By Melissa A. Taylor
From Foresight, Vol. 4, No. 4
published 1997
Entrepreneurship is commonly defined as the pursuit of opportunity, whether a for-profit or nonprofit venture, without relying exclusively on resources currently in one’s control. That is, entrepreneurs see opportunities, often where others only see obstacles, and they pursue these opportunities by finding ways to mobilize needed resources. Entrepreneurship has become the driving force in our economy. Today, entrepreneurial small businesses are responsible for the majority of innovations as well as new job growth in the national economy.
Cognetics, a research firm specializing in entrepreneurship, estimates that small businesses were responsible for almost 84 percent of the new jobs created between 1992 and 1996 and were responsible for 87 percent of the new high wage jobs, those that pay $29,191 or more (McNamee). Not only is entrepreneurship the major job creator in the economy, it can be a cost-effective strategy for economic development. According to Inc. magazine, recent research shows that local business incubators are more effective on a cost-per-job-created basis than are industrial recruitment efforts (Useem). For these obvious reasons, entrepreneurship should be a vital component of any economic development strategy.
In recognition of the role of entrepreneurship in our economy, MACED launched an initiative in August 1996 to find ways to promote and stimulate entrepreneurship in the Appalachian regions of Kentucky, Ohio, Tennessee and West Virginia. We spent a year conducting a market study of entrepreneurs in a variety of businesses and at different stages of development. Our objective was to determine how we might help Appalachian entrepreneurs build their businesses and create more employment opportunities in this region. We also interviewed individuals who are knowledgeable about business development, including government officials, educators and civic leaders, in six counties in an effort to determine how we can create a more entrepreneurial climate in central Appalachian communities.
From our interviews of entrepreneurs, we learned about some of the most common obstacles to starting and growing a business in this region. We found that geography, learning styles of entrepreneurs, workforce quality, a perceived negative attitude toward success, regional insularity, and information about capital are barriers to entrepreneurship in the central Appalachian region.
Geography and learning styles hinder access to business support. The rugged terrain of the region often makes travel difficult, and entrepreneurs do not want to take time away from their workplaces to participate in learning opportunities outside of the region. Alternatively, entrepreneurs often “learn by doing” and prefer hands-on training to attending seminars.
One of our most controversial findings is that workforce quality hinders business growth. Many of the entrepreneurs we interviewed complained about both the skill level and the attitudes of their employees. Entrepreneurs in several different industries, including those that pay fairly high wages, complained about the lack of a good work ethic and what they termed a “welfare mentality.” However, it is difficult to determine from these interviews if the situation is a problem with management styles, work ethic, workforce skills, or a combination of these elements.
In some parts of the region, a negative attitude toward success is perceived. Entrepreneurs explained that some people in Appalachia do not want others to succeed. One business owner we interviewed dubbed this phenomenon the “crab theory,” referring to a crab that climbs to the top of a boiling pot only to have the other crabs pull it back down. Even employers with a “hire from within” policy expressed difficulty getting people to climb the ladder and make room for other people in entry-level positions. The egalitarian culture of many Appalachian communities may discourage people from trying to excel in business ventures.
Regional insularity also limits exposure to new ideas. Though its impact is not as extensive as might be expected, regional insularity is a problem when identifying business opportunities. For example, according to entrepreneurs we interviewed, an Appalachian location does not impair supplier or customer relations. Several entrepreneurs reported that they had overcome insularity by spending time outside of the region where they were exposed to new ideas and new ways of doing things. Seeing what was going on in other areas helped them realize that there were business opportunities awaiting them in Appalachia.
Information about capital, we found, is more problematic than access to capital. Entrepreneurs often complained about access to capital although they had relatively little difficulty financing their ventures. When we delved further, we learned that the problem is more that entrepreneurs do not know what capital sources are available, rather than a capital shortage in the region. One entrepreneur-turned-banker observed that he has never seen a capital shortage in Appalachia. He added that competition in financial services makes it possible for any committed and resourceful entrepreneur with a viable investment opportunity to raise money. Other sources of small business finance have complained about the lack of adequate deal flow for the funding available, rather than too many attractive business propositions chasing too little money. This perception on the part of entrepreneurs could be an information problem. We observed that many were simply unaware of financing options available to them.
Despite these obstacles, we learned that entrepreneurship is alive and well in central Appalachia. Nevertheless, with more attention to entrepreneurs and their needs, it could be a far more vibrant economic force. As mentioned earlier, we spoke to business people in a variety of industries and at different stages of business. While it is difficult to generalize based on the interviews we conducted, several key lessons emerged.
First and foremost, entrepreneurs want a readily accessible clearinghouse or “one-stop shop” for business information, training, and support services. Entrepreneurs expressed considerable desire for a centralized business information service that would permit them to make only one phone call or go to one Internet site to find the information they need. What’s more, they want just-in-time delivery of support services. The entrepreneurs explained that they did not have the time to go to class once a week for a semester and that seminars were given during the workday instead of on weekends when it would be most convenient for them.
Both successful and emerging entrepreneurs understand the importance of technology and are not afraid to embrace it. The entrepreneurs we interviewed were technologically sophisticated. Those in businesses ranging from retail to high-tech manufacturing understood that technology, including the Internet, could help them stay ahead of the competition.
Many entrepreneurs have entrepreneurial role models who have inspired and/or mentored them. Often, a relative or friend who started a business served as inspiration and role model. In addition, many of these entrepreneurs worked for larger companies where they learned key aspects of the business, often from supervisors who played the role of mentor when the entrepreneurs started their own businesses. These mentors and peers have been a key source of information, contacts, and moral support.
We also found that Appalachian entrepreneurs focus little on marketing their products or services, preferring instead to rely on word-of-mouth advertising. In fact, entrepreneurs we interviewed rely almost exclusively on word-of-mouth advertising. This suggests that Appalachian firms are missing market opportunities—regionally, nationally, and internationally. Many of our entrepreneurs have done quite well without aggressively marketing their products and services, and, chances are, they could do even better if they developed a more proactive marketing plan.
From our community studies, we identified environmental obstacles to entrepreneurial development. First, for many years the economic development practitioners have focused heavily on recruiting firms from outside the region, and it is difficult to change attitudes about the importance of entrepreneurship overnight. In addition, many people equate entrepreneurship with retail although most entrepreneurial ventures are in other sectors, including business services and light manufacturing. Furthermore, outward migration of the best and brightest in Appalachian communities and resistance to outsiders can hinder people’s exposure to new ideas and thus new business opportunities.
Our community research not only made us aware of obstacles, it also suggested opportunities and paths for developing an effective community-level program. Contrary to public opinion, there is an entrepreneurial foundation to build upon in Appalachia. We must take advantage of the physical and human resources available to us, publicize the success stories, and help communities understand the economic and symbolic importance of homegrown entrepreneurship to the future of development in this region.
Local leaders need to be persuaded and equipped for action. Although people realize that small businesses create the majority of jobs in the United States, communities tend to focus on industrial recruitment as a development strategy, partly because they do not know how to promote entrepreneurship. The first tasks in developing any community entrepreneurship program are marketing and education. Ultimately, we need to offer community leaders a “toolkit” and more specific guidance for promoting entrepreneurship.
Strategies need to be tailored to local conditions. Just as entrepreneurs will benefit from a diagnostic tool that helps them identify needs and opportunities, communities also will benefit from tools that allow them to assess local entrepreneurial potential, identify local assets and competitive advantages, determine gaps or weaknesses in existing entrepreneurial support services, and develop appropriate cost-effective strategies for moving forward.
Strong leadership and widespread support are crucial. No one party can be responsible for creating a supportive entrepreneurial climate in a community. Widespread involvement is crucial. Leaders from local government, civic organizations, community development groups, schools, and the media, along with county extension agents, bankers, business owners, lawyers, and accountants, all have key roles to play. Creating an entrepreneurial climate is a complex task that will require an individual or a group to spearhead it. Like business entrepreneurs, community entrepreneurs must see an opportunity to better the community and then muster the human and financial resources to turn the opportunity into a reality. If we want to significantly improve the entrepreneurial climate in Appalachian communities, we need to begin working in communities with strong, supportive public leaders, and we need to help the visionaries move into leadership positions.
Internal and external networks must be strengthened. Social and business networks provide entrepreneurs with critical information about potential customers, suppliers, employees, and knowledge of business opportunities. Interactions within and among groups can help build the levels of trust needed for a community to work together towards common goals. In addition to networks internal to the community, ties to other regions are also important for expanding the range of potential business opportunities.
We have concluded from our study of both individual entrepreneurs and communities that MACED’s efforts will best be spent on two main areas. First, we will help address the needs of existing entrepreneurs who want to grow their businesses and thus create more jobs in the region. We are in the process of designing a virtual entrepreneurship center that uses Internet-based technology to provide a one-stop shop for business information. It will provide electronic forums for business-to-business communications and an on-line diagnostic that will help entrepreneurs assess their strengths and weaknesses, then point them to sources of information that will assist with their business problems. We plan to couple this technology-based project with the development of a human resource network that will facilitate the creation of peer networks as well as mentoring relationships between entrepreneurs.
Given the magnitude of workforce problems and the potential increase in these problems as current welfare reform efforts move more people into the workplace, we need to place special emphasis on human resource services. We need to build the management skills of local entrepreneurs to help them deal with the Appalachian workforce. We can achieve this in part by documenting the success stories in this region, passing the lessons on to others, and making other general management information conveniently available to them. In the short term, we need to search for innovative, cost-effective, market-sensitive ways to build workforce quality. For long term impact, we need to find ways to create a culture that celebrates the success of others and values individual responsibility in order to improve the skills and attitudes of the workforce in this region.
In addition, we are working on the even more complex issue of how to make communities more entrepreneurial. We plan to create a “toolkit” of information about the needs of entrepreneurs and how to address these needs and stimulate more entrepreneurship by creating an entrepreneur-friendly climate. This toolkit will be available to government, business, citizens and nonprofit leaders to assess the entrepreneurial climate in their communities and develop strategies for improvement. The ultimate goal of this toolkit is to persuade community leaders of the importance of local business development and provide them with the information and tools necessary to create a more entrepreneurial mindset in their communities.
Appalachia and other regions need resourceful entrepreneurs who not only create value through their pursuit of opportunity, but also capture that value for the region. Ideally, we need more locally-owned, high value-added, sustainable ventures that improve a region’s "balance of payments," increase local wealth, improve human and social capital, and reduce the need for outside government and philanthropic subsidies. Of course, entrepreneurship is no development panacea, but a concerted effort to promote entrepreneurial behavior is an essential component in any regional development plan. Our research shows that a development plan must go beyond the common emphasis on access to capital to address the many other needs of entrepreneurs in their efforts to start and grow businesses in any region.
Mike McNamee, "Good News from Small Biz," Business Week 1 Sept. 1997: 24.
Jerry Useem, "Churn, Baby, Churn," Inc. 20 May 1997: 25-32.
Melissa Taylor is director of the Entrepreneurship Initiative for the Berea-based nonprofit, Mountain Association for Community Economic Development (MACED). Ms. Taylor is a former intern with the Kentucky Long-Term Policy Research Center.