R.I. must strive for smart economic development

Christopher B. Coyle Ist

03/20/2010

In a recent ad campaign, IBM revived its famous moniker “Think.” Its current campaign, “Welcome to the Decade of Smart” focuses on thinking differently about energy use. The ad suggests that by applying the right tools and data we can improve efficiency and return on investment on limited natural resources.
Given the state’s current financial challenges and the reasonably foreseeable reality of a slower recovery and modest growth, should we think differently about economic development?
“Smart economic development” seems to apply particularly well to Rhode Island. Of any state in the union, we must be more creative in using what we have in new and more efficient ways. Today we have resources and capital directed toward economic development in Rhode Island that is overlapping and at times conflicting, expertise and financial-investment gaps for growth-stage companies and limited coordination between the allocation of capital and provision of business-development services.
Our state agencies are failing to take advantage of technologies that can speed information flow, improve licensing functions and increase internal efficiency. Rethinking the current approach to economic development may offer improved results.
To put this in sharper relief, the function of economic development in Rhode Island lacks many of the assets and tools most states have, such as land, labor and incentives. We do not have an attractive tax code, a large revenue base, low cost of living, miles of construction-ready land or a growing work force to make relocation subsidies materially attractive to out- of-state businesses or a reasonable investment for our taxpayers. We do not have the geography to leverage major economic growth from natural resources or infrastructure. Applying many of the traditional tools of economic development may not be applicable or practical in Rhode Island.
What we do have is smart and creative small businesses that are poised to grow and a tough, resilient work force that is ready to help. At the same time, we have a plethora of smart, knowledgeable resources all seeking to help these businesses start up and grow, and lending sources increasingly seeking ways to provide financial support. Today, these companies can find a plethora of training sessions, seminars, networking events, incubators and other services. Instead of a coherent and organized statewide menu of services, many of these organizations actually compete with each other for attendees and present similar content. At the same time there are multiple funding sources focused on early-stage companies. Startup funding, while vital, may be distracting us from the more urgent problem of lack of capital for growth-stage companies.
By organizing and refocusing these resources based on a “jobs return on investment,” Rhode Island can begin to help our small businesses accelerate growth more effectively. We can help them sell things better, target the best markets, invest in targeted expansion and win new business that creates new work. New work creates new jobs.
According to Kleiner Perkins, one of the nation’s leading venture capital firms, most of its successful portfolio companies changed business plans two to three times. PayPal was based on the seventh iteration of its business plan. Many other studies make clear new businesses and the ideas they are based on need help beyond the startup phase.
While Rhode Island entrepreneurs and small businesses can find many resources to help prepare and present a business plan, there are few, if any resources helping them actually implement it. At the same time, while the state is investing in some companies, there is no coordinated effort to help these same companies with experienced business-development resources to accelerate their growth.
Encouragingly, the R.I. Economic Development Corporation is focused on changing the culture to focus on our small businesses and using data to drive policies. With an estimated 35,000 small businesses in our state and a quarter-million jobs, now is the time. Importantly, there is growing recognition of using the best practices from other faster-growing states and embracing the value of public-private partnerships. Now is the time to implement and take decisive action.
The key is to focus on smart economic development, by organizing, aligning and prioritizing our financial and human resources and leveraging our technology tools:
• The first step requires inventorying and organizing the statewide resources all trying to help small businesses. PowerPoint’s do not create jobs. The right expertise and hands-on assistance at the right time does and we must do a better job getting more of it to the right companies at the right time. The EDC can be the hub of this more organized delivery of know how and hands-on expert assistance. • Identifying and maximizing the participation of as many companies with growth potential as possible is essential. With a more organized and targeted menu of training and support services, the EDC is poised to develop and implement a successful outreach campaign to identify, recruit and inventory the many businesses ready to grow in our state.
• Organizing theses companies into “growth-potential” groups allows for a more effective allocation of resources and capital with improved integration. This first phase of this process includes a readiness assessment that examines the company’s ability to accelerate growth. Do they have the operational, organizational and financial capabilities to build upon?
• Using this business segmentation the EDC can help match the most appropriate investment of financial and human resources with the right companies to accelerate growth.
• High-potential companies may benefit most from an investment-team approach that brings a combination of state-funded loan funds, venture-funded equity and/or debt-equity combinations, and traditional asset or cash flow based private bank loans. The state should also consider tax incentives to private “angel” investors who support growth stage companies.
• Medium-potential companies may benefit most from a combination of investment/ business team support that focuses on the specific scoring deficiencies which, if corrected, would make the company a high-potential candidate. Too often, companies in this category are rejected for additional investment with little guidance or support on how to fix it. At the same time, these companies would receive a different level of training and business-development support appropriate to their stage of growth and specific needs.
• Development-stage companies are those that show quantifiable potential to grow and build jobs, either directly or indirectly as a supplier or partner to a stronger company. These companies may be best supported by many of the state’s incubator and basic business-training courses. The key ingredient of this smart economic development is organizing and coordinating our resources to accelerate identification of the most rapid and efficient growth roadmap for each stage company. From identifying partnerships, arranging for second-stage financing, or sub-contractor opportunities to finding new market segments like government contracts and alternative business models, these teams serve as high-power and hands-on advisory resources that can make a direct and immediate impact.
The results should be winning new business that creates new work. New work creates new jobs. Our score-keeping must change from the number of training sessions and internal meetings to customer presentations, sales closed and contracts won.
At the same time business-development resources are being better organized and focused, our state should be leveraging information technology tools to improve communications and speed processes. While assembling a pile of licensing forms on the secretary of state’s Web site may be an improvement, far greater improvements are at hand and can be implemented almost immediately.
The EDC and Providence are beginning to use local information-technology tools such as Tizra and Inquest-Technologies to streamline, simplify and speed up information-exchange and plan reviews. These same tools can be used by the state and other organizations to accelerate and simplify license applications, access to regulations and other state services these small businesses are dependent on.
Technology must be leveraged. Investment of state and private funds should be in the programs and services that offer the best return on investment in terms of growth and jobs.
Rhode Island is the smallest state in the union, so let’s use our size to our advantage by coming together, being better organized, focused and effective. Let’s make our state brand “smart economic development.” •