Risk Is Their Business
by Fred D. Baldwin
In a cavernous, nearly empty red brick building that once housed the offices of a subsidiary of U.S. Steel, two small businesses are flourishing like seedlings taking root in the stump of a fallen forest giant. That image readily comes to mind as you make the rounds of northwestern Pennsylvania counties with William R. Steiner, executive director of the Northwest Pennsylvania Regional Planning and Development Commission, a local development district (LDD) based in Franklin (Venango County). Although the area has its share of fallen or relocated corporate giants, you can also see new, locally based businesses at every stage of growth—from tiny start-ups sending out new market feelers to mature but still growing firms selling goods and services to Fortune 500 companies.
"Economic development is an evolutionary process," says Steiner. "You cannot be happy with what you have today. If you are, the world will pass you by. You've got to look for new entrepreneurs."
Finding and nourishing entrepreneurs has been a top priority at the Northwest Commission since the early 1980s, when the Pennsylvania Department of Commerce (now the Pennsylvania Department of Community and Economic Development) responded to cuts in federal programs with an effort called the Enterprise Development Program. Over time, it has evolved into a cluster of related programs.
Pennsylvania Governor Tom Ridge, noting that small businesses constitute 98 percent of the state's economic base, points out that corporate downsizing makes state-local partnerships more important than ever. Among his initiatives to assist entrepreneurs he counts the Job Creation Tax Credit, which is heavily oriented toward firms with 25 or fewer employees; reform of the state's workers' compensation systems; and a large tax cut.
"Bill Steiner," Governor Ridge says, "has worked in close partnership with my administration as we help businesses prosper in an increasingly competitive marketplace."
David Black, deputy secretary for Community Affairs and Development, adds: "Given the great diversity of Pennsylvania, we at the state level believe it is important to remain flexible in our work with local entities. Local officials know best the needs of their communities. Bill Steiner has embraced this concept, and [his district has] become a model for other regions in the state."
The Northwest Commission does in fact use a great many economic development tools.
For example, since 1983 the agency has operated a Procurement Technical Assistance Center, one of 114 such centers nationwide, to help regional firms compete for business from federal, state, and local governments. Dianne McCartney, the agency's procurement specialist, says that the center's assistance has resulted in more than 2,000 contracts worth more than $200 million. She estimates it has created or preserved more than 1,500 jobs.
Similarly, the Northwest Commission is helping some 700 companies reach markets in other countries. Its Export Trade and Development Assistance Program works actively with about 50 companies per year, helping as many as 20 per year attend overseas trade shows. This kind of exposure pays off. For example, one Warren County firm (Hardwood Products International), although only two years old, already sells almost 90 percent of its products abroad.
Like all LDDs, the Northwest Commission helps entrepreneurs find the best loan programs for their needs. Since the inception of its Enterprise Development Program, the agency has helped firms in its eight-county area secure 425 loans with a total value of over $33 million. This has resulted in the creation or retention of an estimated 12,000 jobs.
As you'd expect, success stories come in all sizes. One recent loan recipient is Oil Creek Supply, in Titusville, which makes heavy-duty aluminum windows and other building products. Plant manager Thomas L. Welton describes how the firm, started in 1995, has grown to ten employees, a number he expects to double soon. He says the loan "helped us a lot when we were severely undercapitalized."
Similarly, John Homer, president of the HomerWood Corporation, also in Titusville, says that in April 1991 he faced a crisis when his entire milling operation burned to the ground. "We were totally wiped out," he says. "The bank looks at this kind of thing statistically. The people who come back from a catastrophic loss are, like, one in ten."
Back in Business
Despite those odds, the Northwest Commission staff considered him a good risk and helped him get loans for new equipment. HomerWood was back in operation by October. Homer decided to specialize in hardwood flooring, including decorative medallions, and his firm now employs 29 people.
Finally, Seneca Printing and Label is a mature firm by any standards. It has approximately 200 employees, most of them at a Franklin plant equipped with high-speed, six-color presses capable of handling jobs requiring copies by the millions. For nationally known manufacturers, Seneca prints just about everything: cereal boxes, soft-drink labels, and specialty items such as jigsaw puzzles. Dennis Pascarella, its chief executive officer, says Seneca evolved out of a newspaper's printing operation.
"When we started," Pascarella says, "we were, to be honest, not the best credit risk. Northwest helped us a lot. As we grew, there was this partnership relationship all along the way."
"Sometimes the government needs to be the risk taker," Steiner says. "But you have to keep it focused."
Keeping it focused mostly means concentrating on finding people with strong entrepreneurial instincts and business skills, but it also means trying to achieve a certain kind of entrepreneurial synergy.
Altogether, the eight-county region served by the Northwest Commission has 11 business incubators (with two more on the drawing boards) and roughly 15 industrial parks. Seneca Printing and Label occupies most of an industrial park, and Oil Creek Supply is a tenant in an incubator in Forest County—another of those buildings vacated by a former corporate giant. The old U.S. Steel building in Oil City is being turned into an incubator by the city's economic development office.
One of the area's special resources is the National Institute of Flexible Manufacturing (NIFM), the nation's first shared-used "teaching factory," which has facilities in both Erie and Meadville. It's equipped with state-of-the-market machines, whose average cost approaches $250,000, and staffed with industrial engineers. Stanley Shelly, NIFM president, explains that the operation is unique in that it not only trains workers but also permits businesses to rent time for actual production.
A concrete measure of NIFM's success is that national equipment manufacturers are willing to rent their newest machines to NIFM at roughly one-third the usual rate. The reason: during the past six years, 46 companies that have used the NIFM facilities have bought 65 machines of their own at a total cost of more than $5 million. By keeping costs low and customer demand high, the NIFM now gets only about 15 percent of its budget from the Commonwealth of Pennsylvania and earns the rest from training and rental fees.
"We could not exist without the support of someone like the Northwest Commission," Shelly says. "We work hand in glove with them. They mention us to industrial prospects considering locating here. They are constantly referring customers to us."
A Cooperative Effort
For his part, Steiner is at pains to emphasize that economic development is a cooperative effort based on many partnerships with both public and private participants. He notes, for example, that the Appalachian Regional Commission assisted at almost all incubator and industrial-park sites, either with planning grants or with infrastructure help. And he says that the incubators are all owned by agencies other than the Northwest Commission, usually a city or county government or other local authority. Years ago, his board rejected a proposal to operate incubators directly, a vote Steiner says was "probably the best decision [the board] ever made."
"In retrospect," he says, "I think we accomplished more by helping the communities put these projects together than by being the owner-operator of them. The communities in our region take a great deal of pride in being the owners and developers of these incubators. Their credibility is on the line."
Officials in Forest County are proud of their incubator, still under development. In addition to housing tenants, it will be the site of a new enterprise center, which will provide fax and other office support services, Internet access, and a conference room, all available both to tenants and to community groups. This accessibility is especially important in places like Forest County, Pennsylvania's least populous county (only 4,800 residents). "We're the only county in the state that doesn't have a single red light," says Gerald L. "Skip" Cussins Jr., a county commissioner.
"In a small county like ours," adds Farley Wright, the county's director of community and economic development, "I can't imagine how that project could have come off without Dale [Dale F. Massie, associate director for the Northwest Commission]. My background wasn't economic development, but I had immediate access to someone who knows economic development like the back of his hand."
The mayor of Oil City, Malachy McMahon, offers an almost identical observation on the renovation of the old U.S. Steel building: "Many times cities of our size don't have the resources to compete. But it's been a real good working relationship all along. And we're laying the groundwork for a comprehensive rural telecommunications network."
Mayor McMahon is referring to Oil City's ambitious plans for that huge building (18,000 square feet of office space), now being renovated. It will be equipped not only with conventional office support services but also with high-capacity telecommunications linkups. One of its two initial tenants is an Internet access provider; the other, a financial courier service.
Increasingly, incubators in the Northwest Commission service area are being designed to penetrate particular markets—not just glamorous fields like telecommunications but the underappreciated ones as well.
For example, a "niche incubator" in food processing is scheduled to open next spring in New Castle (Lawrence County). It will be equipped with commercial stoves and refrigerators and will capitalize on the rich gastronomic heritage of the area's smorgasbord of ethnic groups—Italian, Polish, Syrian, Greek, Jewish, and eastern European.
"When Linda [Linda Nitch, director of community development for New Castle] put this in her community development block grant," Steiner recalls, "the phone rang off the hook. 'I've got this sauce I make. . . .' 'I've got a recipe for pickles. . . .' "
"It was a cooperative effort," says Nitch, ticking off a list of agencies and private individuals involved in the planning, beginning with the Northwest Commission, which used ARC funding to send her and another local planner to a seminar in Idaho on food processing incubators. "And people really did come out, whether it was for their pickles or their chili sauce recipe. If they find out that they don't really like the business part—which happens—there isn't a lot of public money involved. But we hope to grow at least two to three companies who'll outgrow the incubator and relocate here or in one of the region's nearby counties."
Recipe for Growth
The incubator's recipe for growth already seems to be paying off. Nitch is talking with several potential tenants, including a candy manufacturer and a firm "that wants to do something really unusual—gourmet hot dogs." Moreover, Rocca's Italian Foods, a producer of frozen pasta specialties, has indicated that it will locate a plant at an adjacent site. Rocca's intends to use the incubator facilities to test new product lines.
Reflecting on the food processing incubator brings Steiner around again to his main point—the necessity of change. Economic development, he says, no longer means "chasing smokestacks." Branches of large firms are always welcome, but capturing them "doesn't create loyalty."
"Nowadays," he says, "firms will pick up and move with the change of a CEO or president. If you homegrow businesses, they're more likely to stay with your economy."
All those homegrown startups in the area suggest considerable success at that, but even so, Steiner is hardly complacent.
"We've done probably as much of a job as we can do with the emerging entrepreneur of the '80s," he says. "A lot of that growth was based on defense subcontracts and on entrepreneurs who came out of big companies that were downsizing. They were people who already had skills and management expertise. Now we have to go out and really make entrepreneurs happen."
He's bristling with ideas on how to do that. For example, he hopes the Northwest Commission can find a way to take equity positions in promising ventures—that is, to become a public-interest entrepreneur in its own right by investing capital in promising firms. He also has in mind projects for identifying and training new entrepreneurs, people who have good ideas and risk-taking instincts but may lack certain business skills.
However these specific plans develop, Steiner emphasizes that the strategies and tools that worked a few years ago will not necessarily work as well tomorrow. The Northwest Commission must, like the firms its staff works with, evolve. But there is one constant: a focus on what former giants like John D. Rockefeller, Henry Ford, and Andrew Carnegie had in common.
"They were once," Steiner says, "just people who had an idea."
Fred D. Baldwin is a freelance writer based in Carlisle, Pennsylvania.