Making the Case

The Challenge of Embracing Entrepreneurship

Economic development practitioners are struggling to find strategies that can bring hope to their rural communities—strategies that offer the promise of new jobs, more income, and increased wealth and capacity in rural hometowns across the country. As we’ve traveled the country, talking with leaders in communities and states, we find economic development practitioners struggling with an important question. How can they make the case in their communities that supporting entrepreneurs is the key to improving economic development prospects for the future?

Entrepreneurs and entrepreneurship are high profile topics nationally these days. Politicians frequently mention entrepreneurs in discussions about the economy. New national entrepreneurship initiatives are being created. The entrepreneurial culture is celebrated on reality TV. However, there’s a difference between talking about the importance of entrepreneurship and investing in a strategy for supporting entrepreneurs in your community or state.

Why is it so tough to embrace an entrepreneurship development strategy? Our field experience yields these suggestions:

• Economic development practitioners are reluctant to abandon the traditional tools of their trade: development of natural resources, industrial attraction and small business retention and expansion. These tools worked in the past and, absent a new toolkit, we tend to continue with the same, familiar strategies.
• Practitioners can find institutional support for these traditional strategies (for example, state department of commerce resources), while embracing entrepreneurship often means “going it alone.” While some entrepreneurs enjoy being “lone eagles,” community leaders and practitioners need support and partners as they develop new ways to find and nurture entrepreneurs.
• Community leaders are familiar with the research on traditional strategies (such as what factors give a community an advantage in attracting industry) while they know much less about research on the importance of entrepreneurship. Without this knowledge base, it’s harder to figure out what needs to be done in your community to encourage entrepreneurship.
• The outcomes of investing in entrepreneurship occur over the long-term, and individual successes often don’t lend themselves to public ribbon cuttings. Helping an artisan tap new regional markets via the Internet may increase sales and establish a successful business, but it can’t compete with the headlines resulting from a branch plant opening.
• Until recently, we haven’t had concrete examples of community and state entrepreneurship strategies that could serve as guides to others interested in supporting entrepreneurs. Embracing entrepreneurship often resulted in community leaders and economic development practitioners asking, “OK, now what do I do?”

In spite of these challenges, community leaders, economic development practitioners and state leaders are beginning to embrace entrepreneurship as a core economic development strategy. The overwhelming response to the W.K. Kellogg Foundation’s Entrepreneurship Development Systems for Rural America initiative is testimony to the burgeoning commitment to entrepreneurship across rural America. Our team is tracking initiatives in many states and regions—some championed by the private sector, others by nonprofit organizations, and others by state institutions.

In many of these rural places, community leaders have embraced the case for entrepreneurship and are developing and implementing strategies to make this case a reality. In other places, however, rural leaders need help articulating the case in a way that can garner support within the community and from state policy makers. We turn now to what the research tells us about the contribution and importance of entrepreneurship to economic development.

Why Entrepreneurship?

Community leaders who embrace entrepreneurship follow one of two approaches to make the case for entrepreneurship—one positive and one negative. The positive approach centers on the important contribution of entrepreneurs and their ventures in building stronger economies and communities. The negative approach argues that the traditional economic development strategies aren’t getting the job done now, leaving the door open for new alternatives. Let’s explore each of these approaches in turn, starting with the negative.

Failure of Traditional Economic Development Strategies

Rural communities have traditionally focused their economic development activities in three areas: natural resource development, industrial attraction and small business development. With some exceptions, notably in high amenity rural places and in rural areas adjacent to cities, these strategies are not leading to the creation of sustainable rural economies. While the explanation for this failure differs, the result is the same for the rural communities left behind:

• NATURAL RESOURCE DEVELOPMENT. The traditional natural resource industries (i.e., farming, mining, forestry, fisheries and energy) have experienced significant industrialization and consolidation over the past 50 years. The result is fewer farms, mines, lumber and energy companies coupled with decision making concentrated in ownership outside the local communities. Policy changes and global competition have created an environment where it is tougher for small, entrepreneurial farms and natural resource companies to be successful. For example, many North Carolina communities are being forced to reinvent themselves, as tobacco farming and the industries that support it undergo significant downsizing.
• INDUSTRIAL ATTRACTION. Rural communities benefited from the relocation decisions of branch plants over the past several decades—attracting footloose plants in search of cheaper land and labor and business-friendly environments. However, the reality today is much different than in the past. Cheaper land and labor are found not in rural America but in the emerging economies of China, India and Mexico. Shuttered factories have become a reality in rural America. David Birch, a pioneer in drawing attention to the important contribution of smaller enterprises to economic growth in the U.S., notes that only about 1% of new jobs are coming from relocations. The odds are against any particular rural community attracting the next major automobile or pharmaceutical plant.
• SMALL BUSINESS DEVELOPMENT. In the past, rural communities captured the income generated in their local economies through farms and industry by developing a vibrant local business sector that met the needs of residents in the community. Downtown merchants provided the retail goods that consumers demanded while local businesses supplied inputs to farmers and manufacturers alike. However, pressure has been put on local businesses from the increasing competition of big box retailers, the Internet and industry-supplier relationships dictated from outside the local area. Empty stores along Main Street are as much a feature of rural communities as abandoned factories and empty industrial parks.

Failure can often lead to despair—an urge to pack up the bags and head to greener pastures. However, failure can also lead to innovation—a willingness to try a new approach to creating a vibrant, sustainable rural economy. For many, that new approach is entrepreneurship and, as we’ll see now, there is a growing body of evidence about the positive contribution of entrepreneurship to building strong economies.

Contribution of Entrepreneurship to Economic Development

Twenty-five years ago, David Birch first shined a spotlight on the small business sector in his book, The Job Creation Process. Birch showed that small businesses created most of the new jobs in our economy, putting entrepreneurs and entrepreneurship center stage. More recently, the Global Entrepreneurship Monitor project has provided us with the best picture of the contribution of entrepreneurs to economic growth in the U.S. and other countries. We now have five years worth of insights gained from this cross-national study. The project presents key findings:

• There is a strong positive relationship between the level of entrepreneurial activity in a country and economic growth. Up to 70% of the difference in rates of economic growth across countries can be attributed to entrepreneurial activity.
• No countries with high levels of entrepreneurial activity experienced low levels of economic growth. Very few countries build robust economies without strong entrepreneurial activity. Entrepreneurs and the businesses they create contribute to strong economies in their home countries.

Work by the National Commission on Entrepreneurship, Embracing Innovation: Entrepreneurship and American Economic Growth, confirms the importance of entrepreneurs to economic vitality:

• Small entrepreneurs are responsible for 67% of inventions and 95% of radical innovations in the U.S. since World War II. Such diverse products as frozen foods, air conditioning, the cotton picker and the helicopter resulted from the drive and innovation of small entrepreneurs.
• A small group of high growth entrepreneurs, only 5% to 15% of all firms, created about two thirds of net new jobs in the late 1990s. In many parts of the country, these small entrepreneurial firms are contributing new jobs at the same time as larger firms are cutting back employment.
• Through their innovation and creativity, entrepreneurs are transforming existing business sectors (think Cabela’s for hunting and fishing equipment) and creating new sectors (think biotech) that are competitive throughout the world.

While much of this research focuses on the role of entrepreneurs in national economies, a groundbreaking national, multi-year study, the Panel Study of Entrepreneurial Dynamics, found that entrepreneurship is widespread in the U.S. across all racial and ethnic groups. At any given time, about 10 million adults are trying to create a new business. While entrepreneurs are everywhere, urban areas boast higher rates of entrepreneurship than rural communities.

Rural geography, however, doesn’t have to be a limiting factor for entrepreneurs. Focusing on entrepreneurial growth companies (EGCs), the National Commission on Entrepreneurship found that EGCs were located in every region in the country. In High Growth Companies: Mapping America’s Entrepreneurial Landscape, the Commission shows that in 1997 at least one high growth firm was located in almost every county in the U.S. A study for the W. K. Kellogg Foundation by the Corporation for Enterprise Development, Mapping Rural Entrepreneurship, identified entrepreneurial places and programs throughout rural America. In addition, our fieldwork has identified remarkable entrepreneurial communities across rural America, such as Kearney, Nebraska; Fairfield, Iowa; and Appalachian Kentucky.

Putting all these facts and figures together suggests that entrepreneurs are a vital part of our economy, contributing jobs and innovation to communities and regions across the country. This body of research has captured the attention of policy makers and leaders in a variety of settings—from the Georgia statehouse to the Kansas legislature; from foundation boardrooms to the National Governors Association. However, how can you use this information to make the case for entrepreneurship in your rural community?

Strategies for Making the Case in Your Community

Making the case in your community requires a leap of faith. Whether you are persuaded by the evidence linking entrepreneurship to economic prosperity or whether you are ready to try anything that might reverse the downward spiral in your community, the first step requires making a commitment to really understand what entrepreneurship development is all about. This understanding occurs at two different levels. At one level, you can access the resources that give you a “big picture” understanding of the role of entrepreneurs in economic development. Some of the best resources are included under Supporting Materials or referenced at the end of this section. These resources can provide the context for your community to begin to embrace entrepreneurship as a core development strategy.

At a second level, you can begin to dig in and learn what other communities and places are doing to create environments that support entrepreneurs. For some of these places, such as Fairfield, Iowa, and Kearney, Nebraska, there are stories that describe what they are doing and how they developed their strategies. Going to Stories throughout the different sections of the website is a good place to start your learning process.

You might also decide to visit communities in your region that are actively engaged in entrepreneurship development. There’s no substitute for learning from people we call the early adopters or innovators in this field. You can ask the tough questions: Why are you pursuing entrepreneurship development in your community? What is your strategy? How did you gain community support for this strategy? How is it working?

With this deeper understanding of entrepreneurship, you can begin to consider what your community needs to do to embark on this new approach to economic development. Armed with good data and stories of how other communities are making entrepreneurship work, you will be able to energize others in your community in support of a new strategy.

You can start with the usual suspects—those organizations in your community that are already working with the business community. Visit with staff at the local chamber of commerce, the small business development center in your region, a local community college, and private sector service providers such as attorneys, accountants and bankers. You can share with them what you’ve learned about entrepreneurship, specifically what is happening in other rural places across the country.

Through these initial conversations, you’ll find the leaders in your community who are most interested in an entrepreneurship strategy. These leaders, in turn, become the core of a community steering committee that makes the case for entrepreneurship to the broader community. At this point, you are positioned to begin considering the strategies that might work best in your community. Let the journey begin!

Additional Resources

To develop the “big picture” understanding of the role of entrepreneurs and the businesses they create in economic development, we suggest the following:

The Global Entrepreneurship Monitor Project Reports. These reports are available for 1999-2003. The best place to start is with the Executive Report for a specific year. All publications, including specific country reports, are available at www.gemconsortium.org.

Several publications from the National Commission on Entrepreneurship provide good background information on entrepreneurship. o The following three publications are available under Supporting Materials in this section:

• Entrepreneurship: A Candidate’s Guide
• High-Growth Companies: Mapping America’s Entrepreneurial Landscape
• Embracing Innovation: Entrepreneurship and American Economic Growth

The Entrepreneur Next Door: Characteristics of Individuals Starting Companies in America provides great information on who in this country is actively engaged in starting a company. This report and other useful resources are available under Supporting Materials for this section.

To learn more about the people and places actively engaged in entrepreneurship development, you can start by looking at some of the stories we have collected. Under Stories for this section, you’ll find information from different states that reflect different approaches to making the case for entrepreneurship. If you want more information, your next stop is with the individuals and communities themselves.

The Center has more resources and can provide additional assistance to you as you support entrepreneurs in your community. To access Center Resources, click on our logo.