The Older I Get, the Less I Know

I’ve built my innovation career on a number of basic principles, primary among them that new knowledge drives economic growth (and that economic growth is a good thing). My worldview is that new jobs will be created, as they have been for centuries, with the development of new technologies. I’m holding tight to that point of view, but it’s fair to say that many folks are having second thoughts. There are a substantial number of observers of current trends in artificial intelligence and bioscience who now believe that billions of people will become unemployed and unemployable. They are advocating for guaranteed income and other similar measures.

Another basic question that came up this month is about which entrepreneurs should be supported by public programs. I’ve always advocated for high-growth, traded sector companies, rather than generic “small business.” But I’ve recently changed my mind. We’re not so great at figuring out who will become high-growth, nor which sectors could transform from locally-serving to traded. Think about the craft beer revolution for a moment. It started out as entrepreneurs who just wanted to make small-batch beers for their local communities. Now, it’s broadening to a national movement where these beers are exported, where supply chains are kickstarting innovations in local farms and where the effect on sectors other than beverages is significant.

A more important question is What if this fixation on “high-growth” is really just a smokescreen for supporting entrepreneurs who look like us? Entrepreneurs come in many sizes and colors, and prejudging that a minority-owned or woman-owned business is “just a lifestyle business,” for instance, means that lots of opportunities are left on the table. I’m trying to come to grips with how my perspective has been shaped by my own (admittedly elitist) experiences (white, privileged, Harvard-educated) and to make room for alternative explanations that also support the facts of the matter.

How about you? What do you think?

WV on my mind

Happy August! Hard to believe that we’re halfway through summer. Here in Maine, we hold onto each day, as summer is so fleeting. But I did leave for a few days to present at the Development District Association of Appalachia’s professional development seminar in Charleston, WV. This meeting of economic developers in Appalachia was organized by my friends and colleagues at the Center for Regional Economic Competitiveness (CREC), so I had to say yes.

Needless to say, Appalachia still encompasses many rural, distressed communities, even more distressed than many of the places I usually work. It was uplifting to see so many people dedicated to making things better in their communities, often against long odds. These are places where the decline of coal has hit home, where opioid addiction is rampant and where it’s easy to lose hope.

I was especially interested in a presentation by Ann Barth of TechConnect WV, a statewide economic development organization dedicated to the advancement of science, technology, and the innovation economy in West Virginia. She talked about the innovation and entrepreneurship initiatives in the state, one way that the organization is helping change the narrative in the state. One resource that inspired me was ChemCeption, the nation’s only incubator-accelerator focused solely on commercializing chemistry-based technologies, including traditional and green chemistry, biotechnology, advanced materials and more. Located in the former Union Carbide campus in South Charleston, ChemCeption has made the necessary pivot from being about producing chemicals to chemistry as an enabling technology. This means that breweries, distillers and CBD producers are potentially part of the mix, not just traditional chemical companies.

Talk about turning lemons into lemonade…

What Entrepreneurs Need and How to Deliver It

I’m working on a series of case studies for a client about organizations that are a catalyst or gateway or intermediary for entrepreneurs, resources and programs. What’s striking is how unique each is, dependent upon the circumstances in each place. It seems to matter what partners are already there and involved in entrepreneurship, what funding is available and with what strings, and the local culture and “little p” politics (I mean relationships, not partisan politics).

The constant in all of the examples is that the needs of entrepreneurs are generally well-known. They need help with improving and accelerating the growth of their businesses, including access capital, knowledge and services. In the places where entrepreneurs are doing well, the communities are tight, with lots of events and other opportunities for networking and “happy collisions” where one and one can equal three. These can be disguised as social events, but really the objective is for entrepreneurs, service providers, researchers, students, and potential employees to get to know each other better. After all, as a friend of mine used to say, “People do business with people they know and like.”

But there’s also a significant school of thought that says these organizations must be run by and staffed by entrepreneurs in order to be credible. Folks say, “No one in government knows anything about starting a company. There is nothing government can do to help.”

That always gets me fired up. For one, government is paying for those universities and research labs that did the basic research you are relying on, who are producing the well-educated people you want to hire, and who create a level of prosperity in your community that not everyone gets to enjoy. And, government is there with tax credits for investors so they will be able to invest in your company. Another point is that many entrepreneurs know what worked for them, but not necessarily what translates into help that works for others. So, professionals who have training in building businesses can often be more helpful than peers. Truth is, some entrepreneurs turned funders and mentors are great, other not so great, and the same is true for other folks who help, even if they work for government.

So, keep an open mind, and keep connecting.

All Others Bring Data

I’m a self-professed data geek and I love the saying, “In God We Trust. All Others Bring Data!” For most of our projects, we rely on US Government statistics like those from the Census Bureau, Dept of Labor and Bureau of Economic Analysis. We augment those data with structured interviews, a method borrowed from case study analysis to gain detailed and nuanced information. Often, we also use survey data – in a current project we are using a survey to gather data about alternative concepts – a way to get information directly from a targeted audience.

But not all data is created equal. There’s another great saying: “”There are three kinds of lies: lies, damned lies, and statistics.” I think it’s really important to view any data with a critical eye. For instance, I recently ran a report on venture capital investments in biotechnology companies in Maine. At first glance, it looked like amazing news – there was one year recently with more than $16 million invested! When I dug deeper, there was just one investment, for $16 million. That leads to a completely different finding.

Another example are all of these indexes and cross-state comparisons that dominate the Internet. We’re click happy for anything that says “My State” is First in Anything! Or the Top 10 Anything! You want to dig into these to find out how solid is the data they are based on, how do the authors define the category, and how are various components weighted. So, a recent Kauffman Foundation finding that Maine was #1 in the country in first-year survival rate for entrepreneurs sounds really good. Kauffman calculates this rate from data that originates from the ES202 forms that all firms submit quarterly, a very robust source. However, a look at Maine’s ranking on this measure over the past twenty years shows that the 2017 number of 88% is a blip, not a sustained measure (yet). So, best to take it with a grain of salt.

My overall advice: Run the numbers. But understand where they come from, what assumptions are being made, and how sensitive your decisions are to any one data point.

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Nostalgia for the “Old Days” is Misplaced

A recent op-ed written by a local economic developer about the rural economy in Maine generated a lot of comments showing clearly the live wire he touched. Leaving aside the usual name-calling and insults that unfortunately inhabit most comment sections, several points of view emerged. One was the idea that if people don’t find opportunity where they live, they should move elsewhere. Another was that we should revive the traditional ways of making a living (i.e., forest products, fishing, agriculture) and embrace them. A third was that reliable cell service and high-speed internet offer people a way to make a living where they are. Perhaps all of these things are valid to some extent.

What many of the comment writers, and indeed, the author of the piece all have in common is nostalgia for the “old days” when the rural economy was strong, when young people didn’t leave to move to the “big city” and when you didn’t need a college education to make enough money to raise a family. A great narrative to be sure, but there’s a problem. These “old days” never existed. Whether you go back a generation to the 1950s or to the start of the last century, rural communities have always been characterized by hard work and marginal living. Young people have always heard the lure of anywhere but where they grew up. And more education has always been correlated with higher incomes.

Like it or not, shift happens. Economies change. Places change. People (sometimes) change. For rural economies today, this means that new technologies are changing and potentially reviving traditional ways of making a living. Whether this is the advent of aquaculture or bio-based products made from wood pulp, or the use of sensors and drones in agriculture, nothing stays the same for long. The race is won when people, and their leaders, see the opportunities ahead and seize them.

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Celebrating Success

Amazing! The Portland Press Herald, our local newspaper, actually had an editorial this week that said that innovation and entrepreneurship was the key to economic growth in Maine! Now this isn’t a radical statement at all. What’s amazing is to hear this nuanced statement from the media! The PPH was writing about a local company, Howe and Howe, this is being bought by a large conglomerate, Textron. Howe and Howe is a defense contractor that has developed several innovative projects, like a remote controlled tank, based on government-funded R&D. The company is 13 years old, and has grown organically to 50 employees, a success story by any standards.

Two things surprised me about the editorial. One, the paper didn’t call this a small business. Rather, they did distinguish between Main Street businesses and an innovation-based business like Howe and Howe. Second, they didn’t cry about this exit taking money out of Maine. Many local companies get acquired by large companies from “away;” (there aren’t very many large companies that aren’t from “away.”) And, when local entrepreneurs have their success validated and monetized, they and their workers have the opportunity to reinvest in the local economy, whether the company stays local or not. In most cases, the companies do stay local because the quality of Maine workers and the cost of doing business here are both very competitive.

All of this points to the great value of local success stories. They inspire local entrepreneurs, and also put a place on the map in the broader context. So congrats to Howe and Howe and the many other Maine entrepreneurs who have had exits this year.

A Clear and Compelling Vision for Economic Growth

You can tell from the nearly constant attack ads on television during the evening news that we’re in the middle of at least two contentious campaigns this fall here in Maine: one for Governor and one for the 2nd Congressional District, where a Republican Congressman is trying to keep his seat. Both races are very close. However, in all the noise, one thing is startlingly missing: a clean and compelling vision for how to improve Maine’s economic prospects. This is because the choices continue to be framed as less taxes and regulation for business against more rights and benefits for workers.

I recently reread Rob Atkinson and Stephen Ezell’s 2012 book, Innovation Economics, which reminded me that the answer is something completely different from this false paradigm. There are only three ways to get an economy to grow: increase productivity, create new firms or add activities that create new value. You increase productivity by increasing the revenue of each employee: improve processes, add technology to increase output, or add new products and services. Similarly, new firms or activities that create new value boost economic activity overall. Atkinson and Ezell say there are three things that build vibrant, healthy business establishments in globally traded sectors in order to improve economies: business leaders who will take risks, do research and development or create new products, and add new plant and equipment; workforce that supports these changes instead of being afraid of new technology; and government that supports investing in the future.

There are bright lights in many of the communities where I work, where entrepreneurs are taking risks, where business leaders recognize the need to invest in creativity and where civic leaders are adopting innovation and entrepreneurship as guiding principles for their cities, towns and states. Here’s hoping that grassroots change will save the day.

Size Doesn’t Matter

When discussing economic growth, many politicians talk about the importance of small businesses and their importance to the local region. This is particularly true in rural areas, especially ones that have lost major, large manufacturing employers over the last fifteen years. While this sounds right, and reflects the federal focus through the Small Business Administration and programs like the Small Business Development Centers and small business set-asides, it’s not actually true.

According to a forthcoming book by Robert D. Atkinson and Michael Lind
titled “Big is Beautiful: Rebutting the Mythology of Small Business” (MIT Press,
2018), on virtually every economic indicator, including wages, innovation, exports, and even job creation, large firms in the United States outperform small ones. Moreover, states with larger average firm sizes outperform states with smaller firms.

Furthermore, many small firms stay small, and that’s what their founders intend. They have no desire to grow; they just want to work for themselves. So small business lending and other preferences aimed at businesses just because of their size are not contributing to economic growth.

What matters is intent and execution. Does a new business want to grow? Does it bring outside money into an economy, rather than just from local clients? Does the business have a demonstrable and meaningfully unique advantage that will add value, increase productivity or solve a critical societal problem? These are the businesses to invest in and accelerate, regardless of their age or size.

Why Universities Matter

Empirically, regions with universities grow faster than those without, and in smaller places, the university’s role is even more important. Universities “heavily influence the ability of regions to attract and retain technology-intensive firms, to provide the regional labor force with modern knowledge skills, and to respond flexibly to…. economic circumstances.”
University research spurs the creation of new firms and thus affects regional employment. Research partnerships with universities expand and complement the absorptive capacity of the firms, increasing their innovation and competitiveness.
For regions to be competitive,
“The key event is the creation of an entrepreneurial university, whether from an existing academic base or a new foundation, which takes initiatives together with government and industry to create a support structure for firm formation and regional growth.”
The entrepreneurial university is characterized by a focus on industry-partnerships, technology transfer of research discoveries to interested and capable industry partners, including startups, support for entrepreneurs, whether students, faculty, or community-based, and support for the ecosystem, often in the form of research parks, incubators, and other capital-intensive infrastructure.
University spin-offs are an important part of the picture since they provide innovative products, new jobs, induce corporate investment in university R&D and have highly localized impacts. Eighty percent of spin-offs operate in the same state as their host institution. However, technology transfer efforts such as these are most effective if they are located within a strong innovation ecosystem and when university reward systems are aligned with desired outcomes.
There is also rising interest in entrepreneurship among students. Increasingly, campuses are involved with supporting entrepreneurs, including student-led companies as well as those from the community. Universities that support entrepreneurs and new businesses, including those generated both on and off campus, also support a flexible and creative workforce, and can significantly leverage economic revitalization. Indeed, students with entrepreneurial skills and knowledge are themselves a valuable output of any university.
The role of a university in its community seems to have changed along with many other institutions in our society. The ivory tower image of a university with a sole focus on teaching and research has given way to an understanding that universities are important place-based assets that can help a region be competitive in a knowledge-based economy. The linear science-push model has given way to a more nuanced and complex understanding of entwined interests among universities, industry and government, and a new contract has arisen, one that suggests than in return for public funds, universities must address their “users” – society and the economy – and be more accountable.
For a recent project, we looked at how high performing regions organize themselves to support innovation and entrepreneurship, especially the interactions between the anchor innovation assets like universities and the surrounding business community.
We learned:
• The places studied that are doing better seem to have accomplished an integrated approach to economic development that embraces traditional business attraction as well as innovation and entrepreneurship support, workforce development, and place-making. Transportation, excellence in K-12, arts and culture all play a part in the approach.
• For many universities, moving from a model of teaching, research and service to one that more explicitly includes economic development is a long-term evolution. Each of the universities highlighted was in some stage of this evolution, with most having significant research, technology transfer, entrepreneurial support, and research commercialization activities.
• The places studied vary in the tightness of the connection between the university and local/regional economic development, with most having a greater relationship in the university’s home community and diminishing impact in rural communities farther away.
• The areas vary considerably in their attention to the issue of inclusion, with two explicitly and prominently seeking to extend economic prosperity to all of its citizens, regardless of their location (urban and rural), and actively seeking ways to connect the poorest to better jobs, higher skills and more supportive neighborhoods.
• Two of the places studied have made significant investments in broadband, and two have focused on air service, both essential infrastructure for a knowledge-based or creative economy.

5 Ways to Get to Successful Implementation

We’re all familiar with strategic plans that gather dust on a shelf (or these days, never even get printed out). What’s the difference between plans that get implemented and those that don’t? Plans that get implemented are designed to be executed. Here are five steps to successful implementation:

1. Get the do-ers involved in the planning. While many of us think we know the answer before we start the planning process, both the process and the execution will be stronger with broader involvement throughout. This is because diversity of thoughts and experiences held by the various stakeholders will improve the ideas themselves, but also because of the “Ikea Effect” – people are attached to things they help build.
2. Test the ideas during the planning process. Just because a strategy works somewhere else or just sounds good doesn’t mean it will be a good fit for your community. Test the ideas – hold a public hearing on proposed strategies; conduct a survey on social media; run a pilot program. All of these are designed to learn about concerns, unintended consequences, and alternative approaches. Don’t take forever to test, and learn from the results, by improving the strategies and tactics based on the input received.
3. Measure, measure, measure. Include metrics along with your plans, so you will be able to demonstrate progress and identify problems towards implementation. Commit to and provide resources for regular measurement of key metrics, and report to your stakeholders on progress. Use this process to surface issues, concerns, or opportunities for improvement.
4. Have a System! Good planning should be a process, not an event. It should be part and parcel of how you operate your organization. Make annual reviews of the environment you are in a part of your work and implement annual planning retreats with your Board. Collect data and review progress on the plan and prioritize next steps at least quarterly. Encourage staff and stakeholders to stay alert to and share changes in your competitive landscape, best practices and emerging opportunities.
5. Treat the plan as a living document. Make improvements to the tactics along the way. Take advantage of new opportunities that arise. Adjust to changing circumstances, technologies, and challenges. Build into the plan a way to get approval and buy-in to major shifts and retain the flexibility to do what seems right.