2. The Federal Reserve Bank
The views in this presentation do not necessarily represent the
views of the Federal Reserve Bank of Kansas City nor the Federal
Reserve System.
3. Federal Reserve Bank of
Kansas City
The Tenth District consist of Nebraska, Oklahoma, Kansas,
Colorado, Wyoming and portions of Missouri and New Mexico
4. The Federal Reserve Bank of
Kansas City Perspective
The mission of the Community Development
department of the Kansas City Federal Reserve
Bank is to support the economic growth objectives
of the Federal Reserve Act by promoting
community development and fair and equal access
to credit.
Our job is to serve as a neutral convener of
resources between those who have and those who
donāt, because we know all segments of the
population, including the less advantaged, benefit
from both economic growth and fair and equal
access to credit.
The Grow Your Own eBook provides
an overview of what it takes to
conduct entrepreneurship based
economic development.
Visit: www.kcfed.org/community/smallbusiness
To download the eBook and other information.
5. Data
All data is derived from the US Census Bureau unless otherwise
noted.
6. Economic Development
Definition
The main goal of economic development is improving the
economic well being of a community through efforts that entail
job creation, job retention, tax base enhancements and quality
of life. As there is no single definition for economic
development, there is no single strategy, policy, or program for
achieving successful economic. ā IEDC Economic Development
Reference Guide
7. Defining Economic Development
My Definition
āFostering a dynamic environment where economic
opportunities can be discovered, taken advantage of
and maximized to their fullest extent to create
balanced and sustainable economic growth, jobs, a
positive sense of āplaceā and an improved quality of
life in a defined geographic region.ā ā Dell Gines
8. Economic Development in
Practice
While economic development according to IEDC is based upon
achieving goals and various methods can be used to achieve
those goals in practice one form of economic development has
dominated the industry.
ATTRACTION BASED ECONOMIC DEVELOPMENT
This has been a dominant form of economic development for
decades and still is most used form of economic development
by economic developers.
However, using incentives to attract major firms to communities
has not worked in reducing disparity and an creating more
inclusive development.
9. Dominant ED Model
ED Inputs Targeted ED Outputs
Current Economic Development Model Based Upon Attracting Companies
Incentives
ā¢ Reduce Costs
ā¢ Improve Profit
ā¢ Tax revenue
increase
ā¢ Jobs
ā¢ Quality of life
Large
Business
Attraction
Net Gain Goals
Education
Public
Amenities
Trickle
Down
Economic Development
Primary Problems
1. Structural unemployment
2. Asset ownership and wealth
creation
3. Community resiliency & identity
10. Dominant ED Model
In a 2012 in-depth report on corporate incentives by The New York Times:
Nebraska ranked #3 in the nation in providing corporate incentives on a
per capita basis with $763 per capita in incentives given or 39 cents out of
every dollar per state budget. Only West Virginia and Alaska were higher.
Top Incentives by Type
ā¢ $1.28 billion in Sales tax refund, exemptions or other sales tax discounts
ā¢ $89.2 million in Corporate income tax credit, rebate or reduction
ā¢ $11.6 million in Cash grant, loan or loan guarantee
Top Incentives by industry
ā¢ $939 million in Manufacturing
ā¢ $235 million in Agriculture
ā¢ $26.5 million in Alternative energy
11. Omaha, Nebraskaa Tale of Two Cities
Positives
#3 - The Best Cities to Find a Job
in 2016
#9 - 2015's Most Caring Cities in
America
#1 - The Top 10 Best American
Cities to Work in Tech in 2015
The 5 Best Big Cities (Best in the
Midwest)
Time.com/money - August 2015
#15 - 2015's Best City for
Families
#5 - Best Metro Area (Omaha-
Council Bluffs) for STEM
Professionals
Negatives
According to a 2008 Pew
research report:
#3 Among America's 100
largest metro areas,
Omaha has the third-
highest black poverty rate.
#1 ā¦its percentage of
black children in poverty
ranks No. 1 in the nation,
with nearly six of 10 black
kids living below the
poverty line.
#2 ā¦only one other U.S.
metro area, Minneapolis,
has a wider economic
disparity between how
black and white residents
fare.
Omaha, Nebraska is an example of how attraction based economic development can
benefit large areas, but mask significant underdevelopment in parts of a community.
13. 68%
32%
2010 Race and Ethnicity
Break Down in Omaha
White Alone Other Racial or Ethnic Group
68%
14%
2% 1%
13%
White Black Asian American Indian Hispanic
2010 Omaha Population by Race &
Ethnicity
Roughly 1 out of every 3 individuals in Omaha is non-White
The largest racial group is Black consisting of 14% of the population
with the Hispanic ethnic group consisting of 13% of the population as
of 2010.
17. Inclusive Development
As previously mentioned, the goal of economic development is
what is important, and the methods used to get there can be
diverse.
This means that inclusive economic development will seek to
use the most effective means and create strategies that lead
towards equitable and sustainable growth in disadvantaged or
under-developed communities.
This also means that many of the methods we have been
taught, utilize and the systems of incentives and practices we
are most comfortable with may have to change.
18. Inclusive Economic
Development
Inclusive economic development is the utilization of economic
development strategies that target creating economic growth and
parity among traditionally disadvantage groups or communities.
Key areas targeted for long run parity are:
ā¢ Business ownership
ā¢ Economic output
ā¢ Job creation
The long run benefits are:
ā¢ Improved national economy
ā¢ Stronger communityās with an increased quality of life
ā¢ Greater tax base and lower unemployment in local communities
19. Inclusive Economic Development
It is my argument that the primary method of conducting inclusive
economic development is entrepreneurship based economic
development defined as:
Entrepreneurship based economic development is an economic
development strategy that places its primary emphasis on the
creation and support of entrepreneurs and small businesses to
achieve development goals within a defined geographic region.
IT IS NOT:
Anti intelligent attraction and retention strategies.
IT IS:
Pro creating a ābest fitā approach to economic development that takes
into account current and future possibilities.
20. Inclusive Economic Development
It is my argument that the
most effective form of
inclusive economic
development is to create
creators of jobs through
entrepreneurship and
small business
development.
This is known as
entrepreneurship based
economic development or
grow your own models of
economic development.
21. Why Entrepreneurship Is Vital to
Economies
A few reasons why grow your own economic development is a powerful
tool:
1. Entrepreneurs create jobs, increase local incomes and wealth
(Henderson, 2002).
2. A higher ratio of entrepreneurial activity is associated strongly with faster
growth of local economies (Barth, Yago & Zeidman, 2004)
3. Greater minority business density creates greater state GDP growth
(Lowrey, 2005)
4. Local entrepreneurs are more likely than branch plants to reinvest their
wealth locally.
5. Entrepreneurs create a sense of place.
6. The cost of job creation is lower (Edmiston, 2006)
7. Grow your own development is a more feasible way to develop
traditionally economically challenged areas.
8. Grow your own development helps create diversified economies.
9. Entrepreneurship is seen as a pathway out of poverty.
22. The Entrepreneurship Challenge
While entrepreneurship is a powerful
engine of economic growth and
development, addressing the
disparities in race an ethnicity will be
critical.
24. 80%
9%
1% 3% 3%
18%
5%
73%
14%
1% 2%
7%
27%
13%
White Black or
African
American
American
Indian
Asian Some other
race
Minority Hispanic
2012 Percentage of Firms Owned by Race Compared to
Percentage of Population in Omaha
% of Total Firms % of the Population
30. 27%
5%
6%
20%
8% 9% 8%
21%
4%
10%
25%
7%
11%
9%
White Black or
African
American
American
Indian
Asian Some other
race
Minority Hispanic
2012 Percentage of Firms That Have Employees Omaha & National
Omaha Employer Owned Firm % National Employer Owned Firm %
32. 5.24
0.27 0.13
1.66
0.40
0.83 0.85
2.35
0.38
0.76
1.86
0.51
0.90 0.70
White Black or
African
American
American
Indian
Asian Some other
race
Minority Hispanic
2012 Average Employees Per Firm Omaha & National
Omaha Average Number of Employees Per Firm
National Average Number of Employees Per Firm
35. 0% 5% 10% 15% 20% 25% 30% 35%
Agriculture
Mining
Utilities
Construction
Manufacturing
Wholesale trade
Retail trade
Transportation & warehousing
Information
Finance & insurance
Real estate and rental and leasing**
Professional services
Management of companies
Administrative & waste management
Educational services
Health care & social assistance
Arts & entertainment
Accommodation & food services
Other services
Industries not classified
2012 Black Industry % Omaha & National
National Omaha
37. -50%
0%
50%
100%
150%
200%
250%
Number of
firms with
or without
paid
employees
Sales,
receipts, or
value of
shipments
of firms
with or
without
paid
employees
($1,000)
Number of
firms with
paid
employees
Sales,
receipts, or
value of
shipments
of firms
with paid
employees
($1,000)
Number of
paid
employees
for pay
period
including
March 12
Annual
payroll
($1,000)
Number of
firms
without
paid
employees
Sales,
receipts, or
value of
shipments
of firms
without
paid
employees
($1,000)
Black
Population
2002 to 2012 Black Business Change All Categories
Omaha Change National Change
39. GrowYourOwnāEntrepreneurshipBasedEconomic
Development
The Business
Owner
Capital
Financial
Resources
Capability
Entrepreneur and
Owner Skillset
Connection
Resource &
Relationship
Network
Culture
The local
communitiesā
perception and
support of
entrepreneurship
Climate
Regulatory,
Economic
Development &
Policy
Environment
5Cs of the
Entrepreneurship
Ecosystem
Entrepreneurship based economic
development focuses on creating strong
local entrepreneurship ecosystems. No one
program is sufficient to build the small
business community alone.
40. Owner Opportunity Cost
25%
75%
Foggy & Sparce Ecosystem
Time and energy
spent figuring out
how to get support
from the
entrepreneurship
ecosystem
Time and energy
spent working on
building the
business
10%
90%
Transparent & Dense
Ecosystem
Time and energy
spent figuring out
how to get support
from the
entrepreneurship
ecosystem
Time and energy
spent working on
building the business
The strongest entrepreneurship development ecosystems do the best job of allowing existing and
potential entrepreneurs to spend more time and energy 1) focusing on building the business and 2)
becoming more effective business owners rather than wasting time figuring out how to get support,
information, and resources to build the business.
How more productive
could our businesses be if
they had more time and
energy to focus on
growing?
Simply stated, an opportunity cost is the cost of a missed opportunity. ā inc.com
41. The Transparent Ecosystem
Foggy and Fragmented
One of the largest complaints we
hear from individuals seeking to
start or grow a business is that the
service system is complex and hard
to navigate
Transparent
and
Connected
43. Grow Your Own
ā¢ Quality policy
ā¢ Supportive culture
ā¢ Appropriate information &
resources
ā¢ Struggle to access
ā¢ Difficult to navigate
ā¢ Slow responsiveness
ā¢ Quality policy
ā¢ Supportive culture
ā¢ Appropriate information & resources
ā¢ Easy to access
ā¢ Easy to navigate
ā¢ Rapid responsiveness
ā¢ Poor policy
ā¢ Resistant culture
ā¢ Lack of information & Resources
ā¢ Struggle to access
ā¢ Difficult to navigate
ā¢ Slow responsiveness
ā¢ Poor policy
ā¢ Resistant culture
ā¢ Lack of information & Resources
ā¢ Easy to access
ā¢ Easy to navigate
ā¢ Rapid responsiveness
Dense Ecosystem
Sparse Ecosystem
Foggy
Ecosystem
Transparent
Ecosystem
Quality ecosystems
The entrepreneurship based economic development priority should be to
create a strong ecosystem by developing and filling in gaps within the
entire ecosystem.
Strongest ecosystem
Weakest
ecosystem
44. Business Stages by Size & Community
Support
Stage 4
(500+) ā
19.2% of
Total Jobs
Stage 3 (100-
499) ā 21.6%
of Total Jobs
Stage 2 (10-99) ā
33.9% of Total Jobs
Stage 1 (1-9) ā 22.3% of
Total Jobs
Self-Employed ā 3% of Total Jobs
Proactive Support
Attraction & Retention
Strategies
Proactive Support
Retention Strategies
Proactive Support
Economic Gardening
Passive Support
Non-profits
Passive Support
Non-profits
Note: Proactive support means the agency is reaching out directly to these firms. Passive support
means the support is available on demand.
45. Business Stages by Characteristics
ā¢ Well defined and highly sophisticated strategy, layers of expert management
across divisions, need access to highly developed workforce with sophisticated
skill sets, clear and comprehensive business model, intense competition, often
global for market share
Stage 4 - 500+ Employees
ā¢ Defined strategy, expert management, owner as CEO, needs access to workforce
markets, supply chains and financial expertise, sophisticated business model,
sophisticated competitors for market share
Stage 3 - 100-499
Employees
ā¢ Refining core strategy, dealing with industry shifts, expanding markets, building
management teams, embracing new leadership roles as owner shifts to CEO,
growth becomes more intentional (Lowe Foundation), selling to broader market
base
Stage 2 - 10 to 99
Employees
ā¢ Basic strategy, owner still wears many hats, limited āspecialized managementā,
basic systems, strategy is day to day driven, simple business models, growth is
more organic, direct selling to broader customer base
Stage 1 - 1 to 9 Employees
ā¢ Limited strategy, owner wears all the hats, sells to a narrow audience, basic
banking and financial requirements , direct selling to narrow customer baseSelf-Employed
Note: These are generalities and differ by revenue, industry type and maturity
46. Owner Boundary Spanning
Management Marketing
Finance Operations
Management Marketing
Finance Operations
Owner comparative advantage ā They should be spending the most time doing what they are the best at.
When businesses start, the owner is
often required to wear all of the
hats of the business. Each area is
often small enough to be managed
by a single individual.
As businesses grow, the ability of
the owner to manage competently
all aspects of the business shrinks.
They have a āmake or buyā decision.
Do they hire an employee or
contract out.
48. Economic Development at the 10,000
Foot Level ā EDO Responsibilities
Strategy
Determining the key ways in which economic development activities will be organized to
achieve the future vision.
Vision
Creating (with broad input) a compelling vision of what the community will look like in the
future that can serve as a rallying point, a measurement stick and marketing tool.
Leadership
Aligning key stakeholders around the creation of and mobilization towards a shared vision. This
consists of connecting with, providing appropriate information too and create space for those
critical and future leaders drive change.
49. Inclusive Development
Recommendations
1. Focus on creating creators versus consumers of jobs in
minority communities.
2. Create incentives and policies that focus on developing
entrepreneurs across the continuum (micro to gazelle)
versus corporate or large business incentives.
3. Develop a strong entrepreneurial ecosystem in targeted
areas.
4. Seek to connect the two forms of development (attraction
and entrepreneurship) through supply chain connectivity.
5. Influence local schools to both become more
entrepreneurial and teach more entrepreneurship.
6. Recognize that it takes time an eliminate a short term
reward mindset.
50. You Are Invited
Growing Entrepreneurial Communities Summit
May 4th and 5th
A practitioner centered summit focusing on best practices and
new strategies in creating entrepreneurial focused communities.
Visit ā www.kcfed.org/community/smallbusiness
for more details
51. Contact
Dell Gines
Sr. Community Development Advisor
Federal Reserve Bank of Kansas City
dell.gines@kc.frb.org
(402) 221-5606
For more information & resources
http://kcfed.org/community/
To sign up for our Community Connections email newsletter please email me at
the address above.
Editor's Notes
We believe that entrepreneurship is a powerful way to reduce poverty, reduce the unemployment rate, build local community economic stability, and grow economies.
My definition creates a broader focus on the wide range of economic opportunities that may present themselves including employment, entrepreneurship and attraction of major companies. In addition, it focuses on balance and not just growth. This is important when you consider the growing income gap, and the disparity that exists in some communities that leads to other social issues. I also included a positive sense of place. This takes into consideration that smaller towns and communities have a competitive advantage if they have an exciting environment and sense of energy. In many cases it is the small businesses on main street that provide these towns and communities with a unique and attractive identity. Finally, ājob creationā is implied in value maximization and balanced and sustainable growth.
Finally, quality of life is (in my opinion) the most important goal of the economic developer. We are in the business of helping individuals within communities have access to opportunities that help them support themselves and their families. This is the noble goal of the economic developer.
The 5 Cās were summarized from the reading of a variety of entrepreneurship researchers. I am particularly fond of the work of Daniel Isenberg, Don Macke, Chris Gibbons and Thomas Lyons. These individuals have all done outstanding research on the subject. In addition they are also practitioners who have sought to help communities apply these principles. Daniel Isenberg in particular focuses on ecosystems in America and abroad and has a much more extensive chart categorized slightly different from mine available online at - http://www.forbes.com/sites/danisenberg/2011/05/25/introducing-the-entrepreneurship-ecosystem-four-defining-characteristics/
Thomas Lyons has developed the Triple AAA system of entrepreneurship development, which focuses on size, type and need. Don Macke is the rural entrepreneurship from the Center for Rural Entrepreneurship. He is a great friend of the Kansas City Federal Reserve Bank.
The most important thing to remember is that the 5 Cās actually interact with each other as well as the entrepreneur. For example, the regulatory and policy climate can influence capital sources. Culture can influence connections and networks. When strategizing for development, the develop has to be cognizant of the interactive nature of all the parts and account for how they influence each other.
A useful way of looking at an entrepreneur is to look at them as if they are an economy unto themselves. Within an economy we are consistently making opportunity cost decisions with the goal of maximizing utility (in our case it would be the entrepreneurs business growth) and increasing efficiency. My argument for creating transparent ecosystems is that we want our entrepreneurs to spend as much time as possible either growing the business, or developing the skills to be more efficient and effective at growing the business. By reducing the amount of time required by the entrepreneur to find the right training or resource, we increase the amount of time the entrepreneur can spend on getting trained and utilizing the resource to grow their business.
Fogginess is a great metaphor for many of our current communitiesā entrepreneurship support systems. When you drive in fog you can still drive, but the pace is much slower, finding your turns are much more difficult, and seeing street signs that give direction or tell you when to stop or go are hard to see. From an entrepreneurs perspective a foggy system is very similar. In times of need they struggle to find the appropriate organization, resource or information. This in turn reduces the potential effectiveness of the owner in growing the business.
One of the best things that we can do for our entrepeneurs is develop collaborative systems that are linked together and can refer to other agencies as needed. One of the friends of the Kansas City Federal Reserve Bank is US Sourcelink. This is an online portal that serves as a one stop shop for entrepreneurs as well as provide service providers with tracking systems and measurement. Visit http://www.ussourcelink.com/ for more info.
Sparse ecosystems are not necessarily bad they are just limited. The programs can be of high quality and very effective in what they do. The problem with sparse ecosystems is that they leave gaps in service, policy or culture development, which ultimately stunts the potential growth of local entrepreneurs across the entrepreneurship continuum.
Dense ecosystems must be developed with the overall strategy for development in mind. It is going to be the structure of the ecosystem that creates the environment to drive certain types of entrepreneurial behavior. Probably the most notable ecosystem is Silicon Valley, which fosters high tech innovation. While Silicon Valley is unique to itself, we have to consider what type of ecosystem we currently have, what it is producing and what kind of ecosystem we need to produce the growth that we want.
While models like this are useful I recognize that they are limited and donāt account for all the variables. However, I believe this model provides a great visual guideline for individuals as they reflect on their own communities entrepreneurship ecosystem.
Source for Jobs and Sizes - http://edwardlowe.org/edlowenetwp/wp-content/uploads/2013/09/Second-Stage.pdf