Mapping Rural Entrepreneurship

W.K. KELLOGG FOUNDATIONCorporation for Enterprise Development

About the CorporationAbout the W.K. Kellogg Foundation for Enterprise DevelopmentThe W.K. Kellogg Foundation was established The Corporation for Enterprise Development isin 1930 “to help people help themselves a nonprofit organization that creates economicthrough the practical application of knowledge opportunity by helping the poor save andand resources to improve their quality of life invest, succeed as entrepreneurs, and partici-and that of future generations.” Its program- pate as contributors to and beneficiaries of theming activities center around the common economy. By helping individuals and communi-vision of a world in which each person has a ties harness latent potential, we build long-sense of worth; accepts responsibility for self, term models to help people move from povertyfamily, community, and societal well-being; and to prosperity while strengthening the overallhas the capacity to be productive, and to help economy. The Corporation for Enterprisecreate nurturing families, responsive institu- Development identifies and researches promis-tions, and healthy communities. ing ideas, collaborates with the private and public sectors to test them, and helps drive theTo achieve the greatest impact, the Foundation application and adoption of proven concepts.targets its grants toward specific areas. Theseinclude health; food systems and rural develop- Established in 1979, the Corporation forment; youth and education; and philanthropy Enterprise Development works nationally andand volunteerism. Within these areas, attention internationally through its offices inis given to the cross-cutting themes of leader- Washington, DC, Durham, North Carolina,ship; information systems/technology; capital- San Francisco, California, and St. Louis,izing on diversity; and social and economic Missouri.community development programming. Grantsare concentrated in the United States, LatinAmerica and the Caribbean, and the southernAfrican countries of Botswana, Lesotho,Mozambique, South Africa, Swaziland andZimbabwe.More information about the W.K. KelloggFoundation and its programs is available on theFoundation’s Web site at www.wkkf.org.

Table of ContentsAcknowledgments ......................................................................................................3Executive Summary ..................................................................................................4Introduction ..............................................................................................................7Economic Context for Rural America ......................................................................9Entrepreneurship as a Rural Economic Development Strategy ..............................12Rural Entrepreneurship by the Numbers ................................................................17Policy Context ..........................................................................................................25The Components of Entrepreneurship Development ..............................................31A Closer Look at Two States ....................................................................................45Orchestrating an Entrepreneurial Climate in Rural America ..................................56Endnotes ..................................................................................................................60 W.K. Kellogg Foundation • Corporation For Enterprise Development 1

AcknowledgementsThe authors thank Deborah Markley, co-director Special thanks to David Dangler, Ray Daffner,of the Rural Policy Research Institute (RUPRI) Cornelia Flora, Jay Kayne, Tom Lyons (again),Center for Rural Entrepreneurship for her guid- Don Macke, Erik Pages, and Nancy Stark forance in structuring this study and for allowing their helpful counsel on the “big picture.”her meeting on entrepreneurship research spon- Much appreciation is also due to the 60 expertssored by the Farm Foundation to be used to test and practitioners who agreed to be interviewedsome methodological assumptions. by phone about their perspectives and experiences on different aspects of entrepreneurshipThanks also go to a number of people in in rural America.Kentucky and Nebraska for their insights andhospitality during the two main field visits: in Finally, thanks to Rick Foster, CarolineKentucky, Jim Clifton, Phillip Danhauer, Kris Carpenter, and Gail Imig for the opportunity toKimmel, Joanne Lang, Tom Lyons, Justin carry out this study and for their continuingMaxson, Becky Naugle, Jerry Rickett, Kevin support and encouragement.Smith, and Cheryl Moorhead Stone; and inNebraska, John Allen, John Bailey, Greg Brian Dabson, Jennifer Malkin, Amy Matthews,Christensen, Janelle Anderson Ehrke, Doug Kimberly Pate, and Sean StickleFriedli, Rob Hamer, Chuck Hassebrook, Rose Corporation for Enterprise DevelopmentJasperson, Loren Kucera, Glennis McClure, August 2003Judy Meyer, Stuart Miller, Lance Morgan, JeffReynolds, Marilyn Schlake, Sandra Scofield,Cory Smathers, Brian Thompson, and Jeff Yost. W.K. Kellogg Foundation • Corporation For Enterprise Development 3

Executive SummaryAt the invitation of the W. K. KelloggFoundation, the Corporation for EnterpriseDevelopment conducted a study to gather infor-mation on institutions, programs, and activitiesthat support entrepreneurship in rural America;to assess the distribution and scale of entrepre-neurial activity; and to identify potentiallyinfluential contextual factors. The study includ-ed the collection of best available publisheddata to map entrepreneurial activity, an exten-sive literature and Internet search, and a seriesof telephone interviews with 60 experts andpractitioners. In addition, site visits and person-al interviews were held with practitioners andentrepreneurs in Kentucky and Nebraska.Rural America comprises an extraordinary anddynamic variety of economic, geographical, andcultural characteristics. Many rural communi- entrepreneurial climate where all kinds ofties face enormous economic challenges of low entrepreneurs can succeed, lays the ground-population size and density and remoteness, work for the five out of 100 small businesseswhich in turn bring diseconomies of scale and that evolve into the fast-growing drivers of theincreased costs of doing business. Poorly edu- national economy.cated and low-skilled workers, weak entrepre-neurial cultures, and entrenched racial inequali- Efforts to measure entrepreneurial activity andties inhibit full participation in the new econo- performance across rural America are still inmy. The public policy context is not encourag- their developmental stages, but it is possible toing with rural policy dictated by agri-business create an initial impression of the scale and dis-interests, fiscal crises at the state and county tribution of entrepreneurial activity. Whereaslevels, and no organized constituency for rural such activity is broadly distributed across theAmerica in all its diversity. There is an urgent country, there appear to be particular concen-need for rural people and communities to trations in heartland and northern mountaindefine the future they want for themselves and states and in Appalachia.their children. This will take vision, innovation,and risk-taking – the work of the entrepreneur. Using a two-part framework – creating a pipeline of entrepreneurs and enhancing busi-There is growing understanding that economic ness services for entrepreneurs – the studydevelopment strategies founded primarily on team gathered a large amount of informationbusiness recruitment are not in rural America’s on national, regional, and local programs andbest interests and that there needs to be a initiatives. The components of the pipeline aregreater emphasis on homegrown development. entrepreneurship education in kindergartenMany observers see entrepreneurship as being a through the 12th grade and at the post-second-critical, if not major piece of rural economic ary level and entrepreneurship networks; fordevelopment, although not all are convinced business services, the components are trainingthat entrepreneurship is likely to be an engine and technical assistance, and access to capital.of economic growth in rural areas. However, There is a very wide array of programs and ini-there is a compelling argument that creating an tiatives, ranging from the old-established to4 Mapping Rural Entrepreneurship

exciting new experiments, but it is impossible be sufficient scale, resources, and expertiseto gauge whether on the ground these come to enable individual communities to playtogether in coherent, entrepreneurial systems their full role. There are issues and concernsof support or as disconnected, bureaucratic common to both urban and rural areas thatprograms. These were the concerns that can best be addressed through regional solu-became the focus of site visits and interviews in tions; regions represent the economicKentucky and Nebraska. engines and markets that rural enterprises have to serve.The study concludes that what is needed is a • Entrepreneur-focused: Systems thinking isnew framework that will animate people and required to align the plethora of training,institutions at all levels around four principles technical assistance, and financing programsfor entrepreneurship development in rural to meet the variety of needs of entrepreneursAmerica: and their different levels of education, skills,• Community-driven: Local communities and maturity. need the tools and resources to identify and • Continuously learning: Networks for peer build upon their assets; to make choices that support and learning are essential for entre- appropriately balance economic, social, and preneurs and for practitioners, community environmental imperatives; to learn from the leaders, and policymakers. Learning about experiences of others; and to be open to entrepreneurship should be part of the experimentation and innovation. school curriculum. The need for rigorous• Regionally oriented: Only through regional evaluation of the effectiveness of entrepre- cooperation across multiple jurisdictions neurship strategies and returns on invest- and through regional institutions can there ment is pressing. W.K. Kellogg Foundation • Corporation For Enterprise Development 5

The study also highlighted a number of other Four main strategies are recommended to cre-important essentials for promoting an entrepre- ate a more supportive environment climate inneurial climate: rural America:• Anchor institutions: Universities, community • Investment strategies: Create incentives colleges, community development financial and long-term investments that encourage institutions, and research and advocacy urban-rural and regional collaborations and groups can play a vital role in articulating a the development of effective systems and vision, building partnerships, and attracting accountable systems of entrepreneurial sup- and mobilizing resources for entrepreneurship port. Invest in innovations in entrepreneur- development. ial education, technical assistance and training, capital access, and networking• Supportive public policy: Creative public that show promise for widespread replica- policy can unlock resources and channel tion in rural communities. efforts into rural counties, but demonstrating effectiveness and returns on investment • Learning strategies: Ensure rigorous evalua- is crucial for generating further support at tion of strategies, systematic case studies, federal and state levels. The need is not nec- training programs for elected officials and essarily to create special legislation for opportunities for peer exchanges. Encourage entrepreneurship in rural areas but to ensure experiential education in schools, colleges, that all programs have the capability and community centers, and camps. flexibility to be tailored to the needs of dif- • Advocacy strategies: Energize networks of ferent rural regions and their entrepreneurs. organizations and institutions that can use• All entrepreneurs welcome: Fostering a the results of the investment and advocacy diverse pool of entrepreneurs with different strategies to support entrepreneurship motivations, whether for survival, lifestyle, development in rural America. or wealth, increases the odds that there will • Information strategies: Develop method- be some that will become the fast-growth ologies and statistical tools that adequately enterprises that will bring improvement to describe and measure entrepreneurial activ- economic conditions to rural communities ity and climates, including report cards and and regions. other benchmarking and assessment tools. The study presents ample evidence of organizations, institutions, and agencies pursuing various types of programs and initiatives that are meant to encourage greater entrepreneurship in rural America. The task ahead is to make their efforts more community-driven, regionally oriented, entrepreneur-focused, and continuously learning.6 Mapping Rural Entrepreneurship

IntroductionScope of WorkThe W. K. Kellogg Foundation invited theCorporation for Enterprise Development (CFED)to carry out a consulting assignment that would:• Gather data on current institutions, programs, and activities that support rural entrepreneurship;• Develop a narrative and graphic presentation of the data in ways that would highlight “hotspots” of activity that might offer models and/or potential investment targets;• Determine the factors that influence the development of these “hotspots;” and• Present an analysis of the findings leading to observations and options for Foundation intervention.Definitions – Growth entrepreneurs: those who are motivated to develop and expand theirFor the purposes of this report, the following businesses that create jobs and wealth.definitions have been used: – Serial entrepreneurs: those who go on• Rural refers to geographical areas outside sta- to create several growth businesses. tistical metropolitan areas and thus includes over 80 percent of the U.S. land mass and its • Social entrepreneurs are people who create wide array of economic, physical, cultural, and grow enterprises or institutions that are and demographic characteristics. primarily for public and community purposes.• Entrepreneurs are people who create and • Entrepreneurship is the process through grow enterprises. This definition is deliber- which entrepreneurs create and grow enter- ately widely drawn to encompass the follow- prises. This process includes four critical ing types of entrepreneurs: elements: opportunity recognition, idea creation, venture creation and operation, and – Aspiring entrepreneurs: those who are creative thinking. attracted to the idea of creating enterprises, including young people. • Entrepreneurship development refers to the – Survival entrepreneurs: those who infrastructure of public and private supports resort to creating enterprises to supple- that facilitate entrepreneurship. ment their incomes. • Entrepreneurial communities are those – Lifestyle entrepreneurs: those who where there is significant economic and create enterprises in order to pursue a social entrepreneurial activity and where certain lifestyle or live in a particular there is an effective system of entrepreneur- community. ship development. W.K. Kellogg Foundation • Corporation For Enterprise Development 7

Methodology The consulting assignment was conducted in three main stages: • A quantitative assessment that used best available published data to prepare maps of entrepreneurial activity across rural America; • An assessment of institutions, programs, and activities that support entrepreneurship development in rural America based on an extensive literature and Internet search and a series of telephone interviews with 60 experts and practitioners; and • Site visits and interviews with practitioners and entrepreneurs in Kentucky and Nebraska. Report Structure This report begins with an overview of the economic realities and options for rural America and explores the role that entrepreneurship plays (or could play) as a rural economic development strategy. The next section presents the quantitative assessments, including some of the challenges for measuring rural entrepreneurship, followed by a description of both the policy context at national, regional, and local levels and of the institutions and programs that support different facets of entrepreneurship. This national overview is then followed by a closer look at entrepreneurship development in Kentucky and Nebraska. The report concludes with some thoughts about what the assessments have revealed and what opportunities may exist for policy and practical action.8 Mapping Rural Entrepreneurship

Economic Context forRural AmericaWithin rural America, there is an extraordinary tions. Map 1 shows the location of distressedvariety of economic, geographical, and cultural rural counties using an index devised by thecharacteristics. Moreover, the situation is very Appalachian Regional Commission (ARC) fordynamic, with significant depopulation across its 10-state region and applied to all non-met-the Great Plains and net population growth in ropolitan America. The index combines meas-rural counties that are within reach of sprawl- ures of a three-year average of unemployment,ing metropolitan regions or in areas of high per capita market income, and poverty rates.amenity. In addition, many counties with man-ufacturing or food processing plants are experi- A critical issue for many rural counties is edu-encing a rapid growth in immigrant workers cation. Although overall, rural high schooland the challenges associated with sudden graduation rates match or exceed their urbanexpanding diversity. counterparts, out-migration of the youngest and more highly-educated is a primary export forPoverty rates tend to be higher in rural areas – many communities. The result is that the adult7.5 million rural residents are in poverty. Two- workforce is less well-educated. In fact, a studythirds of them live in households where at least of the rural South showed that 38 percent ofone member is working. Measures of persist- adults do not have high school diplomas.ently high poverty levels or of economic dis-tress show that the greatest hurt found in the From an economic development viewpoint,Delta and the Cotton Belt, Appalachia, the rural communities, especially those locatedTexas border, and Native American reserva- some distance from larger cities, face a numberMap 1: Distressed Rural Counties(Source: Bureau of Labor Statistics, Bureau of Economic Analysis, Census Bureau, Appalachian Regional Commission) W.K. Kellogg Foundation • Corporation For Enterprise Development 9

of major challenges. Low population size and tracts of federally-owned land have becomedensity and associated limited local demand, battlegrounds around forestry, mining, recre-make it difficult for rural businesses and serv- ational, and water rights issues, with local com-ice providers to achieve economies of scale. munities and local jobs left as merely by-This has an impact on the cost and availability standers. Fiscal crises at the state level areof goods and services and drives many attempts being passed onto counties in the form ofto achieve efficiencies through consolidation in reduced financial support, resulting in severeeverything from schools to banking. service cuts with disproportionate impacts onRemoteness from markets and from key infra- the rural poor. Unfortunately, there is no organ-structure limits the range of economic opportu- ized constituency for rural America, with polit-nities that can be supported and often results ical power increasingly suburban and no coher-in a lack of connection to regional and global ent public understanding of how and wherepossibilities. Poorly educated and low-skilled national and rural interests intersect.workers, weak entrepreneurial cultures, andentrenched racial inequalities all serve to inhib- So what of the future? One of the moreit the participation of rural families and com- thoughtful and thought-provoking analysesmunities in the new economy. comes from Northwest Area Foundation president, Karl Stauber.1 He first divides ruralThe public policy context for rural America is America into four main types:not encouraging. Powerful agri-business inter-ests have ensured that commodity price sup- • Urban periphery: rural areas within a 90-port is the primary rural policy, leaving little minute commute of urban employment,scope for diversified rural development. Large services, and social opportunities;10 Mapping Rural Entrepreneurship

• High amenity: rural areas of significant sce- • Create new markets and linkages so as to nic beauty, cultural opportunities, and increase regional competitive investments attraction to wealthy and retired people; in urban periphery and sparsely populated areas – primarily investments in value-• Sparsely populated: areas where the popu- added production rather than commodity lation density is low and often declining and price supports. therefore demand for traditional services, • Develop and use new technology to over- employment, and social opportunities are come remoteness to produce an infrastruc- limited by isolation; and ture that expands competitive advantage in• High poverty: rural areas characterized by sparsely populated and high-poverty areas persistent poverty or rapid declines in – creating and reinforcing links between income. metropolitan and rural economies. • Encourage immigration to rural communi-Stauber then lays out four outcomes for a rural ties to increase human capital in sparselypublic policy: increased human capital, conser- populated and high-poverty areas – withvation of the natural environment and culture, a particular emphasis on attracting entre-increased regional competitive investments, preneurs.and investments in infrastructure that supportthe expansion of new competitive advantage. Two other expert rural observers, ThomasFrom these elements, he then proposes a set of Rowley and David Freshwater, contend that thestrategic directions:2 answers to the current challenges of rural• Redefine and restructure the rural-serving America will only be found “by finally coming college and university so as to increase to terms with what we as a nation want our human capital in sparsely populated and rural areas to be. If we want them to be sources high poverty rural areas – essentially dis- of cheap commodities, then the people who mantling the 19th century land-grant sys- will provide [them]…will be low-wage labor. If tem in favor of a 21st century information we desire pristine wilderness, the people will grant system. not fit at all. If receptacles for our refuse are what we seek, then trash heaps are what we will get. What we want (and what we are willing to pay for) will go a long way in determin- ing what we get.” 3 There is no shortage of urban, suburban, and newly settled rural dwellers willing to define a future for rural America, but if rural people and communities are to take matters into their own hands and succeed, it will take vision, innovation, and risk – the work of the entrepreneur. W.K. Kellogg Foundation • Corporation For Enterprise Development 11

Entrepreneurshipas a Rural EconomicDevelopment StrategyAmong researchers, policy advocates, and oth- economic changes, fewer communities are host-ers engaged in community and economic ing large facilities that provide jobs over longdevelopment in rural America, there is broad periods of time…At the same time, small andagreement that relying on recruiting companies medium-sized businesses are growing in impor-from other states or overseas should not and tance…Entrepreneurial growth companies –cannot be the answer to struggling rural fast-growing new businesses – account for ateconomies. Yet each year, state governments least two-thirds of new jobs in the Americanhave been willing to commit through tax economy…These firms will drive the future ofincentives, tax breaks and direct investments, innovation and prosperity in nearly everybillions of dollars to snag a car assembly plant, American community, and thus should be thea high technology production unit, or some focus of our economic development efforts.”5other potentially transformative industrialactivity. Increased public scrutiny has shed The Federal Reserve Bank of Kansas Citylight on some of the more egregious examples observed: “Rural policymakers, who once fol-of “investments” that were poorly structured, lowed traditional strategies of recruiting manu-had inadequate reporting or accountability facturers that export low-value products, haverequirements, or yielded disappointingly low realized that entrepreneurs can generate newreturns in terms of jobs and local multiplier economic value for their communities.effects. And this in turn has led to a greater Entrepreneurs add jobs, raise incomes, createemphasis on transparency, clear expectations wealth, improve the quality of life of citizens,on returns on investment, and clawbacks if and help rural communities operate in the glob-expectations are not met. But concern remains al economy…Rural policymakers are respond-that recruitment has to be balanced, if not ing to these challenges by making entrepreneur-replaced altogether by policies that support ship the cornerstone of many economic devel-homegrown development. opment strategies.”6 In a similar vein, the ARC “views entrepreneurship as a critical element inAn Aspen Institute report that looks at the the establishment of self-sustaining communi-economy of rural Kentucky, noted: “Traditional ties that create jobs, build local wealth, andapproaches to economic development…have contribute broadly to economic and communitytheir place, but only as they help to create the development.”7 And this was the basis of aconditions for dynamic, indigenous economic commitment by the Commission in 1997 toactivity. In a very real sense, Kentucky’s future commit $17.6 million over a number of years torests on its ability to nurture homegrown firms an initiative to build entrepreneurial communi-and to encourage the innovation, risk-taking ties across Appalachia.and investment that are the hallmarks of a vitaleconomy…In short, entrepreneurship mustbecome a matter of course and a habit of mind In 1999, the National Governors Associationif Kentucky is to thrive.”4 (NGA) surveyed its members to gauge each state’s perspective on entrepreneurship and itsThe National Commission on importance as part of an overall state economicEntrepreneurship in its guide for candidates development strategy. While 34 of the 37 statesfor elected office put the argument this way: that responded indicated that they did indeed“While winning a new manufacturing facility consider entrepreneurship as part of their eco-may be a home run in economic development nomic development strategy, only four had aterms, these home-run opportunities are clearly articulated statement within the strategybecoming scarcer every day. As a result of glob- document. Jay Kayne observed a “distinctionalization, technological evolution, and other between states that try to meet the specific12 Mapping Rural Entrepreneurship

needs of aspiring and emerging entrepreneurs investigation into the relationship betweenand states that view entrepreneurs as a segment entrepreneurship and economic growth. Byof the state economy who can take advantage 2002, 37 countries were being surveyedof state programs.”8 In other words, the survey according to a common protocol. The nationalemphasized the difference between active and report on the United States10 provides somepassive support for entrepreneurship. good contextual information on the role andInterestingly enough, given the assessments importance of entrepreneurship:described later in this report, Kentucky wasidentified as having one of the best articulated GEM estimates that 10.5 percent of the U.S.goals of creating an entrepreneurial economy. adult population (aged 18-64) are engaged in some form of “entrepreneurial activity,” definedAn important obstacle to a more vigorous pur- by the 2002 GEM as being involved in thesuit of entrepreneurship as an economic devel- start-up process or is the owner/manager of anopment strategy is the lack of hard evidence active young business less than 42 months old.that it actually yields the results claimed. As This population can be divided into two broadthe Federal Bank of Kansas City noted, “As categories: opportunity entrepreneurs, thosepolicymakers stretch the frontier of entrepre- who are starting a business to take advantage ofneurial development, the impacts of these pro- a business opportunity, and necessity entrepre-grams will need to be assessed to identify the neurs, those who are starting a businesscosts and benefits of supporting high-growth because they had no better choices for work.entrepreneurs in rural America.”9 In the United States, approximately 90 percentThe Global Entrepreneurship Monitor (GEM) fall into the opportunity category.was created in 1997 by Babson College and the This high level of opportunity entrepreneur-London Business School with support from the ship appears to be the result of a strong econo-Kauffman Center for Entrepreneurial my, although recession, mass layoffs, andLeadership as a long-term, multi-national increasing unemployment are likely to spur a W.K. Kellogg Foundation • Corporation For Enterprise Development 13

sharp rise in necessity entrepreneurship. As the The relationship between level of education2001 GEM report notes: “The difficulty with and entrepreneurial activity is not straightfor-this scenario is that although necessity entre- ward. The highest entrepreneurial participationpreneurship often creates self-employment, it is rate is for those who have completed highnot a strong driver for creating new jobs. school; for those who do not have a highBecause the primary concern of necessity entre- school diploma, the tendency is self-employ-preneurs is survival, they typically have a limit- ment and little vision for job creation; for thoseed vision for growth. Opportunity entrepre- with college degrees, there is some drop-off inneurs, however, tend to create high-potential, participation, possibly because of the greaterhigh-growth ventures. The majority of jobs cre- opportunities to earn high incomes as employ-ated from entrepreneurial activity in the United ees of other businesses.States is a result of fast-growth businesses.”11 A potentially contentious conclusion comes from the 2002 GEM report, which makes the point that entrepreneurship is an urban phe- nomenon, presumably as urban areas are where the highest density of entrepreneurship is to be found. The report went on to assert: “It should be noted that entrepreneurship in rural areas may not be the best mechanism for economic growth.”12 Another recent effort to provide evidence of the effectiveness of entrepreneurial strategies is an Organization for Economic Development and Cooperation (OECD) publication, Entrepreneurship and Local Economic Development, researched and written by Alistair Nolan. He noted: “For a variety of reasons, promoting entrepreneurship enjoys support from governments at both ends of the political spectrum. Pro-entrepreneurship policies have been embraced as a means of increasing economic growth and diversity, ensuring competitive markets, helping the unemployed to generate additional jobs for themselves and others,U.S. entrepreneurs, compared with their coun- countering poverty and welfare dependency,terparts overseas, tend to be older – 36 percent encouraging labor market flexibility, and draw-of entrepreneurs are in the 45 to 64 age brack- ing individuals out of informal economic activ-et. Older Americans, the report asserts, are ity. In short, an enterprise initiative has beenmore likely to have deep industry experience charged with addressing a broad array of eco-and networks that help with identifying and nomic and social aspirations…However, givenfinancing opportunities. At the same time, the the widespread interest in promoting enter-proportion of women entrepreneurs is increas- prise, it is perhaps surprising that few empiri-ing. There is one female entrepreneur for every cal studies have systematically examined the1.5 male entrepreneurs, with parity in the 45 to relationship between the birth of new firms and64 age bracket. local economic change.”1314 Mapping Rural Entrepreneurship

The following are some of the main conclusions Research on the impact of microenterpriseof Nolan’s analyses of 30 OECD countries: development in the United States by The Aspen Institute14 provides some counter-evidence:• There are many obstacles that hinder entrepreneurship in disadvantaged areas, influ- • Low-income microentrepreneurs reduced encing both the extent and form of entrepre- their reliance on government assistance by neurial activity and its prospects for sur- 61 percent with the greatest reduction in the vival. Such obstacles range from limited net- amount of cash benefits received. Average works, low levels of effective local demand, benefits fell by $1,679 per year. finance constraints, lack of role models, and • Seventy-two percent of low-income cultural barriers – all familiar to rural com- microentrepreneurs experienced gains in munities in the United States. household income over five years. The aver-• Efforts to stimulate self-employment can raise age gain was $8,485. incomes and provide a cost-effective alterna- • Fifty-three percent of low-income entrepre- tive to paying unemployment insurance, but neurs had large enough household gains to only for the small sub-section of the unem- move out of poverty, with the business being ployed who are more motivated, have work the major source of earnings. experience, and some accumulated assets. • Average household assets of low-income entre-• Entrepreneurship strategies yield important preneurs grew by $15,909 over five years. benefits but do not constitute a panacea. Such strategies inevitably favor those who Earlier research conducted by CFED15 indicated possess superior financial, human, and that: social assets. There may not be a significant expansion in employment opportunities for • Forty-nine percent of microenterprises the most disadvantaged. Entrepreneurship owned by low-income entrepreneurs sur- strategies are long-term in their effects and vived after five years – a rate comparable to therefore not appropriate to short-term the national average for all small businesses. crises. There may be issues of displacement • On average, microenterprises create 1.5 full- in local markets as new entrants cause losses and part-time jobs per business in revenues or employment among existing enterprises rather than create an expanded During field work in Kentucky, there was some economy. suggestion that a significant number of emerg-• Although every community hopes to ing entrepreneurs were in fact making the tran- encourage fast-growing businesses that will sition from the informal to the formal economy. generate wealth and good jobs, the reality is A recent literature review on the informal econ- that in most cases, the direct employment omy by Institute for Social and Economic effects will be modest – a reflection of the Development and The Aspen Institute,16 con- small average size of start-ups, low survival firms that the informal economy – defined as and growth rates, and displacement. individuals operating unregistered businesses Moreover, employment in small enterprises or engaging in “under the table” work – is does not necessarily translate into good jobs indeed especially important to rural residents: with family-supporting wages and benefits. • Essential services are more likely to be unavailable or deficient in less densely settled areas, forcing people to develop and rely on informal alternatives. W.K. Kellogg Foundation • Corporation For Enterprise Development 15

• The extent to which informal activities around 10 percent of the gross domestic prod- require access to land – crops, wood product. Those who work in some form of subcon- ucts, game – increase their prevalence in tracting capacity, often outside the framework rural areas. of regulation, benefits, and health and safety protections. And those who work in odd jobs• Austerity – in the form of lower wages and for cash or operate microenterprises outside declining demand for labor and less public the realm of regulation and taxation. “In all spending – promotes informal economies as cases, the greatest competitive advantage that an important survival strategy. these workers bring to the market is a price• Informal economies exist in part because of advantage built on lower labor and overhead the social interdependence of community costs. While this creates access to income and members, thus the “connected feeling” typi- employment for many, it also constrains earn- cal of rural places makes them more con- ing power…and…for many microentrepreneurs ducive to informal economic activity. it is not clear whether the benefits of formaliza- tion would outweigh the costs involved. [ItThe authors point to the fact that there are in would appear that] the desire to grow and afact two main components of the informal corresponding need for financing [are] theeconomy – in total estimated to represent most compelling triggers.”17 Commentary The conclusion to be drawn from these scope for income supplementation and a way expert observations and research is that out of poverty. While this is undoubtedly entrepreneurship development appears to be important for individual families, it is unlike- a logical and appropriate counterpoint to ly that in the aggregate, such enterprises will business recruitment strategies in rural have a significant transforming impact on America. There are strong advocates and local economies. Nevertheless, in many hard- arguments at the national level for lauding pressed communities, small improvements and supporting opportunity-driven entrepre- can make the difference between community neurs – those most likely to create jobs and survival and collapse. Moreover, there is the wealth at any scale. compelling argument that creating an entrepreneurial climate where all kinds of entre- There are also benefits for encouraging preneurs can succeed, lays the groundwork necessity-driven entrepreneurs and those for the five out of 100 small businesses that with only modest aspirations for their small develop into the fast-growing drivers of the enterprises. For some, microenterprise offers economy.16 Mapping Rural Entrepreneurship

Rural Entrepreneurshipby the NumbersEfforts to measure entrepreneurial activity and which generally accorded with expectations.performance by geographical area are still in However, the authors observed, “Some resultstheir developmental stages. Progress is hampered are perplexing: Florida, Nebraska, andby a lack of any agreed and coherent framework Kentucky do not make large investments infor understanding the essential factors (and their entrepreneurial activity, but they perform farinteractions) that shape the entrepreneurial better than the model predicts…they get veryprocess and by the dearth of available data that strong returns.”19 As will be described later,serve as meaningful proxies for these factors. this became one factor in the selection of Nebraska and Kentucky for further assessment.Goetz and Freshwater in a recent paper18 pre-sented their framework for capturing state-level The strong technology and innovation bias indeterminants of entrepreneurship and for the Goetz and Freshwater analysis and themeasuring what they called “entrepreneurial absence of any differentiation between urbanclimate.” They focused on states, recognizing and rural makes this less than ideal as a meansthat although these are not functional econom- to measure entrepreneurship in rural America.ic units, they do have the power to influence Nevertheless, the authors did draw some inter-many of the factors important to economic esting preliminary conclusions, the most signifi-development. Using a regression model that cant of which was that entrepreneurship activityequated entrepreneurial activityi within a state can be expanded by improving the human capi-with a set of inputs that related to ideas and tal base of a state – a better educated workforceinnovation, human capital, and financial capi- increases the effectiveness with which ideas aretal, they derived a measure of entrepreneurial translated into entrepreneurial opportunities.climate. If entrepreneurial activity exceeded thelevel of inputs, that would suggest a positive In 2002, the National Commission onentrepreneurial climate – a set of factors con- Entrepreneurship published the results ofducive to or supportive of entrepreneurship. research20 on the location of the fastest growingConversely, if the level of entrepreneurial activ- companies across the United States. Theity did not match the level of inputs, a poor research led to the creation of the Growthentrepreneurial climate would be assumed. Company Index, which weighs the percentageGoetz and Freshwater also thought it important of existing firms with high growth (at least 15to distinguish entrepreneurial activity that percent per year over the period 1992-1997)involves fundamental change in an economy and the percentage of firms that started in 1992based on new products, combination of inputs, or 1993 and had at least 20 employees by 1997.or production processes from that which is The data was presented at the level of Labordriven by income and population growth. Market Areas as defined by the U.S. Department of Agriculture.The resultant entrepreneurial climate measuresranked Colorado, California, Massachusetts, Map 2 shows the top-performing labor marketVirginia, and Maryland as the top five states, areas with populations between 100,000 andi “Entrepreneurial activity” for the purposes of the model was measured by the number of Inc Magazine’s 500 fastestgrowing firms in the state and the number of initial public offerings (IPOs) per million population. “Ideas and innova-tion” was measured by the number of Small Buisness Innovation Grants and patents, “human capital” by the proportionof college graduates in the population, and “financial capital” by the number of venture capital commitments and SmallBusiness Investment Companies. Goetz and Freshwater’s definition of “entrepreneurial climate” was based on the workof David Birch on what constituted “entrepreneurial hotspots” – a series of intangibles relating to political engagement,media interest, and supportive public policies. W.K. Kellogg Foundation • Corporation For Enterprise Development 17

150,000 (the smallest and assumed to be the tors are ranked and combined into indexesmost rural). Each of the nine labor market which in turn are ranked and graded. However,areas shown on Map 2 had between 109 and the need to determine entrepreneurial activity232 high-growth companies with their within rural areas raised a number of datastrongest business sectors being local market availability and methodological challenges.(4), extractive (3), retail (2), distributive (1),and manufacturing(1). The strengths of this The basic unit of measurement is the countyIndex are that it uses the Census Bureau’s and for the purpose of this analysis, the focusBusiness Information Tracking System database was on non-metropolitan counties – the gener-that allows researchers to track the employ- ally accepted definition of rural, encompassingment growth of individual firms over time and as it does a wide range of economic and demo-it seeks to measure the number of entrepre- graphic characteristics. But there are immediateneurial companies rather than local economic limitations on the availability of key data at thegrowth. Its weaknesses are that the data is county level. For instance, SBA data on newsomewhat out of date and it makes no distinc- firm starts is only available at the state level, astion between size of company. is information on small company payroll; moreover, the level of analysis achieved byCFED’s initial approach to the challenge of Goetz and Freshwater seems currently unat-mapping rural entrepreneurship was heavily tainable for rural areas. The closest availableinfluenced by its Development Report Card for proxies for entrepreneurial activity were meas-the States methodology where multiple indica- ures of self-employment and small firms:Map 2: Top-performing Small Labor Market Areas for Fast Growing Companies(Source: National Commission on Entrepreneurship)18 Mapping Rural Entrepreneurship

• Number of firms with no paid employees, data, with all its limitations, in a separate and annual business receipts of $1,000 or more, straightforward manner. and subject to federal income taxes, by county. (Source: Census Bureau, 2000 and Map 3 shows the distribution of self-employer change 1997-2000) firms expressed as a proportion of jobs in each• Number of companies that employ 20 county in 2000. The darkest green counties are employees or less by county. (Source: those in the top third of counties nationwide. Census Bureau’s County Business Patterns, These are concentrated in the Central Belt from 2000 and change 1997-2000) North Dakota to Texas, in the northern mountain states, central Appalachia, and northern• Number of private, non-farm jobs by county. New England. (Source: Bureau of Economic Analysis, 2000) Map 4 shows the change that counties haveAt a special meeting on rural entrepreneurship experienced in the number of self-employerresearch convened by the RUPRI Center for firms expressed as a proportion of jobs in eachRural Entrepreneurship and the Farm county from 1997 to 2000. Again, the darkestFoundation in May 2003, CFED staff presented green counties are those in the top third ofproposals for creating multi-factor indices that counties nationwide. These are more broadlyincluded the above measures along with firm scattered across the Southeast, Appalachian andincome data. However, it was the consensus of mid-Atlantic states, the Western mountainthe academic researchers that it would be states and across the Heartland.advisable to avoid such indices and present theMap 3: Self-Employer Firms 2000(Source: Census Bureau, Bureau of Economic Analysis) W.K. Kellogg Foundation • Corporation For Enterprise Development 19

Map 4: Growth in the Number of Self-Employer Firms 1997-2000(Source: Census Bureau, Bureau of Economic Analysis)Map 5: “Top-performing” Counties for Self-employer Firms, 200020 Mapping Rural Entrepreneurship

Map 6: “Top-performing” Counties for Growth in Self-employer Firms, 1997-2000Maps 5 and 6 show the results of a Z-score In Map 6, the distribution is mainly to the eastanalysis to identify those counties whose of the country with a few in the central states;indices were positive two or more standard clusters are evident in Kentucky and Georgia.deviations from the mean; in other words the“top-performing” counties for self-employer The following maps begin a second series of simi-firms in 2000 and growth from 1997-2000. lar presentation using data on small companies that employ 20 or fewer people.In Map 5, there is broad distribution across 17states, with clusters of counties in Nebraskaand Kentucky. W.K. Kellogg Foundation • Corporation For Enterprise Development 21

Map 7: Small Companies, 2000(County Business Patterns, Bureau of Economic Analysis)Map 8: Growth in the Number of Small Companies, 1997-2000(Source: County Business Patterns, Bureau of Economic Analysis)22 Mapping Rural Entrepreneurship

Map 9: “Top Performing” Counties for Small Companies, 2000Map 7 shows the distribution of small firms Maps 9 and 10 show the results of a Z-scoreexpressed as a proportion of jobs in each coun- analysis to identify those counties whosety in 2000. The darkest green counties are indices were positive two or more standardthose in the top third of counties nationwide. deviations from the mean; in other words theThese are concentrated in the central and “top-performing” counties for small firms innorth-west states. 2000 and growth from 1997-2000.Map 8 shows the change that counties have Map 9 shows a concentration in western statesexperienced in the number of small firms with two outliers in the east and clusters ofexpressed as a proportion of jobs in each coun- counties in Colorado and Nebraska.ty from 1997 to 2000. Again, the darkest greencounties are those in the top third of counties Map 10 indicates a broader spread across thenationwide. These more broadly scattered central and south-eastern states.across the country. W.K. Kellogg Foundation • Corporation For Enterprise Development 23

Map 10: “Top-performing” Counties for Growth in Small Companies, 1997-2000 Commentary The data presented in this chapter provide necessity-driven, or what the underlying fac- only glimpses of what constitutes entrepre- tors are that make one area more active than neurial activity in rural America. It shows another. As mentioned previously, the chal- that high-performing small labor markets are lenge is the lack of both data at the county found widely distributed across the country – level that adequately captures entrepreneurial there appears to be no obvious common loca- activity and of an accompanying framework tional characteristics. Counties in the heart- of the kind developed by Goetz and land and northern mountain states and in Freshwater. It is evident that some consider- Appalachia appear consistently as being com- able intellectual and statistical resources need paratively strong for both small business and to be invested so that entrepreneurship can self-employment. But there is no sense of be measured with greater confidence. how much of this activity is opportunity- or24 Mapping Rural Entrepreneurship

Policy ContextNational PolicyTen years ago, CFED suggested that the notionof rural development policy was misplaced.“Because rural areas are evolving into distinctlydifferent economic entities…an off-the-rack fed-eral strategy or state development policy basedon outmoded assumptions about rural areas islikely to be ineffective…Instead, state and feder-al policymakers should focus on building localand regional capacity to use flexible programsand tools, designing effective delivery systems,and creating supportive development institu-tions.”21 The report went on to recommend that“Rural advocates must work to ensure thatmainstream programs are designed so that ruralpeople, as well as urbanites and suburbanites,can benefit from them, and to ensure that ruralcommunity leaders are well-equipped to beactive and equal participants in local andregional development efforts. Effective urbanand rural development policies cannot be devel-oped separately, but instead must recognizetheir interrelationships. Thus regional strategies cy was narrowly defined as funding for agricul-are increasingly important.”22 ture through programs supported by the United States Department of Agriculture (USDA), butIn any event, many rural economic develop- the changing nature of the rural economy hasment leaders regard America’s national rural spurred a broadening of the rural economicpolicy as unfocused, if not non-existent. development policy framework. There appearsOrganizations such as RUPRI note that federal to be a growing national, state, and local policyrural development policies and programs “con- consciousness that rural communities mattersist of a fragmented constellation of programs and that entrepreneurship development shoulddispersed among several agencies… [and] a be a core component of economic developmentcomprehensive, goal-driven, community-based policy for rural America.and regionally appropriate national rural policydoesn’t exist.”23 Despite increased attention to non-farm rural development issues, a national policy aroundWhile fiscal crises have hit government fund- rural entrepreneurship still has a long way toing at all levels, including rural community go. A recent analysis by the USDA Economicdevelopment in the federal policy agenda is Research Service found that the highest levelstill a priority for rural advocates nationwide, of per capita business financial assistance fromincluding the Center for Rural Affairs, the federal government programs was concentratedNational Association of Development in the West, North Central, and New EnglandOrganizations (NADO), National Rural regions of the country and that 332 non-metroDevelopment Partnership, National Association counties received no federal assistance at all.24of Towns and Townships, and the National Additionally, numerous federal agencies investAssociation of Counties. In the past, rural poli- more resources in rural development than the W.K. Kellogg Foundation • Corporation For Enterprise Development 25

USDA (when agricultural programs are exclud- contribute (either directly or indirectly) toed) – the agency congressionally mandated to promoting entrepreneurship development inpromote the economic interests of rural rural areas by creating incentives for privateAmerica. investments in rural enterprises or building the capacity of communities or institutionsIndustry leaders note a vacuum in the field with to support rural entrepreneurs. Rural eco-regard to organizations that promote federal nomic development advocates maintain thatrural entrepreneurship development policy. The rural community development is not gettingEwing Marion Kauffman Foundation has signif- adequate support from the USDA and wouldicantly scaled back the policy activities of the like to see it more involved in promotingNational Commission on Entrepreneurship, rural entrepreneurship. The good news isonce the primary champion for federal entre- that although there is a long way to go inpreneurship development policy. Other poten- equalizing support between entrepreneur-tial champions for rural entrepreneurship are ship focused programs and agricultural sub-either in their early stages of development (such sidies through the USDA, within the last fewas the newly formed rural subcommittee of the years the budgets for USDA business devel-Association for Enterprise Opportunity [AEO]), opment programs have increased.are not primarily focused on policy (such as theRUPRI Center for Rural Entrepreneurship), or • The U.S. Small Business Administration’sare not specifically focused on entrepreneurship (SBA) SBA 7(a) guaranteed lending programdevelopment issues (such as the Congressional continues to be the largest single businessRural Caucus or the National Rural assistance program. However, financing perDevelopment Partnership). capita data shows that non-metropolitan areas receive less than three-quarters of theirConsequently, the majority of national rural counterparts in metropolitan areas, the resultdevelopment policies and programs still focus of both lower levels of economic activity andon natural resource conservation and industrial fewer private lending institutions. The maindevelopment, and very few resources support rural beneficiaries are counties specializingentrepreneurs specifically and directly.25 The in services, retirement-destination counties,following is not intended to be a comprehensive and non-metropolitan areas in Westernoverview of every government program or poli- states.26 Other programs such as the 504cy effort that contributes to rural entrepreneur- Certified Development Program, Microloanship development, but rather highlights some Program, Program for Investment inkey efforts that have recently emerged and/or Microentrepreneurs (PRIME), Women’shave significant impact on rural America. Business Centers program, Service Corps of Retired Executives program, and Small• USDA business assistance programs primari- Business Development Center (SBDCs) pro- ly function through loan guarantees or sup- gram, among others, are all elements of the port to community entrepreneurship devel- national small business development infra- opment initiatives and institutions. structure that can support entrepreneurship Programs such as the Business and in low-income rural areas. Industrial Guarantee and Direct Loan Programs, Intermediary Re-lending The potential benefits of these programs, Program, Rural Business Enterprise and however, have not been fully realized in Opportunity Grants, Rural Economic rural areas, according to a 2001 report by Development grants and loans and Rural the SBA Office of Advocacy, Advancing Enterprise and Empowerment Zones all Rural America, as well as from feedback26 Mapping Rural Entrepreneurship

from six rural roundtable meetings spon- status within the SBA is unclear. Fundingsored by the SBA in 2000. The roundtables for SBA programs that support disadvan-and report revealed that rural communities taged (rural and urban) entrepreneurs isface significant barriers in accessing SBA tenuous. Quoting the Administration’s 2003programs. Specifically, there has been a budget rationale, “economically distresseddecline in SBA guaranteed rural lending and communities and individuals have access toa lack of outreach by SBA programs such as a wide range of private for-profit and non-the 504 and SBDCs to rural entrepreneurs. profit microenterprise organizations includ-Participants in the rural roundtables cited ing federally supported CDFIs, which callsthe high cost of fees, lower guaranty levels, into question the necessity for separate SBAcentralization of servicing, lack of decision- programs.” SBA Microloan and PRIME pro-making authority at the local level, high lev- grams, the only two supporting microenter-els of paperwork, and difficulties obtaining prise development, are consistently under-technical assistance as key reasons for inade- funded.quate rural deal flow.27 • Other federal programs include the CDFI Fund of the U.S. Department of Treasury,Also of concern are the attempts by the cur- which provides capital to community devel-rent administration to cut SBA programs, opment financial institutions (CDFIs) in dis-particularly those that serve low-income tressed areas and could potentially be a valu-entrepreneurs such as the PRIME, able source of funding for organizations thatMicroloan, and New Markets Venture promote and support rural entrepreneurship.Capital Programs. Moreover, the SBA’s rural However, in 2002, only 11 percent of theseinitiative, created during the Clinton admin- awards went to rural America, reflecting theistration in response to the findings of the relative lack of eligible rural CDFIs.Rural Roundtable, has been stalled and its According to NADO, the majority of rural W.K. Kellogg Foundation • Corporation For Enterprise Development 27

and small metropolitan regional development initiative, charged with ensuring that all HHS organizations are ineligible for CDFI certifica- programs and policies meet the needs of tion and support due to their quasi-govern- HHS’s rural constituents. mental status.28 Other agencies, such as the Economic Development Administration and Although there have been significant shifts in ARC have for years funded local and regional federal policy in recent years, the major focus intermediaries (Economic Development remains on farming and on physical infrastruc- Districts and Local Development Districts) ture investment. Rural entrepreneurship devel- that support local economic development opment is still a new concept to many local, across rural America. state, and federal policymakers. While, there is no shortage of government programs that, in In recent years, efforts have been made to various ways, provide some sort of small busi- enable some of these regional development ness support, there is much that can be done to organizations to play greater and more effec- increase the effectiveness and outreach of fed- tive roles in entrepreneurship and business eral entrepreneurship programs in rural areas. development. ARC’s Entrepreneurship Findings from the ARC initiative reveal that Initiative is an example of a focused public effective rural entrepreneurship development sector effort to promote entrepreneurial edu- policy needs to be brought to scale, sustained cation and training, entrepreneurial net- over time, focused on enhancing the capacity works and clusters, technology transfer, of local and regional intermediary institutions, access to capital and financial assistance, and valued as a legitimate economic develop- and technical and managerial assistance to ment strategy. rural entrepreneurs. Through September 2001, ARC’s Entrepreneurship Initiative had funded 237 projects, providing a total of State Policy more than $20.1 million of support and According to a 1999 report by the Kaufman leveraging an additional $19.3 million. Center for Entrepreneurship Leadership Ninety-one projects had been completed, (KCEL), State Entrepreneurship Policy and creating 389 new businesses and retaining Programs, state commitment in support of 1,283 jobs. One hundred forty-six ongoing entrepreneurs is mixed. The report notes that, programs were projected to create 859 new “while state funding for entrepreneurship businesses and create or retain 2,726 jobs.29 development lags behind other economic The initiative, although clearly successful, development activities, many states have creat- has been constrained by the continuing lack ed programs or adopted policies that have a of local institutional capacity in rural positive impact on entrepreneurs.”30 Some Appalachia to support entrepreneurs. states are intentionally providing direct or indi- rect financing, promoting entrepreneurship The Department of Health and Human support services, and providing tax incentives Services (HHS) also offers programs and to emerging entrepreneurs, while other states funding that support entrepreneurship devel- are focused primarily on business recruitment, opment in rural communities, such as the Job which translates into resources for marketing Opportunities for Low-Income Individuals and incentives and continued expenditures on Program, Office of Refugee Resettlement basic physical infrastructure. In addition, many Microenterprise Development Project, Asset states lack a vehicle for entrepreneurs and for Independence Demonstration Program entrepreneurship development organizations to and Community Services Block Grant fund- network, share best practices, build new skills ing. HHS also recently launched a new rural28 Mapping Rural Entrepreneurship

ings from the USDA Economic Research Service’s Rural Manufacturing Survey reveal that state business assistance programs benefit- ed three fifths of rural manufacturing establishments. The national research notes, however, that only a “modest” amount of state business development services are targeted to small manufacturing establishments in non-metro distressed areas as compared to their larger urban counterparts. To encourage states to increase their funding for [rural] entrepreneurial friendly policies and programs, a variety of foundations and state policy stakeholders have sponsored state entrepreneurship policy and research initiatives:and competencies, or pursue an agenda of poli- • NGA convened two State Entrepreneurshipcy advocacy. Overall, findings from the Policy Academies in 2000 and 2001 toKaufman study revealed that state entrepre- assist nine state economic developmentneurship programs: teams (Idaho, Illinois, Maryland, Michigan, Mississippi, Nevada, Utah, Washington, and• Do not generally focus on the needs of Wyoming). These teams learned about the entrepreneurs during the start-up stage. role that entrepreneurship plays in state eco-• Provide debt, either through direct loans or nomic competitiveness and about develop- loan guarantee programs, rather than equity ing strategic and implementation plans to capital. promote a positive state entrepreneurial climate. The initiative provided state economic• Support entrepreneurship education at the development officials with exposure to the post-secondary, rather than early education leading thinking on entrepreneurship devel- level. opment strategies and individualized techni-• Promote linkages to innovation and research cal assistance in the development of an primarily through universities. implementation plan.While these elements of support are important, While state budget crises retarded much ofthey do not make up a comprehensive “pack- the potential impact of the academies, thereage” of services for emerging or established were some notable successes. Michiganentrepreneurs. Yet, researchers and advocates integrated entrepreneurship developmentagree that state support is critical to the success into the formal mission of the state eco-of entrepreneurship development programs. A nomic development administration. Nevadarecent three-state study of Maine, Nevada, and linked networks of angel investors andPennsylvania by the National Commission on technology centers into formal economicEntrepreneurship and ACCRA’s Center for development planning activities and inte-Regional Competitiveness found that state grated entrepreneurship education into thefunding represents an important revenue state’s economic education standards.source (between 37-42 percent of a program’s Washington is developing a statewidebudget) for entrepreneurship development entrepreneurship assistance portal managedorganizations in these states. In addition, find- by the governor’s office to serve as a central W.K. Kellogg Foundation • Corporation For Enterprise Development 29

clearinghouse for all organizations serving – Missouri: The state team is building a entrepreneurs. more focused and integrated support system for Missouri’s small businesses NGA’s Center for Best Practices is develop- and has launched an initiative to pro- ing a Governor’s Guide to Entrepreneurial mote core skill development for recipi- Policies and Programs drawing from the ents of public assistance. findings of the research and the policy – Texas: Higher education institutions academies. and nonprofit organizations are leading• Rural Entrepreneurship Initiative was an effort to implement a statewide com- launched in 1999 with support from the munity-focused entrepreneurial support Ewing Marion Kauffman Foundation, system. Partners for Rural America, the National – West Virginia: A public-private partner- Rural Development Partnership, and the ship is working to develop a statewide Nebraska Community Foundation. The ini- intermediary organization to build tiative assisted six state teams (Colorado, entrepreneurial capacity and programs Maine, Minnesota, Missouri, Texas, and among non-governmental organiza- West Virginia) in enhancing their climate for tions, and promoting demonstration entrepreneurship development in rural areas projects such as the Entrepreneurial and was designed to provide a national League System and the Virtual learning forum on rural entrepreneurship. Entrepreneur Network. The state teams received guidance and customized technical assistance in assessing Of the six states, only Colorado failed to their state entrepreneurship climate and make progress. There, the rural develop- developing a strategy and action plan for ment council folded due to federal and implementing policies and programs that state budget cuts. The state’s SDBC system benefit rural entrepreneurs: also has been defunded. Results of the ini- – Maine: The Rural Development Council tiative thus far suggest that those efforts launched a “prototype” rural entrepre- rooted outside state government have neurial community and completed a proved to be the most robust and consis- study on the needs of rural entrepre- tent over time. As Don Macke observed, neurs in the state. The project grew into “While state governments tend to think in a collaboration with the Ewing Marion terms of programs, comprehensive state Kauffman Foundation and the Maine entrepreneurship policy development can- governor’s office to develop a compre- not be a programmatic approach and the hensive statewide entrepreneurship role of nonprofit organizations is crucial to development plan. its success.”31 – Minnesota: Practitioners have expanded the Minnesota Virtual Entrepreneurship Network, linking entrepreneurs throughout the state to resources, markets, and support services. A number of other states, including North Dakota and Nebraska have or are in the process of adopting this approach.30 Mapping Rural Entrepreneurship

The Components ofEntrepreneurship DevelopmentThe starting point for gathering information on cations were reviewed and 60 experts and prac-entrepreneurship development efforts across titioners were interviewed. The result is not arural America was a framework developed by comprehensive directory of national, regional,CFED for the Winthrop Rockefeller Foundation and local programs and initiatives, but a cross-and published early in 2003.33 This framework section of efforts that currently have or poten-has two main parts: creating a pipeline of entre- tially have a significant impact on stimulatingpreneurs and enhancing business services for entrepreneurship in rural America in each ofentrepreneurs. The pipeline notion was that these four components.“there should be an infrastructure of lifelonglearning from elementary school to the golden Entrepreneurship Educationage, based on the simple principle that it isnever too early or too late to be an entrepre- For the past two years, ARC in partnershipneur…The aim is to create a large and diverse with the U.S. Department of Education haspool of people, across a spectrum of entrepre- held an awards competition – the Springboardneurial motivations, out of which there will Awards – to recognize outstanding youth entre-flow a steady stream of high achievers with an preneurship education programs targeted atinterest in creating jobs and wealth in their rural communities across the region. ARC’scommunities.”34 With business services, “the Federal Co-Chair, Ann Pope, captured theaim is to “graduate” significant numbers of essence of this component when she com-start-up enterprises into companies and organi- mended the 2003 winners, “The educatorszations that will provide quality jobs…”34 receiving this award are inspiring Appalachian youth to reach as far as their imagination andThe key components of the pipeline are entre- energy can take them…By giving our youngpreneurship education and entrepreneur net- people the confidence and know-how to initi-works; for business services, the components ate their own business ventures, they are help-are training and technical assistance and access ing to prepare the region for the challenges ofto capital. For this assessment, some 65 publi- the 21st century.”35 W.K. Kellogg Foundation • Corporation For Enterprise Development 31

The Consortium for Entrepreneurship target markets. Still others choose to provideEducation (CEE), an association of entrepre- broad support and development of tools forneurship educators and advocates, reports that young entrepreneurs of all ages.entrepreneurship education is becoming a prior-ity within all systems of education beginning inkindergarten and continuing through college as Elementary Through High Schoolwell as for adults in continuing education and The following is a selection of efforts currentlyentrepreneurship training programs. CEE has underway in the mainstream education systemsdeveloped an on-line guide, with support from and through special initiatives.ARC, which highlights model entrepreneurialeducation initiatives and provides a clearing- • Public schools and vocational educationhouse of information on entrepreneurship edu- tracks traditionally have been closely linkedcation resources. This year in Seattle, CEE will to vocational education the majority ofsponsor its 21st annual Entrepreneurship entrepreneurship efforts within the publicEducation Forum, bringing together hundreds school systems.38 The vocational tracks andof practitioners from across the country.36 their corresponding associations such as Distributive Education Clubs of AmericaIn the mid-1990s, the Ewing Marion Kauffman (DECA) – an association of marketing stu-Foundation commissioned Gallup to survey dents, Future Farmers of America (FFA),youth on knowledge of and attitudes towards Business Professionals of America (BPA),entrepreneurship and small business. One sig- Future Business Leaders of America (FBLA),nificant finding was that 65 percent of youth and Family, Career, and Community Leaderssurveyed expressed interest in starting their of America (FCCLA) see entrepreneurshipown business. Walstead and Kourilsky noted, as a career opportunity for students who“This interest in entrepreneurship is an may not go on to college. Neither theuntapped reservoir with the potential to direct- Department of Education nor these associa-ly affect standards of living and the economy. If tions track penetration of their programsjust a third of the youth who expressed an into rural schools or encourage state depart-interest in starting a business actually acted on ments of education or state affiliates totheir aspirations at some point over their life- reach out to rural students. That said, it wastimes, such initiative could significantly reported that the education departments inincrease new business formation in the United Nebraska and New Mexico have modelStates.”37 efforts underway.39 • Junior Achievement is distinguished by itsAdditionally, recent conferences on rural devel- program design that links real world entre-opment and interviews with rural economic preneurs with students and its strong part-development leaders underline the importance nership with classroom instruction. Juniorof entrepreneurship and youth development in Achievement programs are offered in 120any rural economic development strategy as a countries, all 50 states and reach 4 millionmeans to population retention, leadership U.S. high school and 2.8 million U.S. ele-development, and economic growth. In mentary school students. Currently, Juniorresponse, an increasing number of programs, Achievement does not track its outreach intoboth in-school and after school, are providing rural areas or gather demographic data fromentrepreneurship education to rural youth. individual students. There is no focusedSome programs cast a wide net and have small- effort at the national level to promote out-er impact on a greater number of students, reach into rural communities, although therewhile others focus more in-depth programs on32 Mapping Rural Entrepreneurship

are efforts to develop a distance learning ini- active state organizations (Alabama, Georgia, tiative for hard-to-reach areas. Examples of Mississippi, North Carolina, Upper Peninsula model programs include Ft. Wayne, Indiana Michigan, Vermont, Virginia, Washington, and Pueblo Colorado Springs.40 and West Virginia) and the curriculum is being offered in over 20 additional states• National Council for Economic Education nationwide. There has been little sustained (NCEE) offers Economics America, a class- evaluation of REAL programming due to room and standards-based curriculum, lack of funding. The best example of a which is focused on economics education, statewide commitment to REAL is North with entrepreneurship as one part of the Carolina where REAL programming is repre- broader curriculum. NCEE courses are inte- sented in 84 out of 100 counties in the state. grated into K-12 classroom curricula. NCEE does not track its outreach into rural com- • National Foundation for Teaching munities. Examples of model states include Entrepreneurship (NFTE) aims to teach Virginia, Indiana, Illinois, and Washington.41 entrepreneurship to low-income youth (ages 11-18). Historically much of its work has• Rural Entrepreneurship through Action been targeted to inner-city youth and has Learning (REAL) Enterprise program began not had any targeted rural focus. Since 1987 in 1990 and was originally designed for NFTE has trained 1,200 teachers and more school students in rural communities. than 30,000 youth in 43 states and 14 coun- Whereas REAL Enterprises offers a full range tries. The most recent analysis of programs of entrepreneurship development products found that NFTE graduates had improved and teacher training services across the communications skills, increased interest in country, it is the only national program starting a business, and started a business at specifically developed for and targeted to a much higher rates than non-NFTE students. rural target market. REAL currently has nine NFTE’s internet-based learning program, W.K. Kellogg Foundation • Corporation For Enterprise Development 33

BizTech, may be particularly useful for need. Examples of model programs include rural youth. the University of Illinois 4-H and 4-H programs in Virginia and West Virginia.42• The Ewing Marion Kauffman Foundation has developed a variety of curricula and pro- • Boys and Girls Clubs promote community grams to support young entrepreneurs of all leadership and character building for youth ages. Its Mini-Society program targets 3rd through a variety of programming. and 7th graders and provides teacher train- Increasingly, Boys and Girls Clubs are forming. The accompanying curricula is correlat- ing on Native American reservations and ed to state standards and designed for inte- have grown from one in 1992 to 145 in gration directly into the core classroom 2003. Some of these clubs run small enter- instruction. While Mini-Society does not prises and entrepreneurship programs for explicitly track data on rural outreach or tribal youth. Examples of effective reserva- outcomes, the primary vehicle for imple- tion-based Boys and Girls Club entrepre- menting Mini-Society into rural areas has neurship development models include pro- been through USDA’s 4-H system. Kauffman grams on the Navajo reservation, Tulalip has also partnered with American Indian reservation in Washington, and Lac Courte Business Leaders (AIBL) to provide entre- Oreilles reservation in Wisconsin.43 preneurship development training to 85 Native American elementary school teachers from reservations nationwide. AIBL has con- Post-Secondary Institutions tinued to sponsor this “train the trainers” effort nationally. Other programs provided It is estimated that over 400 institutions of by Kauffman include: Making a Job, higher education offer coursework in entrepre- designed for middle school students; Entre- neurship across the country; there also has prep, an entrepreneurship institute and been a 253 percent increase in entrepreneur- internship program targeted to 11th and ship faculty positions from 1989 to 1998.44 12th graders; and Entrepreneurship 101, a Recent findings on the impact of entrepreneur- curriculum adaptable for high school, com- ship education conclude that entrepreneurship munity college, and university students. graduates are:• 4-H is found at 105 land-grant universities • Three times more likely to start new busi- in all states and territories and 3,150 coun- nesses or be self-employed; ties nationwide. Data on entrepreneurship • Have annual incomes that are 27 percent efforts have not been collected to date, higher and own 62 percent more assets than although National 4-H will gather this data their counterparts; and in the future due to its growing popularity among its member organizations and fun- • Are more satisfied with their jobs.45 ders. In partnership with the Kauffman Foundation, over the last four years Mini- Public community colleges are important Society entrepreneurship programs have anchor institutions in rural America and often spread to 4-H programs in 47 states. Those play a critical role in community economic communities that have successfully imple- development. They are found in nearly every mented Mini-Society programs are now county, they serve a greater percentage of demanding curricula for older youth and, in minorities and women as compared to four- response, the National 4-H Cooperative year institutions, and they tend to be employer Curriculum System is currently creating an driven. Within the last decade, rural communi- entrepreneurship curriculum to meet this ty colleges have increasingly diversified their34 Mapping Rural Entrepreneurship

programming to embrace entrepreneurship • Regional Technology Strategies (RTS) haseducation as a local rural economic develop- benchmarked successful entrepreneurshipment strategy. Although, there has been no fordevelopment practices at community col-mal analysis conducted on the scale and scope leges and highlight Elizabethtown,of these programs, recent research from the Kentucky; Hagerstown, Maryland; Clyde,Kauffman Foundation found that 20 percent ofthe 1,300 community colleges have at least onecourse in entrepreneurship.46National and regional initiatives to promotecommunity college-based entrepreneurshipeducation include:• The National Association for Community College Entrepreneurship (NACCE) was founded in 2002 to promote entrepreneurship and incubation education at the community college level nationwide. NACCE intends to be the “major channel of distribution for best practices.” While anecdotal evidence suggests “tremendous interest” from rural constituencies, there has been no formal tracking of the number of, much less effective practices in, entrepreneurship education at rural community colleges. The first national conference focused on effective North Carolina; Meridian, Mississippi; El practices took place on October 12-15, Rito, New Mexico; Cumberland, Kentucky; 2003. An example of a model program and Albemarle, North Carolina as effective includes the Pappajohn Entrepreneurial practice models in community college-based Center at the North Iowa Area Community entrepreneurship development efforts. College.47• Nationally, USDA’s Regional Rural • Some initiatives are using community col- Development Centers are implementing a leges as community entrepreneurship edu- Rural Community College Initiative, designed cation and training centers not only stu- to incorporate entrepreneurship training as dents, but also for community members. part of the core missions of rural community North Carolina, for instance, appropriates colleges in low-income communities across money for a Small Business Center at every the country. This initiative emerged from a community college. Many of these are in $28 million project sponsored by the Ford rural areas and are the only support for Foundation to support 16 colleges in very entrepreneurs in those regions. Another low-income areas across the country. The example is the ARC Rural Entrepreneurship Regional Rural Development Centers are now Initiative that supports, in part, entrepre- working to spread this effort to community neurship centers at rural community col- and tribal colleges and land grant universities. leges. An example of a model ARC program Current efforts are underway in Minnesota, is The Advanced Technology Center at North Dakota, New Mexico, North Carolina, Hagerstown Community College in Mississippi, and Texas. Appalachian Western Maryland.48 W.K. Kellogg Foundation • Corporation For Enterprise Development 35

Four-year colleges and universities are increas- Entrepreneurship Networksingly viewing entrepreneurship education as avehicle for innovative business research and The National Commission on Entrepreneurship,student development. Several have been creat- a strong advocate of entrepreneurship net-ing specific entrepreneurship training programs works, argued that, “Successful entrepreneursintegrated into traditional courses of study with are consummate networkers who thrive ina focus on business start-ups, capital sources, communities. Entrepreneurs know it is criticalstages of business development, and effective to their success that they have access to net-marketing. National and regional initiatives to works of their peers. Networks are essentialsupport entrepreneurship development at col- because they are the links to potential sourcesleges and universities include: of capital, new employees, strategic alliance partners, and service providers – such as• Lifelong Learning for Entrepreneurship lawyers, accountants, and consultants. They Professionals, funded by the Ewing Marion also allow entrepreneurs to share information Kauffman Foundation, is a national teaching and assessments of markets and technology as clinic for professors from any discipline inter- well as lessons learned from their own entre- ested in teaching entrepreneurship. The foun- preneurial experiences.”50 The Commission dation also provides grants ranging from argues that thriving regions offer a range of for- $12,000-$50,000 to 51 colleges and universi- mal and informal networks, with the informal ties currently engaged in varying levels of predominating in more entrepreneurial regions entrepreneurship activity including aware- encouraged by the larger numbers of entrepre- ness, faculty development, curriculum devel- neurs and a more open culture of information opment, experiential learning, and peer learn- sharing and networking. This highlights one of ing. Although many of these grants have the many challenges that rural entrepreneurs gone to colleges in rural areas, to date there face: lower density of entrepreneurs and sup- has been no intentional effort to specifically porting services and local cultures that often target students from rural communities. The tend to be inward-looking and less open. foundation also manages the Kauffman Collegiate Entrepreneurship Network of 120 However, rural entrepreneurship development colleges and universities with an interest in organizations honored by NADO agreed that advancing entrepreneurship. The strategy is the absence of entrepreneurial networks hin- designed to support the development of more dered entrepreneurs in their area. In response, and better entrepreneurship teaching, they each created local or regional entrepre- research, and service through peer learning neurship networks through business incuba- and to assist institutions in institutionalizing tors, business-to-business websites, buyers’ entrepreneurship into their “permanent fab- groups, and clubs.51 ric.” Babson College is noted as offering a model entrepreneurship studies program.49 Despite the benefits of such networks, they are• Approximately 22 of the total 36 land grant not necessarily easy to begin or maintain. tribal colleges and universities offer entre- Research by the National Commission on preneurship education as a course of study Entrepreneurship shows they will be more suc- or through their extension programs. cessful if they are created by and for entrepre- Examples of model programs include neurs, rather than as a government program.52 Haskell University in Kansas, Salish The public sector may play a valuable role in Kootenai College in Montana, Sitting Bull sparking and supporting a networking organi- College in North Dakota, and College of zation, but entrepreneurs have to be the driv- Menominee Nation in Wisconsin. ing force behind the evolution of the network.36 Mapping Rural Entrepreneurship

Minnesota Rural Partnership supports the Network with funding from the Department of Commerce.56 Other efforts identified as exemplary during expert interviews included Appalachian Center for Economic Networks (ACEnet) in Appalachian Ohio; Foodworks Culinary Center in Arcada, California; Northeast Mississippi Business Incubation System; Kentucky Highlands Investment Corporation in London, Kentucky; Sustainable Urban Rural Enterprise in Richmond, Indiana; and the Center for Economic Options in Charleston, West Virginia.57 Training and Technical AssistanceThe Commission recently published a guide to Aspiring and existing entrepreneurs needbuilding entrepreneurial networks, complete access to high-quality entrepreneurial supportwith 10 action steps to consider.53 programs including issue-specific training and technical assistance in order for them to flour-Networks can be started, revitalized, or injected ish. The following is a selection of programsinto existing organizations. Because of unique and initiatives that particular relevance in ruralchallenges in rural areas, many rural entrepre- America.neurial support programs have integrated a net- • SBDCs, a national network of federallyworking component into their activities rather funded business development centers, repre-than creating a separate network. For example, sent the most widely available training andNortheast Alabama Entrepreneurial System technical assistance resource for emergingand Unlimited Future, Inc in West Virginia and existing entrepreneurs. Mainly locatedboth offer networking opportunities along with on university and college campuses withother services, such as business incubation state-level coordination, they provide busi-facilities, micro loans, and business training.54 ness plan development assistance and entre-The Center for Rural Affairs in Nebraska, as preneurship training through curricula suchpart of its Rural Enterprise Assistance Program, as FastTrac and NxLevel. While SBDC stafffacilitates groups of current or aspiring busi- noted that state networks, such as Texas andnesses in a particular area into associations to Colorado, are partnering with other businessnetwork and manage business loans.55 The support organizations to provide joint train-Minnesota Virtual Entrepreneur Network is ings and more customized assistance, manyboth on-line and place-based. Bizpathways.com experts interviewed maintained that fewconnects rural entrepreneurs with services they SBDCs provide such coordinated assistance.need and place-based clusters connect them to Congressional expectations are that SBDCsother entrepreneurs in their region. The serve the needs of all aspiring entrepreneurs.Network is currently conducting “Rural But with growing funding restrictions thereResource Roundups” in communities to intro- is a tendency for them to be numbers-drivenduce and demonstrate useful tools. The W.K. Kellogg Foundation • Corporation For Enterprise Development 37

rather than impact-oriented, which in turn Incubation Association (NBIA), there are leads to them being labeled as somewhat 950 business incubators in North America, bureaucratic and reactive. Assessments of which together assisted over 35,000 start-up the Arkansas SBDC network showed that companies in 2001. By providing entrepre- the quality of an individual SBDC is greatly neurs with training and networking oppor- enhanced when there is a team of three tunities, about 87 percent of all firms that advisors with the expertise and experience graduate from incubators are still in busi- to offer finance, marketing, and training ness. Thirty-one percent of incubators report services. Because not all SBDCs meet this drawing their clients from rural areas. NBIA requirement, the scope and quality of servic- cites insufficient financial resources and lim- es varies from region to region.58 ited entrepreneurial mass as challenges for rural incubators. Examples of successful rural business incubators include Scholl Entrepreneurial Center in Alabama; Owatonna Incubator Incorporated in South Central Minnesota; CAPsell Center in Wautoma, Wisconsin; MEDZ incubator in McAlister, Oklahoma; and the Northeast Mississippi Incubator Network.59 As incubators can be expensive to create and operate, it is not uncommon for them to progressive- ly reduce the level of business services and revert to conventional real estate projects.60 Therefore it is to be expected that the idea of “incubators without walls” is attracting considerable attention. One often-cited example is operated by the Eastern Maine Development Corporation, which embraces regional cooperation with a number of community action agencies to meet the chal-• The Corporation for National Service’s lenges of scale, absence of rural entrepre- Americorps MBA Entrepreneurship neurial networks, distance to markets and Mentors and SBA’s Service Corps of Retired services, and limited capital availability.61 Executives are both important national programs that provide mentoring to entrepre- • According to the NADO, 60 percent of neurs, linking people with more sophisticat- regional development organizations (Local ed business knowledge to entrepreneurs Development Districts, Economic who are just beginning and building their Development Districts, Tribal Planning business. While these are national programs, organization) are engaged in entrepreneur- they may not be available in every area – ship development and are often the only especially not in rural areas. Many industry institutionalized vehicles for promoting experts cited the lack of and dire need for enterprise development in rural communi- avenues to link the existing business sector ties. Primary products include small busi- with start-up entrepreneurs. ness and micro loan funds as well as entrepreneurship development training and tech-• Business Incubators are growing in promi- nical assistance. These organizations receive nence for the field of entrepreneurship. federal support through the Economic According to the National Business38 Mapping Rural Entrepreneurship

Development Administration or the ARC, is dedicated to business incubation and Ball together with an array of other federal, state, State University programs, which is focused and local sources. Examples of successful on business development assistance in regional development organizations include Indiana’s Amish community. the Northwest New Mexico Council of • Microenterprise Development Organizations Governments’ Entrepreneurial Development more often than not target low-income and Tourism Industry Project and the entrepreneurs, many starting businesses as a Northwest Wisconsin Enterprise Program.62 result of downsizing, unemployment, or• USDA promotes entrepreneurship training underemployment. According to AEO, the and technical assistance through a variety of trade association of microenterprise pro- programs. The Resource Conservation and grams in the United States, 120 of its nearly Development Councils is designed to assist 500 microenterprise organization members communities in developing sustainable com- work in rural areas. Recent studies show munity economic development strategies, that most microentrepreneurs require a min- including entrepreneurship development imum of 45 hours of technical assistance programs. The Cooperative State Research, before a micro-loan ($500-$35,000) can be Education, and Extension Service works in made.64 As a special initiative, AEO has ini- partnership with land grant universities, tiated a two-year Rural Microenterprise tribal colleges, and other schools to support Successful Practices Project, bringing a variety of community building initiatives. together 34 sector-specific groups into learn- The system reaches every county in the ing clusters that in turn identify successful country, primarily impacts rural communi- practices in rural microenterprise develop- ties, and provides services directly to both ment in the food, sustainable tourism, and students attending university as well as artisan sectors. Examples of these effective community members. Many extension pro- programs include ACEnet in Appalachian grams are providing entrepreneurship devel- Ohio; San Juan 2000 Development opment programming to their local commu- Corporation, San Juan, Colorado; and nities. USDA’s Rural Development’s Office of Women’s Rural Entrepreneurial Network, Community Development partners with New Hampshire.65 institutions of higher education to operate • Community-based organizations such as eight National Centers of Excellence to the Rural Local Initiatives Support promote economic development in their Corporation and Neighborhood respective regions, often through technical Reinvestment Corporation (NRC) coordi- assistance to entrepreneurs and small busi- nate networks of community based organi- nesses.63 zations, traditionally focused on housing,• Economic Development Administration’s but increasingly offering entrepreneurship University Center program supports 69 development services and extending their University centers in 45 states to promote outreach to organizations serving rural economic and entrepreneurship develop- areas. Of the existing 220 chartered mem- ment in their local service area through bers of NRC, approximately 50 are involved direct technical assistance to individual in some type of enterprise development businesses, nonprofit capacity building serv- activity; fewer still are rural programs, ices, applied research, and information dis- although the numbers are growing annually. semination. Two rural programs of note are Rural community based organizations Ohio University’s Institute for Local involved in model entrepreneurship devel- Government and Rural Development, which opment work include Community Ventures W.K. Kellogg Foundation • Corporation For Enterprise Development 39

Corporation in Lexington, Kentucky; nesses. The Sirolli Institute has been actively Centex Certified Development Corporation involved in implementing programs in Oregon, in Austin, Texas; and NHS of Dimmit Idaho, Montana, California, and Kansas. County, Texas which works primarily with Success rates in many communities are said to low-income immigrants.66 be impressive, but the Enterprise Facilitation model has not yet been implemented andTwo major initiatives in the area of technical assessed on a large-scale. Accordingly, the Sirolliassistance for entrepreneurs have emerged that Institute, the National Association of Regionalhave attracted a great deal of attention and Councils, and the RUPRI Center for Ruralenthusiasm. The Entrepreneurial Development Entrepreneurship are inviting expressions ofSystem is the brainchild of Tom Lyons and interest for participating in a rigorously moni-Greg Lichtenstein. In essence, this system rec- tored six-community, three-year demonstrationognizes that entrepreneurs differ in the extent to test its effectiveness against other economicof their technical, managerial, entrepreneurial, development approaches.and personal maturity skills. These skills canbe learned, measured, and monitored by this Access to Capitalassessment tool, which places entrepreneursinto “a hierarchy of skill development” based A recent Congressional study conducted byon the professional baseball league system – the USDA found that rural financial marketsessentially a system for developing talent. are distinct from urban markets in that equityDepending upon their assessed level of skill, financing is more difficult to obtain and thatentrepreneurs are identified as Rookie, Single rural areas typically have far fewer lenders andA, Double A or Triple A. Complete mastery of more segmented markets, resulting in reducedthe skills… qualifies them for the Major competition among lenders.69 It also found,Leagues of entrepreneurship.” 67 however, that while the financial markets differ in nature from each other, rural and urbanThe advantage of this approach is that the path financial service organizations that provideto success is clear both to the entrepreneur and debt financing generally perform equally withto those who would provide assistance. The aim regard to both provision and cost of credit.69is to drive changes in the way entrepreneurshipis delivered so that it is both tailored to the The RUPRI Center for Rural Entrepreneurshipappropriate skill level of the entrepreneur and is recently completed an analysis70 on capital forintegrated into a seamless system of providers. rural entrepreneurs and found that:The Entrepreneurial Development System is cur- • Rural entrepreneurs are under and inappro-rently operating or being introduced in Kentucky priately capitalized;in an urban context and in North Carolina andWest Virginia as a regional initiative engaging • Rural deals tend to be smaller in size, haveboth urban and rural communities. somewhat less growth potential, generally a lower return on investments, are removedEnterprise Facilitation, like the Entrepreneurial from investors, and have thinner manage-Development System, is a people-centered ment teams; andapproach to economic development. Developed • There is a significant “capital literacy” gapby the Sirolli Institute, Enterprise Facilitation about rural business financing. Rural entre-enables communities, through the appointment preneurs, service providers, community lead-of a trained, full-time local facilitator, to recog- ers, and capital providers all have differentnize local talent and mobilize leadership around levels of experience with and perceptionsthe support of entrepreneurs and small busi- about access to capital for rural entrepreneurs.40 Mapping Rural Entrepreneurship

Findings from focus groups and interviews organizations and serves the widest range ofconducted by the RUPRI Center for Rural borrowers and loan types. Research findingsEntrepreneurship also revealed that: show that the major suppliers of commercial credit in rural areas are financially strong and• Rural entrepreneurs were generally debt- have increased their rural lending in recent adverse due to lack of experience with years. However, the same research also notes business financing, are completely unaware that the banking industry is undergoing radical of the basic requirements for leveraging change brought about by consolidations, com- equity investments, and for those living in petition, and increased uses of technology, lower income areas, have a preference for which have left rural communities with far remaining in the informal economy. fewer banks.72 National trends indicate that• Rural service providers, although working to prepare entrepreneurs to be “deal ready”, were found to have little understanding of or direct experience with complicated financing arrangements.• Rural community leaders, while in the past networked residents to invest in local enterprises and projects, now focus primarily on business recruitment.• Large traditional capital providers simply are not present in rural America, while alternative financial institutions are working on the “margins” in terms of deal flow, outreach, and linkages to the larger capital markets.Debt CapitalThe issue of access to debt capital is heavilydebated in rural America between those whomaintain that there is a lack of affordable debt small loans of under $250,000 as a categorycapital and those who believe there is consider- represent a shrinking share of total bank lend-able available debt financing, but inadequate ing in rural America. The traditional communi-deal flow. The most prominent rural lenders ty bank is increasingly being consolidated intocontinue to be commercial banks, the Farm regional or national banks (undermining theCredit System, savings and loan associations relationship-based lending model currentlyand Federal credit programs administered by prevalent in rural communities) and thethe USDA and other federal agencies. But many remaining small banks are reluctant to engagestart-up firms, particularly those run by minori- significantly in lending to entrepreneurs andty or low-income entrepreneurs, are increasing- early stage businesses. 73ly turning to alternative sources for financing.71 Alternative financial providers such as CDFIsThe commercial banking system is the largest and micro/small business revolving loan fundssupplier of credit services to existing/growing (often housed in regional development organiza-rural business and nonprofit development tions or nonprofit microenterprise organizations) W.K. Kellogg Foundation • Corporation For Enterprise Development 41

not only provide training and technical assis- 51 percent serve a single county or smaller areatance to rural entrepreneurs but also fill critical and only 12 percent serve multi-state ordebt capital needs not met through mainstream national markets.75financial institutions. As the banking sectorbecomes more consolidated and less rooted in The majority of revolving loan funds run byindividual communities, rural customers are regional development organizations operate inincreasingly turning to more costly, though rural communities, and one quarter to one third of CDFIs and microenterprise programs serve rural communities.76 The Enterprise Corporation of the Delta (ECD) is an excellent example of a regional CDFI that provides a spectrum of financial services to rural entrepreneurs. ECD serves low-and moderate-income residents of the Delta and rural regions of Arkansas, Louisiana, and Mississippi. ECD’s commercial financing products include working capital lines of credit, construction financing, short-term bridge financing, letters of credit, and medium to long-term loans for fixed assets. Since 1995 ECD has closed 171 loans totaling more than $27 million, leveraged $33 million in additional financing from other sources. Nearly 40 percent of its loans were made to minority and women owned businesses.77 Through traditional banks and development finance organizations (as well as equity capital initiatives – see next section), there is a grow-often more accessible, services such as check- ing infrastructure in place that could facilitate acashers and payday lenders.74 In response, greater deal flow in rural America, but greaterCDFIs and other alternative lenders are not collaboration between banks and CDFIs is anonly engaging in advocacy against predatory essential prerequisite for addressing the capitallending, but are also offering a variety of access challenges in rural areas. One exampleaffordable financial products to meet this need. of linking banks to CDFIs and microloan fundsThere are 800 to 1,000 CDFIs operating in all is an initiative of the Nebraska Microenterprise50 states and the District of Columbia. CDFIs Partnership Fund, the Microenterpriseare finance-led organizations, but also offer an Information Referral System (MIRS). MIRSarray of training and technical assistance serv- creates the infrastructure, procedures, andices to their clients. The four main types of institutional commitments needed to operateCDFIs are community development loan funds, an informed customer referral process betweencommunity development venture capital funds, Nebraska’s commercial and micro/small-busi-community development credit unions, and ness lenders. The MIRS product is designed tocommunity development banks. Together reach network the state’s entire spectrum of businessa base of 53 percent female, 64 percent minori- lenders into a more accountable referral sys-ty, and 74 percent low-income customers. tem, while giving micro and start-up businessesCDFIs are predominantly local institutions – a one-stop contact point.7842 Mapping Rural Entrepreneurship

Equity Capital79 vehicles to provide equity financing to rural entrepreneurs.82Entrepreneurs seeking non-debt financing pri-marily rely on personal savings, retained busi- • National efforts: Small Business Investmentness earnings, and support from friends and Corporations (SBICs), New Markets Venturefamily. Studies on access to equity in rural Capital Companies (NMVCCs), the NewAmerica have found that venture and equity Markets Tax Credit (NMTC) program, Ruralcapital are concentrated in metropolitan areas Business Investment Companies (RBIC),and that equity investors generally focus on and the Angel Capital Electronics Networkmarkets that are geographically close or have (ACENetwork) are the five principal nation-higher concentrations of high tech, high al efforts, in varying stages of development,growth firms – a strategy that does not match currently in place to serve the equity needsthe conditions of rural communities. Industry of entrepreneurs. SBICs are privately ownedleaders agree that rural equity markets tend to and operated lending and investing firms,be “unorganized or nonexistent.” The challenge licensed by the SBA, that provide equity,of making equity capital available to rural entre- long-term loans and management assistancepreneurs has become a widely accepted priority to small businesses. Despite the widespreadfor state agencies and the private sector.80 geographic distribution of SBIC offices, rural businesses have relatively limitedDespite strong agreement on the need for access to SBIC funding. Of the approximate-increased equity sources that serve rural entre- ly 350 SBICs that exist in over 42 states,preneurs, there are varying opinions as to why only five SBICs are located outside ofequity capital is so sparse in rural communi- metropolitan areas.83ties. RUPRI created the Rural Equity CapitalInitiative to explore these impediments, identi- The NMVCC program, also administered byfy current innovation in the field, and promote the SBA, provides up to $150 million inrural equity finance strategies. Research from debenture guarantees and $30 million inthe initiative and the work of the RUPRI technical assistance grants for approvedCenter for Rural Entrepreneurship reveal that NMVCC companies that target small busi-there is limited investment in rural areas by nesses in low-income communities. As oftraditional venture capital funds because of March 2001, there were only four condition-three characteristics of rural equity markets: ally approved NMVCC companies in rural service areas.84 The NMTC program, man-• Rural businesses are relatively concentrated aged by the CDFI Fund, is designed to in low, tech, slow-growth sectors. increase equity capital in low-income areas• Venture capitalists face higher costs for mak- through the availability of tax credits to pri- ing and managing investments in rural areas. vate investors. Only 20 percent of the alloca- tions of tax credits are targeted at rural• Rural communities generally provide a lim- areas. RBICs are for-profit entities created by ited business infrastructure to meet the the recent passage of the Farm Bill, charged management and technical assistance needs with providing equity capital for small busi- of the entrepreneur and small business.81 nesses in rural areas. To date this is the only national equity program particularly focusedIn response to the lack of access to equity on rural America, however, despite theircapital in rural communities, public policy- Congressional authorization, no funding formakers, nonprofits, and private investors are RBICs have been approved.experimenting with a variety of institutional W.K. Kellogg Foundation • Corporation For Enterprise Development 43

• State efforts: 2000 data from the NGA and investor networks and funds.85 Private, com- RUPRI have found that approximately half munity development organizations also pro- the states have allocated state funds or dedi- vide equity financing to low-income rural cated state revenues in public or private entrepreneurs, although there are still cur- venture capital funds. Although effective rently very few programs in rural communi- “laboratories” for experimentation, the pro- ties. These nonprofit vehicles include grams have had varying degrees of success Individual Development Account (IDA) pro- in implementation. There are only a handful grams and other national entrepreneurship of state funds particularly targeted to rural grant programs such as, “Trickle Up” and enterprises, one such fund being the the Four Times Foundation, which link Kentucky Rural Innovation Fund. States grants to intense technical assistance servic- have also developed tax credit programs es for disadvantaged entrepreneurs. designed to stimulate private investments in local venture capital funds, such as the Iowa Research findings reveal that lower deal flow Capital Investment Tax Credit as well as and insufficient support services makes for a angel investor networks, such as the challenging environment for rural equity Oklahoma Capital Network and the investors. According to a recent paper by David Montana Private Capital Network. Tax Barkley86 on policy options for financing rural credits vary from 20-60 percent depending entrepreneurs, in addition to experienced man- on the state. agement, adequate funding, and a clear focus on profitability, successful rural venture capital• Private efforts: Private development venture programs have to: capital funds that seek to use the tools of venture capital to promote business growth • Promote deal flow through expansion of in distressed areas have grown in impor- service areas and local and regional partner- tance in rural America. Today, the United ships; States has approximately 50 such funds. • Assist rural entrepreneurs through cus- Early studies of rural development venture tomized technical support services; capital funds, such as the Kentucky Highlands Investment Corporation, show a • Assume active management role in a portfo- strong performance in both financial and lio company (if needed); and social returns. Targeting rural, unemployed, • Provide an array of financing products that or low-income entrepreneurs, the fund has are not (necessarily) available to the rural invested more than $65 million in more entrepreneur elsewhere. than 145 companies, creating more than 8,000 jobs. There is also a growing move- Recent analysis of funds for rural equity initia- ment in rural America to develop angel tives reveal that it is unlikely that another investor networks such as the Minnesota round of foundation support and its patient Investor Network Corporation (MIN- capital will be available to venture capital funds CORP)’s Regional Angel Investor Network and rural funds must develop a clear strategy (RAIN). The RAIN program is “designed to for continuing to leverage public or private ease the task of creating angel networks and investor capital. This is a major challenge as to provide a framework for discovering local private investors are sparse in rural com- deals, undertaking due diligence, and struc- munities and rural equity funds may need to turing investments.” Based on the RAIN consider creative means of subsidizing their model, MINICORP has developed a tem- operating costs through nonprofit subsidiaries. plate for helping other angels organize angel44 Mapping Rural Entrepreneurship

A Closer Look at Two StatesFrom the mapping exercises and the collection Kentuckyof information on programs and initiatives thatsupport entrepreneurship, it became clear that The Mountain Association for Communityin order to understand the reality of entrepre- Economic Development, better known asneurial development in rural America, a closer MACED, was created over 25 years ago by 10look would be necessary. Of particular interest community development corporations to createwas whether and to what extent these supports economic opportunity and build communityoperated as entrepreneurial systems or as capacity in the 51 counties that comprise east-bureaucratic and disconnected programs, and ern Kentucky. Its latest strategic planning doc-how important they are as enhancements of ument provides a succinct summary of the eco-entrepreneurial climate and culture. nomic and social environment in rural Kentucky.Kentucky and Nebraska were chosen for fur-ther assessment because they were highlighted “While many traditional indicators of condi-in Goetz and Freshwater’s study as having tions in the region have improved over the laststrong entrepreneurial climate despite only 15 years, the number of children in povertymoderate investments in the critical inputs of remains too high; the available economicideas and innovations, human capital, and opportunities too few; the level of educationalfinancial capital. Moreover, in the National attainment too low; and the environmentalCommission on Entrepreneurship’s Growth problems too many. The region is also one ofCompany Index, a labor market in Kentucky is natural beauty; possesses a strong sense of cul-shown as one of the highest performing, and in tural identity; experiences pockets of successfulCFED’s analyses, both states have high per- entrepreneurship; and reflects elements of realforming counties for self-employer firms and community change.”87small companies. W.K. Kellogg Foundation • Corporation For Enterprise Development 45

An Aspen Institute report88 prepared seven edge, innovation and speed.” The force behindyears ago, which sought to draw lessons from this Act was the Kentucky Science andKentucky in developing entrepreneurial Technology Corporation (KSTC), a Lexington-economies in rural areas, pointed to a number based nonprofit organization committed to theof major hurdles that were preventing advancement of science, technology, and inno-Kentucky from becoming an entrepreneurial vative economic development founded onregion. Many of these hurdles were attitudinal, Kentucky know-how. It has an interest in theothers related to a shortfall of the essential whole system from education and entrepreneur-components of an entrepreneurial support sys- ial development to investment in university andtem. CFED’s 2002 Development Report Card for industrial research to commercialization. KSTCthe States89 ranks Kentucky 44th on its “entre- defines entrepreneurship in very broad terms:preneurial energy” sub-index, while the “the unconstrained pursuit of new ideas result-Progressive Policy Institute’s 2002 New ing in an innovative creation,” which allowsEconomy Index90 ranks the state 33rd for “eco- them to talk to a wide audience including poli-nomic dynamism” and 44th for “innovative cymakers and educators as well as the businesscapacity.” The Goetz and Freshwater study 91 and economic development communities.ranked Kentucky 49th in ideas and innova-tions, 46th in human capital, and 35th in Programs under the Innovation Act are housedfinancial capital – their three entrepreneurial in the Economic Development Cabinet, theinputs – yet in entrepreneurial climate the state Council on Postsecondary Education, and theis ranked 9th in the nation. So is there any evi- Kentucky Community and Technical Collegedence that, all these rankings notwithstanding, System, as well as KSTC itself, with oversightsomething is happening in Kentucky that could from the Kentucky Innovation Commissionmark the birth of an entrepreneurial culture? and the Office of the Commissioner for theCould it be that either this data is measuring New Economy. There are five main groups ofthe wrong things or is so out of date to be programs: research and development, commer-missing new trends? cialization, high skill education and training, infrastructure development, and technologyMany observers described state economic support. Available statewide, these programsdevelopment policy as being driven by the pri- include peer-reviewed investments in appliedority to recruit new firms to Kentucky. Much of research to develop emerging technologies andthe resources, both financial and staffing, of the scientific ideas (43 investments were made inKentucky Cabinet for Economic Development 2002), research and development vouchers toappear to go into marketing the state to attract enable small and medium-sized firms to under-investment from elsewhere in the United States take such work in partnership with Kentuckyand internationally. Supporters can point to university research partners, and underwritingnotable successes such as a recent Toyota facto- of workforce training.ry near Lexington, but detractors bemoan thefew resources targeted at encouraging home- But of particular interest for this assessment aregrown development – a story that is hardly two novel programs targeted specifically atunique to Kentucky. rural parts of the state. KSTC’s Rural Innovation Fund is designed to help small,But there has been one state initiative that offers rural, Kentucky-based firms carry out researchconsiderable hope and potential for the future – and development through a university or otherthe Kentucky Innovation Act of 2000. This leg- third party. The fund provides $7,500 for busi-islation envisioned a “strong entrepreneurial ness plan development and patent creation. Foreconomy in Kentucky, characterized by knowl- those who move to the next level, investments46 Mapping Rural Entrepreneurship

can be made of up to $100,000 over two years. An important design feature of the rural satel-At the end of 2002, the Fund had made 23 lites is that they will be structured as partner-awards totaling over $400,000 in a range of ships with regional Small Business Centers,projects, including an equine medical device, Manufacturing and Cooperative Extensionchicken house heating, design software for the services, colleges and universities, chambers,home woodworker, a new internal combustionengine, and heat drywall panels.The other initiative introduces a series ofInnovation and Commercial Centers (ICCs)together with 14 satellites geared to the specialchallenges faced by rural communities in thenew economy. ICCs are intended to serveentrepreneurs who want to create technology-based businesses and scientists who want tocommercialize technologies. Described as a vir-tual incubator, there is a network of six centersin Murray, Bowling Green, Lexington,Louisville, Covington, and Richmond. The aimof the network is to increase quality deal flowof investments; increase understanding ofentrepreneurship, start-up processes, andinvestment practices; and provide value-addedservices to existing businesses, start-ups, andthe investment community.Extending out from the ICC housed at Eastern local governments, local banks, credit unions,Kentucky University in Richmond, which businesses, and the ICC network, reinforced byserves 46 counties in what is called the Eastern the fact that for each center a local fundingInnovation Region, there will be six satellites. match of 20 percent is required.Also known as business accelerators, these willbe located in community colleges, libraries, The role of Eastern Kentucky University, and inand community facilities across Appalachian particular, its Center for EconomicKentucky. Each satellite will seek to foster Development, Entrepreneurship, andentrepreneurial opportunities, assist clients Technology (CEDET) is unusual. It is anwith the application of appropriate technology, Economic Development Administration-sup-expand existing businesses, and provide access ported University Center, which acts as anto a synchronized statewide New Economy incubator for economic development initia-Network of capital, web-based resources, tech- tives. Apart from the ICC satellites, these havenical guidance, reference materials, and ICC included the Kentucky Wood Productsprotocols.ii Competitiveness Corporation and the new Kentucky Artisan Center in Berea. Interestingly,ii ICC protocols refer to a process aimed at growing a company to a “pitchable” (for venture capital) level and involve two steps: a half-day financial workshop that introduces entrepreneurs to the ICC financial model, and a second workshop on company valuation. Theaim is to take companies to venture capitalists – there are already over 50 qualified Kentucky angel investors in ICC’s network. W.K. Kellogg Foundation • Corporation For Enterprise Development 47

the ICC satellites are, at least in part, modeled ation of entrepreneurial environments whereon an earlier CEDET initiative, the Jackson entrepreneurship is supported in both the pub-County Entrepreneur Center. lic and private sectors.”92The idea for an Entrepreneur Center in rural KHIC is a highly-regarded institution bothJackson County came from a county strategic locally and nationally. Many factors contributeplan facilitated by CEDET. It became a reality to this reputation, but four are particularlywhen the Kentucky Highlands Enterprise Zone important. The first is philosophy. Recognizingwas approved in 1994, which provided that strategies based on implanted companies$700,000 over seven years in funding for the serving outside markets or local companiesCenter. Over a period of five years, out of a serving only local markets do not work well inpopulation of just 12,000 in one of the poorer poor rural regions, KHIC looks to invest incounties in Kentucky, the manager worked companies in local markets that bring in exter-with 200 clients, translating into over 60 busi- nal dollars. An example might be an adult dayness start-ups with a failure rate of just one in care business that provides a local service andfour. Two 12-week classes (two three-hour ses- local jobs while pulling in Medicaid andsions per week) were offered per year with 15 Medicare dollars into the community.people per class. A key lesson from this experi-ence was the value of intensive support to local A second factor is KHIC’s strong focus onentrepreneurs provided by someone living in grantsmanship, ensuring access to any new fed-the community who they could trust and to eral program that might be useful to localwhom they could relate. entrepreneurs. The Enterprise Zone brought in $30 million, KHIC is one of eight Rural TaxThe credit for securing an Enterprise Zone for Credit community development corporations,eastern Kentucky goes to the Kentucky and one of its subsidiary companies is a SmallHighlands Investment Corporation (KHIC), Business Investment Corporation. The third,based in London. KHIC was formed 35 years and related factor is its membership of nationalago to stimulate growth and create employment organizations, such as Rural Local Initiativesopportunities in a nine-county area of south- Support Corporation, National Congress ofeastern Kentucky. It became a venture capital Community Economic Development, Nationalprovider in 1972, investing in businesses locat- Community Capital Association, and theed in its area that would hire unemployed resi- Community Venture Capital Alliance, whichdents, by providing hard-to-access start-up cap- help keep eastern Kentucky connected to newital and fair financing terms in return for an ideas from around the country.equity stake. KHIC is a certified CDFI and pro-vides a range of equity and debt products. The The fourth factor, and most critical for thisRUPRI Center for Rural Entrepreneurship assessment, is KHIC’s willingness to partnerdescribes KHIC as one of a small number of with other organizations to create a positiveestablished Entrepreneurial Support entrepreneurial climate in rural Kentucky. TheOrganizations in the country: “[they] place pri- latest example of this is the creation of themary focus on entrepreneurs rather than the Appalachian Development Alliance. Theenterprises they create; they build a support Alliance is a private nonprofit organizationsystem that nurtures entrepreneurs during the formed by a consortium of eight multi-countyidea phase, provides the resources and tools community economic development organiza-needed to create new enterprises, and guides tions – Appalbanc, Community Venturesthe entrepreneur through the process of grow- Corporation, MACED, Mountain Economicing a business; and they contribute to the cre- Development Fund, Southern Kentucky48 Mapping Rural Entrepreneurship

MACED’s strategy has four elements: creating economic opportunity through building the assets of individuals, institutions, and communities; building capacity of individuals and organizations to be more effective in their development efforts; impacting public policy by informing decision-makers and the public by documenting and sharing lessons; and demonstrating innovation. Within its portfolio of activities, MACED has a $5 million loan fund for business start-ups and expansions through which it offers a variety of innovative financing options. Appalbanc, also based in Berea, seeks to attack the root causes of rural poverty by providing access to business, consumer, and housing finance to low- and very low-income people.Economic Development Corporation, Pine Its Central Appalachian community loan fundMountain Community Development provides technical assistance and credit to indi-Corporation, and KHIC. viduals, cooperatives, and organizations starting or expanding small businesses. In 14 years,All of these organizations operate revolving it has made 100 small business loans totalingloan funds and provide technical assistance to $30 million to businesses employing 400 work-small businesses located in eastern Kentucky. ers. Alongside its business lending, AppalbancAs many of their service territories overlap and provides savings and loans to low and moder-good deals are few and far between, there is ate income members of its federal credit union,obvious potential for competition, but the con- as well as home financing products and varioussortium members have come together to lever- services to connect local people to the laborage more resources and share information and market.expertise. With $1 million from Coal SeveranceFunds and $400,000 contributed by the mem- Another important piece of the entrepreneur-bers, the aim is seek funds from the CDFI ship infrastructure is the statewide SBDC net-Fund, the SBA, and other federal and state work, headquartered at the University ofsources. These additional funds will be used to Kentucky in Lexington. There are 14 centersfinance deals that the individual members that provide a range of counseling, training,would not be able to do on their own. and information services. Training programs are free or low-cost on topics such as businessTwo of the members of the consortium mem- plan development, advertising methods, andbers provide other complementary approaches loan options; counseling is on a confidentialto rural economic development and entrepre- one-on-one basis. The Kentucky SBDC net-neurship. The Berea-based Mountain work is one of the earliest systems in the coun-Association for Community Economic try. It follows the typical higher educationDevelopment (MACED) was formed in 1976 model involving all of the state and regionalby 10 local community development corpora- campuses, and combines local presence withtions to serve 51 counties of eastern Kentucky. access to statewide resources. There are strong stakeholder expectations that the SBDCs will W.K. Kellogg Foundation • Corporation For Enterprise Development 49

serve everyone who needs help, and with limit- partners – Center for Rural Development,ed resources, the counselors tend to be thinly Southeast Community College, the Universityspread, although the range of expertise in the of Kentucky county extension network, thenetwork enables it respond to a wide range of McConnell Technology Transfer Center, as wellneeds. The SBDCs do not bring capital to the as KHIC and the SBDCs – and throughtable although they do work closely with the CenterNet and the Internet. KEAN is housed atbanks and with the other funding institutions Southeast Community College, which amongin the state. other things has an Office of Entrepreneurship, a regional business incubator, a loan fund, andThe SBDCs and Kentucky Highlands provides consulting and brokerage services.Investment Corporation are also part of yetanother new network, the Kentucky The growing interest in the potential power ofEntrepreneurial Accelerator Network (KEAN). telecommunications to reach rural entrepre-This provides services and connections through neurs and communities is evident inmeetings, websites, and videoconferencing with CenterNet, an initiative of the Center for Ruralthe aim of accelerating business development Development. CenterNet is a regional networkand diversification by linking entrepreneurs that brings Internet and videoconferencingand those in business to educational, technical facilities in 34 locations across rural south andassistance, and funding resources. Access to east Kentucky, one of the locations being at thethe network is gained through offices of the offices of KHIC. Commentary In south and eastern Kentucky, there are in to use technology to supplement outreach place a number of critical components that into rural communities and an understanding comprise an entrepreneurial rural region. of the importance of community capacity- There are a number of long-established non- building as a complement to economic profit institutions that provide high-quality development. entrepreneurial support services. There has been innovative legislation that has taken a Much of what has been described is new and comprehensive view of what it takes to stim- untested, but putting all these together should ulate innovation and entrepreneurship in the enable rural Kentucky to offer something state, with special outreach efforts into the close to a seamless system of support services. rural regions. There is a growing number of However, there appears to be no concerted institutional and virtual networks and effort at scale to create a pipeline of entrepre- alliances that are weaving together the work neurs through the engagement of young peo- of multiple nonprofit organizations, educa- ple in Kentucky’s rural communities. That tional institutions, and public agencies. There said, the Kentucky Science and Technology are people of vision and energy. There is Corporation’s pilot entreSchools Initiative, a recognition that there are entrepreneurs of all competition with the aim of encouraging kinds in the rural communities but that spe- “student-created, student-powered ventures” cial efforts have to be made to engender trust that help young people to learn in new ways, and confidence. Finally, there is a readiness looks like a promising start.50 Mapping Rural Entrepreneurship

NebraskaHalf of Nebraska’s residents live in rural com-munities. Of the 532 incorporated communi-ties in the state, only 11 have a population ofover 15,000. Poverty rates in the rural farmcounties are 33 percent higher and per capitalincomes are $6,700 lower than in the metro-politan counties. Ten Nebraska counties withpopulations of less than 1,500 appear amongthe Bureau of Economic Analysis’ annual listsof the 250 counties nationwide with the lowestper capita income. Indeed, Loup County,Nebraska had the dubious distinction in 2001of having the nation’s lowest per capita incomeof $6,235. A recent poll93 found that farmersand ranchers in the state expect to be worse offin the next 10 years. In addition, Nebraska isexperiencing significant demographic changes financial capital. While these rankings areas refugees and other immigrants make the somewhat stronger than those for Kentucky,state their home. they do not capture the apparent extent of entrepreneurial activity in rural Nebraska. TheSmall businesses represent a large proportion of exception is Goetz and Freshwater’s entrepre-the Nebraska economy. In 2000, 86 percent of neurial climate measure that shows Nebraskathe state’s businesses had fewer than 20 employ- as ranking 7th in the nation.ees and were responsible for creating one thirdof all new jobs.94 According to U.S. Commerce Like Kentucky, and indeed many other states,Department data,95 businesses with five or fewer Nebraska’s economic development prioritiesemployees accounted for 90 percent of the total focus on business recruitment. According toin Nebraska’s most rural counties. In the 10 the Center for Rural Affairs,101 for every dollaryear period to 1997, 70 percent of all job it spends on support for small business andgrowth in rural Nebraska was in non-farm self- entrepreneurial development, the state providesemployment and small businesses,96 making the $286 in tax incentives and other programs forstate unique in that new business start-up and large corporate business development.survival rates in rural areas are as strong as or Moreover, rural areas generally do not benefitstronger than those in metropolitan areas.97 from such support. That said, the state does currently provide over $700,000 per year inCFED’s 2002 Development Report Card for the staff and financial resources to assist microen-States98 ranks Nebraska 30th on its “entrepre- terprise and small business owners.neurial energy” sub-index, while theProgressive Policy Institute’s 2002 New Much of the credit for raising awareness aboutEconomy Index 99 ranks the state 41st for “eco- the importance of entrepreneurship tonomic dynamism” and 34th for “innovative Nebraska’s economy and communities goes tocapacity.” The Goetz and Freshwater study 100 the Center for Rural Affairs, a 30-year old non-ranked Nebraska 44th in ideas and innova- profit organization that provides a range oftions, 24th in human capital, and 33rd in research, education, advocacy, and other services W.K. Kellogg Foundation • Corporation For Enterprise Development 51

in support of rural Nebraska. The Center’s mis- The first is federal advocacy where the Centersion is a powerful statement about the inter- was active in arguing for funding for ruralconnectedness of economy and community in development and microenterprise in the 2002rural America: The Center for Rural Affairs is Farm Bill, and in designing the New Homesteadcommitted to building communities that stand Act, sponsored by Senators Dorgan, Hagel andfor social justice, economic opportunity, and others, to provide incentives to live and estab-environmental stewardship. We encourage peo- lish businesses in counties that have lost at leastple to accept both personal and social responsi- 10 percent of their population over the last 20bility for creating such communities. We pro- years. These incentives would include a 30 per-vide opportunities for people to participate in cent tax credit for investing in small owner-the decisions that shape the quality of their operated businesses and a $3 billion venturelives and the futures of their communities.102 capital fund for investments in rural businesses, as well as other measures to encourage savings,Initially the Center had a strong agricultural education, and home purchase.focus but in 1990 with its seminal Half a Glassof Water publication became heavily engaged in State advocacy is the second area of note. Hereeconomic development and entrepreneur- the Center has been calling for increasing sup-ship.103 Regarded as radical at the time, the port for small business104 and microenterprisereport drew attention to the lack of a rural eco- development and for legislation for a statewidenomic development policy, the detrimental Individual Development Account program.effects of business recruitment tax incentives, Thirdly, the Center provides technical assistanceand the role of self-employment in Nebraska. through two programs, REAP and Project Hope.More recently, the Center has been active inmany areas, but three are particular relevant to Having provided services to farmers, ranchers,this assessment. and small businesses for several years through52 Mapping Rural Entrepreneurship

individual projects, the Center began in 2000 national reputation for its juried services, prod-to offer farm and ranch communities a package uct development assistance, and networkingof options for revitalizing their communities and educational activities.through Project HOPE – Hope and Opportunityfor People and the Environment. The package, Nebraska EDGE – Enhancing, Developing, andwhich varies from community to community, Growing Entrepreneurs – is a program of theincludes information on alternative agriculture University of Nebraska’s Center for Appliedproduction systems, business management Rural Innovation (CARI). EDGE is an entre-training and loans, help in forming coopera- preneurial training program for small business-tives for marketing specialty agricultural prod- es, including agricultural enterprises. It part-ucts, linkages between retiring farmers and ners with REAP to provide rural-oriented train-beginning farmers or ranchers, technical assis- ing for microentrepreneurs. Since its inceptiontance, and leadership and advocacy training. in 1993, EDGE has served 1,600 individuals.Two years ago, the project received over 300 CARI also runs a number of other programsrequests to assist the development of value- such as Connecting Nebraska, a community-added production systems but could only based technology training course to teach busi-respond to 10, with the Cooperative Extension nesses how to use technology to increase theirservice assisting another 40. markets, and communicate with suppliers and providers, and the Nebraska CooperativeThe Rural Enterprise Assistance Project Development Center, which helps agricultural(REAP) is a 10-year old microenterprise devel- producers and multi-owner businesses withopment program that reaches out to entrepre- cooperative development efforts particularlyneurs in communities with a population of around value-added agriculture.15,000 or less. The program offers small busi-ness training, group-based e-commerce train- The University of Nebraska has recentlying, monthly networking opportunities, indi- launched a Rural Initiative to focus resourcesvidual technical assistance, and both individual and faculty on tackling the economic andand peer micro-lending. Peer groups or associa- social challenges that face rural Nebraska. Onetions have to be organized in each small com- of the Initiative’s first ventures is the Coalitionmunity in order to receive REAP services; cur- for Rural Economic Advancement, Training,rently there are 46 such associations serving and Entrepreneurship Team (CREATE). This400 businesses. REAP also hosts a Rural is an emerging collaborative strategy among theWomen’s Business Virtual Center. In a concert- key players in entrepreneurship and economiced effort to scale-up its activities and impact, development in the state. Its purpose is to raiseREAP has established six field offices and is awareness in rural communities about theincreasing collaboration through formal part- value of nurturing entrepreneurs in buildingnerships with organizations such as GROW their economies and the work needed to createNebraska, and Nebraska EDGE. a supportive entrepreneurial climate. The intention is to make the most effective use ofGrassroots Resources and Opportunities for limited training and financial resources inWinners (GROW) Nebraska is a marketing Nebraska to assist entrepreneurs. By the end ofand training organization that works with 2003, CREATE will have finalized its commu-crafters, artisans, and other home-based entre- nity engagement strategy, trained team mem-preneurs. It has 167 members in 88 counties bers, and selected three or four pilot communi-across the state. Modeled after ACEnet in ties. The pilots will be carefully documentedAppalachian Ohio, GROW Nebraska has a based on a framework developed by the RUPRI W.K. Kellogg Foundation • Corporation For Enterprise Development 53

Center for Rural Entrepreneurship, and there nical assistance, and peer learning services forwill be an ongoing effort to develop tools and microenterprise development organizations, andresources, and to publicize the effort. the preparation of an annual report to state legislators on outcomes of Nebraska microenter-Another important player in rural Nebraska is prise programs. In 2002, 3,225 people receivedthe Nebraska Community Foundation, which loans and training in business practices that cre-has been recognized as a national model by the ated or retained 1,421 jobs. The Fund also sup-Aspen Institute, the National Rural Funders ports another piece of statewide infrastructure,Collaborative, and the Ford Foundation. With Nebraska Enterprise Opportunity Networkthe prospect of $94 billion being transferred by (NEON), which is a network of 35 memberrural Nebraskans to their heirs over the next organizations, including microenterprise pro-20 years and the potential that offers for phi- grams, banks, and foundations. NEON provideslanthropy across the state, the Foundation has information, effective practices, and networkingassisted over 150 affiliated community funds in opportunities to programs and is engaged in63 counties. state and federal policy advocacy to increase funding for microenterprise.One of the Foundation’s latest programs is theHometown Competitiveness Initiative, which A long-established part of the small businessseeks to employ a three-part strategy of wealth development landscape is the Nebraskacreation, community capacity, and entrepre- Business Development Center network based atneurship to demonstrate ways in which leaders the University of Nebraska at Omaha. The net-can link charitable giving to economic and work comprises seven centers across the statecommunity development. A number of coun- and offers the usual array of business consultingties are experimenting with the initiative, and and business plan development services, train-various strategies are emerging including entre- ing and workshops, procurement assistance andpreneurship recruitment, encouraging young financial packaging. The network, however, doesfamilies who have left their hometowns to have some unusual features, including a require-return, and retention of businesses that may be ment that staff have to obtain an MBA and begoing to close or relocate. certified by the National Development Council. Client interactions are extensively documentedAn affiliate of the Nebraska Community and there is in place an evaluation process. SixtyFoundation is the Nebraska Microenterprise percent of businesses employ fewer than fivePartnership Fund, a statewide financial inter- people. As was noted in the Kentucky SBDCmediary with the aim of creating a coordinated network, there is an expectation that all-comersand permanent infrastructure for microenter- will be served, but in Nebraska a “response toprise programs. The Fund is a nonprofit organi- inquiry” system has been introduced to separatezation and a certified CDFI that served as the out “tire kickers” from serious entrepreneurs.model for the creation of National Fund for This requires the entrepreneur to fill out a con-Enterprise Development. It raises funds from a sulting request form and a business plan outline.variety of national and state sources and thenawards grants, loans, and related products to The network is increasingly challenged by themicroenterprise programs through an annual need to serve rural entrepreneurs. A declining“request for proposal” process. The Fund’s and population and little in the way of outreach hasthe microenterprise community’s greatest chal- led to reduced activity and performance, in turnlenge is the reduction and uncertainty of state resulting in the closing of two centers servingfunding. Other activities include training, tech- rural counties when funding cuts were made. In54 Mapping Rural Entrepreneurship

addition, as the population diversifies, there are Future, a five-day summer camp for high schoolincreasing numbers of Latino entrepreneurs students, and the annual Allen Dayton Youngwhose needs are not being met by the network. Entrepreneur Contest to recognize outstandingEntrepreneurship education in Nebraska is pri- potential entrepreneurs which offers scholar-marily focused on career and technical courses ships to the university as prizes. The Center alsoin the 9th and 12th grades. There are stand-alone offers a number of undergraduate entrepreneur-courses and entrepreneurship classes are infused ship courses.into agricultural, business, family and consumersciences, and marketing programs, and high An example of a local entrepreneurship initiativeschools host entrepreneurship-oriented events is one jointly created by a tribal enterprise, Hothrough DECA, FBLA, FCCLA, FFA, and VICA. Chunk, Inc which is known nationally for itsThere appears to be little in the way of experien- financing of tribal enterprises and for its e-com-tial learning in the core curriculum although the merce site, AllNative.com, and Ho ChunkDepartment of Education is a member of the Community Development Corporation, with aConsortium for Entrepreneurial Education and mission to raise the socio-economic and educa-offers two scholarships annually to educators to tion levels for Native Americans in Thurstonattend the national Entrepreneurship Forum. County. The corporation’s business developmentThe Center for Entrepreneurship at the activities include leasing incubator space to start-University of Nebraska at Lincoln has intro- ups, a revolving loan fund, training workshops,duced a number of initiatives to engage young and technical assistance, while Ho Chunk, Inc ispeople in entrepreneurship. These include Kids helping seed self-employed vendors to meet theInvent Toys Camp for the 4th and 8th grades, needs of tribal businesses. Together, the twowhere students are encouraged to invent a toy, organizations are developing a mixed use com-write a business plan, create an advertising cam- mercial and residential site on the Winnebagopaign and a webpage; Entrepreneur of the reservation to create a town center. Commentary Nebraska typifies the enormous challenges Center for Applied Rural Innovation, and the facing the heartland states. With some of the Nebraska Microenterprise Partnership Fund. poorest rural counties in the nation, the need And there are a number of established net- to pursue economic opportunity beyond the works such as the SBDCs and NEON as well farm gate is of paramount importance. as emerging coordination networks such as Entrepreneurship, particularly microenter- CREATE. The state also clearly benefits from prise, has proved to be an effective strategy the presence of the RUPRI Center for Rural that has attracted a steady, if modest stream Entrepreneurship. In spite of apparently sig- of state funding for several years, in spite of nificant gaps in the availability of debt and the priority given to business attraction equity capital, and in entrepreneurial educa- efforts. There are some significant key insti- tion, the Goetz and Freshwater study indi- tutions that advocate for and support entre- cates that Nebraska offers a comparatively preneurship development across the state, supportive environment for entrepreneurs. including the Center for Rural Affairs, the W.K. Kellogg Foundation • Corporation For Enterprise Development 55

Orchestrating anEntrepreneurial Climatein Rural AmericaFor the purposes of this study, entrepreneurship parency, and accountability. But even there, therehas been defined as the process though which is room (and often a crying need) for creativity,entrepreneurs create and grow enterprises. This flexibility, and openness to new ideas.process has four principal elements: Entrepreneurship, contrary to common view, is• Identifying an opportunity for taking action neither an exercise in rash risk-taking nor a or a need that might be met. solo occupation. In fact, it is just the opposite.• Developing an idea to seize that opportuni- Entrepreneurship is about carefully assessing ty or meet that need. the balance of risk and reward (costs and bene-• Creating a venture that would bring togeth- fits). It flourishes in an environment where er the necessary resources – intellectual, there are many entrepreneurs of all types. physical, financial – to translate the idea Moreover, entrepreneurship is not the preroga- into a reality, make it effective, and sustain tive of hard-charging Alpha males or rugged it. individualists. People of all kinds are and can• Embracing creative thinking to resolve be entrepreneurs. Some may be naturally problems, remove obstacles, and identify inclined to be entrepreneurial, others learn to further opportunities. be entrepreneurs, but there is nothing in the rule book that prevents groups and communi-Although this process is usually applied to creat- ties working together for a common cause ining and sustaining business ventures, it has an entrepreneurial fashion.equal power in the worlds of social services,the arts, the sciences, and in community devel- Ensuring that a community, state, or nation hasopment – anywhere in fact where complex the right climate or culture in which entrepre-problems have to be solved in an uncertain envi- neurs and entrepreneurship can flourish is inronment. In government, certain and essential itself a creative process – one which requiresconstraints are placed on officials and the extent identifying opportunities, developing ideas,of their entrepreneurial behaviors in order to creating mechanisms for marshaling resources,ensure appropriate levels of consistency, trans- and embracing creative thinking. From the56 Mapping Rural Entrepreneurship

research and experience described in this study, ment points to the ineffectiveness of entre-it is clear that no “one size fits all” set of pro- preneurial development supports that aregrams driven by some federal policy will both programmatic and uncoordinated. Theachieve the desired results. Instead what is notion that entrepreneurs have differentrequired is a new framework that will animate needs that are a function of their education,people and institutions at all levels and of all skills, and maturity seems obvious, but tai-persuasions to be part of a movement that loring the plethora of training, technicalembraces a set of four organizing principles: assistance, and financing programs and products to these needs requires major• Community-driven: The community – adjustments to current practice. Such a whether small city, county, or tribal reserva- focus also brings along the need for systems tion – provides the immediate environment thinking, requiring providers of entrepre- which will determine whether entrepreneur- neurship development services to align ship flourishes or withers. Local communi- themselves as parts of regional systems ties need the tools and resources to identify rather than independent fiefdoms with turf and build upon their assets, to make choices and resources to protect. that appropriately balance economic, social, and environmental imperatives, to learn • Continuously learning: Entrepreneur net- from the experiences of others, and to be works have been stressed by many as essen- open to experimentation and innovation. It tial ingredients of a supportive entrepre- requires that all sectors of the community neurial environment because they provide are invited and expected to contribute. individual entrepreneurs the opportunity to learn from their peers. This is (or should be)• Regionally oriented: A regional focus to true for practitioners, community leaders, rural development and entrepreneurship is and policymakers. The notion of a pipeline critical in three ways. First, for the most of entrepreneurs suggests that learning part, political jurisdictions make little sense about entrepreneurship should be openly in economic terms and the resources avail- available – and integrated into school curric- able in any given rural county or reservation ula. Students can learn the essential ele- are inadequate to match the scale of need ments of entrepreneurship from a young age (or opportunity). Only through regional and be encouraged to apply them through- cooperation across multiple jurisdictions, out life, as part of preparing them for the and through regional institutions can there changes and uncertainties of life in the new be sufficient scale, resources, and expertise economy. At another level, there is a press- to enable individual communities to play ing need for rigorous evaluation of the effec- their full role. Second, arbitrary distinctions tiveness of entrepreneurship strategies and between urban and rural interests both mask the returns on investment that can reason- the issues and concerns that are common to ably be expected. all residents and businesses and prevent the search for regional solutions that might be This study has also highlighted a number of of particular benefit to rural areas. Third, for other important essentials for promoting an entrepreneurs, local markets are generally entrepreneurial climate: inadequate to sustain their businesses; they need access to the main regional economic • Anchor institutions: The presence of non- drivers to survive and expand. profit institutions with the capacity to artic- ulate a vision and/or advocate for change,• Entrepreneur-focused: Current ground- build partnerships, and attract and mobilize breaking work on entrepreneurship develop- resources has been critical to entrepreneur- W.K. Kellogg Foundation • Corporation For Enterprise Development 57

ship and homegrown economic develop- is a vacuum of leadership for pursuing an ment. These can be universities, community entrepreneurship agenda. This is reflected in colleges, CDFIs, community development repeated attempts to cut back resources for corporations, or nonprofit research and programs targeted at small business, devel- advocacy groups. They are particularly opment finance, microenterprise, and community-based economic development. At the state level, some legislators are showing interest and support for comprehensive approaches to entrepreneurship development and education, while others are cutting back on supportive programs, even as they continue to endorse expensive business recruitment policies. Demonstrating effectiveness and returns on investment as compared with other more conventional methods of stimulating economic development is critical to encouraging more supportive public policy. Another imperative at both federal and state level is to not create more legislation and programs to support rural entrepreneurship but to ensure all programs have the capability and flexibility to be tailored to the particular needs of different rural regions across the country. • All entrepreneurs welcome: The distinctions drawn between opportunity – and necessity – driven entrepreneurs or between lifestyle and growth businesses are both valid and effective when they embrace the above four useful. The fact that these opportunity-driv- principles by directly engaging in local com- en growth entrepreneurs are the ones that munities, operating at a regional scale, become the engines for wealth and job cre- focusing on the particular needs of entrepre- ation means that they should attract priority neurs as part of integrated systems of sup- attention both nationally and locally. That port, and providing opportunities for said, most entrepreneurs start from modest exchange and reflection. beginnings – 69 percent of the Inc• Supportive public policy: The Kentucky Magazine’s 500 fastest growing firms in the Innovation Act is an example of a compre- United States started with less than $50,000 hensive and creative approach to state policy in capital; 50 percent had businesses that to encourage innovation and entrepreneur- were non-technology-related, and 56 percent ship. Working through nonprofit and higher started their business at home.105 It is a pow- educational institutions with significant erful idea to create a diverse pool of entre- resources and a mandate to reach out to preneurs – with different motivations, entrepreneurs in the most remote and poor- whether for survival, lifestyle, or wealth – est rural counties provides a powerful who develop fast-growth enterprises. It model. Otherwise there are mixed messages represents part of the American Dream that from government. At the federal level, there anyone can make it with a little bit of support58 Mapping Rural Entrepreneurship

and encouragement. So a microenterprise in of the National Commission on Loup County, Nebraska or in Owsley County, Entrepreneurship leaves a vacuum in Kentucky could be just a means to provide national leadership for entrepreneurship supplementary income to a poor family or it development policies. There is uncertainty could be the beginning of a rapidly growing around the direction the Ewing Marion venture with a global market. Kauffman Foundation may be heading in its advocacy and support for entrepreneurship.This is a daunting set of requirements. But The RUPRI Center for Rural Entrepreneurshipthere are a number of entry points that advo- is focused on learning strategies. What iscates, communities, governments, foundations, needed is to energize networks of organiza-and businesses should consider in order to cre- tions and institutions across the countryate a supportive entrepreneurial climate in that can use the results of the investmentrural America. These can be grouped into four and learning strategies to generate publicmain strategies: and private resources to support entrepreneurship development, particularly in rural• Investment strategies: Encouraging behav- America. ioral changes in communities, institutions, and governments will require the creation of • Information strategies: One of the challenges a set of incentives and a willingness to is the absence of information tools that ade- invest for the long haul. For instance, capac- quately describe and measure entrepreneurial ity-building and challenge grants should be activity and climates. As discussed earlier, used to encourage urban-rural and regional data and methodological deficiencies current- collaborations and the development of effec- ly prevent a clear picture of status and trends tive and accountable systems of entrepre- from emerging. But there could be consider- neurship support. In addition, investments able value in developing an Entrepreneurship should be made in innovations in entrepre- Report Card to provide comparative data neurial education, technical assistance and about the performance of rural regions and training, capital access, and networking that labor markets nationwide, as other bench- show promise for widespread replication in marking and assessment tools. rural communities. As noted at the Center for the Study of Rural• Learning strategies: Rigorous evaluation of America conference two years ago, “Starting entrepreneurship strategies, systematic case and growing a business anywhere is fraught studies of effective practices and initiatives, with well-documented perils. These are com- “how to” guides, training programs for pounded in rural America by low population elected officials and policymakers, and density and remoteness, with their implications opportunities for peer exchanges all repre- for access to markets, capital, labor, peers, and sent a vital strand of learning strategies. infrastructure, as well as the way they shape Other approaches might include experiential cultural attitudes towards entrepreneurship.”106 (hands-on) entrepreneurship education Yet this study presents ample evidence of efforts in schools, colleges, clubs, communi- organizations, institutions, and agencies pursu- ty centers, and camps. ing all manner of programs and initiatives that• Advocacy strategies: Whether it involves are meant to encourage greater entrepreneur- moving the New Homestead Act or fighting ship in rural America. The task ahead is to the defunding of a statewide SBDC network, make their efforts more community-driven, there has to be information, organizing, and regionally oriented, entrepreneur-focused, and advocacy to get the job done. The disbanding continuously learning. W.K. Kellogg Foundation • Corporation For Enterprise Development 59

Endnotes1 Stauber, Karl N. (2001). Why Invest in Rural 11Zacharias, Andrew L., Neck, Heidi M.,America – And How? A Critical Public Policy Bygrave, William D, and Cox, Larry W. (2002).Question for the 21st Century. In The Center for Global Entrepreneurship Monitor, Nationalthe Study of America, Exploring Policy Options Entrepreneurship Assessment, United States offor a New Rural America. Kansas City, MO: America, 2001 Executive Report. Kansas City,Federal Reserve Bank of Kansas City. MO: Kauffman Center for Entrepreneurial Leadership at the Ewing Marion Kauffman2 Ibid, pages 23-26. Foundation. Pages 6-7.3Rowley, Thomas D. and Freshwater, David 12 Neck, Heidi M. et al (2003) Op.cit. page 31.(2002). The Rural Dilemma. www.terrain.org.Page 9. 13OECD (2003). Entrepreneurship and Local4 Rob Gerwitt (1996). Developing Economic Development: Programme and Policy Recommendations. Paris: Author. Pages 9-10.Entrepreneurial Economies in Rural Regions:Lessons from Kentucky and Appalachia. 14Clark, M. and Kays, A (1999). MicroenterpriseWashington DC: The Aspen Institute Rural and the Poor: Findings from the Self-EmploymentEconomic Policy Program. Page 12. Learning Project Five Year Survey of Microentrepreneurs. Washington DC: The Aspen5National Commission on Entrepreneurship Institute.(2002). Entrepreneurship: A Candidate’s Guide:Creating Good Jobs in Your Community. 15Friedman, R.E., Grossman, B.H., and Sahay PWashington DC: Author. Pages 2-3. (1995). Building Assets: Self Employment for Welfare Recipients: Overview of the Findings from6Center for the Study of Rural America the Self Employment Investment Demonstration.(August 2002). Are High-Growth Entrepreneurs Washington DC: Corporation for EnterpriseBuilding the Rural Economy. The Main Street Development.Economist, Federal Reserve Bank of KansasCity. Page 4. 16Losby, Jan L., Else, John F and Kingslow, . Marcie E. (ISED Consulting and Research) and7Appalachian Regional Commission (2001). Edgcomb, Elaine L., Malm, Erika T. and Kao,Conference Proceedings: Building New Economies Vivian (The Aspen Institute) (2002). Informalin Rural America. Washington DC: Author. Economy Literature Review, December 2002.Page 2. Newark DE and Washington DC: ISED and8 Kayne, Jay (1999). State Entrepreneurship The Aspen Institute.Policies and Programs. Kansas City, MO: 17 Ibid page 43.Kauffman Center for EntrepreneurialLeadership, Ewing Marion Kauffman 18 Goetz, Stephan J. and Freshwater, DavidFoundation. Page 5. (2001). State-Level Determinants of9 Center for the Study of Rural America Entrepreneurship and a Preliminary Measure of Entrepreneurial Climate. Economic(August 2002). Op.cit. page 4. Development Quarterly, Vol. 15, No. 1,10 Neck, Heidi M., Zacharias, Andrew L., February 2001, pages 58-70.Bygrave, William D, and Reynolds, Paul 19 Ibid, page 65.D.(2003). Global Entrepreneurship Monitor,National Entrepreneurship Assessment, United 20 National Commission on EntrepreneurshipStates of America, 2002 Executive Report. Kansas (2001). High-Growth Companies: MappingCity, MO: Kauffman Center for Entrepreneurial America’s Entrepreneurial Landscape.Leadership at the Ewing Marion Kauffman Washington DC: Author.Foundation.60 Mapping Rural Entrepreneurship

21Corporation for Enterprise Development 32Dabson, Brian with Marcoux, Kent (2003).(1993). Rethinking Rural Development. Entrepreneurial Arkansas: Connecting the Dots.Washington DC: Author. Page 2. Little Rock, AR: Winthrop Rockefeller Foundation.22 Ibid, page 3. 33 Ibid page18.23Fluharty, C. (1995). Opportunities for RuralPolicy Reform: Lessons Learned from Recent 34 Ibid page18Farm Bills. Testimony presented by Chuck 35Appalachian Regional Commission (2003).Fluharty, Director of the Rural Policy Research Appalachian Youth Entrepreneurship EducationInstitute, before the Senate Committee on Springboard Award: 2002 & 2003 AwardAgriculture, Nutrition, & Forestry. Winners. Washington DC: Author. Page 1.24 Collender, R., Sullivan, P Milkove, & D., ., 36Interview with Cathy Ashmore, ExecutiveBagi, F (n.d.). Financial Markets Serve Rural . Director, Consortium for EntrepreneurshipAreas Reasonably Well. Rural Development Education. For the resource guide seePerspectives. (Vol. 14, no. 1). Washington http://www.entre-ed.org/_arc/ee-index/htmD.C.: USDA Economic Research Service. 37 Walstead, William B. and Kourilsky, Marilyn25Center for Rural Entrepreneurship. (March L. (1999). Seeds of Success: Entrepreneurship and2002). National Environment for Entrepreneurs. Youth. Dubuque, IA: Kendall/Hunt Publishing(Monograph 8). www.ruraleship.org. Company. Page 15.26Dabson, Brian (2003, March). Strengthening 38Interview with Ed Davis, Executive Director,Local Rural Economies through Entrepreneurship. Distributive Education Clubs of AmericaIn Walzer, N. (2003). The American Midwest: (DECA)Managing Change in Rural Transition. New 39 Interview with Cathy Ashmore, ExecutiveYork, London: M.E. Sharpe Director, Consortium for Entrepreneurship27National Association of Development Education.Organizations. (March 2000 & January 2001).Economic Development Finance Service Reporter. 40Interview with Darrell Luzzo, Vice President(Vol. VI, no. 3 & Vol. VII, no. 1). Washington, Programs, National Junior AchievementD.C.: National Association for Development 41Interview with Claire Melican, Vice PresidentOrganizations Programs Administration, National Council for Interview with Matthew Chase, Policy28 Economic EducationDirector, National Association of Development 42Personal correspondence with Alan T. Smith,Organizations Program Leader, National 4-H Appalachian Regional Commission (2001).29 43Interview with Mark Picairilli, consultant toEntrepreneurship Initiative Approved Projects. Boys and Girls ClubsWashington DC: Author. Page 2. 44Meyer, D. (2001, February 8).30 Kayne, Jay (1999). Op.cit. MajorUnresolved Issues and Opportunities in31Interview with Don Macke, Co-Director, Entrepreneurship Education. Whitepaper pre-RUPRI Center for Rural Entrepreneurship, sented by G. Dale Meyer, President ICSB, at theJuly 23, 2003. 2001 USASBE/SBIDA Joint National Conference, Orlando, Florida. W.K. Kellogg Foundation • Corporation For Enterprise Development 61

Charney, A., & Libecap, G. (2000). Impact of45 Interview with Wyatt Fraas, Rural 55Entrepreneurship Education. Tucson, Arizona: Opportunities and Stewardship ProgramUniversity of Arizona. Assistant Director, Center for Rural Affairs,46 Seymour, N. (2001). Entrepreneurship Nebraska.Education in American Community Colleges 56 www.minnesotaruralpartners.organd Universities. Kansas City, Missouri: 57 Interview with Tom Lyons, Director forKaufman Center for Entrepreneurship Research on Entrepreneurship and EnterpriseLeadership Clearinghouse on Entrepreneurship Development, University of Louisville, Kentucky.Education 58 Dabson (2003) op.cit. Interview with Betty Kadis, President,47 59 Interview with David Dangler, Director RuralNational Association for Community CollegeEntrepreneurship. Initiative, Neighborhood Reinvestment Corporation48Regional Technology Strategies. (2003).Cultivating Successful Rural Economies: 60Adkins, D., Sherman H., & Yost C. A.Benchmark Practices at Community and (2002). Incubating in Rural Areas: ChallengesTechnical Colleges. Carrboro, NC: Regional and Keys to Success. Athens, Ohio: NationalTechnology Strategies, Inc. Business Incubators Association. 61 Interview with staff of Eastern Maine Interview with Betty Kadis, President,49National Association for Community College Development CorporationEntrepreneurship. 62 Interview with Bill Amt, Director of Research,50National Commission on Entrepreneurship National Association of Development(2002). Entrepreneurship: A Candidate’s Guide: OrganizationsCreating Good Jobs in Your Community. Interview with Ted Buelow, Title, Office of 63Washington DC: Author. Page16. Community Development, USDA51National Association of Development 64Appalachian Regional Commission. (2000,Organizations. (2002, September). Business Not September 17-19). Tools for Entrepreneurship:as Usual: Regional Development Organizations Building New Economies in Rural AmericaPromote Rural Entrepreneurship. Washington, Conference Proceedings. Washington, D.C.:D.C.: National Association of Development Appalachian Regional Commission.Organizations Research Foundation. 65Association for Enterprise Opportunity.52National Commission on Entrepreneurship. (2003). Innovations in Microenterprise(2001, December). Building Entrepreneurial Development from the Rural Experience: GuidingNetworks. Washington, D.C.: National Practices for Entrepreneurial Development in theCommission on Entrepreneurship. Food, Tourism, and Artisan Sectors. Arlington,53National Association of Development VA: Association for Enterprise Opportunity.Organizations (2001) Op.cit. 66Interview with David Dangler, National Rural Interview with Tom Lyons, Director for54 Initiative Manager, NeighborhoodResearch on Entrepreneurship and Enterprise Reinvestment CorporationDevelopment, University of Louisville, 67 Lyons, Thomas S. (2003). Policies for CreatingKentucky. an Entrepreneurial Region. Paper to the 2003 Center for the Study of Rural America Conference, Kansas City, April, 200362 Mapping Rural Entrepreneurship

68 Collender, R., et al (n.d.). Op.cit. 85Appalachian Regional Commission. (2000, September 17-19). Tools for Entrepreneurship:69 Ibid Building New Economies in Rural America70 Center for Rural Entrepreneurship. (2002, Conference Proceedings. Washington, D.C.:March). Capital for Rural Entrepreneurs. Appalachian Regional Commission.(Monograph 9 www.ruraleship.org). 86 Barkley, David (2003), Op. cit.71 Collender, R. et al (n.d.) Op.cit. Mountain Association for Community 8772 Ibid Economic Development73 Dabson, Brian (2003) Op.cit. 88 Rob Gerwitt (1996). Op.cit.74 Ibid 89 Corporation for Enterprise Development75Corporation for Enterprise Development. (2002). 2002 Development Report Card for the(2003). CDFI’s: Opening the Door to a More States. Http://drc.cfed.orgInclusive Banking System. Washington, D.C.: 90Progressive Policy Institute (2002). NewAuthor Economy Index. Http://neweconomyindex.org76 Ibid 91Goetz, Stephan J. and Freshwater, David77 Dabson (2003) Op.cit (2001). Op.cit. Pages 65 and 67.78Corporation for Enterprise Development. Markley, Deborah and Barkley, David (2003). 92Local Capital Market Investment Fund (LCMIF) Development of an Entrepreneurial SupportProduct Descriptions. www.cfed.org Organization: The Case of the Kentucky Highlands Investment Corporation. RUPRI79Equity capital is defined broadly to include Center for Rural Entrepreneurship Researchmezzanine financing (subordinated debt), tra- Case Studies Series, Number 1. Page 1.ditional venture capital, pure shareholder equi-ty and other financing products, with the 93Hender, David (2003). Rural poll finds moreexception of traditional bank debt. ‘worse offs’. World-Herald Bureau, July 23, 200380Markley, D., Barkley, D., Freshwater, D., Center for Rural Affairs (2000). Trampled 94Shafer, R., & Rubin, J. (n.d.). A National Dreams: The Neglected Economy of the RuralSnapshot of Rural Equity Market Innovation. Great Plains. Walthill, NE: AuthorWashington, D.C.: Rural Policy Research 95 U.S. Department of Commerce, CountyInstitute (RUPRI). Business Patterns 2000, Nebraska, May 2002.81Barkley, D. (2003, April 28-29). Policy 96 Center for Rural Affairs (2000). Op.cit.Options for Financing Rural Entrepreneurs. Fitzsimmons, Edward L. (2002), Small Cities 97Working Paper presented by David Barkley, Abuzz with Business in Nebraska. Business inProfessor of Economic Development, Clemson Nebraska, Bureau of Business Research,University, at the 2003 Federal Reserve Bank of University of Nebraska-Lincoln, April 2002.Kansas City conference, Kansas City, Missouri. 98Corporation for Enterprise Development82 Markley, D. et al (n.d.) Op.cit. (2002). 2002 Development Report Card for the83 Barkley, D (2003) Op.cit. States. Http://drc.cfed.org84 Ibid 99Progressive Policy Institute (2002). New Economy Index. Http://neweconomyindex.org W.K. Kellogg Foundation • Corporation For Enterprise Development 63

Goetz, Stephan J. and Freshwater, David100(2001). Op.cit. Pages 65 and 67.101Center for Rural Affairs (2002). Balancingthe Scales of Prosperity: Bringing Nebraska’sEconomic Development Policy Into Balance.Walthill, NE: Author102Center for Rural Affairs website:http://www.cfra.org103Center for Rural Affairs (1990). Half a Glassof Water: State Economic Development Policiesand the Small Agricultural Communities of theMiddle Border. Walthill, NE: Author.104 Center for Rural Affairs (2002). Op.cit. National Commission on Entrepreneurship105(2002) Op.cit. page 7 Dabson, Brian (2001) Supporting Rural106Entrepreneurship. In Center for the Study ofRural America, Exploring Policy Options for aNew Rural America. Kansas City, MO: FederalReserve Bank of Kansas City. Page 36.64 Mapping Rural Entrepreneurship

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Mapping Rural Entrepreneurship

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