EntreWorks Insights, June 2014 edition, now Available.

The latest edition of our quarterly e-newsletter, EntreWorks Insights, is now available here.  This issue looks at how communities are using economic dashboards to benchmark regional performance and to track program results and outcomes.   You can subscribe to the newsletter here.

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Dynamic Networking for Small Business Event, June 19th

If you happen to be in or around Erie, Pennsylvania, on June 19th next week, please come join us at the Dynamic Networking for Small Business event to be held at Erie’s Bayfront Convention Center. This is the third year for this event which is sponsored by the Northwest Pennsylvania Regional Planning and Development Commission and Erie Regional Chamber and Growth Partnership. This is a matchmaking event helping small businesses find new contract opportunities with government agencies and large OEMs.  I’ll be attending and participating thanks to our continued work in the region as part of the U.S. Small Business Administration’s American Supplier Initiative.  In 2013, EntreWorks Consulting and our partners at the Center for Regional Economic Competitiveness were selected to lead one of five national supply chain mapping studies on behalf of SBA.  Our project focused on Northwest Pennsylvania and has developed supply chain maps (and supporting analyses) for two broad industry sectors:  rail and transportation equipment manufacturing and manufacturing industries related to the Marcellus and Utica shale plays now underway in the region. On June 19, I’ll be providing a review of our findings and also leading a panel on rail manufacturing supply chain issues.  We’re also holding a second event focus on shale energy resources at Clarion University on July 15.  More details on this event will be available soon.   You can learn more about the June 19 DyNet event here, and registration information (it’s free!!) can be accessed here.

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Metrics 3.0

The Aspen Network of Development Entrepreneurs is one of my favorite organizations.   ANDE is a coalition of people and organizations working to support the development of small and growing businesses (SGBs) in emerging markets.  While most ANDE members are focused on international development efforts, much of their work has direct relevance for economic development practitioners here at home.  Their new study on performance metrics, The State of Measurement Practice in the SGB Sector, is a case in point.   Many ANDE members are doing very innovative work in terms of measuring performance and this study summarizes their work and lessons learned.

Overall, many ANDE members are moving to what they call Metrics 3.0.  Metrics 3.0 builds on two earlier “platforms.”  Metrics 1.0 was about accountability, arguing that organizations should track their impacts and be judged (and funded) accordingly.  Metrics 2.0 is about shared measurement systems and standardization, where all organizations in a given sectors, such as microfinance, use the same measures so that “apples to apples” comparisons can be made.

Under Metrics 3.0, measures move beyond individual organizations with a focus on value creation.   There are a lot of ideas under the concept of Metrics 3.0, but I was most taken with the ideas around integration between organization-level evaluation and ecosystem-level evaluation.  Instead of simply measuring an organization’s impacts, we should also assess its role in a larger ecosystem in terms of both building a stronger network and in generating collective impacts.   These collective measures help organizations learn from each other, while also improving the overall effectiveness of the entire ecosystem.   ANDE and its partners point to the Initiative for Smallholder Finance wiki as an early example of this model where the wiki allows anyone to review a whole range of evaluations that help us to better understand what works and where gaps in service delivery and support exist.  Using this model to share and disseminate assessments of domestic initiatives, such as business accelerators or cluster programs, makes sense.

 

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New Resources for Rural Entrepreneurship

My colleagues at the Center for Rural Entrepreneurship have just published an excellent case study of Kansas’ experience with supporting rural development via entrepreneurship.   The study focuses on the work of Network Kansas, aka the Kansas Center for Rural Entrepreneurship, which has been operating for a decade in a tough political environment.  Kansas’ current governor, Sam Brownback, is no fan of publicly funded economic development program. (After all, there aren’t many governors who have created their own  Office of the Repealer).  When he entered office, many excellent programs, such as the Kansas Enterprise Technology Corporation (KTEC) and the world-class Pipeline entrepreneurial immersion program faced the budget ax.  But Network Kansas and its programs have survived and now manage a host of programs, such as a statewide resource navigator, various investment funds, and economic gardening efforts, focused on transforming rural Kansas.  The case study provides an excellent history and lessons learned from this experience.

While I’m at it, let me also offer a hearty if belated plug to the new edition of the center’s guide to rural entrepreneurship, Energizing Entrepreneurs.  If you’re looking for a guide to transforming your community via entrepreneurship, start here.  It’s written in a understandable, folksy style and is based on real life examples and years of experience in the field.

You can access these report and more at the Center’s website:  www.energizingentrepreneurs.org

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Innovation Policy in Maine: A Deep Dive

The latest issue of the Maine Policy Review (Vol. 23, No. 1-2014) provides a deep dive into the state of innovation and entrepreneurship in the Pine Tree State.   The issue includes a review of innovation in key state clusters, like agriculture, forestry, and energy, as well as excellent contributions on key issues like innovation culture, university tech transfer, workforce development, and the pre-20th century history of innovation in Maine.   I suspect that many readers won’t have a personal connection or interest in what’s happening in Maine, but this special issue is still worth a look by the more skeptical or non-Mainer.  The essays provide an excellent introduction to many of the key challenges in building an innovation economy, and the recommendations will be useful to anyone working in a state or region that lacks many of the competitive advantages found in better publicized innovation hotspots.   Moreover, the publication of an in-depth and comprehensive assessment like the one found here is something that would benefit all states.   Mainers are doing their best to build a strong innovation economy and, to do so effectively, this requires the kind of well-informed public debate and discussion that this special volume of Maine Policy Review should help generate.

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FDI for the Little Guy

Foreign direct investment (FDI) promotion has traditionally been a game for the big boys with large multinational corporations as the primary business recruitment target and large cities, states/provinces, and countries as the prime recruiters.  A series of articles in the April/May 2014 issue of FDI magazine examines a growing trend where inward investment agencies are turning their attention to supporting and attracting small and medium-sized enterprises.

The issue includes a series of articles that offers a general update along with more background on efforts in Finland and the U.K. (Note:  Article access requires registration).  Small firms entering global markets have many unique needs.  Of course, capital access programs matter.  In fact, some industry experts find that these programs matter more in FDI than in domestic markets as available capital may persuade a firm to enter a previously neglected foreign market.   When combined with other consulting services, such as the programs now underway in Leipzig, Germany, these efforts can prove quite attractive to SMEs.  They help encourage managers to consider locating in cities and regions outside of the usual suspects.

These efforts also need to be much more customized and hands-on than traditional FDI programs.  In Finland, the Helsinki Business Hub team focuses heavily on contact facilitation, linking overseas entrepreneurs into the local ecosystem.    Lastly, successful initiatives provide hands-on guidance about local rules, regulations, and business customs, so that SMEs can achieve a  ”soft landing” in new markets.

 

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National Small Business Week: Your Reading Assignments!

Since this is national Small Business Week (how could you forget?), I thought I might highlight a few recent articles on issues related to small business and entrepreneurship.

1)      A recent Brookings Institution report has received a lot of attention by noting that business deaths in the U.S. have been exceeding business births for a long time—since 2008 to be exact.  This lagging business dynamism is a big worry, and something that warrants much further analysis.  A useful review of this data recently occurred on The Atlantic Cities blog.  My take is that the Brookings study focuses on firms with employees, and thus doesn’t address the fact that many people are pursuing different business strategies as free-lancers or solo entrepreneurs.  So, the numbers don’t tell the whole story.  But, that point is more of a quibble than counter-argument.  U.S. business dynamism is slowing and that is not a good thing.

2)      A new CFED study takes a deep and sympathetic look at the many financial challenges facing America’s micro-entrepreneurs, i.e. firms with less than 10 employees.   CFED researchers surveyed a sample of microbusiness owners about their use of financial services.   Most of the findings won’t be a surprise to those who work in the field, but they are still instructive.  For most microbusiness owners, the split between household and business expenses is pretty murky.  Moreover, few have access to much financial cushion in the event of crisis or emergency.   In these cases, they typically rely on savings, credit cards, or family/friends to weather the storm, and lack access to more sophisticated banking services.  The result is continued instability and uncertainty—not the best financial state for building sustainable businesses over the long-term.

3)      Another new study from the Partnership for a New American Economy examines the growing importance of Latino entrepreneurs.  Since 1990, the number of U.S. Latino entrepreneurs has tripled and now involves more than 2 million business owners.   And, this rate of business start-up keeps climbing, even as overall business start-up rates stagnate.  All is not rosy. For example, self-employed Latinos make less than other self-employed Americans.  But, the trends are moving in a positive direction and it’s clear that the future of entrepreneurship in the U.S. will depend heavily on Latino entrepreneurs.

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The Case for Microfinance: New Data from the World Bank

Most public policies go through fad cycles.  They start as fledgling proposals and, if successful, morph into “an idea who’s time has come.”    In many cases, backlash is the next stage as critics point to flaws in the idea and new evidence raises questions about policy or program effectiveness.

The field of microfinance offers a great case in point.  Pioneered in Bangladesh by Grameen Bank, the practice of using microloans to aid the poor soon went global and microfinance programs can now be found around the world.   But, the past years have been tough for microfinance advocates.  Grameen Bank founder Mohammed Yunus has been under political attack at home, and numerous research studies questioned whether microfinance worked.  (Here and here are some examples of recent critiques.)

Recently, researchers at the World Bank reported data from the longest and most rigorous evaluation of microfinance programs developed to date.  Their report, Dynamic Effects of Microcredit in Bangladesh, tracks program development and outcomes over the course of 20 years, and finds that these effort do indeed help lift people out of poverty.  Families participating in microcredit schemes benefit from higher household assets, higher expenditures, and improved education outcomes.  Moreover, the programs offer even greater benefits for women than for men.  These impacts are large and persistent over time.   While this rigorous report should not be viewed as the last word, it is further compelling evidence that investments in microcredit work.

 

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The Promise of Clean Energy Bonds

The history of clean and alternative energy in the U.S. is  a story of boom and bust cycles.   Unlike many other boom and bust industries where cycles are driven by market forces alone, the clean energy market’s gyrations often result from inconsistent or poorly conceived policy decisions.    Clean energy investments spike when new funding is available (such as the 2009 federal stimulus bill) or when critical tax incentives, such as Renewable Energy Production Tax Credit, are in place.  When these subsidies are removed or reduced, investments falter.   The result is a roller coaster ride for investors, entrepreneurs and alternative energy advocates.

Creating a more consistent, predictable, and steady investment climate is essential to a more stable alternative energy market in the U.S.   And, finding these new funding tools is not rocket science.   As a new study from the Brookings Institution and the Council of Development Finance Agencies shows, the bond market is a promising and underutilized tool for clean energy finance.   State and local development agencies have long experience in financing major infrastructure projects with bonds; using these tools for clean energy investments makes sense too.

The study highlights the emergence of numerous state clean energy funds and green banks that are already having big impacts.  For example, New York’s State Energy Research and Development Authority has recently raised nearly $25 million to invest in energy efficiency projects.   Overall, state clean energy funds have invested $3.4 billion in state dollars, leveraging much more federal and private investment, since 1998.

The report includes a number of guidelines and policy recommendations for how to further expand on these promising beginnings.  If we are truly serious about developing new sources and markets for clean energy, we will need to develop a more robust and stable source of financing for these projects.  Clean energy bonds can and should be part of the solution to this challenge.

 

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New Directions for Tax Incentive Policies

For years, tax incentives, credits, and abatements have been the policy tools of choice for economic developers.    In fact, for many people, tax incentives are what economic development policy is all about.    Even with the economic development profession, incentives are a controversial topic.   We don’t really know whether they work—firms like them of course, but it’s tough to determine whether various tax credits are an effective use of taxpayer dollars and whether they produce a solid return on investment.   For every convincing study by incentive critics like Good Jobs First, there are lots of cases where tax incentives seem to have been the reason why a deal got done.

One reason for the current debates is that we have trouble making real “apples to apples” comparisons between various incentive programs.  At the same time, we also have limited data and poor transparency around incentive deals and their impacts.   A new project led by the Pew Center for the States and the Center for Regional Economic Competitiveness seeks to address these data and transparency challenges. (EntreWorks Consulting is providing additional consulting support to this project).   The Business Incentives Initiative will be working with seven U.S. states (Indiana, Louisiana, Maryland, Michigan, Oklahoma, Tennessee, and Virginia) on three important tasks:

  1. Identify new tools to manage and track incentive programs,
  2. Improve data collection and reporting, and
  3. Develop new national standards for managing, tracking, and reporting on the outcomes of various state economic development incentive programs.
This project was officially announced today and will formally kick off this Spring.   It has great promise for introducing new tools and new models to help all of us get a better handle on what works in the field of economic development incentives.  Watch this space for more details as the project progresses.

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