Grow Your Own

Grow3Balancing the Three Elements of Economic Development

By Dave Cocchiarella

Massive resources are committed by state and local governments to promote economic development. States spent nearly $8 billion in 2015 to improve their economic well-being, grow incomes and increase tax bases while creating and retaining jobs. That does not account for the hundreds of millions more spent at the local level.

Grow4It’s a simple matter of compounding. More jobs plus higher incomes equal discretionary dollars and big ticket purchases. Expanding tax bases results in government expenditures, improved infrastructure, services and education.

Job creation itself can be a 2x to 3x multiplier, with every job created resulting in one or more jobs needing to be filled as a result of the first.

A myriad of approaches to economic development are taken at every level by politicians, government officials and public/private partnerships. No matter the angle, most efforts support what many consider to be the three pillars of economic development: Attract, Retain and Grow.

The analogy most often invoked: three legs of a stool lifting up regional economies. Attract, Retain and Grow, usually in that order. Attract by recruiting big companies to bring big jobs to the region. Retain the companies, organizations and institutions that are here by maintaining a favorable business climate. And Grow the companies that startup in the wake of infused economic activity.

Attract

Historically, attracting companies through recruitment has taken center stage. Big deals made with big companies to bring big salaries to the region. Loudly lauded by the media, politicians and government operatives.

SolTech-3559In Florida, hundreds of millions spent to secure names such as Hertz, Scripps and Northrop Grumman. A job well done, with undeniable benefits to the entire state.

At its core, recruitment for economic development purposes involves financial incentives for relocation or expansion of existing enterprises. Generally, not new or created jobs but mostly jobs moved in from somewhere else. Beneficial nonetheless, with additional jobs creating demand for local goods and services.

As with any systemic recruiting, there will be winners and losers. Some consider the recruitment of companies across state lines to be akin to the second War Between the States. A war waged over jobs; who has them and who can get them. A kind of Cold War Economic Arms Race.

IMG_2049The primary armament is the development subsidy. They can be cash grants, reduced taxes and fees, infrastructure assistance, enterprise zones or cheap loans. All designed to reduce the cost for a company to relocate to or expand a facility in a region. Presented as economic incentives, subsidizing corporate relocations is questioned by some. It is an approach to economic development that the non-profit research group Good Jobs First says “is wasteful because the costs are high and the benefits are low: a tiny number of companies get huge subsidies but the net impact of interstate job relocations is microscopic.”

Good Jobs First says the subsidy process is not always transparent or binding; it comes with hidden costs and diverts money from the common good. Lost tax revenue to one region while another region forgives it. Taxes lost or spent that might be needed for education,
infrastructure or other investments that benefit the entire economy.

The power of the proverbial government deep pocket if not wielded well can result in casualties. Sanford-Burnham recently announced it plans to leave the Lake Nona Medical City, allowing the University of Florida to take over its operations. Since 2006 the La Jolla, California based company has received more than $300 million in economic incentives from the state of Florida.

Retention

1407.Port Canaveral-9476-EditEfforts to retain companies has historically worked hand in hand with efforts to attract them. Companies stay put when the business climate remains favorable. The question comes down to the region’s “business friendliness” and its ability to meet their operating needs and provide quality of life for their employees.

When retaining business, regional efforts will focus on favorable policy decisions and workforce development including training and continuing education, hiring and placement services as well as support networks for entrepreneurs and specialty employers.

A business is most likely to ignore attempts to be lured away if it has proximity to customers, suppliers, a skilled talent pool, quality of infrastructure, and the supply of the key inputs such as transportation, utilities and access to research and development. Employers are also seeking a high quality of life for their employees including good schools, safe neighborhoods, and cultural amenities
that add up to a desirable place for employees to live and raise families. Ensuring these things will both attract and retain businesses.

Growth

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The last pillar of economic development is growth. Perhaps the most dynamic of the three pillars and being given renewed attention.The Edward Lowe Foundation is one organization at the forefront of this trend. The Foundation funds its own programs providing growth-oriented companies peer learning, leadership education and strategic research to companies considered to be in their second-stage (over $2 million in revenue and 10 employees).


FIRST-STAGE COMPANIES
Are start ups wrestling with questions of their own existence, obtaining customers and delivering products. They are in the seed stage of the business lifecycle and still proving their idea can work.

SECOND-STAGE COMPANIES
Have demonstrated a workable business model. These companies are primed for expansion. Often needing only information and guidance to enter a period of significant steady growth.

THIRD-STAGE COMPANIES
Continue to enjoy moderate expansion and must deal with the inevitable fine tuning that comes with the transition from small to large.

FOURTH-STAGE COMPANIES
Established companies that maintain growth through new markets, products and services.

FIFTH-STAGE COMPANIES
Mature with a dominating presence in their marketplace. Growth in the fifth-stage typically comes through acquisition.


Stage-two seems to be the sweet spot for economic development through growth.

Youreconomy.org supplies “establishment-level historical data” helping policymakers, economic development operatives and entrepreneurial advocates understand business activity in their regions. According to Youreconomy.org, 8% of businesses based in Florida were stage-two companies between 2009 and 2013; yet 34% of all jobs generated during that time were by stage-two companies.

A Hidden Power

GrowFL was created by the Florida legislature in 2009 to assist second-stage companies in Florida. According to GrowFL, second stage companies are “powerhouses for job creation.” More jobs come from stage two companies than from stage four and five combined. Job creation from stage two companies exceeds self employed and startups as well.

Compelling data, but according to Lewandowski, it’s not stage two companies that get the economic development spotlight. “The current focus is on startups and recruiting.” She said “We would like to see a more balanced approach including growth from within and support for second-stage companies.”

Grow1Or a “grow your own” approach. This requires greater economic development attention on stage two entrepreneurialism; a shift from a development environment that is transactional to one that seeks to support economic stability through homegrown expansion. “But, it is not an either or proposition.” Lewandowski said, “Neither growth from within or recruitment from outside is a panacea; there needs to be a balanced approach to economic development.”

The ‘grow your own’ approach is largely based in supporting those stage-two companies that make up a third of the workforce. The Florida Virtual Entrepreneur Center collects, organizes and promotes business resource agencies that serve entrepreneurs and companies of all sizes. Program Director Michael Zaharios says FLVEP connects business to those agencies that can fill their needs.

According to Zaharios, these business development functions create loyalty to the community, region and state. “When you show a company that you support them and what you can do to help grow their business, you build a bridge and a relationship.” He said, “The company becomes a partner in the development of the region because they are invested.”

Grow2Zaharios agrees there has to be a balance. “Economic development is there to serve, provide support and resource.” He said, “Landing the big fish is important, but serving the larger number of companies is equally important.”

If balance is achieved, that leaves hundreds of millions of dollars to support and serve Florida’s entrepreneurial stage-two business community. Grow your own.

Spotlight

The Florida Virtual Entrepreneur Center (FLVEC.com) is a completely free, statewide business resources directory providing entrepreneurs of all sizes and industries quick access to local, regional and state support agencies based on their business stage: Idea, Formation, Launching, Growing and Optimizing

THE FLVEC.COM PORTAL

Entrepreneurs will find agencies that can help them with business plans, mentoring, licenses and permits, funding, networking and much more. In addition, entrepreneurs can create a free profile on the website and tell their entrepreneurial story. They can also read about other entrepreneurs operating in their community and get connected with them for information sharing, collaboration and inspiration. All entrepreneur profiles are published on FLVEC’s social media channels (Facebook, Twitter and LinkedIn) for extended promotion and elevation of Florida’s entrepreneurship community.

THE PROGRAM

Was started in 2005 and over its 11 year history has grown to include all 67 counties in Florida. The Florida High Tech Corridor Council is the major sponsor along with 15 local agencies throughout the state. More and more agencies are signing up to sponsor the program and use it as part of their economic development strategy.

 

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