Saturday, June 09, 2007

Let's involve more kinds of start ups

There are all kinds of start ups. None is all good. None is all bad, except the illegal ones.

My point is that there should NOT just be a single kind of start up that is anointed. There are many worthy start ups from all walks of life serving all kinds of needs and populations run by all kinds of entrepreneurs that deserve credit and support.

We have a contest here in my home state of Wisconsin, called the Governor's Business Plan Contest. It awards $50,000 to the winning business plan to help them launch. Good stuff.

My town is fortunate enough to have two newspapers. Both had articles about one entry in the Gov's biz plan contest. I read the first one this morning at my house. I read the other paper at the library in the afternoon. By the time I'd washed the dinner dishes I'd grown a bit miffed about the entire subject and here's why.

My paper, the Madison Capital Times, was pretty poetic about a product that has gotten to the semi finalist stage. It's a new kind of paper built from nano components. "Two Apppleton businessmen hope to make a mesh so fine that the smell of flowers could permeate it, but not pollen. A breeze could flow through it but not rain."

Great copy. I wanted to sell for these guys.

The afternoon paper put some numbers to it and I was a bit taken aback. These Appleton guys, ex Kimberly-Clark folk, need the $50K prize money to license the tech and write a marketing plan. They need $4.07 million to launch.

As I said, this is one kind of start up and there is nothing inherently wrong with this. It's only one kind of start up though. Many of the other entrepreneurs out there struggling for micro financing and encouragement would drown in $50K.

I guarantee I could've started up 50 different Wisconsin small businesses for that $50K in the time frame this one contest was going on.

Would the results be the same? Of course not. Two different start up models.

But consider two possible outcomes. One company gets a cash infusion as an approved, anointed start up. The owners leverage that into some further funding rounds, and they bring in the private equity guys and VC crowd. At this point the Appleton guys are unlikely to control anything. It looks like a great product. As I said, I'd LOVE to sell it. Let's say they run the thing up into some big numbers. Numbers that are generating taxes and hopefully jobs. But guess what? That entity is on the exit ramp. Anything generating profitable numbers at big enough revenue streams is more valuable sold than operated. Everybody reading this knows that to be true.

The other possible outcome… We put the $1K into 50 companies or $2K into 25 new enterprises. Sure many small start ups can fail, but if you're smart about it, you can limit that exposure. These new enterprises are not generating big revenue numbers. But their profitability can be solid. And what are you left with? Dozens of new enterprises. Taxpayers. Making jobs for themselves and maybe a few others. Serving on PTAs and volunteering all over town. Putting money in the worship basket. Paying local professionals for their support and buying as locally as possible. Do I need to keep going?

Neither model is perfect, but at least we shouldn't shut out the smaller alternative path.

I built businesses in Wisconsin not because it was a low tax state or that I could get some kind of big financial kick back for moving here. I built my companies because of the libraries in Wisconsin, the parks, the schools, the community of caring, interested stakeholders at all levels that were concerned with making access and input available to all.

My point is that we should consider breaking this kind of start up development stuff down to smaller administrative levels, where the people in charge are surely as overworked as they are at the state level, but where there is probably a level of understanding of street level economics that has a different and perhaps equally useful understanding of what can help economic development.

My former neighbor Margaret Krome is a columnist with the Capital Times in Madison. I liked what she said about this dichotomy in a column she wrote about our work a few years back…

"Wisconsin has always been a hotbed of neat ideas and great innovations. But what it took to make Wisconsin the company's home is our standard of living. As next year's budget fights start heating up, it's important to remember that conservation, clean environment, an investment in culture, natural resources and schools are what draw and keep companies like Rick's in Wisconsin."

"In the last decade, Wisconsin has invested heavily in the biotechnology industry, on the theory that its jobs are environmentally benign and offer high salaries for workers. The same day I toured the Illinois metalworking plant [with Rick], the Commerce Department was leading a delegation of 70 Wisconsin biotechnology leaders to a trade show in San Francisco."

"But Rick's company suggests another meritorious strategy. State job development planners should recognize and support virtual businesses like Rick's with headquarters in Wisconsin, even if it manufactures in another state. Headquartering more such businesses in Wisconsin could attract a well-educated work force, generate a significant tax base, and encourage innovative entrepreneurs like Rick to make money while solving environmental and social problems."

70 biotechs and all the related state folks to San Francisco? OK, different kinds of start ups. We need those kind very much and I'm glad they went. That visit was in 2004. How many of those biotechs prospered? Where is the followup?

What many of the state's new entrepreneurs would appreciate greatly would have been the tip money they left out there in California. Hell, half the tip money. Many more of us could be now volunteering at our PTAs and working on our own enterprises with small micro enterprise pushes that could've and should've been made simultaneously.

I'm about to roll out a new format for this discussion, and I can't wait to share it with you.

Madison Capital Times article by Margaret Krome

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