Start-Ups, Communities, Developers – Everybody’s Got to Play

I work a great deal with economic developers in the Midwest and around the country to foster entrepreneurship support systems. Economic developers have spent the better part of the last decade trying to understand the entrepreneurial startup and to analyze how these companies affect our economy. We tend to think that our primary goal is to get them up and running, then help them to access services and resources to grow jobs. Certainly those are important things, but it overlooks some other benefits small businesses can bring to our communities, but often don’t.

In the first quarter of 2010, more people started businesses than at any time in American history.   Right now, more than 560,000 Americans start a new business each and every month. Even after accounting for the slowdown in startups from the recession of 2008, it is breathtaking to see such numbers.

Most researchers acknowledge this trend is likely to continue. According to YourEconomy.org, the average startup over the past fifteen years created three jobs on opening day- that’s no headline grabbing job creation, as comes from business recruitment and expansion of larger firms, but those jobs are additive. If your community fosters 100 startups annually you may well be creating more than 300 jobs a year.   I find those numbers exciting…but it is time for us to look beyond the jobs.

Joel Kotkin, a writer for Newsweek and author of the 2010 book, The Next 100 million: America in 2050, makes the case that technology -and the subsequent startup activity it generates is critical to the long term health and growth of our communities.  He suggests that home based businesses will carry the day for the Midwest, revitalizing downtown districts as entertainment and retail centers while fostering global business activity in the living room and spare bedrooms of our residential neighborhoods.  If this turns out to be true, it’s an amazing role for small business to play and critical to the health of rural communities in particular. To even begin to get there, we will have to address a couple of critical development issues; broadband and home-based business support.

I have heard people say that we have broadband access in nearly every part of the state. Gin rummy! I met with some folks in rural western Iowa last year who had ‘access’ to residential broadband but it was $90 a month. That’s putting a small business at a competitive disadvantage when their urban competitors are paying $35 a month for the same service. In rural eastern Iowa we have businesses with dial-up connectivity trying to manage web sites (doesn’t work well). They are the same folks who attempt to take advantage of our free small business webinars on MyEntre.Net and can’t. Affordablehigh speed broadband is critical to startup activity; without it we will be left behind and our communities will suffer for it.

We also need to rethink home based business operations. Our communities still operate on a ‘regulate and bar’ approach when we should be working toward ‘support and guide’. Home based businesses are a huge part of economic development; planning and zoning should reflect that with thoughtful regulations, supportive ordinances -and recognition that the lines between work and play have been forever changed.

In return, we need to ask more of our small companies. Beyond jobs, we need to ask even our smallest businesses to play by the rules, contribute to the community in ways that improve our quality of life and to become role models to our youth.

Some of you have heard me speak of the young man I met near Ft. Dodge Iowa a few years ago who approached me during an EntreBash! networking event to talk about his home based business. He came up and shook my hand, telling me that he had a home based business. I asked him what he did and he told me he was a video game programmer;  that he was so busy he had hired four of his neighbors to work for him. I was amazed to learn the entire operation was housed in his basement in a community of less than 800 people and that he was grossing more than $200,000.00 annually. All good, right? Then I asked him what his ‘pain points’ were; for example did he struggle with payroll, bookkeeping or tax issues? In response, the young man paused, then winked at me.   Holy moley, I thought. He’s not paying payroll taxes or reporting business income!

I see some of you out there are already laughing.  It is fun to think that we can shake the system and yes, I know avoiding taxes is a national pastime in some circles- but if we are going to get broadband into our communities, create those quality of life features that attract more entrepreneurs, educate our kids well enough they can compete in this new economy we have to pay for it somehow. In my view, the job of our economic development professionals is to make it possible for startups to get running and to redcue the barriers that preclude it.   Broadband and home-based business support are critical. At the same time, our startups have an obligation that begins on day one to be a contributing part of our community- you know- full fledged, tax paying businesses who not only create those much touted jobs, but participate in the betterment of our community by  supporting those things that improve all of our lives. It’s not a one sided equation and the stakes are high.

He says huge number of home-based workers will emerge in the next few years, particularly in rural regions like the Midwest will be critical to the localist economy, he says. ‘They will eat in local restaurants, attend fairs and festivals, take their kids to soccer practices, ballet lessons, or religious youth group meetings he says.   This is not merely a suburban phenomenon; localism also means a stronger sense of identity for urban neighborhoods as well as smaller towns. Kotkin says that people aspire to stay in their communities and entrepreneurship, especially home-based business, is a powerful incentive. Today’s communities don’t reward these efforts -in fact, they deter it- through outdated home-based business rules, poor Internet connectivity and a lack of amenities entrepreneurs find attractive. Kotkin notes that in the 1970’s 20% of American households moved every year. By 2006 that percentage was down to 12% and in 2008 the number of movers had dropped to levels lower than in 1942. ‘We want to stay in our communities’, he says, ‘but our communities have not yet made the changes needed to help us stay home’. Broadband technology is making it possible for residents to create their own jobs-and their own businesses. Communities just need to catch up.