Last week was Global Entrepreneurship Week,
celebrated around the world aiming to inspire and empower individuals to pursue
entrepreneurial endeavors. This year’s theme was “Entrepreneurship is for
Everyone” and I could not agree more. As part of the celebration, NC IDEA held
their annual Ecosystem Summit. For those
not familiar, NC IDEA is a private foundation, based here in North Carolina to
support entrepreneurship statewide. NC IDEA provides non-dilutive grant funding
to entrepreneurs, startups and the organizations that support them.
This year’s Summit was held in Concord, NC,
just down the road from Charlotte Motor Speedway and drew more than 300
attendees. The two-day event featured
the inspiring story of how Devil’s Foot Beverage Company selflessly rallied
western NC volunteers and converted their operations to can and distribute
water in the aftermath of Hurricane Helene. It showcased the amazing potential
of, and early traction in, the Blue Economy, unlocking the economic potential
of the oceans. [Aside – an interesting observation was shared that since our
planet is primarily covered by water, perhaps it should more accurately be
referred to as “Ocean” rather than “Earth”].
In this week’s article, I’d like to share data
and observations from two of the many prominent presenters at this year’s
Summit.
Thom Ruhe, CEO of NC IDEA
interviewed Tom Barkin, the President and CEO of the Federal Reserve Bank of
Richmond. Barkin’s segment of the Federal Reserve serves Maryland, Washington
DC, West Virginia, North and South Carolina. There was also a joint
presentation by William Toole, the Deputy Secretary of State for NC and Dr.
Caroline Glackin, a distinguished professor of entrepreneurship at UNC
Pembroke. They shared data from a statewide analysis of the impact of new small
businesses on our economy.
Jobs are always a huge topic of discussion in
any economic development debate and also in our local, regional and national
elections. Barkin correctly pointed out
that the vast majority of new jobs are created by “young” businesses. Consider long-standing businesses common in
every town in the US. Grocery stores. Barber shops. Golf courses. Boutiques.
Any business that has been around for many years certainly is a benefit to the
community in which it resides. But those
businesses do not tend to create net new jobs. They merely sustain the same (or similar)
number of positions year after year. And
with technology and automation, some of those businesses actually decrease the
total number of jobs over time.
New businesses create jobs that
did not exist in a community previously. What does this mean for
economic development policy?
The charter of the Federal Reserve, a
non-partisan component of our government, is specific, simple and
straightforward. The Fed is responsible
to maintain stable prices and to maximize employment. Historically, the targets
for these are to keep prices, year-over-year, stable within plus or minus 2%
and to keep unemployment at or below 4%.
While the mission is clearly defined, the execution is a lot of
challenging analysis and hard work.
The Fed has only three tools at their
disposal. The one most commonly debated
is interest rates. By raising and lowering interest, there is potential to
throttle investment, consumer spending, lending and other drivers of our
macroeconomic situation.
The Federal Reserve has two lesser-discussed
tools in the toolbox as well. They have
the charter to oversee banks and also to oversee payment systems. While the Fed
has a national mission, it can at times create regional or local impact as
well. When asked how the Federal Reserve can help regions in distress, like
Western North Carolina in the aftermath of Helene, Barkin noted that any time a
natural disaster occurs that knocks out payment systems, the Federal Reserve
will load up trucks of cash and send them to the distressed areas, such that
commerce can continue to operate. As he
noted, “In today’s economy, you don’t need cash … until you need it!”
Barkin made an observation that really
resonated with me and the work I do with RIoT, supporting individuals that want
to start new businesses. He noted that
for the last century in the US there have been more workers than jobs in most
communities. Therefore economic
development efforts by local and regional governments have focused
predominantly on hunting for jobs. This
translates to economic incentives, tax breaks, land development and other
efforts that attempt to attract existing companies to relocate to or open a new
office or facility in the target geographic area.
As more work is happening remotely, and as we
see AI and automation proliferate, we are now in an era where cities and towns
have far more access to jobs than ever before. In fact, it can be argued that
there are now more jobs than there are workers.
If you look across nearly every sector of the economy – but particularly
in technology – there are tens of thousands of unfilled jobs, most of which can
be worked remotely. Barkin predicts, and I agree, that economic development
policies must change to focus more on attracting workers than on attracting
jobs.
Workers also step out of the workforce and
create new young businesses. A key, but often overlooked, element of
entrepreneurial job creation is that it happens in the place where someone
already lives. Surprisingly however, most new businesses are not created out of
distress.
According to this newly released report from the NC Secretary of
State’s office, more than 80% of new businesses in North Carolina are created
because the founder saw a market opportunity, not out of necessity like a job
loss. If your community wants new business growth, it should first focus on
attracting and maintaining residents.
Toole and Glackin presented data from a
statewide survey of businesses that had been formed between July 1, 2015 and
June 30, 2022. From more than 6,500 responses to this survey, the Secretary of
State’s office learned that approximately 25% of young businesses close within
the first 4 years of operation. Nearly
another 25% close by year 7. Businesses
that sustain, and create sufficient income to maintain the business, PLUS enough
for the business owner to support themselves and their household (as defined/reported
by the owner), create an average of 9.04 additional jobs (beyond the owner) at
an average wage of at least $40,000.
This is significant. Businesses that do not
achieve the level of supporting the business, plus the owner and household
create fewer jobs, averaging just 2.66 employees at a similar wage. If North
Carolina were to help those aspiring businesses to reach self-sufficiency, it
would create approximately 25,500 new jobs with statewide economic benefit of
$1.5-2B dollars. This impact includes
nearly $1B in wages, and an additional halo effect of jobs and spending of at least
$500M annually. And these numbers consider
an average wage of $40,000. If we focus
on the technology sector jobs, which pay much higher wages, the impact is
significantly larger in both direct wages and halo impact.
What would it take to shift at least some
percentage of our economic development strategy away from traditional big game
hunting style company attraction and towards entrepreneurial support? How
should our communities focus on residents and residency growth as economic
development strategies? Next week I’ll dig into the numbers, sharing what our
tax-incentive-based approaches cost per new job created and compare that to the
effectiveness of alternative solutions.
In the meantime, I hope everyone has a
wonderful Thanksgiving.
