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Click here for a new Kauffman Foundation report on Entrepreneurship and Urban Success. It's authored by an all-star team including my Rotman colleagues Will Strange and Olav Sorensen, my former GMU colleague Zoltan Acs, and Harvard urban economist Ed Glaeser among others.
Fascinating that for all the focus on policy, economic development expenditure policies were not examined. Nationwide, states continue to spend more money on industrial recruitment efforts, while only 1% of economic development dollars are focused on entrepreneurial development. I don't understand how Kaufmann can continue to focus on tax and regulatory policy as the major points of entrepreneurial development. Not only is this focus anachronistic, but it does little to inform practitioners or policy makers about appropriate means to facilitate the shift towards entrepreneurial development. While I appreciate some of the points within this article, the overall focus and tone is far from helpful.
Posted by: sandy | February 28, 2008 at 07:05 AM
After cursory review, the finding showing that entrepreneurs tend to be older to be the most revealing. Why is that? Many explanations could be hypothesized, but I would submit it's because younger folks don't have any personal equity or cash reserves and lack the ability to find true capital. Angel-investor programs are great but they yield little more than a drop in the proverbial bucket of needed investment capital.
We need a paradigm shift. Why do we subsidize education? Because we believe that education is necessary to OBTAIN A GOOD JOB after college with A GOOD COMPANY; it's an organization-age model. Education is extremely important, of course, but likewise, it's also important that would-be entrepreneurs have TRUE access to the capital that they need to fuel their visions. Right now, in most cases, they don't. Or at least not until they've slugged it out in the corporate world for way too long.
Posted by: hayden fisher | February 28, 2008 at 11:08 AM
Hayden-you're right about youth/capital access. I think the conclusion which states that Florida has a high rate of older entrepreneurs is interesting. Perhaps they head to Florida with all of their money and knowledge and start their businesses. They have enough money to offset the potential risk. The sad part is that young people are the ones with the great ideas, aren't afraid of risk and tons of energy. Time and time again, I've seen these kids go to work at "any job" because access to start up capital- particularly equity investment and subordinated debt- is just not available.
During one research project, I interviewed this 22 year old kid with a very innovative business idea. Yes, he had the business plan and had attempted to access the capital. He told me that since he didn't own his house, he couldn't collateralize the loan, and had decided to back burner the plan. I don't know about you, but I wasn't worrying about collateralizing a business loan when I was 22.
These are the policy issues which should be addressed. Typically, young people are told to go the local Entrepreneurial development organization for education and financing assistance. After going through the education classes they get hit with the finance options: way too little cash for a startup, requiring 100% collateralization, and the interest rates are high. Oh yeah, the hoops you have to jump through with low level bureaucrats/gatekeepers. No wonder most startups are financed, at least in part, by credit cards. My thought is that peer to peer lending ie the Kiva.org or prosper.com model, adapted for a region's entrepreneurs is one way to address this.
Posted by: sandy | February 28, 2008 at 11:34 AM
Drucker distingushes entrepreneurs as those who create something new, as opposed to small business people who open a new shop of an exising product -- another sandwich shop or dry cleaner.
Entrepreneurs tend to be older because most new businesses are started by managers from other companies who go out on their own with a good idea, know how to run a company and can attract capital. In this case older generally means late 30's to early 50's, not geezers. The kids in a garage or dorm room phenom is an amazing story, but a small part of the total.
Will anyone ever release a study where Modesto isn't dead last?
Posted by: Michael Wells | February 28, 2008 at 12:40 PM
Sandy, I agree on all points. But would add this: government can only sustain itself through continued economic development, particularly now that talent is the premium commodity. If a region provided REAL opportunity to begin new businesses, assuredly, the talent would flock to that region.
Michael, your point is a good one but that's why there would have to be criteria. Such as, the new business must support the master vision of the community, in which case, a sandwich shop or a dry cleaners might be great. Particularly if they offered a new twist on an old model.
Posted by: hayden fisher | February 28, 2008 at 01:54 PM
Drucker distingushes entrepreneurs as those who create something new, as opposed to small business people who open a new shop of an exising product -- another sandwich shop or dry cleaner.
Entrepreneurs tend to be older because most new businesses are started by managers from other companies who go out on their own with a good idea, know how to run a company and can attract capital. In this case older generally means late 30's to early 50's, not geezers. The kids in a garage or dorm room phenom is an amazing story, but a small part of the total.
Will anyone ever release a study where Modesto isn't dead last?
Posted by: Michael Wells | February 28, 2008 at 02:12 PM
I like the Kiva.com and prosper.com suggestions. You also could expand upon the Grameen Bank model, where some of the loan 'guarantee' comes in the form of peer support circles.
Posted by: Zoe B | February 28, 2008 at 02:30 PM
After checking out kiva and prosper, I would still argue that this is one of the few places where government could make a huge impact by participating in the economic process. Those sites provide a valuable service but they're not significant enough to make more than a spotty impact. If we left student loans to a site like prosper, they're would be a few great stories and a lot of uneducated kids. Governments could make big impacts by guaranteeing and making loans from revolving funds. The federal historic tax credit initiative has done more than anything else to revitalize urban cores. Think how much more could be accomplished if government facilitated not only development but also the translation of business plans into going concerns. By doing so, it would create opportunity and revenue streams through the same policy-making.
Posted by: hayden fisher | February 28, 2008 at 05:36 PM
Hayden- I've had this same discussion with policy makers (over and over and over again). Evidently it's okay from an accountability standpoint to give out incentives to corporations moving into a region who have absolutely no connection to the community, and even less standards of accountability. All they have to do is "promise" 200 jobs and they get tons of cash/credits. (When the time period ends on their incentives, "oh well, we didn't create that many jobs, let's move on.") However, funding start ups who have legitimate connections to a community, nope, not of the public policy realm. Makes me absolutely insane. Especially when I look at the literature related to incentives and community-based entrepreneurialism.
I think this article is annoying (at best) just because it exemplifies the huge gap between academia and practice. This provides the most rudimentary analysis, using a wide-angle lens. Practitioners are miles ahead, just from the trial and error perspective they have had to take (because the researchers are so far behind). I really respect all of the authors, but I don't see how this article is generative or useful to practitioners. And that is where progress is made- on the ground.
I think the peer to peer lending can be adapted- I agree Kiva and Prosper aren't perfect. But I'm working on a model for adaptation- just because I'm cross with the current options.
Posted by: sandy | February 28, 2008 at 07:39 PM
...I forgot to add that there is a key area where the government can facilitate entrepreneurial development. If the region is the unit of analysis and practice, then subsidizing the nonprofits which foment entrepreneurial development would be a good place to start. More regional commissions such as the Appalachian Regional Commission is a great idea. Also, the WIRED grant program is one of the most significant fed level programs for catalyzing regional collaboration.
Posted by: sandy | February 28, 2008 at 07:44 PM
Sandy, I'm scheduling the same meetings here, we'll see how far I get. We owe all of the kids who come up with these great ideas a duty to develop a model that seeds their visions before they become disillusioned pegs in the corporate ladders across America. These discussions today helped crystalize all of this in my mind.
The corporate welfare-- absolutely amazing what many communities will do to "entice" big firms and corporations to move to their town. That, and the building all of the stadiums and convention centers, as Richard points out, show just how out of touch most of the governmental leaders are. We could write about it for hours.
Good point on the non-profits!
Posted by: hayden fisher | February 28, 2008 at 11:14 PM