This presentation was part of the Growing Entrepreneurial Communities Summit, a practitioner-focused summit designed to help economic development and small business practitioners effectively create economic growth through entrepreneurship in local communities. The 2018 Summit, subtitled Entrepreneurship on the Edges, focused on providing information and practitioner insight in how to effectively develop disadvantaged urban and rural communities using entrepreneurship-led development strategies.
I had to think about this title. I don’t usually think about growth in anyway other than it is imperative. What is growth? According to Google, growth is “the process of increasing in physical size”. Kinda works. I like the second: “something that has grown or is growing”. That’s better. Let’s use that one.
The second word: Entrepreneur – Google states: “A person who organizes and operates a business or businesses, taking on greater than normal financial risk in order to do so”.
So, putting them together, we have entrepreneurs that are growing or have grown.
- I’m not sure everyone has the same point of reference on where jobs are created. I’m going to spend a bit of time showing you data from the University of Wisconsin – Extension from their “youreconomy.org” dataset. We will go into a bit of how they are different and then a very brief discussion about what we are talking about. I’m more than happy to come back to advance this discussion – this will just set the stage. Fair enough?
We are an operating foundation: so we provide services not grants. Our focus is on stage 2 businesses – as we believe they are underserved, for a variety of reasons. We have various programs, running through entrepreneurial support organizations, in 42 states: including Missouri. In general our programs are based around information (Economic Gardening) – Peer Learning (Peerspectives – CEO Round Tables) – Leadership Retreats – Recognition Programs.
What is a “stage 2” company? Our primary definition is written on the slide. We have adjusted it, somewhat, for rural areas down to 6 employees and $750K of revenue. We will discuss next some of the reasons we focus on stage 2, but if you cut through it: A million bucks in sales demonstrates a market. Hiring 10 people demonstrates some managerial ability.
Keep that in the back of your mind.
If you boil it down, business leaders are or can become our community leaders. Growth companies, as we define them, generally are not threatening to leave, they are loyal to the community, etc. They spend money around town that support the local market businesses. Why? Because they are bringing new money into the community.
This is the data source I referenced from Wisconsin Extension. You can access much of this data free of charge in various geographies. I looked at this from a Missouri perspective, but you can break it down to the county, MSA, or micro MSA as well.
Stage 2 businesses are very resilient – and as noted they punch way about their weight in terms of hiring. Let’s look at some of this data more closely.
Here we see the US data on employment by stages and the percentage of companies in stage 2. So, they are roughly 15% of all companies but account for 39% of all employment. That is why we say they “punch way above their weight”. Let’s localize this – you don’t care about the US – Missouri is different isn’t it. (think I’ve heard that before?)
You can’t have one approach for all Economic Development. Each stage of business requires different things. They require different skill sets to reach and connect with them. I’ll talk about the first three groups in a bit more detail, those being start up, early stage, and growth companies (stage 2).
Anywhere in the country, there are many programs talking about start-ups and early stage companies. The SBA had a big push towards start ups awhile back. While it is certainly true, you need start up’s to get two stage 2 – These are the easier people to deal with Again, there are many, many programs around. Technology – I-Corp, bootcamps, incubators, etc. They are throughout the state and country which is great. These folks are much easier to reach. In fact, they will generally find you and your programs. Why is that? If we use an airplane analogy: These people are learning to become pilots. They need to know how to fly a plane. They want to be a pilot – their excited about it. Hence they are sponges for information. Many of the existing programs are well versed for that purpose.
Growth companies aren’t looking for help. Especially from the government….. “I’m from the government and I’m here to help” is the old joke, right? Their heads are down, they are working to grow the business. They are expanding teams, building new capabilities, and as Mr. Lowe learned (and the data shows) they are really in a small club. They know how to fly the plane – they are pilots, going back to our airplane analogy. They don’t want you to take the yoke, no, they have their plane. They need directions to get from point A to point B in the most expedient manner – they need information. They know their business and their needs. They are different than any other company in the world (it maybe similar, but no two companies need the same thing).
One of the criteria in our second stage definition is focusing on external markets. Those companies are the ones bringing new $ into the economy. You can’t keep all your money in your community. It just won’t work. Someone will take a trip to Disney for vacation, buy a car from Detroit, buy a computer from China, etc. So, External Market businesses are really critical to replenish the money supply in the market. This is not anything against local market businesses – they provide quality of life, but are generally not increasing the wealth of an area, they do increase the velocity of money movement. I have this conversation with my pathologist sister, who is very wealthy. But she accumulates other peoples wealth as opposed to creating new wealth. Does that make sense? Our focus is on business and community development; which is easier with wealth. If we can all take some money from outside our respective areas, our area will be better off.
I’ve got a graph on the next slide that does a nice job of illustrating the points on this slide. I’ll give you a second to read this and then we will look at the chart.
I know this is busy – but what is clear is the big blue swath of job creators on that list. So, the X axis is the % of jobs and the Y axis is every state in the union. Not one state has less than 80% of their jobs coming from anything but indigenous companies; meaning from within the state. I n fact, that dark brown on the far right – well, that is relocated jobs. So, we spend much of our resources on that next big deal, but does it really matter in the grand scheme?
What happens inside that company determines if and how fast they grow. Their stage of life determines what type of assistance they need. The only people who can do this are the companies themselves. Thus, it is really up to them what help they need. Programs don’t cause growth – that is arrogant – companies decide to grow – programs assist them.
Second Stage Entrepreneurs - Paul Bateson
on the Edges
April 26, 2018
Edward Lowe Foundation
We’ll Talk About
- What is a “Growth” Entrepreneur?
- What is it they provide our
- How are they different?
• Advocate entrepreneurship as a
strategy for economic growth and
• National operating foundation
• Provide second-stage
entrepreneurs with greater
• Privately held
• 10 - 99 employees
• $1M - $50M revenue
• Past startup
• Intention to grow
• Focus an External
Why Second-Stage Companies?
They have the greatest positive impact
In a position to expand
An online information tool that allows users to
analyze business activity from the community
level, to the state level, and across the country.
YE tracks the performance of more than 43
million U.S. businesses from 2016 back through
1997, providing detailed information about jobs,
sales and establishments.
What Can You Count On?
In the midst of great
hold strong on job
From 2012 through 2016,
only represented 15.5
percent of all U.S.
but generated 38.6
percent of all jobs and
36.3 percent of all sales.
Don’t Look Alike
• Each stage has
• Methods of learning
• Ways they
Start-Ups & Early Stage
• Hungry for information and
• Easier to reach them and get their
• Operational more than strategic
• One-to-many programs work well
• More strategic than operational
• Expanding teams and markets
• Challenging to reach
• Rely on trusted sources
• Peer-to-peer is important
• Need to feel loved
• Serve beyond local
• Intent and capacity to
• Increase the volume of
income into the region
• Serve within local
• Growth potential
limited to market area
• Increase the velocity
of money circulating
within the region
The Power of Existing Businesses
Center on Budget and Policy Priorities
• Jobs that move from one state to another
typically represent 1% to 4% of total job
• Jobs created by out-of-state businesses
expanding into a state by opening new
branches represents 1/6th of total job
• “Home grown” jobs contribute more than 80%
of total job creation in every state.