Presentation at the Auburn University Economic and Community Development Institute on the importance of entrepreneurship in economic development

1. The Importance of Small Businesses and EntrepreneurshipAuburn University Economic & Community Development InstituteJuly 16th, 2009 Glenn Kinstler, Director

2. Today’s agenda Quick introduction of Alabama Launchpad Ideas of Entrepreneurship and the Role of Small Businesses in Job Creation Three High-Growth Examples from Alabama The Case for Alabama Launchpad Closing Thoughts

3. What is ALABAMA Launchpad? Alabama Launchpad is a not-for-profit organization dedicated to the support and promotion of “high-growth” and technology entrepreneurship in Alabama. Alabama Launchpad was formed in 2006 by the state’s public, research universities and the business community. Unique collaboration between business and academia Effort to advance “The New Economy” in Alabama “Building an innovation economy through collaboration and entrepreneurship”

4. Alabama Launchpad Partners Alabama A&M University

5. Alabama Launchpad Partners Alabama A&M University Alabama State University

6. Alabama Launchpad Partners Alabama A&M University Alabama State University Auburn University

7. Alabama Launchpad Partners Alabama A&M University Alabama State University Auburn University University of Alabama

8. Alabama Launchpad Partners Alabama A&M University Alabama State University Auburn University University of Alabama University of Alabama at Birmingham

9. Alabama Launchpad Partners Alabama A&M University Alabama State University Auburn University University of Alabama University of Alabama at Birmingham University of Alabama in Huntsville

10. Alabama Launchpad Partners Alabama A&M University Alabama State University Auburn University University of Alabama University of Alabama at Birmingham University of Alabama in Huntsville University of South Alabama

11. Alabama Launchpad Partners Alabama A&M University Alabama State University Auburn University University of Alabama University of Alabama at Birmingham University of Alabama in Huntsville University of South Alabama The Economic Development Partnership of Alabama (EDPA)

12. Role of EDPA Privately funded, not-for-profit organization Private side of economic development Created in the early 90’s to help attract business to Alabama Assists the state, local and corporate economic development/recruiting agencies Extensive Existing Industry Program Entrepreneurship is Economic Development

13. “Entrepreneurs are society’s rejects, instead of becoming hobos, criminals or professors, they start their own business.” – Henry D. Thoreau Entrepreneurship & Small Businesses

14. Form of Social Responsibility Entrepreneurship makes the world better Entrepreneurs see what can be, not what is Idea of Creative Destruction Two types of Innovation Incremental: Small improvement to pre-existing products or services that make them cheaper, faster, better Disruptive: Completely new products or services that transform entire industries Inventors are not always entrepreneurs

15. Interesting Statistics US Small Business Administration defines a “small business” as one with fewer than 500 employees. Represent 99.7% of all employer firms Employ about half of all private sector, non-farm employees Pay nearly 45% of total US private payroll Generated 60 to 80% of net new jobs annually over the last decade Produce 13 times more patents per employee than large firms

16. Who creates more jobs? Small vs. Large “The Role of Small & Large Businesses in E.D.” Kelly Edmiston, Senior Economist at the Federal Reserve of K.C. From 1990 to 2003, 23 million net new jobs were created 239 million gross new jobs – 219 million gross jobs lost Small Business (< 20 employees) created 79.5% of net new jobs Midsize Business (20 – 500 employees) created 13.2% Large Business (> 500 employees) created 7.3% Large firms lose more jobs than they create, but… Statistics are deceiving, more study needed Small firms become large ones, so the statistics are skewed

17. Size-Wage Effect Source: US Dept. of Labor

18. Another Study “Employment Dynamics: small and large firms over the business cycle” US Dept. of Labor Statistics Study attempts to address the skew in past data by dividing firms into many more categories From 1990 to 2005, small firms (1 to 499) create 64% of net new jobs Expansions account for 83% of all gross job gains vs. 17% for startups Small firms had more net job losses in the recession of the early 90s, while large firms had more net job losses in the 2001 recession

19. “In today’s economy…” From April to May: 532,000 jobs lost Large firms (500+) shed 100,000 jobs – 19% Medium firms (50 to 500) shed 223,000 jobs – 41% Small firms (>50) shed 209,000 jobs – 40% From Jan to May: 2,494,000 jobs lost Large = 313,000 – 12.5% Medium = 1,098,000 – 44% Small = 962,000 – 38.5% Source: ADP National Employment Report, May 2009

20. Rates of Success Two-thirds of new employer firms survive at least two years 44% survive at least four years, 31% survive 7 years. Results were consistent from different industries Research found that after four years, the rate of firm closing declines considerably. Source: US SBA

21. Not all small businesses are equal !! Lumping all of these small businesses together is misleading Just think about the variety of small businesses you see every day! All businesses are important, but special attention should be given to “High-Growth”, innovative companies Often technology related More efficient than larger firms, more patents too Higher wages Create real wealth in the community

22. Three High-Growth Alabama Examples

24. Digium also offers a full range of professional services, including consulting, technical support, and custom software development.Currently employee over 80 people Long list of awards and recognitions from VOIP and entrepreneurial publications Headquartered in Huntsville

25. The New Digium

27. Customers in 48 states

28. Products help customers operate more efficiently and serve their communities more effectively

29. 80 employees; plans to add 20 to 30 more in next two years

30. Average salary more than $60,000

33. Started in 2001 focusing on generic drugs

34. Company focuses its efforts on the acquisition, development, licensing, and marketing of pharmaceutical products.

35. Became anchor tenant in Montgomery Industrial Park

36. Created two spin-off companies that also located in the park

37. Recently acquired by Kowa Pharmaceuticals of Japan

39. Idea of Entrepreneurial Churn

40. What can be done to support start-ups? Look at programs in other states: Georgia Research Alliance Ben Franklin Technology Partners - Pennsylvania Maryland Technology Development Corporation Spotlight and reward entrepreneurs Mentoring programs Networking opportunities for entrepreneurs Recruiting success creates opportunities for small businesses More entrepreneurship education at every level Common Theme: Public-Private Partnerships

41. Business Incubators Incubators provide: Shared space and overhead Expert advice and guidance Connections/Networking Access to capital Intangibles

42. “Writing a business plan is the first step to creating a successful venture. Everything starts with the plan.” – Dr. Bob Kolodney, Harvard Business School Governor’s Business Plan Competition

43. Business Plan Competition Competition is for technology and high-growth ideas Eligible teams must be affiliated with a partner university Current Student Current Faculty Other University Employee Alumni of no more than five years Former Faculty of no more than three years Must establish and maintain HQ and the majority of business operations in Alabama for 5 years Universities are “Centers of Innovation”

44. Goals of the Competition Provide a structured approach to writing a business plan To showcase Alabama’s best start-up ideas and promote the opportunities for entrepreneurship and innovation in Alabama To educate and nurture entrepreneurs To create a statewide network of individuals interested in high-growth entrepreneurship To provide seed financing to three high-growth businesses on an annual basis

45. Nuts & Bolts Competition occurs over four phases; Follows academic calendar Judges come from business and venture communities Final event where teams “pitch” their ideas 2009 Finale: April 18th at UAB Opportunity to bring together government officials, entrepreneurs, university officials, business leaders, economic developers, investors

46. 2008-2009 Registration Figures 36 team registrations Industry Categories: IT – 6 Materials Eng – 5 Biotech – 5 Medical Devices – 3 Consumer Products – 3 Pharma/Drug Delivery – 3 Auto/Aero Eng – 3 Green Tech – 2 Ag/Vet – 2 Other - 4

47. What do the winners win? Grand Prize: $100,000 2nd Place: $50,000 3rd Place: $25,000 While cash is king, the real prize is the opportunity to connect with members of the venture and angel communities and other business leaders.

48. A few past winners…

49. 2007 2nd Place: Halo Monitoring Led by two UAH MSEE alumni Wearable health monitoring system that uses wireless technology to monitor health and lifestyle of the elderly. Caregivers can monitor vitals of subject in real time Fall detection and automatic notification of 911 Currently incubated at BizTech Since competition, Halo has received $1.7 million of investment from the Huntsville Angel Network, Greer Capital Advisors and Jemison Investments

50. More on Halo Monitoring First sales in early 2009 Halo Research goes to Consumer Electronics Show ► Company now has 10 full-time employees

51. 2007 Grand Prize Winner: OcuMedic Team led by Dr. Mark Byrne, Professor of Chemical Engineering at Auburn Univ. Drug delivery company with a patented technology that creates therapeutic contact lenses for the treatment of ocular diseases Time release Used much of prize money to file international patent applications and new “field-of-use” patents Currently in animal testing at the Auburn College of Veterinary Medicine (FDA process)

52. 2008 2nd Place: SEA Desalination Led by Ph.D. candidate from The University of Alabama Sun-powered system that removes salt from seawater or pollutants from contaminated ground water Made from recycled soda bottles Initial sales are targeted to third world markets and coastal homeowners 10 full and part-time employees Currently incubated at UA AIME Center

53. 2009 1st Place: Innovative Composite Solutions Company led by 3 professors from UAB School of Engineering Design and manufacture of high-end thermoplastic composites Military, aerospace and mass transit market opportunities Company uses a proprietary manufacturing process Lighter, cheaper, more energy efficient and recyclable

54. Many opportunities for ICS

55. Competition going forward Alabama Launchpad winners have gone on to attract over $3.0 million in follow-on money from the Alabama venture and angel communities. More coming Other participants have raised capital, established joint ventures, hired employees, etc. We have directly helped create 9 companies in 3 years Educational Programs Seminars, website, etc.

56. Financial Support

57. Expenses – a lean organization

58. Current Sponsors – 2008/2009 Platinum Level ($25,000 and up)

59. Current Sponsors – 2008/2009 Gold Level ($10,000): Vulcan Materials Company* Silver Level ($5,000):

60. Current Sponsors – 2008/2009 Bronze Level ($2,500):

61. Closing Thoughts Small businesses come in all shapes and sizes Data varies on economic impact High-growth companies have the greater impact Economic diversity is incredibly important Alabama must be a leader in The New Economy Mentoring programs are very helpful Recessions are great times to start new businesses Entrepreneurship and Innovation are hot topics Alabama Launchpad is the only statewide initiative to support high- growth entrepreneurship in the state

62. For more information… Glenn Kinstler, Director gkinstler@edpa.org (205) 943-4709 www.alabamalaunchpad.com