The Challenge for the Heartland

Here's the good news, new business launches are exploding. Applications to form new businesses are reaching unprecedented levels. Seeing millions of people from all walks of life starting their own business in the face of greater than usual uncertainty is inspiring.

The opportunity to create something to achieve a better, richer, fuller life regardless of social class or circumstance, well, that’s the American Dream. As long as that still resonates, we as a country will do just fine. Lose it, and we're in trouble.

An Essential Strategy for Economic Growth

When I visit a community, I always want to get a pulse on the entrepreneurial environment. When I see higher levels of entrepreneurial activity and employment, it tells me the community supports entrepreneurship. And I believe it goes a long way in determining whether a community will grow or not.

Supporting entrepreneurs should be an essential strategy for economic development organizations to grow and diversify their local economies, and yet I often see it is given short shrift, which I find curious.

Of course, not everyone is cut out to be an entrepreneur, but I believe that preparing and helping people start their own businesses creates a more equitable and interesting economic landscape.

For varying reasons, it’s harder to become an entrepreneur in the heartland of America as compared to the East and West coasts. Heartland Forward, an organization that describes itself as “the only think and do tank dedicated to improving economic performance in America's Heartland,” has created a composite measure of entrepreneurship that is an interactive tool at the state level.

Main Street and Knowledge-Intensive

The Entrepreneurial Capacity Index consists of two components. The first focuses on Main Street entrepreneurship while the second centers on knowledge-intensive entrepreneurship. A combination of both is what a community should strive for.

Main Street entrepreneurship is a broad indicator of support and capacity for new businesses, such as legal services, restaurants and retail stores. Knowledge-intensive entrepreneurship are innovation-driven businesses that attract revenue from beyond the local community and cause the local economy to grow much more rapidly.

In its recent report America’s Entrepreneurial States, Heartland Forward found that the top heartland state in the index is Texas at 14th (thanks to 8th in Main Street entrepreneurship), followed by Illinois at 20th with Minnesota (25th), the only other state among the top 25. Heartland states held 16 of the bottom 20 positions. West Virginia ranked 50th overall.

California ranked first—combining high scores on Main Street (the highest in the index at 13.5 percent) and knowledge-intensive entrepreneurship. California has the second-highest value of early-stage deal flow and is third in the number of deals, both adjusted for population.

New York ranked second overall with the third-highest knowledge intensity and a strong Main Street score. New York was third in share of jobs at firms with at least 1,000 in employment and in early-stage funding.

Access to Capital is Key

Access to capital is hugely important for entrepreneurial development. While California ranks 33rd overall in CNBC’s “America’s Top States for Business 2021,” it ranks first in access to capital. Not surprisingly, New York ranks second.

The Great Falls Development Authority in Montana, a group that BBA is currently working with in developing an economic development strategic plan, places great emphasis, correctly in my mind, on entrepreneurial development.

GFDA goes even so far as to provide financing. From its website: “We finance what banks and credit unions can’t.” Since beginning lending in 1996, GFDA have closed more than $36 million in loans, leveraging over $179 million in new investment and creating thousands of new jobs. There is no doubt in my mind that GFDA is serving a great need, largely because it has to. CNBC ranks Montana 41st in access to capital.

Bottom line: Entrepreneurship should be a top priority for virtually all economic development organizations.

Jump Starting Entrepreneurship

Here's what Heartland Forward says can be done to strengthen entrepreneurship.

1) Fund Entrepreneurial Support Organizations. Establishing and providing resources to entrepreneurial support organizations (like GFDA) are essential to create the social capital required for success.

2) Support State Level Entrepreneurial Risk Capital. Venture capital and equity crowdfunding can increase entrepreneurial density.

3) Improve Access to High-speed Internet. More still needs to be done. Broadband is more important than ever. You cannot participate in the entrepreneurial economy without it.

4) Invest in Higher Education. In addition to producing talent needed for innovation, I’ve seen where university-based research has resulted in new business spinoffs. I wouldn't say universities have a great record in this regard, but it does happen.

5) Teach Entrepreneurial Thinking in K-12. Young people are our future and at the very least should be aware of entrepreneurship as a potential career path. They have the opportunity to build wealth through business ownership.

Source Credit: BBA Economic Digest - Dean Barber