Saturday, March 28, 2009

"What's important is getting the whole community more entrepreneurial."

I greatly enjoy my participation in the Wisconsin Entrepreneur's Network (WEN). I'm a member, a WEN resource provider, and a big fan.

Among the cool things WEN provides in a lovely, concise digital newsletter (linked below).

A story in this week's WEN newsletter linked to a Milwaukee Journal Sentinel piece that resonated in very practical ways. It was an interview with Massachusetts Institute of Technology master mentor, Sherwin Greenblatt. Pretty cool job description.

MIT has the best track record of any academic R&D center for startups. I take that to be carefully measured, reality based, peer review results (as opposed to theory-of-the hour stuff that's in the wind right now). Granted these are mostly tech companies MIT is dealing with, but I posit that Mr. Greenblatt's results apply system-wide across all of entrepreneurship.

So what's the first thing Mr. Greenblatt wants to tell us about growing successful enterprises? Do we have to look for more grants? Do we have offer more incentives? No.

His answer is the core truth of how we can grow local, regional, national and ultimately global economies. "What's important is getting the whole community more entrepreneurial."

Here's how the article describes MIT's approach to this: "Entrepreneurs get better after they have failed once or twice. MIT doesn't give up on them if they stumble."

This is a vital to understanding the process of building entrepreneurial communities. Of course you will have failures if you enable people to take measured chances. The trick is measuring those risks carefully, and building community support for the risk takers.

The MIT program focuses on mentors as one key way to involve the community.

Mentors create paths to success that non-mentored enterprises often can't find. So a couple of quick bullet points culled from many excellent points in this article….

"The mentor approach works. Fifty companies have been launched in the MIT community; 40,000 hours of mentor time have been volunteered; 120 ventures are being actively mentored; and $550 million in capital has been raised for its mentored deals to date."

"A team of two to four mentors per deal works best because it brings in diversity of expertise and creates checks and balances on opinions rendered to the entrepreneur"

"Entrepreneurs are not kept in the mentoring program unless they are very serious, are making real progress on milestones and make a moral commitment to give back to the community if their deal flies."

"Mentors get involved because they like the social interaction with each other and take satisfaction from seeing entrepreneurs flourish. They like learning from other smart people."

"Finding the right mentors for each enterprise is a social matching exercise. The chemistry among people has to be right. If it isn't, changes are made in the mentor line-up."

(And, too often true) Some entrepreneurs are crazy; others don't listen. Neither can be helped."

The fact that the academic institution with the best track record for launching new enterprises would do it through carefully designed mentorships is wonderfully simple.

Mentors are a critical piece of the entrepreneurial equation. I've been gifted with the opportunity to work with great mentors and I know just how well great match-ups can be for all involved.

My takeaway from the MIT experience is the bigger point made by Mr. Greenblatt about what they have found works best for growing successful enterprises: What's most important is getting the whole community more entrepreneurial.

I could not agree more. This is the key to successful economic development.

What does this mean for startups and small businesses? It means you don't need permission, you need to make mistakes. You need to start, learn, and repeat.

What does this mean for communities? The most dynamic local economies have the highest startup birth rates, but they also have the highest startup death rates as well. More churn. Entrepreneurs in the local economy must be made to feel more comfortable and supported when taking appropriate, measured chances.

This leads to more economic diversity for communities. It creates more chances for citizens to create more economic independence for themselves and the regions where they live.

As the article says, don't focus on individual deals, focus on creating an entrepreneurial community.

That's a plan ALL of us can participate in.

Sign up for the Wisconsin Entrepreneur Network newsletter

Milwaukee Journal Sentinel, Mentors are key to start-ups. Posted: Mar. 21, 2009

Saturday, March 21, 2009

Unleashing talent

I had a wonderful experience this week speaking with a group of energized citizens.

There is nothing that can focus your attention on the good in life better than hanging around with people working to make that happen.

We got to share some stories about the kinds of businesses people were starting; why people were starting them; and importantly, how energized citizens can participate and help.

I'd been thinking about a NY Times piece from this past week called "Weary of Looking for Work, Some Create Their Own".

Matt Richtel reported from San Francisco, and Jenna Wortham from New York.

It was decidedly downbeat about people being pushed into "forced entrepreneurship", as described by Mark V. Cannice, executive director of the entrepreneurship program at the University of San Francisco.

However, he also described reality as I see it, “If there is a silver lining, the large-scale downsizing from major companies will release a lot of new entrepreneurial talent and ideas — scientists, engineers, business folks now looking to do other things,” Mr. Cannice said. “It’s a Darwinian unleashing of talent into the entrepreneurial ecosystem.”

A Darwinian unleashing of talent. An unplanned opportunity to create real solutions to real problems.

I wouldn't restrict the new entrepreneurs to just those categories described above. I'd throw in all the rest of us. We all need to participate in the economy directly. We all need the opportunity to build more economic security into our lives.

So how do we help?

The NY Times article talks about the remarkable availability of resources and tools for entrepreneurship. Barriers to entry are falling away on many fronts: marketing, financing, accounting, vendors, etc.

The article also drilled down to the most pressing issue for new startups. It will seem obvious when you see it in print, but it is painfully lacking too often in the world of entrepreneurship. That is, for any enterprise to be sustainable, it has to solve real problems.

New enterprises that solve real problems must be nurtured. We need their solutions. They need our help.

That's what my new energizing friends did for me at the presentation this week. They gave me a chance to talk about nurturing the smart ones. The green ones. The problem solvers.

Most important of all, they listened and then took action steps.

Steps that will lead to a local, independent, micro-loan fund dedicated to helping new and existing enterprises nurture and grow their smart, sustainable solutions. My friends didn't just listen, they began taking concrete steps to help their local economy and in many small ways, change the world.

The economy needs and wants new smart startups and growing small businesses. There is no shortage of entrepreneurs though there are plenty of barriers to the unleashing of that talent. It's the job of all of us to break down those barriers.

It couldn't have been more exciting to be among good people taking steps to enable talent and enterprise to flourish. That's how we help.

NY Times article. "Weary of Looking for Work, Some Create Their Own", by Matt Richtel and Jenna Wortham Published March 13, 2009

Saturday, March 14, 2009

Regional fair trade

My wife and business partner for decades, Mary, describes it as making the brochure on your way to the sales call.

While I counsel that entrepreneurship is a slow process, the day-to-day activity level can be breathtakingly fast. It can sometimes feel like you're leaning into a howling wind tunnel at a 45 degree angle and struggling to stay rooted to the ground. Making the brochure on the way to the sales call stuff.

I am working on an economic development project with a wonderful new friend, Mark, a farmer, entrepreneur, and regional legend who lives in Wyoming Township, Iowa County, Wisconsin. There is a link to Mark and his Renaissance Farm below.

Mark and I are working with others on a project to cite a vegetable processing and freezing facility in the Village of Highland, WI. Highland has many strategic assets from an economic development point of view, but more importantly for me personally, it is also the pie capitol of Wisconsin.

Our goal is to help build a business model that allows sustainable, regional agricultural producers to thrive. It is also to create a robust, nimble, and sustainable production system that is sufficiently scaled to make that happen.

Mark and I were talking about how to describe this yesterday as we traveled to meet an important new market partner. Organic is a legal term, and while we certainly want to process organic certified foods, there will also be a role for farmers meeting our new organization's goals of regional and sustainable.

Mark said 'what about calling this process regional fair trade'?

Lovely. Just right. The standards for fair trade are generally understood and acceptable. The idea of applying those standards to sustainable regional economic development make perfect sense.

Mark bet himself that I'd use the term 'regional fair trade' during the meeting we were traveling to. He won the bet. I had it out in our introductions. Mary would have smiled knowingly.

I like the term a lot because it lets me speak to economic development on an appropriate scale with the kind of passion I feel for the entrepreneurs and the wide range of stakeholders who want to support them.

We kicked around what a standard for regional fair trade might look like and, riffing off Wikipedia, think this may be a starting place for the discussion:

Regional fair trade is a market-based approach to empower producers and promote regional economic sustainability. The work advocates the payment of fair prices, communities of all kinds working together for the benefit of everyone in their region, and sustainable environmental standards.

Regional fair trade's strategic intent is to create sustainable information, production, and marketing systems that enable producers, consumers, businesses, institutions, and communities to work together to jointly grow regional economic self-sufficiency and security. Regional fair trade creates this environment through 'open source', transparent, reproducible economic development programs that support the region's people, their livelihoods, and their environment.

This idea is not meant in any way to diminish the goals and roles of global fair trade efforts. Those must be supported of course. This idea of regional fair trade honors that groundbreaking, world-changing approach and applies it to new geographies. Neither is excluded. Both are required.

Regional fair trade. Open source economic development. Time to make a brochure….

Mark Olson and Renaissance Farm

A great article about Mark Olson and Renaissance Farm

Village of Highland, Iowa County, Wisconsin

Town of Wyoming, Iowa County, Wisconsin

Saturday, March 07, 2009

Startups not bailouts

My presentation to the Wisconsin Assembly's Committee on Rural Economic Development was really fun. Nervous, but fun.

I knew as the last of 4 speakers I'd be limited in time, so I had to focus on the three key action steps I most need as an economic developer working in rural communities.

For me it's a no-brainer. Good universal broadband, virtual incubators, and micro lending.

For this post I'd like to focus on micro lending. Specifically how a fast, inexpensive, off-the-shelf hybrid lending program might be put together quickly in local communities.

Thomas Friedman had a good piece in the New York Times last month about the use of capital in this awful economy. He focuses on the high tech economy, which is an obvious necessary component, but I believe this approach would benefit all levels of enterprise investment, perhaps especially micro lending. In an economy this bad, there are millions of people who might benefit from their own startup enterprise, sustainably run and seeded with micro investments, wisely overseen.

Here is Mr. Friedman: "Our country is still bursting with innovators looking for capital. So, let’s make sure all the losers clamoring for help don’t drown out the potential winners who could lift us out of this. Some of our best companies, such as Intel, were started in recessions, when necessity makes innovators even more inventive and risk-takers even more daring.

Yes, we have to shore up the banking system, which underpins everything; and finding a fair way to prevent hardworking people, who played by the rules, from losing their homes to foreclosure is both right and essential for stability.

But beyond that, let’s think, talk and plan in more aspirational ways. We’re down, but we’re not out…. Our motto should be, 'Start-ups, not bailouts: nurture the next Google, don’t nurse the old G.M.’s.'”

We are down, but we are not out. Exactly. That's a succinct call to action. Communities and economies will be rebuilt through new and better enterprises. A few will be Googles. The vast majority will be small businesses.

There are surely micro loan funds run by governments in North America that work, I just don't know any. I think that governments really want to do this, but it just requires too many activities that governments constitutionally can't do. They just can't get involved to the degree that's needed by the entrepreneur.

That's where you come in. Here's my hybrid idea.

A group of citizens want to improve their community. These communities can be neighborhoods, cities, counties, and regions. The community could also be virtual with members worldwide and everything in between.

Let's say the interested citizens want their community to go increasingly greener. Those citizens should vote with their money and establish their own green micro lending fund.

Banks are equipped to segregate the funds and create the loan coupon books specific to each loan, providing the institutional backbone with the tracking and recording components needed. They can create this for a modest fee if they can avoid the costs normally associated with loan origination (finding appropriate borrowers) and with loan collections, which can consume time and resources. Some loans will fail, many times because there is no insight and oversight afforded the borrower by the bank or government backer.

This is where you come in again.

As local citizens who want their community to go green, your group could be out in the community finding the entrepreneurs who are creating the kind of tomorrows you want.

Do not look for home runs here. That's a death strategy. Play small ball. Light a thousand candles stuff.

It's your money, shared with your friends and peers in your community, so it's unlikely you're going to publicly game the system to benefit cousin Bubba. There is a built in feedback loop that would keep our green citizens motivated to help find and create good, sustainable green entrepreneurs.

And your work continues…

You help present the case for your entrepreneur to your fellow green citizens or their green investment review committee. If approved, you have to help with mentorship and advice for that green entrepreneur while they grow their enterprise. If you can plug them into local resources like my office, all the better.

Self interest. Feedback loop 2.

The green entrepreneur succeeds. Your green fund gets their money back. Feedback loop 3.

Governments can't do this kind of personal mentorship. Banks can't easily locate and prepare efficiently organized, highly targeted new enterprises, let alone manage the supervision and collection issues associated with most small scale startups.

But you can't manage the loan coupon books the way the IRS requires either. Banks can. Easily and accurately. It's not good VS bad. It's who does what best.

I would strongly recommend people initially treat these targeted micro loan funds as though they were stock buying clubs without the stocks. If you want to formalize into a corporation or legal entity of some kind that's perfectly legitimate, but I'd like to focus on a looser model in this post. This latter route will absolutely require a lot more law and regulation than most situations need, but as the fund grows and as a more diverse group contributes, everyone will likely want a contractual way in and out of a more formalized and legally defined fund.

So, this could be your community green group. People chipping in risk money to make the vision of their green tomorrow happen. I'd suggest people put that money in as seed money and treat it as an investment in their communities, not as a way to make personal money.

This would be treated as a loan only. Requiring an ownership share would require that the receiving entrepreneur lawyer up to a degree that isn't productive at this stage.

Talk among yourselves about what the fund should have in place in advance for things like goals, returns (to cover bank fees), and potential rules to play in this sand box. Build out future conflict up front.

If it's like a simple stock buying club, the members voluntarily join for a common purpose, make their contribution to the pot, then add their expertise for trying to grow that pot. If their circumstances change or the goals of the group fractal, then contributors can take out their share of the non-invested pot at that moment and go play elsewhere.

Put the money into a segregated fund at the bank or credit union. For a modest fee, the financial institution will handle the official requirements and back-office mechanics, for which they are unbelievably well prepared to do. Your group and you do the messy, fun, non-bank entrepreneur stuff.

Here is where my day job comes into this. What's my dream tool for effective, nimble economic development?

I would have independent micro loan fund(s) available for specific purposes that were controlled by interested citizens, not governments.

If I knew the interests of those groups in advance, I can find, train and point appropriate entrepreneurs to them.

Beyond me, the entrepreneurs would get pre-loan vetting by interested, motivated individuals, fiscally legal processes, managed by committed people with some mentorship capabilities in place, and the most valuable of all resources, a network into the communities they hope to serve.

Like-minded people who want to change their communities in ways they and their friends want, should vote with their money. There is no more direct way I know to change and positively influence the future.

So, what would a targeted investor group like this look? Whatever you want it to look like.

I'd suggest for a neighborhood, it might be a group of people building up a fund of a few hundred dollars could help some local startup(s) improve their community. See what works and what doesn't.

If I think about this at a county level where I work, you'd have to pilot it to see what was manageable, but I'd think starting with $10,000 would be a reasonable start. You'd start with loans from $500 to say $2,000 to test it out, following the feedback loops described above. If it works and you can garner the contributions, move the fund to $50,000 and any good economic developer can get you dozens of startups tailored to the needs of that fund.

Nobody should expect home runs. This is small ball stuff. Day-in, day-out. One foot in front of the other. Repeat. This is how communities get built by choice not accident.

I scribbled down a quote from a guy on the radio I can't locate via online searching that went something like, 'our future is our choice, not our fate'.

We have a choice in this miserable economic environment to build the futures we want. Leave these decisions to others, and we will live in futures others choose for us.

Small, locally based, independent, member-run micro loan funds would be an unbelievably powerful tool for communities and the economic developers who serve them.

If you keep your expectations realistic and you keep the structure of the loan fund appropriately non-regulated, small groups of like-minded citizens can change the future of their communities.

Not by talking about it, but by making it happen with their money.

Sunday, March 01, 2009

Startup static, reducing the barriers to entrepreneurship, and creating new platforms for effective startup launches.

The March 2009 Inc. magazine has a good piece by entrepreneur Joel Spolsky. I like Mr. Spolsky's work because he's a working entrepreneur and freely admits to the ups and downs and all the indecision in between.

His column is titled Start-up Static. "A new business is like a shortwave radio. You have to fiddle patiently with all the dials until you get the reception you want."

That advice has never been more true than in this rapidly changing economy. Small startups are not a rigid exercise in business planning. They are a dance of details. You need to continue to tweak, to adjust the dials, always searching for a way to make the signals stronger and your enterprise more sustainable. Anyone who tells you differently has never started up a small enterprise.

What's between the lines of this story is that you can do it too. There is no wisdom handed down from on high to those who start businesses. They are just people who have (hopefully) assessed their chances and continue to put one foot in front of the other in a way that's informed by the details of the path they are on.

In the same article Mr. Spolsky quotes Jessica Graham of Y Combinator, one of my all time favorite startup stories. Y Combinator is an investment firm / training camp / startup mentoring and empowerment platform dedicated to very small tech startups. I won't do it justice here. See the link at the end to learn more.

When asked to do a presentation, it was suggested to Jessica Graham that she might talk about why startups fail, not the usual stuff about why they would succeed.

"That would be boring, " she said. "They all fail for the same reason. People just stop working on their business."

The article continues: "As she pointed out, it's usually a collapse of motivation - everyone wanders back to civilian life. And the startup ends, not with a bang, but a whimper."

The Grahams have seen a lot and do a great deal of good for startups. They focus their energies and help on companies they have skills in (tech startups). As investors, Y Combinator puts in tiny amounts of money (almost always less than $20,000), but they also provide financial support and stability for entrepreneurs training in their highly effective startup programs.

This is a great model that can be reproduced in other fields. New entrepreneurs need small-ball money; but more importantly, they need safe cultural and financial spaces to take cover in while they launch, under the careful eyes of folks who have a stake in their success.

Why not a reproduce the Y Combinator model for firms that focus on green entrepreneurship? What about food entrepreneurs or art entrepreneurs or social entrepreneurs, and on and on? Little bits of money and lots of training, love and attention from people skilled in those arts. That's what the world of startups needs most, and the Grahams have provided a robust, reproducible model that can work in most any area of commerce we would like to develop for our regions and entire societies.

We need new forms of partnerships in the world to support this launch stage among entrepreneurs.

Perhaps we should consider calling these bare-bones startup evangelists 'Launch Directors'. Wouldn't it be cool to have Launch Directors available regionally, so that good folks emerging from the many wonderful business training programs could actually get help taking the subsequent action steps.

This is the stage where Jessica Graham from Y Combinator says, "They all fail for the same reason… everyone wanders back to civilian life."

I think that some form of public-private alliance will emerge, perhaps with the public portion supplying the bare-bones walls and roofs of the traditional incubators plus the connectivity of virtual incubators.

I think the private part of that alliance will emerge to supply the money. Not the old style slash and burn venture style investing but a 'slow money' style of investing promoted by former venture investor Woody Tasch. As Mr. Tasch puts it: "This is a call to action, a call to design new capital markets built not around extraction and consumption, but around preservation and restoration. The vision: billions of dollars a year supporting tens of thousands of independent, local-first enterprises at the base of the restorative economy."

I get to make a presentation to the Wisconsin Assembly Committee on Rural Economic Development this week. Later in the month I am honored to be able to speak at several annual meetings of groups of local focused folks in my area, most of whom have been entrepreneurs and activists of some form or another in their lives.

I'm going to talk to all of these groups about the need for new types of incubators with public-private action steps built in.

Society needs entrepreneurs, and entrepreneurs need society's support. Our job in economic development is to arrange that marriage, teach them to dance, and to empower them to enjoy and learn from their honeymoon journey.

If entrepreneurs can break through that stage, the world that finances emerging companies can take over, and we, as economic developers, can circle back to create more seed stage, local opportunities.

The world needs better startups. You need a sustainable enterprise. Now is the time to create new ways to make this happen.

Inc. Magazine article How Hard Could It Be? Start-up Static by Joel Spolsky

Y Combinator home page

About Y Combinator

Link to the Slow Money Alliance

Announcement, this Tuesday's presentation to the Wisconsin Assembly Committee on Rural Economic Development