State Small Business Programs Get Help
To judge from most media reports, Michigan is on the verge of total collapse. Its largest city, Detroit, suffers from unemployment rates at Great Depression levels, and the state’s deficit now tops $1.5 billion.
But Michigan still incubates a striking number of entrepreneurs, partly by turning over some of the job of promoting small business to -- big business.
Jon Baugh, who launched his Detroit-based company, Dermanaut, three years ago, says he wouldn’t have made it without spending a year at Bizdom U. At this entrepreneurship academy in Detroit, participants get a kind of boot camp experience in growing a company -- all paid for by Dan Gilbert, the founder of mortgage firm Quicken Loans, who is from Detroit.
“Bizdom was a lot less academic and more real-world; you got exposed to what it’s really like to start a company, hands-on,” says Baugh, whose business offers electronic medical record keeping to dermatologists. In addition, he says, Bizdom aggressively helps match graduates with startup funding. Baugh’s company is already expanding, and out of Bizdom’s latest class of nearly 40 students, at least 10 have launched companies, a high rate of initial success.
Michigan is hardly unique. Even in tough fiscal times, nearly all states and cities offer business programs ranging from lending and tax incentive initiatives to business development assistance. But with states facing so many challenges, governors and legislatures have had to improvise, tweak, and radically change these programs to succeed -- often by enlisting large local companies to help save small business development.
The fiscal climate is certainly tough. California, in its most recent budget, cut off funding for small business development programs, which have helped thousands of entrepreneurs over the years by showing them how to find investors and market their products, among other skills. Indeed, one California small business development center reports helping entrepreneurs obtain more than $15 million in investments and loans annually.
But several states have managed to save or develop small business programs. Karen Kerrigan, president of the Small Business Entrepreneurship Council, a Washington, D.C.-based research and advocacy group, says that the states whose programs have succeeded during the economic downturn are those that have focused on programs that streamline regulations and advise companies how to navigate and find capital.
In Tennessee, for example, the legislature this year created a “small business advocate,” whose job is to help entrepreneurs navigate through state licensing and bureaucracies, and to assist small companies in making contacts at every state government agency.
Portland has created a “Small Business Bill of Rights” to ensure that the government creates tax incentives, infrastructure, and lending that favor small companies. And indeed, Portland has maintained one of the highest rates of new business growth in the country during the economic downturn, creating one of the highest concentrations of locally owned small businesses of any city in the country.
“The states that have looked to streamline and reduce regulations have been the most effective in dealing with the economic downturn,” Kerrigan says.
In other cases, states have innovated during tough economic times by taking older programs and finding new uses for them. This summer Maryland expanded its Economic Adjustment Fund so that the program, which previously only helped companies that were U.S. Department of Defense contractors, can assist any Maryland company with 50 or fewer employees. This program expansion will likely boost job and business growth in some of the poorer and more remote parts of the state, which have been hit hardest by the downturn.
States and cities are also using their programs to try and push entrepreneurs to explore new markets, especially in places that are growing faster than the United States. Illinois, for example, has increasingly expanded its Department of Commerce foreign offices, designed to help Illinois businesses on the ground in other countries, says Laurel Delaney of GlobeTrade, a small business consulting firm based in Chicago. These state foreign offices “are a gold mine for Illinois small businesses,” says Delaney. In fact, between 2007 and 2008, the first year of the economic crisis, Illinois’s exports grew by more than 9 percent; in 2009, the state had the sixth-largest exports of any state in the United States.
And as in Michigan, when cities and states simply can’t come up with the cash, they are improvising by turning to large companies for help. In the greater Los Angeles area, Goldman Sachs stepped in to fill the void created by state cuts, announcing in June that it would support small business development in the Los Angeles area. Like Goldman Sachs and the founder of Quicken Loans, other large companies and business tycoons see that maintaining a strong small business climate promotes innovation and growth in their regions.
Joshua Kurlantzick is the author of Charm Offensive: How China’s Soft Power Is Transforming the World.
