Volume 8, Number 2 - April 2011
Welcome to the latest edition of EntreWorks Insights, a quarterly newsletter that reports on business trends, policy developments, and other issues affecting the business of economic and workforce development. You’re receiving this note because you’ve asked to subscribe or because you have some previous interest in the work of EntreWorks Consulting. If you wish to subscribe or be removed from this list, please send an email to info (at) entreworks.net. If you’re interested in the newsletter, please read on. Please feel free to share with friends, family, colleagues, and other loved ones. Comments and constructive criticism (and praise) are also welcome. You are also encouraged to visit and comment on the EntreWorks blog at http://entreworks.net/blog. Thanks for your interest.
Erik R. Pages
Over the past several years, we have been involved with an ongoing evaluation project in Maine that examines the impact and effectiveness of the state’s investments in various research and development and innovation activities. (You can access project reports here.)
This research effort has generated many insights about what works in technology-based economic development. But, personally, I have been more struck by a consistent set of results that has emerged every year from the evaluation process. Mainers are extremely entrepreneurial. In most measures of business start-up activity or entrepreneurial intensity, Maine tends to rank very high. In other words, Mainers start many businesses and they start them at a healthy clip. However, most of these businesses start small and stay small. Maine does not have impressive results when we look at fast-growing gazelle businesses or other measures that track high value-added entrepreneurial activities.
These points are not designed to pick on Maine. In fact, nearly every state in the US faces an identical dilemma. The overall US economy is also feeling the pinch. A March 2011 Kauffman Foundation study shows that job creation from new firms is greatly lagging across the entire US economy.
What explains these trends? Clearly, the economic downturn is the biggest culprit. But, in Maine, and similarly situated states, this problem of lagging firm growth rates has persisted for some time—in both bad times and good. Our research evaluation work in Maine has examined many potential causal factors, and we have found one important—and pretty simple----pattern at work. If small businesses want to grow, they need more customers. And, if they want more customers, they need to enter new markets. And, if they want to enter new markets, they have to get out of their comfort zones and be aggressive about expansion at both the national and global level.
Consider the numbers from our research in Maine. Maine lags on many indicators of state export performance, but further insights come from our surveys of firms (primarily very small technology ventures) that have received state assistance. Of this group, 88% report that they receive less than ten percent of revenue from foreign customers. Sixty percent of these firms get less than half of their sales from outside of Maine (both US and overseas sales). The picture is fairly stark. Without successful new market development, these businesses face significant growth constraints driven by the small size of their current markets. If they want to grow, they must do business outside of Maine, outside of New England, and outside of the US.
How can firms break out of these constraints and succeed in national and global markets? The primary onus is on the business owner; he (or she) needs to develop a strategy for market expansion. Our interviews with Maine’s successful exporters suggest that, while success is not guaranteed, this process is not particularly complicated. As we were regularly told, “It’s not rocket science; you have to just get out there and do it!” “Doing it” means taking steps like participating in trade shows, getting active in state and national industry associations, and, when needed, reaching out to export promotion agencies for assistance.
Economic developers and other community-based organizations can also help. Export support agencies can provide critical tools like market assessments and small stipends to attend trade shows. Business support providers need to place greater emphasis on export success as well. The good news is that Washington and many states are starting to recognize the importance of placing market expansion at the core of small business support programs. At the Federal level, the National Export Initiative is generating lots of interest. Many states, such as Washington, Utah and Maine, operate excellent, though often underfunded, export promotion programs.
All of these efforts will be critical to strengthening the global market potential of America’s small businesses. In the end, a new mindset is required. All new businesses need to view themselves as global from Day One. While the first sale may be close to home, it’s never too early to be “export-ready.”
NOTE: Much of the analysis in this essay comes from a report produced by EntreWorks Consulting in partnership with PolicyOne Research and Scruggs & Associates, From Business Development to Market Expansion: Helping Maine Firms Succeed in National and Global Markets. Report prepared for the Maine Office of Innovation, January 2011. The report can be accessed here.
We continue to provide more regular news and updates at the EntreWorks blog at http://entreworks.net/blog. Please note that this is a new address. We’ve upgraded the blog site and these improvements also entailed a new blog address. Recent postings have focused on the state of manufacturing, recent trends among state economic development organizations, and a review of the new book from Steven Johnson, Where Good Ideas Come From.
We have also added some new material to the EntreWorks Library. These include several reports related to the 2010-2011 Maine R&D Evaluation project, recent Senate Testimony on the future of SCORE, and a new Local Economy article on the Obama Administration’s approach to industrial policy.
This spring will be very Virginia-centric at EntreWorks as we are kicking off a new project for the Region 2000 Partnership (based in Lynchburg, VA) and supporting a regional innovation initiative in the Roanoke/Blacksburg region. We are also providing support to the Blueprint Mississippi 2011 strategic planning initiative in cooperation with the University of Mississippi and the Mississippi Economic Council.
Over the coming weeks, EntreWorks Consulting’s Erik Pages will also be on the road doing many speeches and public presentations. These include appearances in Roanoke, VA, Reading, PA, Asheville, NC, and Battle Creek, MI. Hope to see you on the road!