The Value of Small Business

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The Value of Small Business

• Promoting Economic Development through Incubation
  and Innovation

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Michigan State UniversityProgram in Public
Policy and Administration

• Authors
• Monica Dorhoi, Greg Grootendorst,
• Chelsea Haring, Kelly Klumpp, Lisa Makar, Reiko
  Niwa, Carmen Pricopi
• Professors
• Roger Hamlin and Richard Hula

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Background

• How does a state like Michigan stabilize
  inner-city economics, redirect development back
  to the central city, and improve the lives of
  inner-city residents?

Small Business Development Incubation
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Benefits of Small Businesses

• Employment Statistics
• Small Businesses
• represent 99.7 percent of all employers
• employ 53 percent of the private work force
• provide approximately 75 percent of the net new
• jobs added to the economy
• account for 38 percent of jobs in high
  technology sectors
• provide 67 percent of workers with their first
  jobs
• and initial on the job training in basic skills
• hire a larger proportion of employees who are
• younger workers, older workers, women or
  workers
• who prefer to work part-time
• The U.S. Small Business Administration

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Benefits of Small Businesses

• Innovation Economic Statistics
• Small Businesses
• provide 55 percent of innovations
• produce 39 of the gross national product
• provide 47 percent of all sales in the country
• account for 35 percent of federal contract
  dollars
• account for 51 percent of private sector output
• represent 96 percent of all U.S. exporters
• The U.S. Small Business Administration

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Problems

• Big industrial corporations seem to prefer large
  expanses of land for new factory development,
  something difficult to find in aging urban
  communities
• Even when downtown office building construction
  occurs, those offices do not often provide
  employment at the skill-level needed by central
  city residents
• 62 percent of entrepreneurs fail in the first 3
  to 6 years
• Rarely do entrepreneurs, prior to starting their
  first venture, already possess all the skills
  they need to become successful

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Purpose

• The purpose of this report is to investigate the
  innovative state programs, and determine if they
  are applicable to Michigan.
• Our objective is to make recommendations to the
  state legislature promoting small business in the
  state.
• We believe that inner-city development is key to
  improvement of the entire urban region, and small
  business development is crucial to inner-city
  revitalization, innovation and economic
  diversification.

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Business Incubation

• Programs that assist in the formation,
  development
• and survival of new enterprises.
• Lichtenstein and Lyons, 1995
• Old Concept Incubator-with-walls
• New Concept Incubator-without-walls
• Incubator with an affiliates program

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Incubator-with-walls

• Provides
• subsidized rent
• office space
• minimal services

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Reasons for High Rate of Small Business Failure

• Poor management
• Poor marketing savy
• Undercapitalization
• High overhead costs

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Incubator-without-walls

• New Concept

Training
Networking
Building space
Research
Targeting
Incubator without walls
Regulations
Marketing
Financial Capital
Taxation
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Policies Targeted at Women and Minorities

• Issue Assist underrepresented groups in
  establishing
• businesses of their own
• Encourage development in inner cities
• Facilitate minority economic development
• 1999 Self-employment Statistics
• 4.6 million Women (39 percent of the total)
• 0.6 million Asians (4.7 percent of the
  total)
• 0.8 million Blacks (6.8 percent of the
  total
• 0.8 million Hispanics (7.1 percent of the
  total)
• Innovative State Programs Procurement Programs,
• Minority Subcontractors Tax Credit,
  International
• Franchise Association Program,
  Minority Business
• Development Division

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Training and
Development Policies

• Issue Education of workforce is essential to a
  states economic growth
• Problem Inadequate training high costs of
  training programs lack of customized training
• Trends Small Business Development Center, JTPA,
  JOBS
• Innovative State Programs
• EnterpriseOhio Network
• Pennsylvania Guaranteed Free Training Program
• Wisconsin Business Development Center
• California WorkNet
• Michigan Programs
• Economic Development Job Training Program
• Consultation Education and Training Division

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Networking
Opportunities

• NetworkAn interwoven set of relationships that
  allow members to communicate information
  concerning a common interest.
• Types Investor ? Business Networks
• Government ? Business Networks
• Technology Based Networks
• Incubator Networks
• Support Networks
• Innovative State Networks
• Oregon Network, alaskaNET
• The Delaware Small Business Development Network
• Montanas Small Business Innovation Research
  and
• Technology Transfer Program
• Eastern Maine Development Corporation
• Michigan Networks
• Michigan Life Sciences Corridor

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Building Space
Incubators Public Private Partnerships Effectiv
e Utilization of Current Resources
Vacant Land Empty
Buildings Under-employed
facilities State Policies buildings, space,
sent, common services States that have been
integral in the construction, development, and
support of various incubators Ohio, Maryland,
Virginia, New York, Massachusetts, Montana
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Raising Financial Capital

• Issue Difficulty in getting the startup money
  
• No assets ? no loan ? no investment ? no
  assets
• Protection is also needed for lenders
• General Programs
• Capital Access Programs enhance
  small businesss
• access to capital
• Loan Guaranty Programs guarantee loans/
  credit lines to small business entrepreneurs/
  owners
• Innovative Programs
• Certified Capital Company (CAPCO),Wisconsin
• Export Financing Assistance Program, Virginia
• HUBZone E. C. Program, Tennessee
• Michigan Programs Business and Industrial
  Development Corporations, Microenterprise
  Program, Capital Access Program, Tax Increment
  Finance Authorities, Downtown Development
  Authorities

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Small Business Taxation

• Issue High percentage of small businesses fail
  during
• 3 to 6 years
• Need policy that can help small businesses
• survive in the long-run
• General Programs Enterprise Zone Programs
• Innovative Programs
• Keystone Opportunity Zone, Pennsylvania
• Keystone Opportunity Expansion Zone,
  Pennsylvania
• Michigan Programs Renaissance Zone Program,
  Local Development Financing Act, Industrial
  Property Tax Abatements, Brownfield Legislation,
  Michigan Economic Growth Authority

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Environmental Other
Regulations

• Issue Businesses must make investments to
  comply
• with environmental regulation
• Small Business Regulatory
  Enforcement Act
• of 1996
• Problem Small businesses bear a disproportionate
  share of
• regulatory costs and burdens
• Trends SBAs ombudsman
• Innovative State Programs Illinois Small
  Business
• Environmental Assistance Program ,
  Ohio Small
• Business Assistance Office, Rhode
  Island Economic
• Development Corp. Regulatory
  Permitting
• Assistance, Voluntary Assistance
  Program
• Michigan Programs Michigan Clean Air Ombudsman,
• Michigan Green Power Aggregation
  Program, Energy
• Star Promotion Program

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Marketing

• Issue Assist small businesses in marketing
  their
• products and services in U.S.A and
  overseas
• Evaluate companies and products for
  international
• market entry
• Assist small businesses in their marketing
  research
• Problem Marketing research is expensive and
  requires
• access to rich data bases
• Innovative State Programs The Connecticut
  Procurement Technical Assistance Program,
  Agricultural Export Promotion Program in
  California, Florida Procurement Technical
  Assistance Centers, Office of Small Business
  Assistance in Texas

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Research

• Issue Small firms produce 8 times the number
  of
• successful new products per million
  dollars
• developed by large firms
• Small firms produce 2 ½ times as many
• innovations per employee as large
  firms
• The cost of RD of small firms is about half
• that of large firms
• Problem Access to technology
• manufacturability and marketability of
  new
• products
• Innovative State Programs Research and
  Development Tax Credit (California), Product
  development, RD Ben Franklin Technology Partners
  (Pennsylvania)
• Michigan Program Michigan Life Sciences Corridor

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Policy Recommendations

• Goal To emphasize the value of small businesses
  by encouraging three aspects of the incubation
  process.
• Information and Education
• Networking
• Evaluation and Tracking

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Information Education

• Provide Affordable Labor Management Training
  Programs
• Make all programs accessible to all Michigan
  businesses
• Utilize college and university resources
• Use training programs to attract businesses,
  advertising an educated work force

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Information and Education

• Advertise and Promote Small Business Development
  Programs to Entrepreneurs
• Develop an agency within the MEDC with the sole
  purpose of gathering and disseminating
  information on federal, state, and local programs
• Ensure the efficient use of business
  development resources
• Utilize agency as a one stop shop for small
  businesses seeking any type of assistance

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Networking

• Develop a State-wide Network of Programs that
  Promote and Assist With Small Business
  Development
• Encourage development agencies to interact
• Expose duplicate service providers
• Use the MLSC as an umbrella organization,
  allowing all of Michigan to become part of the
  corridor

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Networking

• Initiate Investor-Business Networks that
  Encourage Investment within Michigan
• Link potential investors with Michigan companies
• Provide incentives for Michigan residents to
  utilize the network

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Networking

• Require MLSC Incubators to Develop
  Inner-Incubator Networks
• Allow participants to build on the success of
  fellow participants
• Form lasting business relationships
• Encourage emerging businesses to remain within
  Michigan

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Evaluation Tracking

• Monitor the Success of State-Funded Programs
  While Mandating Economic Development Service
  Programs to Track Participant Demographics
• Determine segments of the population which have
  not utilized development resources
• Target the needs of under-represented groups
• Allow public access to program evaluations,
  providing both qualitative and quantitative
  information

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Small Businesses Must Be a Priority in Michigan!
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The End