Tools for Entrepreneurship

by Fred D. Baldwin

tools for entrepreneurship program cover

Creation of jobs for our people and by our people, so that the control of our economic life is not held by outsiders" is the goal of the Appalachian Regional Commission (ARC) Entrepreneurship Initiative, Jesse L. White Jr., ARC federal co-chairman, told over 200 attendees at the ARC-sponsored Tools for Entrepreneurship conference held September 18–19, 2000, in Clermont County, Ohio.

"Once in rural America we were all pretty much entrepreneurs," White said, "but a series of factors began to compromise that sense of independence. Restoring a base of homegrown businesses lies at the heart of a strategy to make Appalachia and rural America self-sufficient."

"Many Fortune 500 companies started in garages somewhere," White concluded. "We want them to start in the garages of Appalachia, and there's no reason we can't do it."

West Virginia Governor Cecil H. Underwood, ARC's 2000 states' co-chairman, placed the Entrepreneurship Initiative in the context of a long history of ARC successes in providing opportunity to Appalachian residents through roads, other infrastructure investments, and training. These initiatives were pre-conditions to development, he said, while citing a $300,000 microloan program for entrepreneurs in McDowell County as a promising next step in encouraging homegrown businesses.

"A major element missing in our struggling communities is the lack of private investment," Underwood said. "If we can attract new investments and make them grow through trained leadership, we'll be successful."

"This deals with what our challenge really is now," Underwood concluded. "While we've made marvelous progress, there remain many counties that are economically distressed. My office maintains a map with dots showing job creation. We have to work hard to get rid of the blank spots."

The two-day conference, which opened with welcomes from Joy Padgett, director of the Ohio Governor's Office of Appalachia, and Robert L. Proud, president of the Clermont County Board of Commissioners, featured an impressive and diverse slate of speakers and panelists. They addressed an equally diverse set of topics, including e-commerce, education, microloans, and venture capital.

A conference highlight was the announcement of a new partnership between the Federal Home Loan Bank of Cincinnati, ARC, and three Appalachian development corporations to increase the flow of capital and technical assistance to entrepreneurship ventures throughout the Region. (See sidebar article: New Partnership to Strengthen Ties with Local Financial Institutions.)

An address by Aida Alvarez, administrator of the U.S. Small Business Administration, provided another conference highlight. Alvarez told the audience that only "a fraction, a sliver" of the billions of dollars invested last year in American industry was invested in rural communities, and that a still smaller fraction was invested in Appalachia.

Calling it a start toward redressing this imbalance, Alvarez praised the potential of the proposed New Markets Venture Capital (NMVC) program, modeled on the successful Small Business Investment Company program. The NMVC program is envisioned as creating 10 to 20 companies able to provide venture capital and technical help to businesses with strong growth potential in low-income urban and rural areas.

Alvarez noted that an Appalachian community development organization, the Kentucky Highlands Investment Corporation (KHIC), provides an example of how the NMVC program can produce jobs. KHIC, which serves nine rural counties in Appalachian Kentucky, was one of the first community economic development organizations to take equity positions (stock ownership, carrying both the benefits and the risks of ownership) in firms it assists. Over a long history, its investments have created over 8,000 new jobs.

"You've proved that you can do well in Appalachia by doing good," Alvarez said of KHIC. "We developed New Markets Venture Capital by learning from your successes. All of you have worked hard to make miracles happen. But we have a long way to go. This is our best opportunity to put money in parts of the country that can be more productive. It's more than a public policy issue. It's a chance to do the right thing by helping people who help themselves."

The conference's four plenary sessions featured moderators and panelists drawn from the ranks of community development experts, representatives of banks and other financial institutions, educators, and, of course, entrepreneurs themselves. Concurrent roundtable sessions enabled small groups to pursue topics of particular interest in more detail.

If it were possible to summarize these sessions in a single sentence, that sentence might read: Access to investment capital is necessary but not sufficient.

On the one hand, speaker after speaker emphasized the scarcity of investment capital in Appalachia and how that scarcity limits the Region's capacity for growth. Tom Rogers, president and CEO of Technology 2020 in Oak Ridge, Tennessee, noted that during 1999, a period in which venture capitalists were investing a mind-boggling $39 billion in new and growing ventures across the nation, only $200 million was invested in Tennessee (less in Appalachian Tennessee). Douglas K. Mellinger, chairman of the National Commission on Entrepreneurship, reminded participants that in 1999, 70 percent of all venture capital money went to only five regions of the country—California, Texas, the Washington, D.C., and New York metropolitan areas, and New England.

On the other hand, speaker after speaker also emphasized the fact that entrepreneurs require extensive nonfinancial help, especially in a region without a strong entrepreneurial tradition.

"It's not just the availability of capital, but helping deals become capital-ready," said Joseph A. Kayne, director of public-sector and community initiatives at the Kauffman Center for Entrepreneurial Leadership. "There's a lack of entrepreneurial culture. They're used to taking a job with a branch plant in town."

"Once we thought if we had capital, everything would just happen," said Monica Doss, executive director of the Council for Entrepreneurial Development, describing the experience of developers in North Carolina's Research Triangle region. "We found that no one had a risk-taking mentality. To get someone who's made their money in and to invest in a tech company takes a little explaining."

"You must have a local social and business culture that embraces entrepreneurship and risk," Mellinger agreed. "What you don't want is a culture that stigmatizes failure."

Two sets of panelists drew especially enthusiastic responses from conference participants. A session on youth entrepreneurship, featuring three young entrepreneurs, struck a strong upbeat note. (See sidebar article: Young Entrepreneurs Highlight Value of Entrepreneurship Education.)

At the same time, it dramatized the long-term importance of supporting entrepreneurship education within the Region's public schools.

"You've got to get this down to the young people," attendee David King, executive director of the Ohio–West Virginia YMCA, remarked at the end of that session. "Otherwise, you'll always be letting yourself be cut off from your roots."

A panel on development finance strategies also drew an especially positive response. Participants praised the nuts-and-bolts specificity of remarks by L. Ray Moncrief, the Kentucky Highlands Investment Corporation's executive vice president and chief operating officer.

Moncrief, like other speakers, emphasized the importance of technical assistance to would-be entrepreneurs and reminded conference attendees that no one should expect investments in new ventures to be either easy or painless.

"If you don't lose some money, you're not taking enough risk," Moncrief said. "There's only a small percent that bring home the bacon."

Throughout the conference, comments from participants were uniformly positive.

"I'm really enjoying this," said Clay Garland, a participant from the Garrett County (Maryland) Community Action Committee. "I do some teaching at Garrett Community College and work with our microloan program. This is my first conference like this, so my head is just swimming with things to bring back."

"I think the youth entrepreneurs were inspiring," said Mary M. Hunt, a program officer for the Claude Worthington Benedum Foundation, in Pittsburgh. "Any time you have entrepreneurs talk, it gets the rest of the room inspired to support that spirit. And I'm having conversations worth two months of getting on the phone and looking at Web sites."

"It's wonderful," said Cheryl Moorhead, director of the Center for Economic Development, Entrepreneurship, and Technology at Eastern Kentucky University, "to be involved in entrepreneurial development, as opposed to getting a new plant to come in. It's like we finally matured and came of age."

Fred D. Baldwin is a freelance writer based in Carlisle, Pennsylvania.
September–December 2000


New Partnership to Strengthen Ties with Local Financial Institutions

A new public-private partnership, announced at the ARC Tools for Entrepreneurship conference in September, promises to provide more technical assistance with, and funding for, small business creation and economic development in three Appalachian states-Kentucky, Ohio, and Tennessee.

The Federal Home Loan Bank of Cincinnati, which serves 770 member financial institutions in the three states, signed partnership agreements with ARC and three development organizations based in Appalachia. Charles L. Thiemann, the bank's president, said he would work with ARC and the three organizations to strengthen ties with the bank and its member institutions, whose combined assets total more than $375 billion.

The three locally based organizations-the Appalachian Ohio Development Fund, the Kentucky Highlands Investment Corporation, and Technology 2020-operate or are developing development venture capital (DVC) funds, which seek to attract more private capital investment into underserved areas.

Like traditional venture capital funds, DVC funds seek a strong return on investments, but unlike most traditional funds, they also have a "double bottom line," requiring that investments return a social benefit to the communities in which they are made. In many cases DVC funds help make local firms stronger so they can attract traditional venture capital investments.

"Experience has taught us that the partnership approach of combining public and private dollars and technical assistance to create housing and economic development opportunities is the best-and in some cases, the only-way to get the job done," said Thiemann.

Young Entrepreneurs Highlight Value of Entrepreneurship Education

Someone asked Zack McDougall, founder and sole owner of Today's Computer Solutions, a firm that helps its clients solve computer problems, what he'd do differently as an entrepreneur if given the chance. His answer: "Start younger."

That line drew a laugh from attendees at the ARC Tools for Entrepreneurship conference. McDougall, now a senior at a Topeka, Kansas, high school, began his business at age 15.

He was one of three young entrepreneurs, including another high school entrepreneur, who combined frank and often funny comments on the pleasures and perils of business development with a tribute to the value of three educational efforts designed to encourage and train young entrepreneurs.

McDougall is a graduate of the National Foundation for Teaching Entrepreneurship/Youth Entrepreneurs of Kansas program. "I can't think of any way to go into business except for myself," he said.

Meghan Spensky described how a high school program called EntrePrep, which combines instruction in practical skills such as the development of business plans, encouraged her to major in business at Marshall University, in Huntington, West Virginia. Now a senior, she plans to start her own business after graduation.

"Sometimes you have to take a risk-go out on a limb," said Jessica Black, a Swainsboro, Georgia, high school senior, who created her own embroidery company after completing a high school course designed by REAL Enterprises, a nonprofit organization committed to entrepreneurship education.

The session, moderated by M. Catherine Ashmore, executive director of the Consortium for Entrepreneurship Education, drew a strongly positive response from conference attendees. Several indicated a resolve to follow up on a challenge from ARC Federal Co-Chairman Jesse L. White Jr. to open dialogues between economic developers and educators on entrepreneurial classes in public schools.

After all, no one missed the serious point when McDougall got another laugh by his deft fielding of a blunt question about his current annual income: "A lot more than before I had my own business."