Month: December 2015

Washington is making entrepreneurship a key chapter in the rural development playbook

Startup Washington, a program of the state’s Department of Commerce, is proving that rural economies aren’t beholden to agriculture and manufacturing alone.  A brief profile in Governing sums up the many ways the program empowers rural entrepreneurs.

One of its best assets is Fund Local, a public-private crowdfunding platform that allows local investors to buy stakes in Washington businesses. Startup Washington’s website also provides how-to guides, grant listings, book reviews, a map of co-working spaces, and other resources.

During the Kauffman Foundation’s Global Entrepreneurship Week in November, Startup Washington holds networking events with entrepreneurs, business leaders, students, and investors. It’s a large undertaking, with nearly 200 networking events held across the state’s 34 rural counties in 2014.

Also included is an educational component, which brings together community colleges, nonprofits, EDOs, and private industry and offers multi-week training courses and intensive boot camps. These programs helped launch 35 businesses in 2014. Startup Washington also connects entrepreneurs with mentors through an online portal and at the local level.

Six stages of company town decline, plus a recovery story

Large employers are a mixed blessing for a local economy. Though able to ignite exponential growth, their failure results in equally powerful decline.

Delaware Online identified five characteristics of this process, using DuPont – which at one point employed 10 percent of Delawareans – as a case study.

  • Decline is slow, so warning signs are hard to identify.
  • Restaurants and retailers are the first to suffer.
  • The highly educated are the first to leave, since they can find employment elsewhere.
  • Home prices fall.
  • Mass exodus creates and a vicious cycle which discourages new residents from moving in.

Location consultant and economic development marketer Janet Ady draws four lessons from the article.

  • Never take a primary employer for granted. Maintain regular communication so the company knows it is valued.
  • Always be diversifying, even when the primary employer is doing well.
  • Try to grow the company’s local supply chain to strengthen its connections to the region.
  • Partner with local universities to kick start new industries.

Kodak helped make Rochester, N.Y., an economic dynamo, but the company today is a shadow of its former self. No longer able to compete as a camera maker, the company’s two-square-mile Eastman Business Park could have very easily became a liability for the city. But Kodak, with help from the city and state, is acting as a sort ofstartup landlord, renting space to 58 diverse companies (Associated Press). The park’s advanced infrastructure and laboratories, coupled with the city’s legacy workforce,enabled recent wins, including LiDestri Food and Beverage and several battery companies (Industry Week).

This year, Rochester secured the location of the Integrated Photonics Institute for Manufacturing Innovation, which includes a $110 million startup grant from the Department of Defense (Democrat and Chronicle). To ensure benefit for local jobseekers, the Rochester Institute of Technology is revamping curriculum to cater to the coming photonics industry (Democrat and Chronicle).

Research shows place-based scholarship programs reduce out-migration

This is important for Ashtabula County given our young talent retention and recruitment challenges and the out-migration (permanent move-outs) of 500 working-age people each year. A new paper by Institute staff shows that place-based scholarship programs, such as the Kalamazoo Promise, promote local economic development in addition to improving student outcomes. Timothy J. Bartik and Nathan Sotherland examined eight Promise-type scholarship programs and estimate that, for at least three years after the programs were announced, out-migration in these local labor markets was reduced by about 1.7 percent, which in turn should boost employment by a similar percentage.

Read “Migration and Housing Price Effects of Place-Based College Scholarships” by Timothy J. Bartik and Nathan Sotherland

Read Timothy J. Bartik’s blog post on the paper.

What’s new in economic development marketing?

Nothing Compares” is the message North Carolina now is sending potential residents and businesses. The brand-new slogan accompanies an updated logo – a green and blue “NC,” meant to evoke a “mountains-to-sea” theme, which will be featured on 75 billboards across the state (News & Observer). The state is putting $1.5 million into the Department of Commerce’s marketing campaign.

Last October, Miami got its own domain name(Governing). “Public departments, local businesses and residents can now demonstrate their passion for Miami with a .MIAMI domain and in doing so, elevate our visibility and reputation on the Internet stage,” said Mayor Tomás Regalado. It’s now the third U.S. city with a dedicated domain name, including New York (.nyc) and Las Vegas (.vegas). A standard address costs about $20 per year; premium names are priced higher.

Benton, Ark., is hoping to capitalize on the 40 percent growth rate the city has enjoyed since 2000 with a civic blog (Sync Weekly). To attract and engage residents, Benton Proud highlights stories about the community, posts videos from city council meetings, and provides information on new developments. The Little Rock suburb’s marketing efforts also produced a city mascot, a large-headed, inflatable cartoon character named Ben.

Source: International Economic Development Council

Check Out the New Ashtabula County Economic and Community Dashboard

The Growth Partnership recently launched its new Ashtabula County Economic and Community Dashboard, which is a tool to monitor local economic and community trends and help local economic and community development organizations increase their “collective impact” on Ashtabula County. The dashboard was funded by the Civic Development Corporation and the Ashtabula County Commissioners.

On December 15, 2015, over 100 people participated in the first Dashboard Summit to learn more about the dashboard and its value as a monitoring and team-building tool. Click here to download presentations by Don Iannone and Jim Trutko at the summit.

Don Iannone on Leading Change in Economic and Community Development

Last week I shared some thoughts with the current LEADERship Ashtabula County class on leading change in ED/CD. One point I will reiterate here is that we should think less about “structures” and more about “processes” in economic and community development. Change leaders should birth and guide dynamic living processes in the community! The universe is in constant flux. The speed of change has accelerated and become more unpredictable with rapid technology change, globalization, and other factors. My message is “flow, be agile, avoid getting stuck, and anticipate change and the unexpected.

Ashtabula County needs to change the current “processes” that are perpetuating its decline and create new processes that will stimulate its growth and development in positive sum ways.

Download my presentation here: leading change 12-15-15

Tap Supply Chain Growth Opportunities

Ever get the feeling your business retention and expansion efforts are going unappreciated? You’re not alone. As the Harvard Business Review puts it:

Which sounds sexier: sassy Silicon Valley startup or nose-to-the-grindstone supplier? No doubt the tech startup wins the popularity contest hands down…The reality is that the vast majority of successfully scaled ventures are not mythical unicorns with billion dollar paper values, but workhorses that plug along, steadily producing results year after year.

The article notes the importance of tapping into supply chains to grow small businesses, noting that suppliers who win large contracts achieve average revenue growth of more than 250 percent in the two years following their first sale. The author offers several tips for small businesses seeking to grow through the supply chain, including:

  1. Reveal more than is comfortable: Large companies’ reporting standards can seem onerous, but complete transparency is necessary to win customer confidence.
  1. Manage culture by setting expectations appropriately: Small suppliers don’t always speak the language of big business, so be aware of differences in company culture.
  1. Manage the arduously long sales cycle: Bank loans and equity financing can cover initial droughts. But some suppliers are able to get customers to make pre-payments against purchases.
  1. If you have one big customer, enlist them to help you grow. Don’t get complacent – use its contacts to diversify.
  1. Partner with procurement: Even with faceless corporations, personal relationships are essential to securing and maintaining contracts.

6. Innovate and invest, even when it hurts: Due to tight budgets, fewer than 15 percent of small companies make innovation investments, but when done right, they can pay off in a big way.

Small Business: What Works!

Opening a small business can be challenging, exhilarating, rewarding – and good for the community. This was the message from several Washington, D.C.-area small business owners who gathered earlier this month forthe Atlantic’s Small Business Forum in D.C. to discuss their paths to success and the challenges that face would-be entrepreneurs.

For small businesses, a strong company culture can be a powerful employee retention strategy during the unprofitable startup phase. Union Kitchen, a food incubator, purposefully keeps starting salaries low, but gives frequent raises for good work. Coaching small businesses on building company culture to attract talent for less money could be a new or expanded role for EDOs.

To grow a business, knowledge and capital are key assets. Michele Markey of the Kauffman Foundation – who will speak at IEDC’s Leadership Summit in New Orleans next month – emphasized discretion when hiring (i.e., best friends might not make the best CFOs). Great tools exist to help small businesses to expand without the responsibility of handling employees benefits. Professional employer organizations allow small business to outsource human resources, employee benefits, payroll, and workers’ compensation.

Community benefits: Jacques Panis, president of Shinola– best known for its affordable luxury watches and for “bringing manufacturing back to Detroit” – explained that his company’s brand is intertwined with the city’s. Shinola employs Detroiters, many of whom used to work in auto manufacturing. Although the company has been criticized for sourcing parts from elsewhere, its success has been a win for lifting Detroit’s image (CBS News).

Several small business owners emphasized the importance of connecting with their communities. Michael Lastoria, founder of made-to-order pizza franchise &pizza, hires local employees and decorates according to the personality of the neighborhood. Lastoria talked about the importance of appealing to the neighborhood’s original inhabitants, not just affluent new residents. Brandon Skall of microbrewer DC Brau encouraged small businesses to engage with the community through volunteering, hosting events, and being neighborly.

These points were hammered home by Andy Shallal, founder of Busboys and Poets (D.C. residents and visitors may know the local restaurant chain as the cool hangout in several neighborhoods). Each establishment has a restaurant, bar, bookstore, and a space for cultural activities and speakers. Shallal noted that small businesses can do more than create local jobs – they can also provide a space where people can come together for food, culture, and community.

Challenges: Access to capital remains troubling. Insight from Bank of America’s Robb Hilson shed light on a missing ingredient of many loan applications: confidence. Bankers typically don’t lend to entrepreneurs that aren’t confident in their business plans.

Kellee James of Mercaris reminded the audience that being able to start a small business is, in fact, a luxury. Small business owners have the ability to leave their day job; go some time without steady income; can tap into a support network; and can take it for granted they won’t face discrimination from clients or service providers. James also called for diversifying types of female-owned startups. She pointed out that women typically start businesses in the service industry, which delivers lower average wages.

What’s on tap for the economy and real estate in 2016

Here is one view of the economy in 2016.

The economic expansion will continue in 2016.

More than ever, the ability to thrive through the coming economic cycle will require acute sensitivity to consumer and business preferences for specific real estate product features, amenities, and services. These must vary to reflect the unique economic, demographic, and cultural make-up of the geographic markets where they are located.

Macro-economic outlook

The Federal Reserve will raise the federal funds rate. However, with limited-to-no inflation pressures and low rates of labor force participation, interest rate increases will be small and gradual. Challenging economic and political conditions in emerging markets and the slowdown in China, combined with the high dollar value, will constrain the performance of U.S. exporters. The trade deficit will widen accordingly. Global economic weakness and political turmoil will increase the appeal of the United States as a safe haven, which will support domestic real estate asset prices.

Current business expansion in the United States will be maintained through 2016 due to increases in household formations, continued recovery from the housing market collapse, the “consumer dividend” from low oil prices, growth in housing development and investment in existing housing, and improving labor markets (including small wage rate growth).

Real estate outlook

Apartment: 2016 will be another positive year for apartment investment and development, though in select markets, apartment developers will need to carefully monitor increases in unit supply to avoid overbuilding. The primary reasons for the positive outlook are due to demographic- and behavior-driven factors: the deferral of marriage; overhang of student debt; high cost of for-sale housing in preferred urban coastal and major metro markets; and because highly educated millennials comprise the largest population category.

The type and scale of apartment projects and amenity/service packages (including arrangements for delivery of e-commerce packages and food, bicycle storage, car sharing, and areas for pets) that will be most market-responsive will vary by geographic market and the specific demographic segments present.

Industrial: Development and investment of industrial space will continue to benefit from a variety of factors, including a major shift toward smaller, “last mile” distribution centers in or near major cities, and fewer but larger, highly automated distribution facilities as e-commerce continues to grow. Growth in manufacturing and distribution of building/housing materials will also support the demand for industrial space.

Retail: Low gasoline prices will benefit restaurants, entertainment venues, and car and truck sales. Consumer services – including spas, health and fitness services, and pet care – will help offset the decline of brick-and-mortar tenants due to an increasing share of consumer retail expenditures made online.

Office: Selective office space development and investment opportunities will continue in amenity-laden, transportation-supportive, mixed-use environments. Demand for office space in urban markets to which talent is migrating will rise as employment continues to grow in technology, professional, technical, and business services. “18-hour” cities with strong educational and healthcare bases offering economic opportunities, affordable housing, and high quality of life represent the other type of markets best positioned to hold their strength through this cycle.

Hotel: Turmoil in some foreign markets will cause more U.S. leisure travelers to vacation domestically. Additionally, foreign investors, especially Asian, will buy U.S. hotel properties in gateway and major metro markets.

Thriving through the economic cycle

A variety of risks, including political uncertainty, heavily indebted foreign borrowers in U.S. dollars, and social and political disorder in some foreign countries, could interact to curtail U.S. economic expansion. In some fast-growing regions which were the first to recover from the Great Recession, expansion is in the “late innings.” Many cities not located in gateway or major metro markets that haven’t capitalized on the digital economy can still find opportunities to accelerate growth. Investors and developers will thrive through the economic cycle by anticipating and serving the rapidly changing tastes, priorities, and preferences of diverse populations and demanding businesses, which must constantly innovate to stay ahead of their competitors.

Aaron N. Gruen is a principal with the urban economics, market research, land use policy, and pre-development consulting firm Gruen Gruen + Associates with offices in San Francisco, Denver, and Deerfield, Illinois.