EntreWorks Insights (February 2014) now Available

The latest edition of our quarterly e-newsletter, EntreWorks Insights, is now available.  This issue examines trends in innovation policy in Latin America.  If you’d like to subscribe, you can do so here.

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Tandem NSI: National Security Entrepreneurs in Arlington, VA

For most people, the defense industry means mega-contractors like Boeing or Northrop Grumman, but the defense industry can also be a hotbed for entrepreneurs.   After all, Pentagon-backed technologies like the Internet and GPS have helped spur some new company creation.  Haven’t they?

Last night, I attended public unveiling of a new effort designed to further spur entrepreneurship and innovation in the national security field.  Tandem NSI is a new partnership between Arlington County (VA)  and Amplifier Ventures, a local VC firm. Tandem NSI seeks to capitalize on one of Arlington’s core assets–the Pentagon is located here.  This means that lots of investment dollars are potentially available to local entrepreneurs.  Similarly, many of the leading R&D agencies, such as DARPA, are also based here.   And, even though defense budgets are falling, national security is still a huge business.  Just to give one ballpark figure, Defense R&D spending in FY2014 is set to exceed $66 billion.  That’s a big potential market.

Tandem NSI is seeking to support several objectives.  At the broadest level, it wants to build a stronger local network of national security-focused entrepreneurs.   More directly, it intends to work with local entrepreneurs to identify new market opportunities and accelerate business growth.  By creating connections between innovators and government agency leaders, both sides can benefit.  This effort can also be tapped to provide new opportunities for returning veterans who want to pursue new business options.   Tandem NSI is just getting underway, but it’s an interesting experiment that can hopefully become a model for other regions.

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Beefing Up Bangor: 38 Ideas for Change

Last week, I was up in Bangor, Maine, participating in the winter meeting of the Economic Development Council  of Maine.   I spend a good amount of time in Maine so I do a pretty good job of tracking what’s happening there.  But, I was very impressed with the changes I’ve seen in Bangor, Maine’s 3rd largest city and the commercial/cultural center for much of northern and eastern Maine.   The city has a number of new restaurants, a new convention center, a thriving summer music scene, and even a recently-opened coworking space, Norumbega Hall.

These signs are all promising, and much needed.  Bangor has had a tough run of economic luck for some time, but appears to be on the rise.  The population (33,029 in 2010) is growing and the region is home to some important economic anchors, including the University of Maine’s main campus in Orono and Cianbro Construction in nearby Brewer.    I’m happy to see that the local leadership is getting even more active as new City Council Chair Ben Sprague has just released a new plan, of 38 ideas to attract people to Bangor.   The plan is full of many useful and sensible ideas–from creating a “Bangor Ambassador” program to reach out to former residents to grants for home repair/rehabilitation to a local youth summit to a more active embrace of local artists and artisans.

I like the ideas in this manifesto, but I like the concept of the manifesto even more.  Smaller cities like Bangor face many economic challenges, and their long-term prosperity and viability is not guaranteed.  It will require active work and commitment from community leaders and residents from every walk of life and every demographic.  Bangor’s “38 Ideas” is the kind of call to action we need to see in more communities.



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Assets and Opportunity 2014

Given the current public attention, as in this week’s State of the Union Address, on income equality, it makes great sense for CFED to release its annual Assets and Opportunity Scorecard this week.  I’m a big fan of these annual CFED reports which have been an ongoing effort for them for at least 20 years.  I like this Scorecard for a variety of reasons.  The analytical work is good, but I especially like the fact that it takes a more holistic and comprehensive look at issues related to economic development.  While it’s nice to have low business costs and a nice business climate, these competitive advantages may often be accompanied by real weaknesses, such as a lower skilled workforce, higher poverty rates, and poorer health and education outcomes.   The Assets and Opportunity Scorecard is an attempt to paint this broader picture.

According to the 2014 Scorecard, the state of our union–at least for those at the bottom of the economic ladder–is precarious.   Nearly half of American households (44%) are what CFED calls “liquid asset poor,” which means that they have less than three months worth of savings.   What that means in reality is that they are one lost job, or one health incident, or one bad break, away from real poverty since they lack the resources to weather any major financial setbacks.  Most of these households are lower income, but not all.  For example, 25 percent of middle class households (with annual incomes from $56,000 to $92,000) also fall into the liquid asset poor category.

How do various states perform in terms of supporting economic security for their residents?  The report assesses state performance in five areas:  financial assets and income, business and jobs, housing and home ownership, health care, and education.   The top ranked states (Vermont, North Dakota, and New Hampshire) tend to be smaller and have lower rates of income inequality.  The weakest performing states (Mississippi, Nevada, and Georgia) suffer from high levels of income inequality and few policy tools to help improve family economic security.

As in all of these Scorecard products, the Assets and Opportunity Scorecard should not be viewed as the last word.  But, it does provide a different and sobering lens on the challenges facing many American families today.


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The State of State Small Business Credit Programs

The Department of Treasury’s State Small Business Credit Initiative (SSBCI) doesn’t get a lot of attention, but it was (and still is) a pretty big deal.  As part of the 2010 Jobs Act, SSBCI invested more than $1.5 billion in various state small business finance and credit initiatives.   These funds are in turn expected to leverage as much $15 billion in new small business investments—that’s real money.

A new report, developed by my colleagues at the Center for Regional Economic Competitiveness, assesses lessons learned from SSBCI.   This is an interesting exercise because the SSBCI program worked as something of a “natural experiment.”   It provided general guidelines to states but let state leader develop their own program and organizational models.  Many states (35) managed programs via state economic development agencies, but a large share also utilized state-chartered organizations (15) or private companies (9)

Besides detailed the important and impressive impacts of these loan programs, the evaluation offers some important lessons for how to effectively manage small business credit programs.   A couple of ideas stand out:

1)      Simple is Good:   Some programs and rules were so complex that they deterred lenders and businesses from participating.   Keeping program rules simple, and focusing on a small but doable set of tasks, worked best.

2)      Mind the Gaps:   The most effective programs targeted clear and easy to understand finance gaps, clearly stating the kinds of deals they wanted to support.  Examples included:  bridge financing, loans to non-profits, or loans that didn’t meet existing SBA or USDA lending criteria.

3)      Link to Existing Networks:   Lending efforts were most effective when supported in partnership with existing networks of mission-oriented lenders, such as CDFIs, revolving loan funds, and other non-profit investors.

While funds for the SSBCI programs expire after 2017, this report details many excellent lessons learned for the design and improvement of existing and new small business credit programs.

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Is Reshoring for Real in 2014?

It seems like I’m receiving hundreds of articles lately that tout the prospects for the reshoring of manufacturing to the U.S. in 2014.  The basic economic rationale for reshoring is pretty simple to understand.   As labor costs decline in the US and rise elsewhere, shifting jobs back home starts to make more sense.  Combine these trends with rise of lower cost energy inputs (due to shale energy) and other benefits (e.g. better quality products, fewer logistics complications), and you’ve got a solid case for reshoring.   And, manufacturers are getting the message.   The latest MAPI (Manufacturing Alliance for Productivity and Innovation) Index is quite bullish, reaching its highest level since 2011.  The index has been indicating growth in manufacturing for 17 straight quarters.  A recent Grant Thornton survey on reshoring yields similar results.  This survey of manufacturing executives found that 37% of businesses were likely to reshore work in 2014.   IT Services, one of the first sectors to embrace offshoring, ranked the highest on this question, with 42% of firms saying that they plan to reshore in 2014.

While I’m as pleased as anyone that manufacturing jobs come back home, I hope that we can make this shift more sustainable.   The US’s ability to succeed as a low cost manufacturing center is limited, and may not even be a desirable outcome in an economy starving for quality jobs.    So, as reshoring gains traction, let’s also focus on supporting the real competitive advantages that exist here at home.  These are well addressed in a new analysis by Booz and Co.  Long-term success in manufacturing will depend on proficiency and excellence in product design, production planning, engineering, execution, and service. These competitive advantages won’t arise and be sustained out of thin air; they will require real and sizable investments by companies and by local, state, and federal agencies.   In the past, many manufacturing innovation investments were defensive–seeking to save jobs or to block the shift of jobs overseas.  Today, the stars are aligned in a new direction where these investments can help reinforce and accelerate positive market trends.  New manufacturing research centers, more aggressive and effective workforce development, and continued support for rebuilding the industrial commons all make sense.   Let’s go on the offensive and and invest to ensure that the positive prognosis for 2014 is sustainable for the long haul.

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The Rise of Local Crowdfunding

Now that the US Securities and Exchange Commission has finally developed some preliminary rules for crowdfunding, I’m starting to see an interesting trickle of new hyper-local crowdfunding sites focused on local business investments and local community projects.   For example, I just received a note yesterday about Dubvee, a West Virginia-focused platform, seeking investments for a new glass factory in the state.   Other recently opened local sites include CoPhilly (Philadelphia), Adirondack Gives (NY), IowaArt (NE Iowa), and the Pluribus Fund (DC).  I’m barely scratching the surface with these examples, but I think we can expect a boom in local crowdfunding sites in 2014.  (For background on crowdfunding, see this helpful infographic from BALLE).

This is a very promising trend as long as expectations are managed.   Local crowdfunding makes sense as part of a wider Buy-Local or Invest-Local effort.  Setting up a platform is not too complicated, but marketing and managing the effort requires some work and needs to be integrated with other local strategies.   Likewise, while a crowdfunding site won’t single-handedly transform a local economy, it is just one more tool to help local business and to keep investments flowing in a community. Moreover, while it’s nice to encourage local investment in local projects, there’s no reason why local businesses shouldn’t also try to attract outside investment from national or global crowdfunding sources.  Yet,  if a handful of new projects or new businesses can get a leg up in the marketplace, that’s a great accomplishment as well.    Look for more on this topic in the coming year.

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Craft Beer = Economic Development

If you happened to savor a cold one while watching the NFL playoffs this past weekend, you may be pleased to know that you may be making a growing contribution to your local economy.  New data from the Brewer’s Association, the major U.S. network for craft brewers, shows that America’s craft brewers contributed nearly $34 billion to the American economy in 2012.   In terms of total economic output, the biggest states tend to be the top performers (California, Texas, New York, Pennsylvania, and Colorado).  But, when the data is assessed on a per capita basis, many of the emerging craft brewing centers, such as Oregon, Colorado, Vermont, Maine, and Montana) rise to the top of the rankings.  Craft brewing is continuing to grow massively in the U.S.  Today, there are 2, 347 craft breweries, including brew pubs and microbreweries, and these breweries employ more than 108,000 people. You can find all the stats and anything else you’d like to know about the craft brewing economy here.

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Assessing Entrepreneurial Ecosystems: A Toolkit

The Aspen Network for Development Entrepreneurs (ANDE) has released an excellent new toolkit for assessing regional entrepreneurial ecosystems.  The diagnostic toolkit is designed for global use and provides tools and tips for how to measure whether a region has an effective and comprehensive entrepreneurial ecosystem in place.   The report is geared to practitioners and includes suggestions on good data source, performance measures, and even includes sample survey tools.  The toolkit includes an Asset Mapping Roadmap that assesses more than 150 different performance indicators.   They focus on three key areas:  entrepreneurial determinants (i.e. factors, such as capital, that help spur business activity), entrepreneurial performance (e.g. business births and deaths), and impact, the value created by entrepreneurs in jobs, GDP growth, etc.   This toolkit is an excellent resource that deserves wide use in the US and around the world.

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Nesta’s Predictions for 2014

Regular readers of the EntreWorks blog will know that I am a big fan of the UK organization, Nesta, which seeks to support innovation and creativity throughout Great Britain and the world.    Each year, Nesta staff and partners make annual predictions for the coming year, and, while they’re not always right, the predictions are always interesting.  This year’s list is no exception.   The Nesta team provides a big list of new ideas ranging from the emergence of crowdsourced politicians to a boom in backyard renewable energy to the US losing its dominant control over the global internet infrastructure.

I’m particularly intrigued with two predictions that relate to workforce and economic development.  First is the transformation of job hunting via new forms of social media.   Several interesting new social media sites, such as State of Ambition, Backr, and Discoverables, are transforming the online job search process.   These sites aren’t just job posting venues, but provide a means to link into powerful networks—the real secret to a successful job hunt.  As these networks gain traction in 2014, the process of finding a job will become much more efficient and hopefully less painful.

Nesta experts are also predicting a boom in city wide innovation.  This effort already has a lot of traction in the US, with many cities setting up offices of innovation or creating new Chief Innovation Officer positions.   In 2014, this movement will become a regular business practice for cities around the globe.   I’m especially excited about how this movement is evolving from a sole focus on making government more efficient and effective (a very laudable goal) to a broader mission of creating Cities of Service where new approaches to innovation are also being used to address pressing social challenges like poverty, homeless, and neighborhood revitalization.


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