Governor’s Guide to Strengthening State Entrepreneurship

In A Governor’s Guide to Strengthening State Entrepreneurship Policy ,the NGA Center for Best Practices provides governors with strategies and promising practices to help support the growth of entrepreneurial firms in their states. The information in this guide stems from a two-year NGA Center for Best Practices State Policy Academy on Entrepreneurship, supported by the Ewing Marion Kauffman Foundation. The academy convened a select group of state policy teams to address means of enhancing entrepreneurial capacity.

Gov. Guide Strengthening State Entrepreneurship Policy http://www.nga.org/cda/files/0402GOVGUIDEENTREPRENEUR.pdf

Entrepreneurship is a key determinant of economic growth.

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Some experts attribute nearly 70 percent of economic growth to entrepreneurial activity and suggest that "one-third of the differential in national economic growth rates is due to the impact of entrepreneurial activity."

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About 35 percent of the companies on the Fortune 500 list are displaced every three or four years by more rapidly expanding firms. Entrepreneurs ultimately propel the country’s largest businesses; they do not just run small companies.

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The National Commission on Entrepreneurship has determined that the Inc. 500 firms grow at an average rate of 1,312 percent over five years.

To prosper in an increasingly competitive global economy, it is vital that states develop a supportive environment for entrepreneurs through economic development and other policy vehicles. This report provides policy guidance and best practices to help governors and state leaders to develop or improve policies that support entrepreneurship.

Many governors recognize the critical role of entrepreneurs in developing competitive "clusters" of businesses and the centrality of entrepreneurs in the cluster-based model.

"Clusters grow and develop principally as entrepreneurial companies spin off from larger, more established firms creating concentrations of competing and collaborating firms that find advantage in remaining located nearby." Put more succinctly, "Entrepreneurial capacity is the fuel that drives the expansion of cluster growth."

Yet, most state economic development efforts continue to be organized around traditional business retention and incentive-based industry recruitment programs. This has led to an emphasis on programs to enhance labor force skills, invest in infrastructure, and create a competitive tax and regulatory climate, among other factors.

These programs and the underlying effort to improve the ability of businesses to prosper in a state are still necessary, but they are no longer sufficient. They have become the expected base line rather than a competitive advantage.

Entrepreneurialism and cluster-based development are essential to moving states beyond the lowest common denominator of state economic development policy.

Both the states and the federal government have important roles to play in creating an environment that supports entrepreneurship. Federal securities and intellectual property laws, research and development funding, monetary and trade policies, and the stable legal system provide the framework in which new companies grow and thrive across the nation. However, the state also plays a key role in determining the success or failure of entrepreneurial companies.

Entrepreneurs often "fall between the cracks" of programs designed to support more traditional, less agile business models. In trying to fill this gap, however, states cannot and should not attempt to be the exclusive providers of entrepreneurship support services. Instead, they should aim to serve as a "broker" for a variety of private and not-for-profit services and should adopt policy changes aimed at meeting the most compelling needs of entrepreneurs. State entrepreneurship policies appear more likely to succeed to the extent that states become "as entrepreneurial as the clients that they serve." Entrepreneurs typically succeed by "leveraging resources they do not own." Likewise, states do not and cannot own most of the resources required to create the conditions for company growth.

Governors and states can play a leading role in developing more entrepreneur- friendly environments by adopting policies and programs to serve the goal of business formation, survival, and growth, and by nurturing entrepreneurs and a culture of entrepreneurship. National surveys of entrepreneurs indicate that the five critical factors that state government can influence are6:

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diversity in sources of capital;

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an enabling culture;

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strong local networks;

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supportive infrastructure; and

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"entrepreneur-friendly" government.

How governors can influence these factors is the subject of this guide and can be summarized in the following strategies designed to achieve a more entrepreneurial environment:

1) Integrate Entrepreneurship into State Economic Development Efforts

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Make entrepreneurship part of the explicit mission of the state’s economic development efforts

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Create Support Mechanisms for Entrepreneurs through Economic Development Programs

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Use Entrepreneurial, Capital, and Research Networks to Deliver Services

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Deploy the Workforce Development, Unemployment Insurance, and Community Development Systems to Support Entrepreneurs and Promote Entrepreneurship

2) States should use the education system to nurture and encourage future entrepreneurs

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Build entrepreneurial readiness through the State’s K-12 schools

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Offer entrepreneurship education at public universities

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Support faculty entrepreneurship in the University System

3) Incubate Entrepreneurial Companies

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Provide Business Incubation Services through Physical Incubators

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Create Virtual and Remote Incubation Options for Rural and Remote Regions

4) Invest in Diverse Sources of Risk Capital for the State’s Entrepreneurs and Growth Companies

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Develop a rich base of early-stage capital options

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Support angel investors

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Ensure that risk capital is available in underserved rural areas

5) "Get Out of the Way" through Regulatory Reform and Streamlining

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Remove legal restrictions on equity ownership by the state, public universities, and other government entities

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Put regulatory and licensing processes on-line

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Use one-stop business and licensing models

Through this strategic summary, the guide provides numerous best practice examples of innovative state policies that can make entrepreneurship more robust and successful. The first section focuses on the importance of entrepreneurship to economic vitality. Section two discusses how poorly entrepreneurship is served by most existing state economic development policies and on what entrepreneurs want from states. The third section provides recommendations to governors and states for enhancing the entrepreneurial climate through policy and program changes. The last section describes a series of strategies governors and states can use to grow entrepreneurship.

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