Posts Tagged Economic Gardening

Response to “Private Sector Dynamics: The Key to Understanding U.S. Growth”

by Christine Hamilton-Pennell
Growing Local Economies, Inc.
August 15, 2011

Since my blog article, “The Role of Startups in Job Creation and Destruction”, is cited in the first paragraph of economist Donald W. Walls’ report, “Private Sector Dynamics: The Key to Understanding U.S. Growth”, I’d like to offer a response. My article was based on reports produced by the Kauffman Foundation and the Small Business Administration. I don’t believe a “serious misperception” of the data by these reputable sources, as claimed by Walls in the first paragraph of his report, is the issue, so much as which data we rely upon to guide the design of entrepreneurship support efforts in our communities.

The factors that produce economic growth in a community are extremely complex, and have been much-researched and debated for decades. Economic and business datasets used to measure economic activity, whether micro- or macro-based, provide a different snapshot based on their methodology and sources. Do they measure nonemployer or employer firms? How is company growth defined and measured? How are start-ups, entrepreneurs, high growth companies, and exporting companies defined and identified? What unit of measure is used for the geographic area? How is the data parsed and analyzed? There is conflicting data on most things, and business and economic statistics are no different. Depending on what question you want to answer, there is a number for that.

Strong conclusions have been drawn from the data over the years that are widely accepted in the field. One is the crucial role small businesses (particularly high-growth companies) play in creating jobs. Another is the role of traded-sector, exporting companies in bringing wealth into a region.

I believe that the recent research on the role of startups is also significant and must be considered by policy makers. Walls has provided another useful view by looking at the role of expanding businesses in creating job growth, a view that has not received as much attention in recent years.

In his paper, sponsored by the Edward Lowe Foundation, Walls argues that expansion startups (defined as “new establishments launched by existing companies in a new geographic location or new line of business”), outpaced new startups in job creation by 71 percent. This appears to be supported by his data. I have always asserted that it is expanding companies that create the lion’s share of new job growth. (See also David Neumark, Junfu Zhang, and Jed Kolko,“Interstate Business Relocation: An Industry-Level Analysis, Public Policy Institute of California”, 2006).

Walls’ paper does not comprehensively address the issue of company size and its relationship to job growth. Expansion startups by his definition are adding a new establishment or product line to their already existing company. What size is that initial company? Is it stage 1, stage 2 or stage 3? If you add together all the new employees, what size is it then? More research on the correlation between the size of existing employer firms (which excludes sole proprietors or nonemployer firms) and job growth characteristics is certainly needed, particularly for firms with five or more employees. It will be helpful to know by the numbers whether a company of a certain size (e.g., stage 1 or stage 2) creates the most sustainable job growth, or whether size is not a key factor.

Prior research has indicated that “once we control for firm age there is no systematic relationship between firm size and growth.” (Haltiwanger, John C., Ron S. Jarmin, and Javier Miranda. “Who Creates Jobs? Small vs. Large vs. Young” NBER Working Paper No. 16300, August 2010). Obviously, expanding stage 1 companies (defined as 1-9 employees by YourEconomy.org), create fewer jobs apiece, or they wouldn’t be categorized as stage 1. However, the greater number of stage 1 companies means that there are many more of them to contribute to sustainable job growth.

I have synthesized available research to identify what appears to be the ideal target audience for an economic gardening program:

“The ‘sweet spot’ for most economic gardening programs is to target entrepreneurs who have started a venture that is between one and five years old and want to grow it, regardless of its size. These ventures aren’t necessarily “high-tech,” but they have developed some sort of innovation in their product, process or delivery method. They also have a potential or actual market outside the local economic region, and create quality, living-wage jobs.” (Reflections on the Ideal Economic Gardening Audience).

Walls’ report does not appear to contradict these conclusions.

I have also frequently made the argument that so-called high-growth or “exceptional growth” companies are not only extremely rare, but they will also create jobs no matter what economic development or economic gardening programs offer to them. As Chris Gibbons has often stated, “It’s entrepreneurs who create jobs, not economic developers.” And these high-growth entrepreneurs are going to do it with or without us.

Practically speaking, I believe the weight of research evidence and on-the-ground experience with entrepreneurs—especially in small and rural areas—points most communities towards designing entrepreneurship support efforts that focus on smaller growth-oriented existing companies. In the early stages of growth these companies can often benefit from developing a strategic focus to lead them to expand into the next stage. These may very well be companies that don’t yet meet the threshold for stage 2 companies, and may never become “exceptional growth companies.” Nevertheless, they have great potential for expanding and creating high-wage, sustainable jobs in their communities.

I welcome continued dialogue on this topic.

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Lessons from GrowFL, Florida’s Statewide Economic Gardening Project

by Christine Hamilton-Pennell
Growing Local Economies, Inc.

Florida’s popular statewide economic gardening program, GrowFL, has been hit by funding woes. “In a move that surprised local economic development officials, Gov. Rick Scott eliminated $2.5 million in state funding for two programs aimed at promoting business growth,” a $2 million cut to the budget for the University of Central Florida’s GrowFL economic gardening program, and a $500,000 cut to the statewide Small Business Development Centers. Program officials are assessing how the cuts will affect their efforts.

This despite the widely-touted success of the program in helping entrepreneurs create new jobs, and the governor’s campaign commitment to grow private-sector jobs in Florida.

The GrowFL experience illustrates the vagaries that attend to state government funding of economic gardening programs (and relying upon government funding sources at other levels as well). Economic development programs are taking a hit all across the county. Regional approaches to economic gardening (EG) with more diversified funding streams may make more sense, since economies are usually geographically bounded and local folks have more investment in what happens in their communities.

The approach that Don Macke of the Center for Rural Entrepreneurship and I take when consulting with communities about implementing an economic gardening project is that EG is a strategy that operates within a larger entrepreneurial development system. Economic gardening brings a sophisticated set of market research tools and high-level technical assistance to a selected segment of growth entrepreneurs. It’s an important strategy, but one that can’t stand alone. It must be integrated into the formal and informal systems that already exist in a community.

We believe that effective EG programs need to be built from the ground up—that is, from the local community level first. Businesses are located within a specific community, and those on the ground are in the best position to understand where the growth businesses are and how they relate to the larger political, economic, and community infrastructure.

Building support for EG at the local level ultimately means that the community has some investment in the project—they have “skin in the game”—as well as providing a network of advocates who can support the project politically. Community support also provides a greater opportunity to develop program sustainability by capitalizing the project from a number of different sources—both public and private. A diversified portfolio is always better than banking on only one investment.

NetWork Kansas is a great example of how that kind of grassroots infrastructure can support an EG effort. NetWork Kansas, directed by Steve Radley, has operated as an entrepreneurial support system for several years at the state level, but has built its structure around local community networks, including more than 420 network partners across the state. Wally Kearns, retired state SBDC director, and many others, including the staff of the Center for Rural Entrepreneurship, have worked with these rural communities in Kansas for many years. They have sought to bolster local community development and support for entrepreneurship, and to increase their capacity to provide assistance to local businesses.

The NetWork Kansas pilot Economic Gardening Network has been able to tap into the expertise and knowledge of the network partners to identify potential target businesses, and to close the loop back to the businesses after they have received technical assistance and market research from the central team. It will be interesting to see how this project is capitalized once the USDA grant funding runs out.

We think it is appropriate to broker and/or provide high-end EG services through a centralized center—whether at a university or other location—since many communities do not have the capacity to provide these services themselves. Economic gardening services will probably always have to be subsidized by some outside entity to be sustainable. But however an EG project is funded, and at whatever location services are offered, the relationship with the entrepreneur should grow from and be nurtured by the local community. Otherwise, it may be possible to demonstrate that jobs have been created, but not necessarily that the local community has experienced positive economic impact or increases in the wellbeing of its citizens as a result of the intervention.

©2011 Christine Hamilton-Pennell

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The Goals of Economic Development: To Create Hope, Wealth, and Choices

By Christine Hamilton-Pennell
Growing Local Economies, Inc.

In 1989, Phil Burgess, President of Denver’s Center for the New West (now defunct), gave a presentation called “Expanding Choices in America’s New Economy.” In his talk, Burgess, who is credited with first coining the phrase “economic gardening,” argued that “new hope, increasing wealth and expanding choices are the universal goals of economic development.”

These goals “invoke themes with deep roots in American culture: faith in the future, the desire for freedom, and the demand for choice. They resonate with most people….Perhaps most importantly, though, they are good standards by which to measure progress at any level—the family, the firm, the community, the region or the nation.”

More than 20 years later, these goals are more relevant than ever. Thriving communities—whether small or large, rural or urban—have citizens who believe they have options for their future, that they can make their lives (and those of their children) better in some way. People have hope instead of fear. They believe that they can find – or create – jobs for themselves. They are confident that their fellow community members and political leaders will support their business enterprises and address their social needs. They support local entrepreneurs, who in turn create or expand their businesses and give back to the community in many tangible ways.

The community itself provides adequate educational opportunities, financial resources, a trained workforce, a safety net for those in need, and support for quality of life amenities such as libraries, arts, recreational opportunities, and green spaces that make it a desirable place to live and work.

In short, a thriving community exhibits a spirit of optimism instead of despair, and offers options and choices to its citizens. Its citizens are motivated to take action, both on behalf of their own aspirations and hopes, and those of their neighbors.

I believe all of us want to live in such a community.

Burgess makes the case that economic expansion and area development follow a specific pathway. They are driven by civic leadership, which encompasses the political realm, the business sector, education and labor leaders, and community organizations. These leaders envision and negotiate the elements of area and regional development—factors such as development of human capital and financial resources, physical and quality of life infrastructure, and government regulatory support. These resources contribute to expansion factors such as a skilled workforce, new and improved technology, and improved capital availability and utilization, which in turn lead to the development of new and expanding markets and innovation within the private sector. New and expanding enterprises produce more jobs, higher income, and increased productivity. The end result for the community is new hope, increasing wealth, and expanding choices.

Each community will find a different path to achieve the goals of new hope, increasing wealth, and expanding choices. But three things are clear: each community must assess and build upon its existing assets, address the gaps in its resources, and develop a support system at the local level that creates a positive instead of a negative cycle for all its citizens. It is the task of the community’s leaders to initiate and drive this virtuous cycle, and the task of every citizen to contribute to the betterment of the community.

Community development and economic development cannot be separated. They are part of the same ecosystem, one which ultimately produces both hope and expanding choices for all its members.

Sources:

Philip M. Burgess, “Expanding Choices in America’s New Economy,” Points West, Winter 1990. (Posted by Dan Ripke on Scribd, http://www.scribd.com/doc/38481612/Expanding-Choices-in-America-s-New-Economy)

Christine Hamilton-Pennell, “Ten Tips for Implementing an Economic Gardening Project,” free white paper, www.growinglocaleconomies.com.

©Christine Hamilton-Pennell 2010, Growing Local Economies, Inc.

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The Role of Startups in Job Creation and Destruction

By Christine Hamilton-Pennell
Growing Local Economies, Inc.

Lately, there has been a spate of new research reports from the Kauffman Foundation, Small Business Administration, and other sources focusing on the crucial role start-up companies play in job creation and destruction.

A recent Kauffman study by Tim Kane, for example, uses Business Dynamics Statistics, a new dataset from the U.S. government, to show that “startups aren’t everything when it comes to job growth. They’re the only thing.”

The data examined indicate that “startup firms are responsible for all net job creation du ring most years, while existing firms (aged one year and older) are usually net job losers.” New firms add an average of 3 million jobs in their first year, while older companies (of all ages) lose 1 million jobs annually.

Startups are defined as companies within their first year of operation, while existing companies refer to those that have been in operation for at least one year. By definition, startups can create jobs but can’t lose them.

Kane’s study focuses on firms rather than establishments, which is an important distinction when drawing conclusions from different datasets. A firm may have multiple establishments in different locations, while an establishment refers to a business in a single physical location.

A further clarification is that the definition of “existing” firms includes both firms that go out of business (deaths) and continuing firms. Kane’s study focuses on survivors. He points out that if business deaths are removed from the equation, survivors, as a group, usually create more net jobs than startups. Fast growing firms (gazelles) are particularly important in this regard.

Another recent Kauffman report, Where Will the Jobs Come From?, further refines these conclusions. Authors Litan and Stangler analyze Census data, which reveals that two-thirds of new job growth comes from firms that are between one and five years old. Job creation comes from three sources: startups; young firms, ages one to five; and the largest and oldest companies. They state that “new and young companies and the entrepreneurs that create them are the engines of job creation and eventual economic recovery.”

The authors conclude that “the distinction of firm age, not necessarily size, as the driver of job creation has many implications, particularly for policymakers who are focusing on small business as the answer to a dire employment situation.”

The rate of job creation and destruction is influenced by the “churn” of business starts and deaths in a given year. According to data provided by the Small Business Administration, 552,600 new firms started in 2009, while 660,900 firms closed. During the recession, more total firms have closed than opened.

On the other hand, the Kauffman Index of Entrepreneurial Activity indicates that start-up rates among the self-employed are at their highest level in 14 years. An SBA study shows that the start-up rates for nonemployer firms (the self-employed) are countercyclical to the current recession. Self-employment is more often an occupational decision and is correlated with state unemployment rates. The decision to create an employer firm, on the other hand, is more often based on economic opportunity, and is correlated to state real GDP.

How does the job creation provided by start-ups endure over time? Another Kauffman Foundation study by Michael Horrell and Robert Litan analyzes the BDS data for cohorts of firms from 1977-2000. They conclude the following:

• Startups retain, on average, 80 percent of their initial total employment to age five.
• Startups initially hire fewer people during a recession, but catch back up to the same levels of employment at age five.
• Prolonged recessions appear to lower employment among startups.

The research presented above points to the role startups and young companies can play in creating new employment. This does not tell the whole story, of course. For one thing, there is no agreed-upon definition of startups. There is also a difference among data sources as to whether nonemployer firms (i.e., sole proprietors) are included in the datasets. In addition, these studies do not address the quality and sustainability of the jobs created by startups. More research is certainly needed on the dynamics of job growth over time among employer firms. In the meantime, entrepreneurship support organizations and policymakers need to consider the role that startups can play in developing their ongoing strategies for economic recovery and growth.

(In another blog article I have synthesized available research to identify what appears to be the ideal target audience for an economic gardening program, Reflections on the Ideal Economic Gardening Audience.)

Sources:

Kane, Tim. “The Importance of Startups in Job Creation and Job Destruction,” Ewing Marion Kauffman Foundation, July 2010, http://www.kauffman.org/research-and-policy/the-importance-of-startups-in-job-creation-and-job-desctruction.aspx.

Stangler, Dale and Robert E. Litan, “Where Will the Jobs Come From?” Ewing Marion Kauffman Foundation, November 2009, http://www.kauffman.org/research-and-policy/where-will-the-jobs-come-from.aspx.

Small Business Administration. Office of Advocacy. Frequently Asked Questions, 2010, http://web.sba.gov/faqs/faqIndexAll.cfm?areaid=24.

Kauffman Index of Entrepreneurial Activity: 1996-2000.  Ewing Marion Kauffman Foundation, 2010, http://www.kauffman.org/research-and-policy/kauffman-index-of-entrepreneurial-activity.aspx.

Acs, Zoltan, Brian Headd, and Hezekiah Agwara, “The Nonemployer Start-up Puzzle.” SBA Small Business Research Summary, 2009, http://www.sba.gov/advo/research/wkpapers.html.

Horrell, Michael  and Robert Litan, “After Inception: How Enduring is Job Creation by Startups?” Ewing Marion Kauffman Foundation, July 2010, http://www.kauffman.org/research-and-policy/after-inception-how-enduring-is-job-creation-by-startups.aspx.

©Christine Hamilton-Pennell 2010, Growing Local Economies, Inc.

 

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Reflections on the Ideal Economic Gardening Audience

By Christine Hamilton-Pennell
Growing Local Economies, Inc.
Updated December 21, 2010

I’ve been thinking a lot lately about the best target audience for an economic gardening program, particularly in smaller or more rural regions. Over the past several years, I have worked with hundreds of small businesses, helped communities around the country implement their economic gardening projects, reviewed numerous research reports on entrepreneurs, collaborated with Don Macke of the Center for Rural Entrepreneurship, and learned from Chris Gibbons at the City of Littleton. I have concluded that EG programs have three main criteria they can use to determine their target audience: company size (e.g., number of employees and/or revenues), company age, and company growth factors—or a combination of these criteria.

After reviewing all the evidence, I believe I have identified the “sweet spot”—the ideal target audience for most EG programs. First, let’s look at some facts about each of the three criteria.

Company Size

YourEconomy.org, a website created by the Edward Lowe Foundation, reports data on the composition and growth of the business universe in the United States over time. I checked my analysis of these figures and my conclusions with the staff at YourEconomy.

In this database, resident companies are broken out by stage:

Self-employed (one employee)
Stage 1 (2-9 employees)
Stage 2 (10-99 employees)
Stage 3 (100-499 employees)
Stage 4 (500+ employees)

The data reveal some interesting facts that are pertinent to choosing a target audience for an economic gardening program.

First of all, during the period from 2000-2008 (the period for which figures are reported in YourEconomy.org), Stage 3 and Stage 4 companies across the U.S. as a whole experienced net losses, both in the number of resident establishments and net new jobs. I don’t know anyone who disputes the fact that even during the best of times, the job creation rate across the majority of Stage 3 and 4 firms has been around zero for many years, and losses have only accelerated during this current recession. One exception reported in the literature (Stangler and Litan) indicates that the oldest and largest firms (10,000+ employees), still produce positive employment growth.

Current wisdom in the economic gardening world is that most of the high-growth companies are found in the Stage 2 group. This may very well be true, but this does not mean that targeting this group as a whole is more productive. The data in YourEconomy.org from 2000 to 2008 do not seem to support this conclusion. During that period of time Stage 2 companies across the U.S. averaged 10.6 percent of all resident establishments and contributed 2.0 percent of net new jobs. During the period from 2006 to 2008, the percentage of Stage 2 establishments fell to 7.7 percent of resident establishments, and they contributed to a loss of -1.9 percent of net new jobs.

By contrast, from 2006 to 2008, the self-employed (nonemployers) and Stage 1 companies taken together represented almost 91 percent of all resident establishments and created virtually 100 percent of net new jobs.

A significant factor to take into account is the “churn” characteristic of nonemployer and Stage 1 companies. A large number of these firms start or expand each year, creating a substantial number of the net new jobs, but a large number also shrink or close, eliminating a percentage of the jobs. In fact, fewer than 50 percent of new firms still exist after five years. Nevertheless, the net effect on job creation is overwhelmingly positive.

Many EG programs have discovered that providing extensive services to early Stage 1 companies and nonemployers (“aspiring” entrepreneurs or those in the planning stages) is not very productive in terms of job growth. The exception is when the planned business start-up has high potential to become a growth company.

Taking all of these factors into consideration, it appears that using company size alone as a criterion for selecting a target EG audience does not guarantee the greatest economic growth for a community.

Company Age

In the recent Kauffman report, Where Will the Jobs Come From?, authors Litan and Stangler analyze Census data, which reveals that two-thirds of new job growth comes from companies that are between one and five years old. Job creation comes from three sources: startups; young firms, ages one to five; and the largest and oldest companies. Taking into account the “churn” mentioned in the section above among the youngest companies, i.e., job creation and destruction, as well as the dynamic interaction between the youngest and oldest firms, they reach the following conclusion:

“…new and young companies and the entrepreneurs that create them are the engines of job creation and eventual economic recovery. The distinction of firm age, not necessarily size, as the driver of job creation has many implications, particularly for policymakers who are focusing on small business as the answer to a dire employment situation.”(http://www.kauffman.org/research-and-policy/where-will-the-jobs-come-from.aspx)

Another study by NBER, Who Creates Jobs? Small vs. Large vs. Young, supports this conclusion. The authors’ main finding is that “once we control for firm age there is no systematic relationship between firm size and growth. Our findings highlight the important role of business startups and young businesses in U.S. job creation. Business startups contribute substantially to both gross and net job creation. In addition, we find an ‘up or out’ dynamic of young firms. These findings imply that it is critical to control for and understand the role of firm age in explaining U.S. job creation.”

Company Growth

The most important criteria to consider when selecting an ideal EG target audience is the growth companies in the mix. From the time of David Birch’s seminal research studies in the 1980s—in which he first coined the term “gazelles”—to the present, research has conclusively shown that a small number of high-growth companies create the majority of new job growth. These companies are buried within the universe of existing companies and are the ones that break away from the pack and create an extraordinary number of jobs, as indicated in a recent report from the Kauffman Foundation.

High-Growth Firms and the Future of the American Economy shows that the top-performing one percent of firms generates roughly 40 percent of new jobs. The “average” company in the U.S. economy creates roughly two or three jobs per years, whereas the “average” company in this top-performing one percent contributes 88 jobs per year. And fast-growing young firms, while they represent less than one percent of all companies, create roughly 10 percent of all new jobs in any given year, or 27 jobs per company.

High-growth companies are found in all sectors (including retail and services) and nearly every geographic region. They are relatively young (three to five years old), and in their early stages are subject to a significant amount of “churn.” The fastest growing young firms (five percent) generally have 20 to 249 employees, although a significant number are larger. Once these companies have stabilized, their failure rate is very small (about three percent).

Since high-growth companies clearly have the greatest economic impact on the economy in terms of job creation, isn’t this the logical audience for an EG program to target?

The “Sweet Spot”

There are a number of reasons why local economic gardening programs might find it difficult to target these high-growth companies. Being relatively rare and often flying below the radar, these companies are hard to find, and may not even exist in every community. In addition, their needs are very specialized, and local communities often do not have the technical resources to help them. A recent study in Connecticut found that “while firms with low margins may worry chiefly about the high costs of taxes and healthcare, for fast-growing companies the primary issues have to do with networks—both social and physical.” They are looking for both strong professional networks and state government support for their needs.

Creating the best conditions for their growth generally entails policy decisions at higher levels of government than can often be affected at the local or regional level. Finally, the entrepreneurs who establish these companies are driven to create them whether we help them or not.

On the other hand, the high-growth companies had to start somewhere, and much of their initial growth spurt happens when they are late Stage 1 or early Stage 2 companies. The key is to identify these potential high-growth companies early in their life and help them avoid the pitfalls that may lead to early failure as they begin to grow.

These companies will not all become high-growth companies, but if they experience continuous—or sporadic—growth at all, they will likely contribute new jobs to the economy.

So what does this mean for a local or regional economic gardening program in terms of targeting a particular audience (or audiences) for its services? Taking all of this data into account, I have come to the following conclusion:

I would argue that the “sweet spot” for most economic gardening programs is to target entrepreneurs who have started a venture that is between one and five years old and want to grow it, regardless of its size. These ventures aren’t necessarily “high-tech,” but they have developed some sort of innovation in their product, process or delivery method. They also have a potential or actual market outside the local economic region, and create quality, living-wage jobs.

Finding these entrepreneurs is the tricky part. They may start out as a home-based business, or look like a secondary business such as a local retail or service business that is exploring an outside market through the Internet or franchising. We will explore the problems with finding growth-oriented entrepreneurs in a future blog entry.

According to Don Macke of the Center for Rural Entrepreneurship, an EG program should ask three questions of potential candidate for its program:

1. Do they have a niche where they are competitive?
2. Are they committed to growth?
3. Are they actively exploring creating an external market footprint?

By getting help at this crucial phase, Stage 1 and early Stage 2 growth-oriented entrepreneurs will be more likely to make good decisions that will allow them to remain viable and sustain their growth to reach the next level, however we define it.

I welcome your discussion and responses.

Sources:

©Christine Hamilton-Pennell 2010, Growing Local Economies, Inc.
 

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Economic Gardening with Public Librarians

by Christine Hamilton-Pennell
Growing Local Economies, Inc.

The research component of an economic gardening initiative must be implemented by professionals with skills in both business research and strategic business counseling. Successful programs need to find a way to marry and coordinate these two functions. A logical place to look for partners with business research skills is in the library world. Librarians in both public and university libraries know how to search for and find information, and usually have access to one or more business databases through their own library or a larger consortium. Several libraries are involved in economic gardening initiatives in the U.S. A couple of them are profiled below.

One of the first economic gardening initiatives to seek the assistance of local libraries was in the city of Greeley, Colorado. Economic Development Manager Kelly Peters approached librarians at High Plains Library District and the University of Northern Colorado Libraries to assist with business research for clients of their Economic Gardening program. Two public reference librarians stepped up to the plate and volunteered to do research projects for the businesses. Peters found that the public librarians, even though they had limited knowledge of business research at the outset of the project, were eager to learn. Along with two business librarians from the local community college and university, they created a small learning group that began meeting regularly to discuss business research tools and techniques. They also met with the businesses they were assisting to hear first hand what the business owners needed. The librarians completed three large research projects in the first six months, including one supporting the county airport in its efforts to recruit aviation-related businesses to its industrial office space.

When Peters left the City of Greeley to become the Chief Operations Officer of the Rocky Mountain Innovation Initiative (RMI2) in Fort Collins, Colorado, she again approached business librarians at the Poudre River Library District and Colorado State University Libraries to assist with research for RMI2 clients, who comprise high impact scientific and technology start-up companies in Northern Colorado. The Initiative was formed by an alliance of Northern Colorado municipal governments, academic institutions and economic development organizations. Anne MacDonald, business reference librarian at the Poudre River Library District, assists with the business research. She reports, “I love the projects and truly think this—economic, market and industry research for local economic development efforts—should be in the job description for any public library business librarian.”

A more recent entrant into the economic gardening field is the Douglas County (Colorado) Libraries. When the Douglas County Economic Development Manager, Meme Martin, approached the Chamber of Commerce at Highlands Ranch to host a pilot economic gardening (EG) program, the library took a seat at the planning table and became part of the initiative.

Rochelle Logan, Associate Director of Research and Collections at the library, serves on the steering committee for the Economic Gardening project. She says it is a natural partnership. “One of our goals at Douglas County Libraries…is to reach out to answer the community reference question. It’s a natural fit to partner with local economic development entities such as the Highlands Ranch / Douglas County EG program” (Your Hub-Roxborough, June 25, 2008). The library was already providing classroom space in three of its locations for business start-up workshops offered by the local Small Business Development Center.

The Douglas County reference librarians received training in basic business strategy and information sources, and began promoting reference services to start-up business owners through the library. They purchased additional business database tools and began conducting more in-depth business research on behalf of the EG center clients.

“We are extremely excited about the partnership we have with the Douglas County Library System and the Chamber’s Economic Gardening program. Douglas County is very fortunate to have the Douglas County Library System as a resource. They continue to stay on the cutting edge,” reports Steve Dyer, President, Chamber of Commerce at Highlands Ranch. They are now a year into the collaboration and the librarians report having completed more than 20 successful research projects for local business owners so far in 2009.

© 2009 Christine Hamilton-Pennell

Growing Local Economies

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Business Start-ups Are Like Orchids

Several months ago, my son brought home a flowerpot containing two bare sticks from the flower shop/urban café where he was working. Orchids, he told me. The owner said she didn’t think they would bloom. He rescued them from the trash.

So we watered and fed them for two or three months. The leaves came along nicely, but the sticks still looked like, well, bare sticks.

orchidsThat’s why I was so astonished a couple of weeks ago to see two blossoms on one of the twigs, with more budding out on both sticks. They are exquisite white orchids that amaze me every time I see them!

It struck me that the orchid story is an analogy for the business start-ups I’ve worked with or observed over the years. You can nurture them and support them and cajole them to take certain actions. It takes time for the new business idea to germinate and take root.  Research shows that maybe a quarter of these aspiring entrepreneurs actually create a new enterprise. In fact, most of them don’t bloom. But you never really know for sure which ones will burst into flower until they do.

Scott Shane points out in his book, Illusions of Entrepreneurship: The Costly Myths That Entrepreneurs, Investors, and Policy Makers Live By, that the majority of people starting new businesses enter a field they already work in, most of which are already saturated with small businesses (think massage therapists, construction, or pet grooming businesses). Many of these aspiring entrepreneurs have never been in business before and usually have not done an analysis of the market potential in their area before they decide to put out their shingle. 

In terms of “economic gardening,” not all start-ups are created equal. The ones with the most promise of high impact have several defining features. They have some kind of leg up on their competition—an innovative idea, process or product; they have a good management team to execute their idea; they have a solid market that is broader than the local region; and they want to grow their business (the majority of entrepreneurs don’t have a growth focus). These are the orchids. Daisies are far more common, of course, but they don’t have the same value (at least monetarily).

Perhaps the lesson here for local communities is to focus more time and resources on the orchids than the daisies, but to remember that daisies can also be a very important part of a beautiful garden.

(c) 2009 Christine Hamilton-Pennell 

Growing Local Economies

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