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The Role of Entrepreneurs in Economic Development

 

Joe Bell

© 2007 The VMP Group, LLC


Overview


The historic path of economic development is quickly becoming a thing of the past. For more than 50 years economic development specialists competed in an arena of combatants offering up tax breaks and other incentives as sacrifices to see who might attract the next big auto assembly facility.


The facility would provide for hundreds of middle class jobs affecting localized regions of entire states. But those opportunities are becoming few and far between.

The “new” buzz word in economic development circles is “Entrepreneurship”. Interestingly, economic developers view entrepreneurship as a “tool” of and for economic development yet allot only 1% of national economic development dollars to support entrepreneurial development. The new national effort for economic development needs to refocus upon support mechanisms for local and regional entrepreneurial development. It needs to shift from being predominantly a recruitment strategy to a strategy for development and support of entrepreneurial ventures. “Regionalized entrepreneurship” will be adopted as the policy for economic development into the future.


So What Is Entrepreneurship?
 

Historically, the concept of entrepreneurship has a wide range of meanings. On the one extreme, an entrepreneur is a person of very high aptitude who pioneers change, possessing characteristics found in only a very small fraction of the population. On the other extreme of definitions, anyone who wants to work for him or herself is considered to be an entrepreneur. Writing in his book "The Entrepreneurial Mind", Jeffry Timmons defined entrepreneurship as "the ability to create and build something from practically nothing." His definition captures the spirit of the word, the sense that entrepreneurs are like magicians, creating thriving organizations out of good ideas by virtue of hard work, canny business dealing, and personal skills.


Why focus on Entrepreneurial Ventures?


Economic developers frequently state the need to shift their focus from “hunting and gathering” (industrial recruitment) to “gardening” (promoting growth from within). Tomorrow’s jobs will come from fast-growing entrepreneurial firms, and not from the small number of business relocations.

 

True high growth entrepreneurial ventures, also referred to as gazelles, exhibit traits that distinguish them from other business ventures. First and foremost, true gazelle organizations are disruptive in their industries. Disruptive in a positive sense in regard to the economic impact they can potentially have within an industry. This means that the company’s impact is not merely the introduction of a new piece of

software for example, but that the software they have developed becomes broadly adopted, selling millions of units, and represents an the dominant player within the industry.  

 

Gazelle organizations ultimately employ hundreds, or even thousands of people with compensation levels well above market averages. Because of the nature of entrepreneurial ventures, gazelle wealth creation is not vested solely in top management, but tends to be more broadly distributed across a wider spectrum, and thus trickles down to employee wealth creation. Incented with stock option plans, many employees have the ability to accumulate significant amounts of wealth. The combination of thousands of high paying jobs and the creation of wealth accumulation can have a dramatic impact on an economic footprint over a large geographic region.


Why Gazelles?


Gazelles are nimble, fast-growing companies that together comprise the real engine of America's current economic growth - small, high-growth companies that came to exemplify the nation's new economy during the 1990s. Studies show that only a small subset of new firms are responsible for the majority of all new jobs created through the entrepreneurial process. Their sales accounted for more than 70% of the employment growth in the U.S. between 1992 and 1996, while representing only about 3% of the firm population.

Conclusion


There are many opportunities upon which the economic developers can focus to spur ahead entrepreneurial activity. This new model of economic development is one size does not fit all and requires economic developers to be entrepreneurial in their approach. The new world is just that. Globalization and competition have leveled the playing field and now require economic development strategies to not only be visionary, but also supportive as entrepreneurial businesses attempt to execute their plan.

Economic developers must plan regionally today, rather than the historic approach of city competing against city. Through regionalization, collaborative branding and marketing activities can have far greater impact than each city or community acting alone. New methods of business development need to be employed, and though seemingly somewhat contradictory, these new regional economies must diversify their industry base, while at the same time promoting gazelle organizations, and their spin-off and industry clustering outcomes.

And no discussion of the entrepreneurial world of economic development is complete without mention of the need for significant educational reform through the creation of entrepreneurial curriculums for K-12 and lifelong learners. In essence, a significant cultural shift needs to occur, embracing entrepreneurship as our competitive position in the world economy.