Last week was Global Entrepreneurship Week, celebrated around the world aiming to inspire and empower individuals to pursue entrepreneurial endeavors. This year’s theme was “Entrepreneurship is for Everyone” and I could not agree more. As part of the celebration, NC IDEA held their annual Ecosystem Summit. For those not familiar, NC IDEA is a private foundation, based here in North Carolina to support entrepreneurship statewide. NC IDEA provides non-dilutive grant funding to entrepreneurs, startups and the organizations that support them.
This year’s Summit was held in Concord, NC, just down the road from Charlotte Motor Speedway and drew more than 300 attendees. The two-day event featured the inspiring story of how Devil’s Foot Beverage Company selflessly rallied western NC volunteers and converted their operations to can and distribute water in the aftermath of Hurricane Helene. It showcased the amazing potential of, and early traction in, the Blue Economy, unlocking the economic potential of the oceans. [Aside – an interesting observation was shared that since our planet is primarily covered by water, perhaps it should more accurately be referred to as “Ocean” rather than “Earth”].
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In this week’s article, I’d like to share data and observations from two of the many prominent presenters at this year’s Summit.
Thom Ruhe, CEO of NC IDEA interviewed Tom Barkin, the President and CEO of the Federal Reserve Bank of Richmond. Barkin’s segment of the Federal Reserve serves Maryland, Washington DC, West Virginia, North and South Carolina. There was also a joint presentation by William Toole, the Deputy Secretary of State for NC and Dr. Caroline Glackin, a distinguished professor of entrepreneurship at UNC Pembroke. They shared data from a statewide analysis of the impact of new small businesses on our economy.
Jobs are always a huge topic of discussion in any economic development debate and also in our local, regional and national elections. Barkin correctly pointed out that the vast majority of new jobs are created by “young” businesses. Consider long-standing businesses common in every town in the US. Grocery stores. Barber shops. Golf courses. Boutiques. Any business that has been around for many years certainly is a benefit to the community in which it resides. But those businesses do not tend to create net new jobs. They merely sustain the same (or similar) number of positions year after year. And with technology and automation, some of those businesses actually decrease the total number of jobs over time.
New businesses create jobs that did not exist in a community previously. What does this mean for economic development policy?
The charter of the Federal Reserve, a non-partisan component of our government, is specific, simple and straightforward. The Fed is responsible to maintain stable prices and to maximize employment. Historically, the targets for these are to keep prices, year-over-year, stable within plus or minus 2% and to keep unemployment at or below 4%. While the mission is clearly defined, the execution is a lot of challenging analysis and hard work.
The Fed has only three tools at their disposal. The one most commonly debated is interest rates. By raising and lowering interest, there is potential to throttle investment, consumer spending, lending and other drivers of our macroeconomic situation.
The Federal Reserve has two lesser-discussed tools in the toolbox as well. They have the charter to oversee banks and also to oversee payment systems. While the Fed has a national mission, it can at times create regional or local impact as well. When asked how the Federal Reserve can help regions in distress, like Western North Carolina in the aftermath of Helene, Barkin noted that any time a natural disaster occurs that knocks out payment systems, the Federal Reserve will load up trucks of cash and send them to the distressed areas, such that commerce can continue to operate. As he noted, “In today’s economy, you don’t need cash ... until you need it!”
Barkin made an observation that really resonated with me and the work I do with RIoT, supporting individuals that want to start new businesses. He noted that for the last century in the US there have been more workers than jobs in most communities. Therefore economic development efforts by local and regional governments have focused predominantly on hunting for jobs. This translates to economic incentives, tax breaks, land development and other efforts that attempt to attract existing companies to relocate to or open a new office or facility in the target geographic area.
As more work is happening remotely, and as we see AI and automation proliferate, we are now in an era where cities and towns have far more access to jobs than ever before. In fact, it can be argued that there are now more jobs than there are workers. If you look across nearly every sector of the economy - but particularly in technology - there are tens of thousands of unfilled jobs, most of which can be worked remotely. Barkin predicts, and I agree, that economic development policies must change to focus more on attracting workers than on attracting jobs.
Workers also step out of the workforce and create new young businesses. A key, but often overlooked, element of entrepreneurial job creation is that it happens in the place where someone already lives. Surprisingly however, most new businesses are not created out of distress.
According to this newly released report from the NC Secretary of State’s office, more than 80% of new businesses in North Carolina are created because the founder saw a market opportunity, not out of necessity like a job loss. If your community wants new business growth, it should first focus on attracting and maintaining residents.
Toole and Glackin presented data from a statewide survey of businesses that had been formed between July 1, 2015 and June 30, 2022. From more than 6,500 responses to this survey, the Secretary of State’s office learned that approximately 25% of young businesses close within the first 4 years of operation. Nearly another 25% close by year 7. Businesses that sustain, and create sufficient income to maintain the business, PLUS enough for the business owner to support themselves and their household (as defined/reported by the owner), create an average of 9.04 additional jobs (beyond the owner) at an average wage of at least $40,000.
This is significant. Businesses that do not achieve the level of supporting the business, plus the owner and household create fewer jobs, averaging just 2.66 employees at a similar wage. If North Carolina were to help those aspiring businesses to reach self-sufficiency, it would create approximately 25,500 new jobs with statewide economic benefit of $1.5-2B dollars. This impact includes nearly $1B in wages, and an additional halo effect of jobs and spending of at least $500M annually. And these numbers consider an average wage of $40,000. If we focus on the technology sector jobs, which pay much higher wages, the impact is significantly larger in both direct wages and halo impact.
What would it take to shift at least some percentage of our economic development strategy away from traditional big game hunting style company attraction and towards entrepreneurial support? How should our communities focus on residents and residency growth as economic development strategies? Next week I’ll dig into the numbers, sharing what our tax-incentive-based approaches cost per new job created and compare that to the effectiveness of alternative solutions.
In the meantime, I hope everyone has a wonderful Thanksgiving.