What Economic Developers Should Do

August 5, 2018

The email was labeled “Question.”

 

It came from an old friend, who is not so old as he is younger than me. My friend was also once my boss when we worked together at the Economic Development Partnership of Alabama back in the 1990s.

 

Don Erwin’s email was curious by the fact that he is one very knowledgeable and experienced economic developer. He gave me permission to share his email.

 

“Economic developers are sometimes criticized for confusing “activity” with results. I think, most of the time, they clearly know the difference, but their challenge is how to produce results.

 

”Trade shows? OK. Visit site consultants? OK. Have a nice website? OK. Woo the state economic developers? OK. But what beyond that? The employees at Mercedes-Benz in Alabama clearly know what they need to do to turn out 1,200 cars/day, but it is much less clear for economic developers what to do. Any thoughts you have about this are appreciated. – Don”

 

For the uninitiated, economic developers are charged with creating jobs and investment in local economies, although they actually do neither. But that is how they are typically judged.  They are part teacher, sales person, cheerleader and evangelist. They are, by and large, interesting people.

 

First, Get Out of Bed

 

What to do. We face that question every morning when we get out of bed. Sometimes it only hits me with my first cup of coffee.

 

In his email, Don mentioned some strategies pertaining to business attraction. He also mentioned "results." Two things come to mind. First, I have come to realize over the years that there’s much more to economic development than business attraction. Second, focusing on results is, I hate to use this cliche, putting the cart before the horse. I will explain.

 

Maybe 18 or 20 years ago, I took an IEDC class taught by Laith Wardi, who founded a company in 1996 called ExecutivePulse. That class, more so than any other, revealed to me another facet of economic development other than “buffalo hunting,” which was my job at EDPA. (Never mind that I actually own a long-barreled .45-70 Sharps rifle.)

 

As most jobs are created by existing industry, I now know that business retention and expansion should be a primary focus for most economic development organizations. Laith preached that gospel and the heavens parted for me.

 

Later, he introduced me to Erik Collins in Montgomery County, Ohio. Erik puts the theory of BR&E into practice. I am so glad to have befriended these two men.

 

The Importance of Startups

 

Over the years I also came to understand the importance of entrepreneurial growth, that is, business startups to a local economy. We know that many large businesses have very humble beginnings, having been started in people’s garages. Apple, Disney and Harley Davidson come to mind. I think it is important to remember that.

 

Research from the Kauffman Foundation indicates that new and young companies are not only a primary source of job creation in the American economy but also inject competition into markets and spur innovation.

I saw that firsthand during a recent trip to Erie, Pennsylvania, where I spent three days doing what was essentially a mini-SWOT. The trip was made possible largely through the efforts of Laith, who lives in Erie.

 

No doubt my best meeting during my time in Erie was meeting with entrepreneurs, many of whom I would describe as “techies”, at a 24/7/365 incubator called Radius CoWork in an office building downtown.

 

Forget that most business startups will fail, successful entrepreneurs rightly figure, “damn the statistics, full speed ahead.” The entrepreneurs that I met in Erie were that gung-ho bunch.

 

Debunking the Myths

 

There are many myths about entrepreneurship. One is that most successful entrepreneurs are young. We think of Bill Gates, Steve Jobs, and Mark Zuckerberg, who were in their early twenties when they launched what would become world-changing companies. Those are great business stories.

 

But research shows that the average age of a successful startup founder is 45. (I started BBA when I was 50.) The truth is that the average entrepreneur has worked in business for years before starting their own business. Despite that, many venture capitalists operate under the mistaken belief that youth is the elixir of successful entrepreneurship.

 

Another myth is that small business is the employment engine of the economy. As the Kauffman Foundation points out, when it comes to job creation, it is not the size of the business that matters as much as it is the age.

 

Growing the Growers

 

So back to Don’s question, as to what economic developers should do. If we know that new businesses create jobs, then shouldn’t we be trying to grow the growers?

 

There are thousands of early stage entrepreneurship support programs across the U.S. Generally, they fall into four categories -- accelerators, incubators and coworking spaces (what I saw at Radius CoWork in Erie), events and competitions, and formal degree or educational programs.

 

I’m not sure if you can actually teach people to become entrepreneurs, but you can educate them and give them tools that will help them grow their businesses and become better at what they do.

 

To be sure, there is overlap between these different types of programs out there. I tend to like accelerators, which work with startups for usually three or four months. In addition to guidance, they also offer capital. In exchange, accelerators usually get an equity position in the startup company.

 

There are four factors that make accelerators distinct from the other models, according to Susan Cohen, a professor of entrepreneurship at the University of Richmond. They are fixed-term, cohort-based, mentor-driven, and culminate in a graduation or demo day.

 

All the Above

 

The more you look at it, the more you begin to understand that economic development is a very broad field with lots of moving parts. It is why there are now specialists in the fields of business attraction, business retention and expansion and business startups.

 

Back in 2012, President Barack Obama spoke of “an all-of-the-above” energy strategy for the 21st century. He was referring to developing and using a combination of various resources to meet energy needs that included nonrenewable resources (coal, crude oil, and natural gas) and renewable resources (solar, wind, nuclear power, hydroelectric power, and biofuels).

 

Economic development organizations should take heed and develop their own “all-of-the-above” strategy. Economic development is not only about business recruitment. Nor is it only about BR&E or business startups. It truly is about all of the above.

 

Finally, this all-of-the-above approach requires that economic developers truly become students of business. Surprisingly, I find many who are not.

 

One Bite at a Time

 

Don attended the University of Alabama and is a big fan of that school’s football program. Coach Nick Saban, who has won five national championships in his 11 years at Alabama, is a firm believer in focusing on daily progress and not the end results.

 

Do your work, do it well, and when you find success, do it again and always strive for continual improvement. This is the Toyota Way (kaizen) and the embodiment of Saban’s “process.”

 

How do you eat an elephant? One bite at a time. Economic development is the elephant. It is a massively big field. No person or organization can master it all, we can only strive to get better. (Saban teams don’t win championships every year.)

 

That is precisely what economic developers can and should do – work on improving the business environment of their communities and how they do their jobs. If they focus every day on progress, the results, the investment and job creation, will follow.

 

This is what I told community stakeholders in Erie. This is what I would tell community stakeholders anywhere.

 

We’ll End with Crass Self Promotion

 

I am somewhat reluctant to tell you that we can offer communities an affordable “mini-SWOT,” similar to what we did in Erie. It just so happened that Erie wanted me to not only to give my impressions to community stakeholders, but also make my views public by writing the blog.

 

It was a gutsy move on their part. Certainly, it has sparked debate within the community, which is a good thing.

 

Some communities, however, might not want to go the "public" route, but would prefer a report made available to stakeholders only. In other words, I wouldn’t write a blog for the world to read.

 

However, we would still provide that hard look, pointing out the good and the not so good. (All communities have strengths and weaknesses.) Sometimes you need that outside perspective to bring about change.

 

Of course, we can also offer our full-fledged BBA Action Formula which takes a deeper dive and offers more than an assessment or any strategic plan.

 

Enough on that. I’ll see you down the road.

 

If you found this blog useful, please forward it to a friend and subscribe to BBA Digest.

 

 

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