape of economic development impacting Michigan.

As someone who has pursued a career in Michigan land use planning and economic development for well over 30-years, its obvious to me that economic development practitioners need to prepare.

Here’s how I expect Indiana’s right-to-work law will impact the practice of economic development in Michigan.

1. Right-to-Work will be a Major Economic Development Conversation Topic

Because Indiana will be the first Midwest State to fully embrace right-to-work, Michigan efforts to equalize this action will intensify

Union busting and deflation of wage rate claims will be countered with population growth and increased state gross income claims.  This rhetoric will result in political inaction increasing business economic uncertainty.

Expect Lansing right–to–work rhetoric to escalate resulting in suspension or, in some cases, compete halting of business decision making until certainty is restored.    

Expect to be questioned about uncertainty and probable outcomes of debate that may result in Michigan enacting right-to-work legislation.

 2.      Michigan will Mount a Legislative Rebuttal Seeking Right-to-Work

Forced by Indiana’s action and to mitigate the economic development imbalances that may result, the Michigan legislature will be forced to consider legislation authorizing right-to-work either on a permanent statewide basis or, at minimum, for experimental special purpose sub-state zones.

Expect the legislature to experiment, most likely with special districts where right-to-work can be tied to direct job creation by new businesses locating in the zone – this being Michigan’s historic means of “putting a toe into the water to test the economic and political temperature”.

  3. Recognize that Unionization is a Cost of Doing Business in Non Right-to-Work States.

Economic developers will need to acknowledge that unions impose a cost on business.

Even in the most harmonious business-union states, unionized businesses face added administrative expenses – accounting, legal and management time to attend to employer duties of a union shop.

Expect new businesses seeking to locate in Michigan to question the harmony between local business and local unions to identify the true employer cost burden of harmonious and other business-union relations.

 4. Right-to-Work to be a “Bargaining Chip” in New Business Site Selection

Let’s face the fact that Indiana’s right-to-work – whether we believe it aids business or not, will be used as a bargaining chip when a business negotiates location incentive packages from Michigan communities.

While claims can be made that right-to-work does not expressly grant a specific job advantage (See Wall Street Journal Article 1.27.2012 ), Michigan economic developers will need to prepare for the request for additional incentives to compensate for perceived or real economic differences between Indiana and other Midwest states.

Expect to be requested to provide additional incentives to over compensate for the “real or perceived” economic differences of a union vs. nonunion state economic environment.

 5. MI-IN Border War to Intensify

Indiana is known to take quick action of its economic development superiority as evidenced by the business solicitation billboard erected at the Illinois-Indiana border upon passage of a business tax increase in Illinois in 2011.

Expect to see an onslaught of advertisements and direct business solicitations extolling the virtues of right-to-work in Indiana as one more economic advantage Indiana has over Michigan.

Economic developers must prepared now to identify counter measures to disqualify or mitigate the real or perceived Indiana economic benefits as part of their economic development business retention and attraction strategy.

6.  Michigan Economic Development to Become Less Menu Driven and More Sensitive to Business Economics.

As a 35-year veteran in land use and economic development, I have been involved in Michigan economic development since its origination in the early 1970’s.

For the most part, a majority of Michigan economic development practitioners are “menu trained”, that being we are given a menu of state and federal programs and incentives and then told to offer these to new and existing businesses to create jobs and new investment.

Only limited business training is provided on business organization and management or understanding markets and customers businesses serve.

It’s uncommon for economic development practitioners to “drill down” and study markets and customers and to prepare actual business plans to identify cash flow, the vital life blood of any business.

Recently, I came across the phrase” jobs occur where customers appear” while reading The Coming Jobs War by Jim Clifton.  It’s a pretty simple message – without customers there is no need for the business and no need for employment.  The message in this statement for economic development practitioners is the need for understanding businesses economics and how to increase “customers” for local businesses – this will become part of the skills required of economic developers in the future.

Expect business economic strategies which improve customer counts to be critical ingredients of future economic development strategy.

 Last Thoughts……..

Undoubtedly Michigan’s economic development platform is poised for change and this change will be effect day-to-day economic development practices.

Michigan economic development practitioners must prepare today to react to these changes.

At no time in my 35-years working in Michigan has there been the opening for such a wholesale change in the way economic development is practiced.

Regardless of your position on right-to-work, the practice of economic development in Michigan is set to change …and the changes will be significant and monumental.

In the future, economic development practitioners will be called upon and “graded” not only on the use of “menu driven” Michigan economic development tools but on the success in expanding and creating new businesses without use of incentives, but techniques that result in increased customers producing business cash flow.

THE INNOVATOR’S DNA AND THE PRACTICE OF ECONOMIC DEVELOPMENT

January 30, 2012

Innovation – like the” iPad”, you know it when you can hold in your hand but like “beauty”, don’t ask what it is or how to make it happen.

For economic developer practitioners and those who fancy themselves as entrepreneurship facilitators, innovation is important.  It’s economic gardening – the current government mantra for job creation as a means to reduce unemployment by creating high-wage jobs to improve household wealth.

Go to any bookstore business section and you will find more than a dozen titles, all telling their story on how you and your company or organization needs innovation to compete in the global economy and, by the way create jobs.

But more importantly, to the economic developer practitioner, is can we identify how to innovate and how do I get innovation to happen in my community.

This is where “THE INNOVATOR’S DNA – MASTERING THE FIVE SKILLS OF DISRUPTIVE INNOVATORS” will help.  Authors Jeff Dyer, Hal Gregersen and Claton M. Christensen explain skills that can cause innovation to happen.

With the notion that we can identify personal behavior skills that cause innovation, we can then apply them in a directed pathway increasing the opportunity to identify new products and services resulting in business investment and new jobs.

Let’s examine each of the skills and how economic developers may wish to apply them.

But first, we have to agree on a basic principal – innovators think differently and act differently….creating a curiosity that results in changed behaviors.

The good news, according to the authors, is if we change our behaviors we can improve our “creative curiosity” and creative impact.

Another words – CHANGED BEHAVIORS = MORE INNOVATION

Now that’s a powerful statement one that can be used to develop a community program to stimulate business innovation resulting in new business investment and jobs.

This is great news to economic developers seeking to create innovative communities.

If “two-thirds of our innovation skills come through learning – from first understanding the skill, then practicing it and ultimately gaining confidence in our ability to create”, than innovation can be taught on a communitywide basis leading to greater innovation and increased business investment resulting more and better paying jobs.

The behavioral traits –

 1. Questioning

Innovators are consummate questioners who show a passion for inquire frequently challenging the status quo.  They show a high Q/A ratio where questions (Q) out number answers (A) in a typical conversation.

 2. Observing

Innovators are intense observers – the world around them, customer behavior, new technologies, and new products and services.  These observations provide them insights into new ideas on how to do things.

 3. Networking

Innovators spend time testing ideas through a diverse network of individuals of varied backgrounds and perspectives.  They tend to seek out comments and reactions from a wide group of people that, at times, may have radically different viewpoints.

 4. Experimenting

Innovators are not just “thinkers” but actually try-out new ideas.  They test hypotheses and seek new information and continue to experiment to learn new things.  They hold that questioning, observing, networking and experimenting are discovery skills that together identify new ideas.

 5. Associational thinking

Innovators routinely see the essential features of an idea and make surprising connections across areas of knowledge – connecting the unconnected knowledge producing innovative business ideas.  Successful innovators are always “on the hunt” for new associations that will create combinations of diverse knowledge, experience and personal perspectives

 6. Challenge the status quo

Innovators believe in economist Joseph Schumpeter’s theory of “creative destruction” and thus actively challenge the status quo. Schumpeter popularized in the 1950, the theory of challenging the status quo reformulating conventional thinking by associating existing and new knowledge and technology thus creating economic innovation.  Innovators are unafraid or inhibited in rebuffing “the notion – because we did it that way in the past, we’ll do it that way in the future”.  They see “many things broken and want to fix them”.

 7. Taking risks

Innovators are “risk takers” unafraid of failure and actually promote failure a part of the process of experimenting to achieve success.  They feel personally responsible for “coming-up” with ideas and innovation solutions.

A Last Thought on Innovation and the Practice of Economic Development

Innovation begins with you.  You can change your behavior to become more innovative.

For the economic practitioner this is good news.

By asking yourself some simple questions such as, am I good at generating ideas, can I find  and “friend” innovative people, can I get myself and colleagues to “think outside the box” you too, can begin the process of being a better innovator.

If you find yourself struggling with “frank and honest “answers cheer-up, the authors state you can change your behavior and become more creative. 

This also holds true for economic development organizations which many economic development practitioners staff on a daily basis. 

As stated earlier, if two-thirds of innovation skills come through better understanding of behavioral traits that inspire innovation, this knowledge coupled with a program to incorporate change should result in new innovative ideas fostering economic development success.

The challenge before the economic development practitioner is not more business subsidies, tax forgiveness or other business aid but changing the communitywide behavior of individuals to become more innovative thus producing innovative business ideas resulting in new business investment and jobs.

A Governor’s Story – Jennifer Granholm

November 14, 2011

  A Governor’s Story

The Fight for Jobs and America’s Economic Future

 Recommended reading for everyone with interest in economic development and America’s quest for jobs in a global competitive economy. 

    Enlarged Book Jacket 

I guess it should be come as no surprise that former Michigan Governor Granholm calls for “active [economic] strategic planning led by government”.

She’s an FDR Progressive at heart that truly blames “big business” for taking advantage of tax breaks offered by local and state government and then “using the savings not to invest in American business infrastructure but to create off-shore investments which create employment in other countries”.

Granholm citing Michigan’s accomplishments in reducing business taxes relative to other states in the search of economic growth dispels the belief “that lower taxes will inevitability increase investment, growth & jobs and generate more tax revenue”.

She credits the lack of government involvement for the Michigan economic malaise – specifically the lack of federal action to “defend American business from unfair trade, lack of partnering with global economies to create good jobs here, and [the absence] of strategic investment in education and training to prepare for the knowledge economy”.

Her position, like FDR, Is that “hands-off laissez-fair free market economics will only ensure that other governments step into the void”…her solution being more and bigger government investment in planning and managing the economy.

With this said, she provides an interesting historical account of her term in office, to seek amidst a somewhat immobile government, unionized employment preference and automaker management bias against change and reinvention, to prevent  past history from being the future economic structure of the State of Michigan. 

Her efforts to retool Michigan’s economy on a green energy platform cobbled together all available funding sources, especially those of the Obama administration, to lessen the personal and financial impact upon individual Michigan residents, should be acknowledged.

CHAPTRER 10 – CRACKING THE CODE: KEYS TO CREATING AMERICAN JOBS IN A GLOBAL ECONOMY is a must read and offers eight strategies tried in Michigan during her term that portends to be solutions to reinvent the American economy.

Her recommendations for economic revival include:

1.  Government Must Get in the Game – allowing government to design and implement competitive global economic policies picking winners and losers to foster job growth.

2. Cut Government Where We Can to Invest Where We Must – to redirect financial resources to education and training for “targeted” chosen new growth businesses that will create jobs.

3.  Develop National Strategies for Economic Growth – to level the global “job creation playing field “by picking “targeted industries” and incentivizing them to attract investment and create jobs.

4.  Educate or Die – make public policy changes that prepare individuals for the knowledge based economy of the 21st Century recognizing that education is the top priority to stimulate job creation resulting in personal income growth.

5.  Create Fairer, More Flexible Labor – Management Partnerships – changing current practices whereby labor and business have greater flexibility to harness cost saving competitive on a global scale.

6.  Make Smart Government Investments in Industries Crucial to Growth – incentivize and invest government funding to economic sectors that align with important national or regional economic development goals via national economic development planning.

7.  Face Down Threats – Become the Change – by discontinuing avoidance – the inability to take action – favoring change opposed to reliance on past economic practices and policies.

8.  Practice Do-It-Yourself Leadership – accepting the responsibility to take individual action to form new for profit and nonprofit business enterprises that create jobs and investment in local communities.

Only time will tell whether the Granholm strategies will successfully reinvent Michigan’s economy and return Michigan to its “historical powerful position” in the US economy.

Highly recommend reading for anyone interested in economic development and reinvention of older manufacturing based economies.

   

ECONOMIC DEVELOPER’S LAMENT – THE NO MONEY PARADOX OR LOOK”N FOR LOVE IN ALL THE WRONG PLACES (Thanks – Waylon Jennings)

March 23, 2010
 
We bailed out Wall Street but there’s no money on Main Street!

Speak to any economic developer and they will regale you with not so amusing stories of small businesses being denied credit, credit needed to grow small businesses and create jobs.

Credit lines that once provided operating capital are being called and cancelled. Lenders, even with a government 90% guarantees backing are unwilling to extend credit.  Refinancing when required is often at higher interest rates and shorter terms squeezing more cash flow away from business operations that create jobs. 

Stories abound, like the one printed in the current issues of Entrepreneur Magazine and recent headlines in the Wall Street Journal.

“SBA currently has a loan programs in place that work with banks, guaranteeing as much as 90% of a lenders’ small-business loan against default.  In 2009, these guaranteed loans were down 37% compared with two years earlier.” A Plea for Direct Lending to Companies – Proposed Legislation Calls for the Small Business Administration to Take On an Added Role – Lender of Last Resort” (March 4)

“Last year 125 venture funds collected $13.6 billion, down from 203 funds that raised $28.7 billion in 2008”, and

“There were 794 active venture-capital firms last year, down from 885 in 2008 and a peak of 1,023 in 2005.” Venture Capital Firms Caught in Shakeout. (March 8) 

“Consumer lending fell by 3.8%, as roughly 7,200 banks and credit unions pulled back on mortgages, credit cards and other loans.”  Where to Find the Money Despite a Contraction in Consumer Loan, Some Banks Are Rolling Out the Dough. (March 13-14)

“In 2009 total lending by U.S. banks fell 7.4% the steepest drop since 1942” – Lending Squeeze Thwarts Revival of Small Businesses (March 15) 

“Fed up with tight supply of credit, states and local governments across the U.S. are starting to punish big banks” Cities, States Tell Banks They’ll Go Elsewhere (March 17)

If there’s no money on Main Street how do small businesses fund job creation?

This is a perplexing question, especially with substantial research documenting that small young businesses create post recession jobs.

Should government step-in and become a direct lender to small business?

They did so for the “too big to fail” businesses, ones that certainly will not contribute to job creation, if post recession history repeats.

Should TARP funds be used for SBA Direct lending as suggested by Rep. Nydia Velazquez (D., N.Y.) chair of the House Committee on Small Business?

However if credit is frozen to the small businesses we rely upon for job creation, then government action is required.

An argument can be made that small business job creation is “to big to fail – being the economic engine that puts folks back to work as the economy exits recession”.

Let’s not leave small young businesses, as Waylon might say –

“looking for love in all the wrong places
Looking for love in too many faces
Searching your eyes, looking for traces
Of what.. I’m dreaming of…”

Action is required, sooner rather than later.

NEW BUSINESSES TO AID LAPORTE COUNTY IN THE ECONOMIC RECOVERY

March 1, 2010

LaPorte County doubles the number of new businesses seeking assumed names in 2009.

Academic research documents the contribution of small and young businesses to economic recovery.   With this knowledge government leaders and economic developers are well served to provide programs aiding new business formation.

Future small business formation will be accomplished by a small subset of the population.  Economic Development strategy targeting this subset increases the likelihood and success of new business formation and creation of jobs and additional investment in the LaPorte economy.

In 1979 a David L. Birch, doing government sponsored research, identified that small business created 2/3’s of all new jobs.  This discovery set in place a transformation of local community sponsored economic development strategies.

No longer were economic development strategies to be solely dedicated to the recruitment of the next business willing to locate but economic development programs should also consider helping small businesses expand; hopefully creating new jobs quicker and in greater quantity.

Since this revelation, small business creation and expansion has become a staple of local economic development programs.

Adding fuel to this message has continued over the past 30-years.

The US Small Business Administration adds that in the decade of 1980-90- 56% of the new jobs that were created came from businesses having less than 20 employees.   It’s the same for the next half decade “1990-95” where these small businesses created 49% of the new jobs.

Most notable is research completed by the National Federation of Independent Businesses showing that these new jobs came in the beginning of an economic recovery.

The evidence that new small businesses create the majority of new jobs continues. 

Research by the Kauffman Foundation documented that in 2006-07 over 2/3’s of the new jobs created occurred in businesses less than 5-years old.  The research also disclosed that over 50% of these jobs originated from firms with less than 50 employees.

A logical question to be asked is who will start these new businesses?

Again research by the Kauffman Foundation gives an indication.

Their researches studying entrepreneurial activity between 1996 and 2008 concluded that nationally 32 of every 100,000 people will start a new business.

In Indiana the researchers say 28 out of every 100,000 people will start a new business.

Other national findings show:

  1. Construction or other service business was most likely new business formed.
  2. A new business owner was most likely a Latino or Asian-American.
  3. New business owners likely had less than or a high-school education.
  4. New immigrants have a higher tendency to start a new business.
  5. New business owners were most likely to be male aged between 55-64 years.

To measure how well LaPorte County complies with this national standard, data from the US Department of Commerce and County Recorders office was studied. 

US Department of Commerce County Business Pattern data reveals for Indiana businesses filing business income taxes, that in the period of 1998 to 2007 the number of business with less than 50 employees grew by 6,167 firms; 4.5%.

In LaPorte County during this same period the number decreased by 29 firms (a 1.1% decrease) and the number increased in our neighboring county Porter by 394 firms: 12.7%.

For business that report business income on their personal income taxes we studied the growth of businesses filing an Assumed Name Registration with the LaPorte County Recorder. 

   
Laporte County
Assumed Business Name Certificates
   
Year Number of New Certificates Issued
   
2010 to date 47
2009 441
2008 160
2007 185
2006 173
2005 194
2004 204
2003 176

We found that between the seven-year period between 2003 and 2009 an average annual enrollment of new businesses of 209, ranging from low of 160 to a high of 204, with the highest enrollment being 441 in 2009.  It is interesting to note that registrations actually doubled in the height of the current economic recession.

What’s this all mean?

Quite simply, new small businesses will contribute to job recovery in LaPorte County.  These will likely be started by a small subset of the population.

We believe the LaPorte County entrepreneurial profile will focus on Latinos, new immigrants, Asian-Americans and while males aged between 55-64 years.

Author note:  This was prepared by Charles Eckenstahler for presentation at the the Purdue North Central “Topics in Regional Economic Development”   classs, Spring 2010.

BEST MIDWEST STATES FOR ENTREPRENEURSHIP

December 12, 2009

SMALL BUSINESS SURVIVAL INDEX 2009

If small young businesses are to provide employment successfully ending the current recession, states with “friendly” entrepreneurial policies will be more successful in job creation and economic recovery.  How well do the Midwest states rank in entrepreneurial policy?   The Small Business Survival Index provides some information!

 

Both the Kaufmann Foundation and the Small Business Administration have shown the important role of small young businesses in creating jobs in the aftermath of a recession; claiming that 50% or more of the jobs created coming out of a recession originate from small young businesses. 

It seems logical that economic developers will take notice and focus recovery economic development strategy on the formation of, and growth of, small young businesses. 

However, federal, state and local policy influence “the cost of doing business”.  It stands to reason that states being “more friendly” will encourage new business formation and increase jobs at a faster rate that “unfriendly” states. 

The Small Business Survival Index provides comparative information to determine how friendly Midwest states are to entrepreneurship.

 

Small Business Survival Index

Midwest State Rankings

# 11    Ohio

# 15    Indiana

# 23   Michigan

# 24   Illinois

# 30   Wisconsin

 

 

Great reading for those wishing to gain a better understanding of how to assist entrepreneurship economic development.