Home pride: in an uncertain economy, promoting entrepreneurship helps communities thrive

Entrepreneur, May, 1996 by Janean Chun

In an uncertain economy, promoting entrepreneurship helps communities thrive.

That small business across the street appears to be just your average grocery store, retail shop or mom and pop restaurant. In reality, it's the lifeblood of your community. A recent study released by the Small Business Foundation of America, a small-business research and outreach organization, concludes that "the creation of new enterprises is a vital activity for any community hoping to have a thriving economy in coming decades" and that "effective future policies must have this [small- business] orientation."

"As a community, do you want to put all your eggs in one basket, to invest in one industry or one employer?" queries Norris Krueger, an entrepreneurship consultant and author of the study. "When times are good, that's probably an OK strategy. But in turbulent economic times, markets are changing, and communities need a diverse set of opportunities to ward off different threats."

All over America, towns decimated by the shutdown of mills and manufacturing plants provide real-life testimonies to the truth of this theory. In fact, desperation is often the primary factor awakening communities to the importance of entrepreneurship. "A lot of communities are doing it because it's the eleventh hour, and their backs are against the wall," Krueger says. "There's sociological evidence showing that citizens of disadvantaged communities exhibit a sense of hopelessness. But communities in which people see the possibilities have coped successfully with economic changes and have been able to take charge of matters."

The study suggests several ways communities can foster entrepreneurship, including:

Reducing tangible and perceived barriers. Communities should oppose excessive tax burdens, growth controls and regulations that are damaging to business start-ups and development. Perceived barriers, such as access to financing, must also be addressed.

Managing perceptions. Evidence shows that if a community member believes economic success is possible, it becomes a self-fulfilling prophecy. Policies and programs indicating a receptive climate for small business could spark the interest of prospective entrepreneurs in the community.

Providing a "nutrient-rich" environment. Whether providing information about starting and operating a business or about different industries, communities must give small business visible and useful tools.

Creating networks. Communities can assign a "network broker" to help entrepreneurs identify appropriate industry contacts and programs, as well as introduce them to local mentors and role models.

Yet Krueger points out, "The right program is less significant than having the right person in charge. I would like to see more officials, before they institute policies, wondering how it's going to affect the entrepreneurial community and asking, Is this going to make us more or less entrepreneurial? [Small-business advocates] must be called to this cause--people who make it their mission in life to support small business."

Ideally, this person would act as a megaphone, spurring a wave of local spirit. "The whole community has to buy into it, not just a few souls," Krueger says.

Still, a little nudge from the entrepreneurs in a community doesn't hurt. This trend, in part, "is coming from the bottom up, from the entrepreneurs themselves," says Krueger. "A resilient community and a boom in small business are trends that seem to coevolve." Apparently, for small-business owners, the key is to ask not what your community can do for you, but what you can do for your community.--Janean Chun.

Profit Statement

SBA investment pays off.

The small Business Administration now offers even more proof that its investment in small business can pay big dividends.

The reconfirmation comes in the form of a $35,000 payment made to the SBA by Minneapolis-based Piper Jaffray Healthcare Capital LP. The payment is profit the agency has earned from its investment in Piper Jaffray, a Small Business Investment Company (SBIC) in the SBA's participating securities program.

What's especially exciting, says Don Christensen at the SBA, is that the payment is more than three years earlier than expected. "The participating securities program is new," he explains, "and we expected it would take about five years to pay a profit [on the SBA's investment]."

SBICs are private venture capital companies licensed and partially funded by the SBA to invest in small businesses. The firms can own up to 49 percent of a company and often provide management and technical assistance.

Christensen says the participating securities program was established in 1994 as a way of leveraging private capital raised by SBICs that want to make equity investments in small businesses. Under the new program, an SBIC does not repay the SBA for borrowed funds until it attains profitability.

Participating securities SBICs benefit smaller growth companies, which have been somewhat neglected by larger venture capital funds, says Christensen. "In venture capital, even the $200 million venture funds have to make loans of $10 million to $15 million in each company. Therefore, the funds tend to limit themselves [to companies seeking large amounts of capital]." Participating securities SBICs, on the other hand, make investments of $500,000 to $5 million.