Lessons from Yankton: Stop hunting, start farming

Posted on 09. Oct, 2013 by in Economic Development, Growth

I had the joy of being the kick-off speaker at the 2nd annual Wire Me Awake conference last week – an event that champions entrepreneurship in the Midwest. An entrepreneurial venture in and of itself, it was started by a group of business owners in Yankton, SD who know how to hustle. With the vision of creating a meeting ground for like-minded folks with entrepreneurial streaks, they pulled off an impressive first conference a year ago and were back again for Round 2 last week. The day-long event brought in 7 speakers, all touching on themes related to promoting innovation, entrepreneurship, and collaboration among professionals in the spirit of “making things happen in new ways”. I got to spend some time with the conference founders; they are quite the impressive group.

My conference remarks focused on “Entrepreneurial Approaches to Addressing Public Problems” – explicitly touching on issues most germane to the nonprofit and public sectors – but in reality, entrepreneurship has always been and will always be highly relevant to the public domain. That’s because entrepreneurs create jobs and respond to opportunities that others don’t even see — and in so doing, they fill needs in a community.

One recurring theme throughout the day was the old playbook move in which governments – both state and local – do their darndest to generate economic development by persuading (bribing?) companies to relocate within state or city borders. It somehow seems safer or more reliable to get a large company to move operations in order to “create jobs”… but there are several problems with this approach:

  1. The incentives that convince companies to do this nearly always include significant tax breaks which undermine, at least to some extent, the value of bringing them in the first place.
  2. If such tax incentives were a major driver in the company’s relocation decision, then the relocating companies are just as susceptible to being persuaded by another next best offer from another state a few years down the road. They’re unlikely to be invested in the local community and more likely to either move again or hold the current state/city ransom for an even sweeter deal in exchange for staying in place once any contract expires.
  3. Jobs “created” by relocating companies very often trend toward the bottom of the wage scale.

Meanwhile, the research is unambiguous that the most efficient and sustainable path toward economic development is job creation from within – and that means either the expansion of local companies or entrepreneurship that creates new companies from scratch. In fact, a 2010 report by the Ewing Marion Kauffman Foundation found that “on average and for all but seven years between 1977 and 2005, existing firms are net job destroyers, losing 1 million jobs net combined per year. By contrast, in their first year, new firms add an average of 3 million jobs.” [Emphasis added.]

When companies are started in a local geography, it often has less to do with “ideal” business conditions and far more to do with the place that the entrepreneur herself has chosen to live. With the entrepreneur already psychologically invested in a place, it’s less likely that these jobs will move to another city or state. The company is more likely to continue to grow from that same locale and thus unlikely to entrap its government in a zero-sum race to the bottom against other states.

So how do we encourage and support entrepreneurs? Here in Minneapolis, we can point to one example in Coco (Coworking & Collaborative Space). A coworking space in which many start-ups and small companies office (ours included!), Coco helps to provide a launching pad and professional work environment complete with conference meeting rooms, printer, scanner, fax, and all important coffee for local entrepreneurs. It was recently selected by Google to be part of the search engine’s exclusive “Google for Entrepreneurs Tech Hub Network”. “The network of 7 hubs throughout North America will support entrepreneurs and provide a stimulus for the economy in local communities.”

Given all the challenges our economy has faced and continues to face in recent years, job creation has to be considered one of the most important policy issues of our time. If our government and business leaders — and anyone else who cares about the economic vitality of a region — are to increase the supply of high-quality, well-paying jobs, they have to care about entrepreneurship. Do local conditions encourage or discourage new business start-ups? Are mentoring and accelerator programs available to increase an entrepreneur’s chances of success? Is there a network of investors willing to provide start-ups and growing small businesses with the capital needed to grow and thrive?

We need to shift away from the instinct to poach our way to more jobs and turn our focus instead to growing local assets from within.

The founders of Wire Me Awake clearly get this. The question now is: Will policymakers?

P.S. Did you know that Yankton is home to the National Field Archery Association’s (NFAA) National Headquarters and Museum? Pretty cool place to hold a conference: check out how we spent our lunch break!

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