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 Author: gorwest
PostPosted: Tue Jan 12, 2016 5:40 pm 
I have been in business for myself since 1977. The business has changed over the years, branching out many times with some of the branches withering up and others growing long. It is a guerrilla business style, adapting to both the business environment and the physical environment that it was operating in. It has been very far from a textbook example of what a business is supposed to be.

It is also very much like 75% of the businesses that are found in rural communities.

I have spent many hours attending economic development oriented community meetings and conferences and field trips over the past 39 years, hoping to improve my lot and the welfare of the communities where I lived. Mostly, those meetings turned out to be unproductive, each series seeming very much like the one before. But I did learn some things - my experience has resulted in some ideas about what the problems are, and what needs to be fixed so that the large number of businesses that are like mine can be more successful.

In a nutshell, I have learned that the leaders of economic development efforts should be the actual economic developers themselves - the people who are starting and operating small businesses. Folks who take a job, and maybe even get some training in economic development, can provide a limited amount of support for businesses but they are not the developers.

The system is upside down - the service providers should not be occupying economic development leadership positions. There exists what I call the invisible gulf between business service providers and business clients. The service providers generally have a narrowly defined suite of services to offer, which in my experience doesn't address the primary issues of small businesses. The businesses themselves often don't know what they need, and because of that they don't know what to ask for, or recognize that the offered services are not going to do the trick for them. The invisible gulf is the lack of understanding that the service providers are not really providing what the businesses need, and the businesses don't know how to identify what they need. A funny story about this - when I was working with staff from the SBDC to create a business plan for Gila WoodNet (business plans are a useful tool that the SBDC can help with), my advisor said that most folks who come in want to know where they can get free money - they had seen that dumb commercial from 20 years ago with the guy in a green suit covered in dollar signs and question marks touting a publication telling where all the free government money could be found. The SBDC did not have access to any free money, just business plan writing and some other advising. The funny part to me is that the business clients knew what they needed - resources - but the only way they knew to express their need was to ask for free money.

It also seems to be true that official economic developers only think about creating new startup businesses, or attracting businesses that exist elsewhere to relocate. But there is more potential in improving or expanding existing local businesses. Many operations, and mine is one example, actually create new business opportunities as a result of finding better ways to acquire supplies or through the development of "byproduct" products. At some point it makes sense to split off sprouting ventures as separate companies while retaining a strong level collaborative association with the parent business.

One last example of the inadequacy of conventional economic development efforts is an incident that happened at one of the Gila EDA gatherings several years ago. I had been dutifully attending the monthly roundtables, partly representing the Green Chamber of Commerce, and partly in hopes of presenting some of my ideas regarding economic development. I always found the roundtables to be frustrating because the agenda was primarily hearing from the various governmental entities and service provider groups, with never any discussion about what to do. Lynda Aiman-Smith and I had written a white paper on the subject and wanted to get it out for discussion, but the EDA folks wouldn't schedule us to present. At this particular meeting, the president of the EDA made a sighing confession that they had never had any success at economic development (meaning the group all the way back to its incorporation in 1978) and that they didn't really know what they were doing. After the meeting, I buttonholed the president, who I had known for fifteen years, and told him that the Green Chamber had lots of ideas, and I asked to be invited onto the EDA board. His response was, "This isn't the right time. I'll keep it in mind, though. You'll get your turn someday". I have never gone to an EDA roundtable since.

So what do small businesses need, and how can they be assisted in meeting those needs?

A couple of months ago, I outlined what I consider to be the fundamental needs of a small business for an incubator project that is underway:
-Financial capital; cash and debt needed to buy stuff and to fund operations until revenues cover expenditures
-Human capital; people to do the work, including financial management, operational management, marketing, plant labor, service labor, etc.
-Equipment; all the gear that is needed for operations
-Buildings; structures to house the business operations
-Land; a place to locate the operations

The most common way of starting a small rural business is through bootstrapping, which is a method of business startup where the development of the business is accomplished through the use of available resources, including; personal cash, partial operation of the business as bits and pieces become operational, use of small loans from friends and family, finding and reusing equipment, and unpaid work. The reason people bootstrap is because they don't have enough resources to create a fully functional business at the outset.

Many of the issues involved in bootstrapping can be eased through collaboration and sharing of resources. Many resources in the list above, when owned by a single business, are underutilized - meaning that they are not used to full potential, which makes them slow to pay for themselves. A business may own one acre of useable land, but only need 1/4 acre; a building may have 5,000 square feet when the business only uses 1000'; a forklift may be required to move heavy goods, but only run two hours a week. Perhaps the most interesting resource that can be shared is human capital - two or more businesses may realize that they only have a need for part time employees. If the business operations are the right fit and have different schedule needs for help, a worker can be shared, which provides more full time work and employee costs can be split. Other services, such as office staffing, maintenance, and specialized skills can also be shared. Additionally, surge needs - say a big job comes up - several businesses can band together to to get it done. In my experience, collaboration is far more beneficial to small businesses than competition is. The bottom line on collaboration and sharing is that capital, operating, and maintenance costs can be significantly reduced when compared to going it alone.

One other type of human capital sharing is when two similar businesses - I'll use cabinetmaking an example - take a serious look at their strengths and weaknesses, and find that they are substantially opposite. One may love the production work of cranking out the casework (the boxes) but doesn't like the more finicky process of making the doors and drawers, or adding decorative touches; another may dislike the repetitiveness and lack of variety in casework, but loves matching wood grain and milling and fitting fine wood. As separate businesses they find themselves bidding on the same projects, driving down the price while increasing their costs because of having to do the whole job - both the parts they like and the parts they don't. If they can overcome the urge to be independent and to control the whole job, they may find that they can work together. The end result is a happier life and more efficient production, better volume purchasing power, joint marketing, increased utilization of equipment, and the ability to take on larger projects. The end product may also be of higher quality but not necessarily higher in price.

Bank loans are often suggested to be a way that resource-poor businesses can get into a better position, and lots of service provider bandwidth is used to promote loans. My experience as a bootstrapping guerrilla businessman has been that it is extremely difficult to qualify for loans in the first place, and to have one adds several extra layers of long-term difficulty and stress. The innate flexibility of bootstrapping goes out the window and is replaced by rigid payments and the specter of bankruptcy if the payments are not made on time. Debt also adds more cost to operations, when the initial problem was already not having enough resources. Taking on debt is a serious gamble for a small business.

I'll close this article by reminding everyone that the subject is still "doing economic development; where to start?" My advice is to start by getting the real economic developers, local small businesspeople, to drive the effort. We need to recognize what the needs of those businesses are and find ways to help them get the resources they need to succeed. I'll take that on in the next installment.

Last edited by gorwest on Thu Jan 14, 2016 11:35 am, edited 2 times in total.

 Author: almilligan
PostPosted: Tue Jan 12, 2016 6:26 pm 
Have you tried to get your ideas into the economic development institute that Western offers each summer?

 Author: gorwest
PostPosted: Wed Jan 13, 2016 6:36 am 
No, I haven't. It is my understanding that the program is designed to teach standard economic development practices, and not to research and discuss new ideas about economic development.

Do you know something otherwise?

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