Entrepreneurial Arkansas Connecting The Dots

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WI NTHROP ROCKEFELLER FOUNDATI ON
F E B R U A R Y 2 0 0 3
ENT R EP R ENEUR I A L
Arkansas:
C O N N E C T I N G T H E D O T S
The Winthrop Rockefeller Foundation commissioned Entrepreneurial Arkansas: Connecting the Dots to draw attention to
entrepreneurship as a viable economic development strategy. This study examines the environment that is supporting current
entrepreneurial activity, provides an overview of those activities, and makes recommendations designed to enhance the ability
of Arkansans to create and grow successful enterprises.
WINTHROP ROCKEFELLER FOUNDATION
In 1974,the Trustees of Governor Winthrop Rockefeller’s estate endowed the Winthrop Rockefeller Foundation to continue the
work of The Rockwin Fund. Governor Rockefeller established The Rockwin Fund in 1954 and, on an annual basis from 1956
until his death in 1973, funded projects and programs he believed were important to improving the quality of life in Arkansas.
The Winthrop Rockefeller Foundation is a private, nonprofit foundation whose mission is to improve the lives of Arkansans by
funding programs and projects that improve education;economic development;and economic,racial,and social justice.During
the past 29 years, the Foundation has awarded over $65 million in grants.
©2003 Copyright and permissions. All rights reserved. This document may not be reprinted without the express written permission of the Winthrop Rockefeller Foundation.
CONNECTING THE DOTS
ENT R EP R ENEUR I A L
Arkansas:
C O N N E C T I N G T H E D O T S
Corporation for Enterprise Development
777 North Capitol Street NE, Suite 800
Washington, DC 20002
TELEPHONE 202.408.9788 FACSIMILE 202.408.9793
Brian Dabson with Kent Marcoux
A STUDY COMMISSIONED BY THE WINTHROP ROCKEFELLER FOUNDATION
Table of Contents
Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Executive Sum m ary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
The Strategy: Connecting the Dots . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
The O bjectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
The Goals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
The Assessm ent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Creating a Pipeline of Entrepreneurs . . . . . . . . . . . . . . . . . . . . . . . . .18
Enhancing Business Services for Entrepreneurs . . . . . . . . . . . . . . . .27
Final Com m entary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
Appendices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
Developm ent Report Card Rankings . . . . . . . . . . . . . . . . . . . . .38
Arkansas Entrepreneurship Benchm arks System . . . . . . . . . . .40
Endnotes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
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Preface
M uch of the preparatory w ork for this study w as conducted during the spring and
sum m er of 2002, although its origins go back to Septem ber 1999 w hen the W inthrop
Rockefeller Foundation held a 25
th
anniversary convening, Strengthening Collaboration
between State, Regional, and National Funders: Making a Difference in Arkansas. A
goal of the conference w as to “increase aw areness and understanding of critical issues
facing Arkansas that align w ith the Foundation’s grantm aking goals—specifically the
need for strategic econom ic developm ent program s that build on the unique assets of
Arkansas’s people and business clim ate…”
1
O ne of the conference sessions, Strategies
for Small Business Economic Development, w as organized around a report analyzing
the sm all business finance industry prepared by Corporation for Enterprise Developm ent
(CFED).
Subsequently, the Foundation com m issioned CFED to update that report w ith the help of
an Advisory Com m ittee of representatives from state econom ic developm ent agencies,
academ ia, com m unity developm ent financial institutions, and entrepreneurs. At its first
m eeting, the com m ittee shifted its focus from sm all business developm ent to entrepre-
neurship—an im portant change that m irrored the recom m endations of a recently
released report
2
from the Southern Grow th Policies Board. The Board had set som e
m ajor goals for transform ing the region, including:
?
Encourage and support innovation and entrepreneurship—focusing on
entrepreneurial culture, public and private research and developm ent, access to
capital and technical/m anagem ent assistance, and global opportunity.
?
Create a culture of learning throughout the South—focusing on m aking pre-
K–12 education efficient and effective, raising postsecondary educational achieve-
m ent, prom oting lifelong learning, overcom ing skill shortages, educating those left
behind, and ensuring basic com petency in Inform ation Age tools.
Responsibility for the analysis and recom m endations rests w ith CFED, but acknow ledge-
m ents and appreciation of the advice and direction provided are particularly due to:
m em bers of the Advisory Com m ittee as w ell as John Ahlen, W oodrow Cum m ins, Steve
Floyd, Steve Franks, W illiam Goolsby, M iriam Karanja, Tina Pow is-Dow , Janet Roderick,
Sonya Schm idt, Tim Stephenson, Doyle W illiam s, and M ark Young.
The w ise counsel and patience of Sybil H am pton and Bill Rahn at the W inthrop Rocke-
feller Foundation w as crucial in the developm ent and finalizing of the report.
Executive Summary
Entrepreneurship—the process by w hich entrepreneurs are created and encouraged—is
one of the m ost critical m issing ingredients in securing econom ic prosperity and a high
quality of life for all Arkansans. Entrepreneurship is at the heart of an effective hom e-
grow n econom ic developm ent strategy and is critical for better positioning the state for
the new econom y. It is also increasingly recognized as the great—or even the last—
hope for econom ic survival and regeneration for m uch of rural Am erica.
The them e of this report is “connecting the dots”because m uch of w hat is needed to
create and sustain an entrepreneurship strategy—the know -how and the institutions—is
already in place in Arkansas. H ow ever, there needs to be a high-level com m itm ent to
hom egrow n econom ic developm ent that w ould enable existing econom ic developm ent
and education priorities and program s to be adjusted. Great levels of collaboration
am ong public, private, and nonprofit institutions—m any of w hich have not w orked
together before—m ust also be encouraged. Additionally, a m odest investm ent of
resources, even in these difficult tim es of state deficits, tough court rulings, and eco-
nom ic uncertainty, could yield significant and long-term benefits for the econom ic w ell-
being of Arkansas.
This report proposes three closely linked objectives for an entrepreneurship strategy for
Arkansas:
1Creating of a pipeline of entrepreneursby form ing a large and diverse pool of
people w ho are starting and building enterprises. From this pipeline w ould flow a
steady stream of high achievers w ith interests in creating businesses, jobs, and w ealth
in their com m unities. W al-M art, J.B. H unt, Tyson’s Foods, Alltel, and Acxiom w ere all
created by such Arkansans. This strategy requires incorporating entrepreneurship
education into the curricula of the K-12 school system and tw o- and four-year colleges
across the state and providing encouragem ent for entrepreneurs through netw orking
and greater public recognition.
2Upgrading the existing array of public, private, and nonprofit business-
support servicesinto a seam less system that can deliver financial, technical assis-
tance, and real estate services that are appropriate for entrepreneurs at different levels
of developm ent w herever they are be located w ithin the state.
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3Introducing a system of promotion and oversight for entrepreneurship
developmentthat steers public resources, attracts private and philanthropic support,
benchm arks perform ance, and raises public aw areness.
The strategy com prises eight specific goals:
1Bringing entrepreneurial education programs to at least half of Arkansas’s
310 school districts within five years. This w ould build on the experience of the
successful Environm ental and Spatial Technology and Econom ics Am erica program s
by introducing nationally recognized experiential curricula.
2Offering credit courses in entrepreneurship in at least half of Arkansas’s
23 community colleges and all of the public four-year colleges within five
years. There is already som e experience and m uch interest in the university system
upon w hich such an expansion could be founded.
3Making training opportunities for fledgling entrepreneurs readily available
in all parts of the state. This w ould require existing N xLevel and FastTrac pro-
gram s to be expanded statew ide, offered by a greater range of institutions and organi-
zations, and m ade m ore affordable through sponsorship.
4Ensuring affordable, convenient, and effective sources of information and
technical assistance to entrepreneurs across the state. The recent contraction
of the Arkansas Sm all Business Developm ent Center netw ork w ould need to be
reversed w ith the goal of m aking it a national m odel for integrating entrepreneurial
education and business services.
5Promoting an entrepreneurship culture within the most economically dis-
advantaged parts of the state. O ne approach w ould be to launch a rural initiative
in conjunction w ith local com m unity-based organizations to provide aspiring low -
incom e entrepreneurs w ith entrepreneurship education and support, financial literacy,
and Individual Developm ent Accounts—m atched savings accounts designed to help
low -incom e fam ilies save and accum ulate financial assets, including a hom e, sm all
business, and postsecondary education. Another m ight be to create an enterprise facili-
tation project sim ilar to the type being prom oted in other states by the Sirolli Institute.
6Raising the profile of Arkansas’s entrepreneurs and the state’s improving
entrepreneurial climate. This w ould m ean extending the successful annual Gover-
nor’s Aw ard for Entrepreneurial Developm ent to recognize entrepreneurial talent out-
side as w ell as inside the universities and in all parts of the state.
7Ensuring access to equity and debt capital in all parts of the state. For
equity capital, this w ould require continued and expanded support for the Arkansas
Venture Capital Forum in its efforts to attract venture capital firm s and create form al
statew ide and regional angel netw orks. Current patchiness in access to debt capital
should be addressed through greater collaboration betw een banks and local com m u-
nity developm ent financial institutions.
8Making entrepreneurship a high-priority economic development strategy
for Arkansas. This w ould require leadership from the private sector in partnership
w ith academ ic, nonprofit, and public institutions. This partnership m ay be structured
as a board or com m ission, w hich w ould serve as the advocate and guardian of the
strategy and publisher of an annual report on the state of Arkansas entrepreneurship.
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The Strategy:
Connecting the Dots
The Vision
Entrepreneurship is the critical m issing ingredient in securing econom ic prosperity and a
high quality of life for all Arkansans. Entrepreneurship offers a w ay to engage and excite
people from all w alks of life and from across the state to take control of their ow n eco-
nom ic destinies.
It w ill take m any actions to adjust existing econom ic developm ent and education sys-
tem s and program s and a high level of com m itm ent to m ake these adjustm ents. It w ill
m ean collaboration and partnerships betw een public, private, and nonprofit organiza-
tions and institutions, som e of w hich have never w orked together before. Building on
assets w ithin the state, the strategy for entrepreneurship connects the dots of existing
activities to create a new picture of prosperity in Arkansas.
The Rationale
Entrepreneurs are people w ho create and grow enterprises—the Global Entrepreneur-
ship M onitor study
3
concluded that one in 10 Am ericans is an entrepreneur. Entrepre-
neurship is the process through w hich entrepreneurs are created and developed. CFED
concurs w ith the classification devised by the Center for Rural Entrepreneurship:
4
?
Potential Entrepreneursare prim arily young people w ho, given a supportive envi-
ronm ent, can acquire the m otivation and capacity to engage in entrepreneurial activity.
?
Aspiring Entrepreneurs are m ainly adults w ho are considering creating, running,
and grow ing an enterprise.
?
Active Entrepreneurs are those directly engaged in creating, running, and grow ing
enterprises and w ho com e in three types:
Entrepreneurship
offers a way to
engage and excite
people fromall
walks of life and
fromacross the
state to take
control of their
own economic
destinies.
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?
Survival Entrepreneurs are individuals and fam ilies w ho, particularly in rural
Am erica, piece together a num ber of incom e generating ventures to allow them to
survive and rem ain in a com m unity or on the farm .
?
Lifestyle Entrepreneurs are people w ho choose to live in a particular place and
are able to achieve their desired quality of life through their enterprise.
?
Growth Entrepreneurs are those w ho are m otivated to create and grow their
enterprises and w ho can have a significant im pact on local and regional
econom ies.
?
Entrepreneurial Growth Companies are the high-perform ing gazelles that are the
m ain drivers of the Am erican econom y.
Entrepreneurs are key econom ic agents, partly by generating revenues that drive local
and state econom ies. They create the m ajority of jobs and are vital local players w ho
strengthen local econom ic, philanthropic, and cultural com m unities. They cannot be dis-
m issed as being on the m argins of econom ic developm ent policy and practice. It is from
the hard w ork and sheer determ ination of individual entrepreneurs that large em ployers
and w ealth producers em erge as Arkansas’s ow n W al-M art, J.B. H unt, Tyson’s Foods,
Alltel, and Acxiom can attest. And as has been show n around the country, people from
the poorest com m unities can becom e successful entrepreneurs.
Across the nation, there has been a grow ing interest in entrepreneurship and w hat it
takes to create an entrepreneurial clim ate. For som e, this interest m ay be regarded as a
m ajor policy or cultural shift; for others, it is little m ore than another variation on busi-
ness developm ent approaches that have been tried for years.
Sm all businesses have long been understood to be the engines of job grow th—indeed, the
vibrancy of the sm all business sector and its ability to create the bulk of new jobs is gener-
ally accepted as being at the heart of Am erica’s prolonged econom ic success. A recent
study by Bain & Com pany
5
on enterprise developm ent in the Delta region of Arkansas,
Louisiana, and M ississippi, show ed that 72% of all current Delta jobs are provided by sm all
and m edium -sized firm s, yet com pared w ith sim ilar regions, the Delta has a shortfall of
4,000 such firm s that translates into a potential opportunity of 48,000 jobs.
N ationw ide, there is a m yriad of program s, federal, state, and local, together w ith an
infrastructure of agencies and institutions created to deliver these program s. The
assum ption is that the provision of m ore services w ill create m ore sm all businesses; in
other w ords, supply w ill generate m ore dem and.
The shift being pushed by the latest w ave of thinking about entrepreneurship is to focus
effort—w hether private, public, or nonprofit—on the dem and side of the equation. This
m eans w orking directly to expand the pool of entrepreneurs. The assum ption here is
that entrepreneurial behavior is not a genetic trait, but can be created and encouraged.
It m eans taking the hum an capital in a state, a region, or a com m unity and converting a
grow ing proportion of it into entrepreneurial hum an capital. Throughout m uch of rural
Am erica and in m any m etropolitan areas, it is increasingly obvious that entrepreneurship
m ay be the great—even the last—hope for econom ic survival and regeneration.
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Entrepreneurs
create the majority
of jobs and are
vital local players
who strengthen
local economic,
philanthropic,
and cultural
communities.
The Objectives
1 Creating a Pipeline of Entrepreneurs
There should be an infrastructure of lifelong learning from elem entary school to the
golden age, based on the sim ple principle that it is never too early or too late to be an
entrepreneur. Although som e argue that entrepreneurs are born and cannot be created,
w hile others believe that there is an entrepreneur in all of us w ho is w aiting to com e out,
the prem ise of this report is that appropriate support can significantly increase the num -
ber of active entrepreneurs. The aim should be to create a large and diverse pool
of people, across a spectrum of entrepreneurial m otivations, out of w hich there w ill
flow a steady stream of high achievers w ith an interest in creating businesses, jobs, and
w ealth in their com m unities. The strategy involves incorporating entrepreneurial educa-
tion into the curricula of the K–12 school system and the tw o- and four-year colleges
across Arkansas and providing continuing support and encouragem ent through net-
w orking opportunities and by raising the public profile of successful local entrepreneurs
as role m odels.
2 Enhancing Business Services for Entrepreneurs
The current array of business service providers should be upgraded into a seam less
system that can deliver effective financial, technical assistance, and real estate services to
entrepreneurs at different levels of developm ent. The aim should be to “graduate”signifi-
cant num bers of start-up enterprises into com panies and organizations that w ill provide
quality jobs in com m unities across the state. The strategy focuses on access to both
equity and debt capital and on integrating financial and technical assistance services.
3 Ensuring Implementation
There should be a system of oversight for entrepreneurship developm ent in the state that
steers public resources, attracts private and philanthropic support, benchm arks perform -
ance, and raises its public profile. The aim should be to secure the full com m itm ent of
the governor and state legislature to prom ote entrepreneurship as a high-priority
econom ic developm ent strategy in Arkansas.
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The Goals
1 Hands-on entrepreneurial education should be fully integrated into
the curricula of elementary, middle, and high schools in Arkansas.
O ver the next five years, the Arkansas Departm ent of Education should com m it to incor-
porating entrepreneurial education program s in at least half of Arkansas’s 310 school
districts. The starting point should be to build upon the experience of the Environm ental
and Spatial Technology (EAST) program and the Econom ics Am erica program of the
Arkansas Council on Econom ic Education to introduce a com plem entary experiential
entrepreneurial education initiative devised by a nationally-recognized organization such
as Rural Entrepreneurship through Action Learning (REAL) Enterprises.
2 Hands-on entrepreneurial education should be offered as a credit
option throughout Arkansas’s postsecondary educational system.
O ver the next five years, at least half of Arkansas’s 23 com m unity colleges and all of the
public four-year colleges should be offering entrepreneurship credit program s in, but not
lim ited to, their business, engineering, and science disciplines. O ne starting point w ould
be to focus effort and resources on a group of linked four-year and tw o-year institutions—
Arkansas State U niversity or U niversity of Arkansas—and to share in a structured fashion
the lessons learned w ith other postsecondary institutions.
3 Entrepreneurship training should be available to aspiring and
active entrepreneurs wherever they are located in the state.
O ver the next five years, entrepreneurs in every Arkansas county should have access to
high-quality entrepreneurial program s. The N xLevel program currently operated by the
Arkansas Sm all Business Developm ent Center (SBDC) in Little Rock and the FastTrac
program s m anaged by the Enterprise Corporation of the Delta and the Arkansas
W om en’s Business Developm ent Center in Pine Bluff should be expanded statew ide,
w orking w ith a broader range of educational institutions, com m unity-based organiza-
tions, and private providers and m ade affordable for all participants through sponsor-
ships from banks, econom ic developm ent groups, utility com panies, and others.
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4 There should be a statewide systemthat enables entrepreneurs
wherever they may be located to tap into affordable, convenient, and
effective sources of information and resources that will enable them
to flourish.
O ver the next tw o years, the seven-center SBDC netw ork should be upgraded and possi-
bly extended into underserved areas—the aim being to m ake the Arkansas SBDC net-
w ork a national m odel for integrating entrepreneurship education and business services
in a m anner that m eets the needs and schedules of entrepreneurs in all parts of the state.
Given recent funding cuts, the SBDC netw ork needs to give priority to gathering and
com m unicating evidence of its effectiveness in serving the needs of the state’s entrepre-
neurs and its im pact on econom ic vitality and job creation.
5 Priority should be given to the promotion of an entrepreneurship
culture within the most economically disadvantaged regions of the state.
A rural initiative should be launched in conjunction w ith local com m unity-based
organizations to provide aspiring low -incom e entrepreneurs w ith entrepreneurial
education and support, financial literacy, and Individual Developm ent Accounts—
m atched savings accounts designed to help low -incom e fam ilies save and accum ulate
financial assets, including a hom e, sm all business, and postsecondary education. The
Arkansas Departm ent of Econom ic Developm ent should evaluate the experience of the
Sirolli Institute’s enterprise facilitation projects in other states, and if found appropriate to
Arkansas’s needs, should consider launching a series of such projects—on sim ilar lines
to the dem onstration just announced in Kansas—and com m itting to m atching funding
of tw o dollars for every dollar raised locally.
6 The support of the private sector, philanthropy, and the media
should be sought to raise the profile of Arkansas’s entrepreneurs and
the state’s improving entrepreneurial climate.
The Governor’s Aw ard for Entrepreneurial Developm ent, organized by the Capital
Resource Corporation, should be extended and diversified to prom ote annual com peti-
tions, aw ards, and other events that recognize entrepreneurial talent around the state.
The effort should be structured by age, so that K–12 students, postsecondary students,
and adults can com pete and collaborate w ith peers, and organized regionally as w ell as
statew ide, so that all parts of the state have opportunities to be recognized.
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7 Entrepreneurs should be able to access appropriate types and
sources of equity and debt capital wherever they are located within
the state.
The Arkansas Venture Capital Forum should just be the first of several initiatives by the
Arkansas Science and Technology Authority and others to establish a significant venture
capital industry for the state, w ith the aim of attracting venture capital firm s and estab-
lishing form al statew ide and regional netw orks of angel investors. The current patchiness
in access to debt capital should be tackled by the Enterprise Corporation for the Delta
and Southern Financial Partners taking the initiative to bring to the table in-state bank
holding corporations, locally ow ned independent banks, and com m unity developm ent
financial institutions (CDFIs), w ith the aim of creating stronger partnerships betw een
banks and CD FIs that ensure easy referrals and risk sharing on lending propositions.
8 Entrepreneurship should be a high-priority economic development
strategy for Arkansas.
The entrepreneurship strategy w ould only have an im pact if there is leadership w illing to
take it on as an im portant cause. This leadership w ould have to com e from the private
sector—from am ong both established businesses and up-and-com ing entrepreneurs—
w orking w ith the academ ic and nonprofit com m unities and the public sector. This part-
nership m ay be structured as a com m ission or board, w hich w ould serve as advocate
and guardian of the strategy and publisher of an annual report on the state of Arkansas
entrepreneurship.
Entrepreneurship benchm arks should be established that m easure the perform ance of
Arkansas against its peers, the progress of the state’s sub-state regions, and of the various
agencies and institutions responsible for delivering the com ponents of the strategy. This
should be the responsibility of the partnership but undertaken by a business school, a
state agency, or a respected nonpartisan research organization.
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The Assessment
The Economy is Global, Ready or Not
Econom ic leaders in Arkansas, in com m on w ith those in states and localities across the
country, face enorm ous challenges in the 21
st
century. They have to position their com -
m unities and their businesses to be able to com pete effectively against w orkers and
firm s across the globe. Traditional econom ic developm ent tools of recruitm ent and phys-
ical infrastructure that have been used in an era of dom estic com petition are no longer
sufficient in the changed circum stances that w e all now face. Ready or not, Arkansas is
part of the global econom y, and the state’s leadership has to understand the forces now
at play in order to create m ore effective policies and tools that w ill im prove the eco-
nom ic prospects and quality of life for all Arkansans.
Economic Development for the New Economy
There is grow ing consensus on the im peratives for econom ic developm ent.
6
G lobaliza-
tion is a reality—w e deal w ith it, or w e get left behind. Regions, particularly m etropolitan
regions, are now the com petitive unit in the global econom y—local rivalries undercut
regional com petitiveness. Know ledge is the key currency in the new econom y, the
advancem ent and application of w hich occurs best in industry clusters. Entrepreneurship
is the essential vehicle for know ledge advancem ent. Yet place still m atters. Localities are
critical for setting the context for com petitiveness and for enhancing quality of life. Q ual-
ity of life is critical for attracting and retaining know ledge w orkers and entrepreneurs.
For Arkansas, this reality is both an enorm ous challenge and a potential m ajor opportu-
nity. The state is prim arily rural in character, w ith the Little Rock m etropolitan area being
the m ain regional com petitive unit. Forging a role for rural Am erica in the new econom y
is the subject of m ajor concern across the country. Karl Stauber, the head of the N orth-
w est Area Foundation, at a m ajor conference
7
last year, sparked considerable debate by
asking the question, “W hy invest in rural Am erica?”H e raised m any eyebrow s by sug-
gesting new roles such as protecting and restoring the environm ent, producing high-
quality, de-com m odified food and fiber, and producing healthy, w ell-educated future
citizens. At the sam e conference, Brian Dabson of CFED argued, “Entrepreneurship is
one of the m ain hopes for reviving and strengthening Am erica’s rural econom ies.”
8
Entrepreneurship
is one of the main
hopes for reviving
and strengthening
America’s rural
economies.
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The key point to note is that econom ic developm ent in the new econom y has to be
m ore than recruitm ent and incentives, m ore than roads and physical infrastructure,
m ore than providing grants and debt capital, and m ore than adult retraining program s.
It has to be these and m uch m ore and requires the involvem ent and com m itm ent of a
broader range of institutions and organizations than is the norm al practice. Econom ic
developm ent efforts have to be focused on w hat CFED in its annual Development
Report Card for the States
9
calls “D evelopm ent Capacity”—the underlying fundam en-
tals of an econom y—w hich includes hum an, technological, and financial resources and
its infrastructure, am enity, and innovation assets. The prem ise is that a strong develop-
m ent capacity w ill facilitate higher levels of business vitality—com petitiveness, econom ic
diversity, and entrepreneurial energy—w hich in turn w ill achieve our aspirations for
enhanced econom ic perform ance. Perform ance in this context refers to the
im provem ent of earnings, job quality,em ploym ent, poverty, equity, and quality of life.
An em phasis on developm ent capacity requires states and localities to adopt a com pre-
hensive approach to econom ic developm ent, w hich includes focusing on:
?
Educational institutions, from kindergarten through four-year college, to deliver w ell-
educated and m otivated young people able to thrive in the new econom y.
?
Providing conditions for the next round of big ideas—research and developm ent both
in universities and w ithin com panies—and keeping and attracting a talented and
qualified w orkforce.
?
Financial institutions of all types to ensure that capital is available for entrepreneurship
and industrial investm ent.
?
The quality and m aintenance of roads, public transport, w ater supply, sew age treat-
m ent, and digital infrastructure—the essential public services upon w hich econom ic
prosperity depends.
?
Ensuring affordable energy, housing, and health care, and safeguarding air quality and
environm ental and recreational assets.
?
Reducing inequities betw een rich and poor people and am ong regions w ithin the
state that can underm ine future stability and econom ic health.
16
E N T R E P R E N E U R I A L A R K A N S A S : C O N N E C T I N G T H E D O T S
Measuring Arkansas for the New Economy
Three nationally-respected com parative indexes paint a sim ilarly bleak picture of
Arkansas’s preparedness for the new econom y. The Public Policy Institute’s 2002 State
N ew Econom y Index
10
ranks Arkansas 48
th
in the nation in its progress to adapt to the
new econom ic order. The M ilken Institute’s State Technology and Science Index
11
published in 2002 ranked Arkansas last, its best ranking on any of five com posite
benchm arks being 45
th
.
CFED ’s 2002 Development Report Card for the States
12
provides com parative m easures
across a broader scope of new econom y requirem ents. Arkansas’s report card, w hile
presenting a picture of lim ited developm ent capacity, erratic business vitality, and below -
average econom ic perform ance, highlights the strengths upon w hich to build and som e
critical w eaknesses that need to be addressed (see Appendix 1 for tables show ing
Arkansas’s top 20 and bottom 10 rankings).
The Developm ent Capacity index show s som e strength in financing for sm all businesses,
in physical infrastructure, and in som e increasingly im portant factors, such as affordable
energy and housing and overall air quality. There is good new s in the Business Vitality
index, w ith one of the low est rates of business closings in the country and above aver-
age levels in com petitiveness and econom ic diversity. There are also som e positive
trends in the Perform ance index, w ith recent grow th in em ploym ent levels com bined
w ith better than average incom e distribution and som e inw ard m igration to the state.
O n the less positive side, there are som e very significant w eaknesses in Developm ent
Capacity in term s of educational priorities and perform ance and in the capacity of
Arkansas to participate in the new econom y, w hether w e are talking about digital infra-
structure, usage of com puters, or investm ents in research and developm ent. Business
Vitality m easures show som e of the low est levels in the nation of new com pany form a-
tion and em ploym ent grow th in new com panies, and the Econom ic Perform ance index
show s the result in the num bers of w orking poor, low w ages, high poverty rates, and
increasing disparities betw een urban and rural areas.
The conclusion to
be drawn is that
Arkansas is not
currently well-
positioned for the
new economy.
17
E N T R E P R E N E U R I A L A R K A N S A S : C O N N E C T I N G T H E D O T S
Entrepreneurship: One of Three Key Investments
The conclusion to be draw n from both the data and the w ider national experience is that
Arkansas is not currently w ell-positioned for the new econom y and that action w ill be
required across a broad front to create w idespread w ealth and econom ic opportunity.
But the analysis does clearly indicate w here effort and resources need to be invested: in
the interrelated areas of education, technology, and entrepreneurship. This report
focuses on entrepreneurship.
The title of this report, Connecting the Dots, w as chosen to reflect the fact that although
m uch needs to be done in Arkansas, there is already a great deal of activity underw ay or
planned, som e of w hich has attracted national attention and acclaim . The purpose of
this report is to recognize, build upon, and connect this activity into a sustainable strategy.
Creating a Pipeline of
Entrepreneurs
There should be an infrastructure of lifelong learning from elem entary school to the
golden age, based on the sim ple principle that it is never too early or too late to be an
entrepreneur. Although som e argue that entrepreneurs are born and cannot be created,
w hile others believe that there is an entrepreneur in all of us w ho is w aiting to com e out,
the prem ise of this report is that appropriate support can significantly increase the num -
ber of entrepreneurs. The aim is to create a large and diverse pool of people, across a
spectrum of entrepreneurial m otivations, out of w hich there w ill flow a steady stream of
high achievers w ith an interest in creating jobs and w ealth in their com m unities. The
strategy involves incorporating entrepreneurial education into the curricula of the K–12
school system and the tw o- and four-year colleges across Arkansas and providing con-
tinuing support and encouragem ent through netw orking opportunities and raising the
public profile of successful local entrepreneurs.
Creating Future Generations of Entrepreneurs
There are tw o econom ics education program s operating in Arkansas that have im por-
tance in sow ing the seeds of interest in entrepreneurship as a potential career option.
The largest econom ics education program in the country is Junior Achievem ent, w hich
has only lim ited penetration in Arkansas, prim arily in the Little Rock and northw est
Arkansas areas. Junior Achievem ent focuses m ore on business and econom ics educa-
tion than entrepreneurship, but for m any young students it represents their first exposure
to the business w orld. The organization’s m ission is “to educate and inspire young peo-
ple to value free enterprise, business and econom ics to im prove the quality of their
lives.”Junior Achievem ent has been operating for over 80 years and in that tim e reckons
to have taught som e 39 m illion students—last year alone, there w ere over 4 m illion par-
ticipants across the country. W ith very substantial backing from corporations, a netw ork
of volunteers and educators w ork in nearly 13,000 elem entary schools, 3,000 m iddle
schools, and 3,000 high schools.
Better established in Arkansas is Econom ics Am erica, run by the Arkansas Council on
Econom ic Education (ACEE) and w orking w ith 115 school districts and private schools
across the state. Som e 2,000 teachers receive training and support each year through five
18
E N T R E P R E N E U R I A L A R K A N S A S : C O N N E C T I N G T H E D O T S
19
E N T R E P R E N E U R I A L A R K A N S A S : C O N N E C T I N G T H E D O T S
university-based centers in Arkadelphia (H enderson State), Fayetteville (U niversity of
Arkansas), Jonesboro (Arkansas State), M agnolia (Southern Arkansas), and M onticello
(U niversity of Arkansas). ACEE, an independent nonprofit organization, is housed w ithin
the Arkansas Departm ent of Education and has been w elcom ed into the school system
partly because Econom ics Am erica is based on voluntary national content standards for
econom ics devised by the N ational Council on Econom ic Education. O ne of the 20 con-
tent standards focuses specifically on entrepreneurship, its risks, returns, and characteris-
tics, and the Fayetteville center provides w orkshops for teachers on M ini-Society, a
curriculum devised by the Kauffm an Center for Entrepreneurial Leadership to teach
entrepreneurship concepts to elem entary school students.
O ne hom egrow n product of w hich Arkansas can be justly proud is EAST. This innovative
program seeks to engage young people in the requirem ents of the new econom y
through experiential learning. EAST began w orking in the state’s high schools in 1995 by
offering “a perform ance-based learning environm ent”in w hich students apply advanced
com puter hardw are and softw are to solve problem s in their local com m unities. W ith a
presence in 152 schools, involving som e 15,000 students, EAST has recently expanded its
operations to California and is w orking w ith five other states.
In 1994, the Kauffm an Center for Entrepreneurial Leadership polled over 1,000 high
school students across the nation and found that 69% w ere interested in starting a busi-
ness of their ow n.
13
Yet less than 20% adm itted to having at least a good understanding
of w hat w as involved, and som e 44% rated their capacity to start or m anage a business
as “poor”or “very poor.”As the N ational Com m ission on Entrepreneurship
14
has noted,
“A thriving sector devoted to entrepreneurship education has em erged in response to this
m arket dem and.”
15
M any of the key players at national and state levels are connected through the Consor-
tium on Entrepreneurship Education, w hich cham pions entrepreneurship education
w ith a particular focus on experiential learning and provides a clearinghouse for techni-
cal assistance, advocacy, netw orking, and m aterials to leaders across the country. The
Consortium ’s m em bership includes 20 state departm ents of education—Arkansas is not
a m em ber—a num ber of school districts, and som e of the m ain nonprofit organizations
and foundations that provide and fund entrepreneurship education. According to the
Consortium , there are at least 30 national entrepreneurship program s and organizations,
of w hich 12 focus on youth entrepreneurship, but few of these have found their w ay into
the Arkansas education system .
One homegrown
product of which
Arkansas can be
justly proud is
Environmental and
Spatial Technology Inc,
better known as EAST.
20
E N T R E P R E N E U R I A L A R K A N S A S : C O N N E C T I N G T H E D O T S
The largest and best-know n provider of experiential entrepreneurship education is the
N ational Foundation for the Teaching of Entrepreneurship (N FTE). Based in N ew York,
N FTE teaches low -incom e young people aged 11–18 “to be econom ically productive
m em bers of society by im proving their academ ic, business, technology, and life skills.”
Som e 40,000 young people in the U nited States and across the w orld have experienced
N FTE’s program s, and its certified training program instructs 500 educators each year,
providing them w ith the tools to teach entrepreneurship in school and after-school set-
tings. N FTE has developed four versions of its curriculum for use in high schools and
m iddle schools, for postsecondary institutions, and as an on-line course.
Significantly, N FTE has invested heavily in research and evaluation. Studies by Brandeis
U niversity and the Koch Foundation in the 1990s contended that entrepreneurship
indeed can be taught, that N FTE’s program positively influences student’s beliefs about
their entrepreneurial potential and abilities, and that the program has a direct im pact on
the business form ation rates of youth entrepreneurs. Currently, the H arvard Graduate
School of Education is conducting a m ulti-year longitudinal evaluation to assess students’
academ ic perform ance and their participation in the N FTE program .
Another exam ple of an effective program for engaging youth and com m unities in entre-
preneurship, particularly in rural areas, and w ith roots in the South, is REAL.
16
Based in
N orth Carolina, REAL is a nonprofit interm ediary for a national netw ork of organizations,
individuals, and corporations com m itted to m aking entrepreneurship education available
to all. It provides tools to elem entary, m iddle, and high schools, com m unity and four-
year colleges, and others to increase aw areness of the value of entrepreneurship as both
a career option and a w ay of thinking. There are currently 12 state REAL organizations,
and the experiential curriculum is taught in schools in another 20 states nationw ide.
O ne of its program s is REAL Entrepreneurship, used in high schools, postsecondary
institutions, and com m unity-based organizations, w hich guides participants through
a process of creating sm all businesses of their ow n design. The process includes self-
assessm ent, com m unity and m arket analysis, researching and w riting a business
plan, and in som e cases access to start-up capital. The curriculum contains over 180
individual and group activities that help participants develop skills in finance and
m arketing, as w ell as critical thinking and life skills. The program is designed to be
flexible and encourages com m unities to tailor the course of study according to local
circum stances and needs.
21
E N T R E P R E N E U R I A L A R K A N S A S : C O N N E C T I N G T H E D O T S
Am ong the array of program s, curricula, and other m aterials designed to foster entrepre-
neurial behavior, REAL stands out because it is the only national program that focuses
on entrepreneurial training for youth in rural com m unities. Its m ethods for effective
entrepreneurial preparation for econom ically and socially disadvantaged youth are com -
prehensive and experiential, rather than academ ic. It uses an activity-based approach to
learning, coupled w ith a focus on developing businesses rooted in the com m unity’s
needs, w hich m akes it particularly appropriate for use by rural schools and com m unity-
based organizations.
The best exam ple of a statew ide com m itm ent to REAL is N orth Carolina. In
2000–2001, 1,496 students participated through 31 high schools, 45 postsecondary
institutions (m ainly com m unity colleges), and eight com m unity organizations, involv-
ing som e 117 REAL-trained instructors. Projections for the current year show further
grow th and representation in 84 out of the state’s 100 counties, as w ell as 14 Spanish
REAL program s, three on-line program s, one elem entary and three m iddle schools,
and a youth cam p. This is achieved w ith an annual budget of around $600,000, of
w hich $375,000 com es from the state and the balance from foundations and the
Appalachian Regional Com m ission. It should also be noted that N orth Carolina REAL,
as in other states, has been able to dem onstrate that the com petencies associated w ith
the REAL curricula are readily m atched w ith state accreditation standards—an issue
that w ill have to be faced in Arkansas.
Connecting the Dots…The exciting connection that needs to be explored is w hether
and how a program like REAL can be introduced to com plem ent and enhance EAST
and possibly Econom ics Am erica. The strong em phasis on experiential learning and
local com m unity engagem ent shared by REAL and EAST appears to be a good basis
upon w hich to add an entrepreneurship curriculum to the netw ork of technology labora-
tories. Sim ilarly, REAL could provide additional tools for econom ics teachers for bringing
to life the entrepreneurship com ponent of the Econom ics Am erica program .
College-Level Entrepreneurship
Entrepreneurship is clearly a stated priority in m any places w ithin the postsecondary
education system in Arkansas. Tw o exam ples illustrate how universities are begin-
ning to integrate entrepreneurship education w ith sm all business advisory and other
related activities.
The strong emphasis
on experiential
learning and local
community
engagement appears
to be a good basis
upon which to add
an entrepreneurship
curriculum.
22
E N T R E P R E N E U R I A L A R K A N S A S : C O N N E C T I N G T H E D O T S
The Delta Center for Econom ic Developm ent at Arkansas State U niversity in Jonesboro is
an um brella organization that brings together sm all business assistance, professional and
w orkforce developm ent, and regional and com m unity developm ent. Its Center for Entre-
preneurial and Fam ily Business Practice offers tw o academ ic courses, each for 12 to 20
students, on sm all business m anagem ent and entrepreneurship and has aspirations to
grow this program to degree status.
The D on W . Reynolds Center for Enterprise D evelopm ent at the U niversity of Arkansas
at Fayetteville sim ilarly offers a num ber of business advice, business and econom ic
research, m anagem ent and executive developm ent program s, and education activities,
including the Bessie B. M oore Center for Econom ic Education. The D epartm ent of
M anagem ent offers a sm all business and entrepreneurship concentration that currently
attracts som e 30 students each year, w ith the longer-term vision of a fully-fledged
entrepreneurship course serving all the U niversity’s departm ents so that architects and
agriculture specialists can integrate entrepreneurship into their learning. Likew ise, the
College of Business at the U niversity of Arkansas at Little Rock, soon to be m oving to
new purpose-built prem ises, plans to offer entrepreneurship and business courses for
the w hole cam pus, expecting to bring in students from a w ide array of disciplines from
fine arts to engineering.
Connecting the Dots…There are other cam puses w here entrepreneurship education is
underw ay, in planning, or at least being considered. There seem s to be an understanding
that the long-term interests of the Arkansas econom y w ill be greatly enhanced by equip-
ping students across m ost disciplines w ith a strong and practical understanding of w hat it
takes to create and grow a business. For a relatively sm all (in population) state, Arkansas
is blessed w ith an abundance of postsecondary institutions—11 four-year public universi-
ties, 22 tw o-year public colleges (of w hich six are affiliated w ith the four-year system ), and
12 independent colleges and universities, as w ell as nine technical institutes and a large
num ber of vocational and adult education program s. The challenge is to find w ays in
w hich hands-on entrepreneurial education can be offered as credit courses across all
these institutions in a cost-effective m anner. O ne w ay forw ard m ight be to focus attention
on a group of linked four-year and tw o-year institutions, such as Arkansas State U niversity
at Jonesboro and its affiliated com m unity colleges at Beebe, M ountain H om e, and
N ew port (or the U niversity of Arkansas system and the affiliates in Batesville, H ope, and
M orrilton), w ith a view to m aking available cross-disciplinary courses as a pilot for
other institutions across the state. Another m ight be to launch a pilot project under the
auspices of the Arkansas Association of Tw o-Year Colleges. Either approach w ould alm ost
certainly require som e challenge grant dollars to encourage effective participation.
There seems to be an
understanding that
the long-term
interests of the
Arkansas economy
will be greatly
enhanced by
equipping students
with a strong
and practical
understanding of
what it takes to
create and grow a
business.
23
E N T R E P R E N E U R I A L A R K A N S A S : C O N N E C T I N G T H E D O T S
Educating and Supporting Adult Entrepreneurs
There are tw o nationally recognized program s available in Arkansas for providing entrepre-
neurial training for adults: N xLevel and FastTrac. The N xLevel Training N etw ork, based at
the U niversity of Colorado at Denver, engages w ith sm all business developm ent centers,
cham bers of com m erce, business incubators, private industry councils, planning districts,
com m unity developm ent corporations, and m any other types of local organizations “to
develop and dissem inate business-oriented training program s that assist in strengthening
an entrepreneurial spirit in com m unities.”It develops replicable training courses, provides
“train the trainer”program s, and assists states and com m unities in im plem enting their
training program s in five areas: sm all business, tourism , com m unity econom ic develop-
m ent, youth enterprise, and shared-use com m ercial kitchen developm ent. The Arkansas
SBDC in Little Rock, w hich provides a broad range of business sem inars and training
courses, is the N xLevel netw ork m em ber for Arkansas.
FastTrac w as first created by the U niversity of Southern California in Los Angeles in the
m id-1980s and then launched nationally by the Kauffm an Center for Entrepreneurial
Leadership and the Ew ing M arion Kauffm an Foundation in 1993. Program s are being
provided in 150 cities in 38 states, and it is estim ated that som e 50,000 people have com -
pleted the classes. FastTrac is also delivered through an extensive netw ork of local organ-
izations, such as cham bers of com m erce, sm all business developm ent centers, w om en’s
business centers, m inority business centers, com m unity colleges, universities, and con-
sultants. FastTrac program s are grouped into three categories: com m unity developm ent,
m icro-enterprise com m unity developm ent, and college and university courses, each of
w hich com prises com ponents tailored to specific sectors or stages of enterprise develop-
m ent. The local partner is the Enterprise Corporation for the Delta, w hich contracts w ith
the Arkansas W om en’s Business Developm ent Center in Pine Bluff and private consult-
ants to serve the Pine Bluff area and the eastern region of the state.
Connecting the Dots…N xLevel and FastTrac are very sim ilar program s—indeed they
share com m on origins—and choices have been m ade on their use on the basis of cost
to trainees, appropriateness for particular target groups, and flexibility. FastTrac is m ore
expensive, causing it to be stopped in Fayetteville, but it continues in the Delta region
through the Arkansas W om en’s Business Developm ent Center thanks to a subsidy from
the Enterprise Corporation for the Delta. The SBDC netw ork has found the less expensive
N xLevel to be better suited to its needs and cites a partnership w ith the city of Little Rock
to have been particularly effective in serving the needs of African Am erican entrepre-
neurs. W ider access to these program s across the state w ould be greatly helped by spon-
sorship—and attendant publicity—from local governm ents and the private sector,
particularly banks, econom ic developm ent groups, and utility com panies.
24
E N T R E P R E N E U R I A L A R K A N S A S : C O N N E C T I N G T H E D O T S
Networking Entrepreneurs
Entrepreneurial netw orks are one of the key strategies prom oted by the Kauffm an Foun-
dation-sponsored policy group, the N ational Com m ission on Entrepreneurship. Its
research has show n that netw orks provide entrepreneurs w ith critical opportunities for
peer learning, and their presence is an im portant factor in achieving higher levels of
entrepreneurial activity. N etw orks can be form al gatherings, such as trade associations or
adjuncts to cham bers, or very inform al, such as periodic coffee and donut sessions.
Potential benefits claim ed include relationship brokering, fostering cultural change, creat-
ing civic leaders, and im proving regional com petitiveness, but at a less am bitious level,
they can provide an inexpensive and effective w ay of sharing inform ation and providing
counsel on m atters of com m on concern.
Southern Financial Partners has contracted w ith alt.Consulting, a nonprofit M em phis-
based consulting firm , to host roundtables in H elena, Pine Bluff, and W est M em phis.
These m eet m onthly or quarterly to provide a forum for entrepreneurs—significantly
both w hite and black business ow ners—to share inform ation and resources. Initially
they w ere structured by alt.Consulting but now are increasingly self-directed.
A related approach attracting attention is the practice of “enterprise facilitation”pio-
neered by the Sirolli Institute. This w as first developed by Ernesto Sirolli in rural W estern
Australia and has since been applied in som e 200 com m unities in Australia, N ew
Zealand, Canada, and five states in the U nited States. In essence, enterprise facilitation
builds on the passion for entrepreneurship w ithin a com m unity. The com m unity selects
a facilitator w hose job is to serve as a m anagem ent coach to local citizens interested in
starting new businesses and to link these people to a range of m arketing, capital access,
and partnering services and opportunities. A trained local m anagem ent board of up to
40 people supports the facilitator w ith expertise on all the issues that need to be
addressed in starting a business. It is a grassroots approach that relies on local know l-
edge and skills and on the m obilization of local volunteers passionate about product
developm ent, m arketing, and finance.
The m odel has been applied w ith som e success in O regon, M innesota, South Dakota,
M ontana, and Idaho, and recently the state of Kansas announced the launch of three
dem onstration projects, each of w hich is in a m ulti-county area, using the enterprise
facilitation approach. The lieutenant governor is quoted as saying, “The rhetoric of a
declining rural Kansas has gone on long enough. The reality is stark. W e can and m ust
provide rural Kansas the tools to rebuild.”The Sm all Cities Com m unity Developm ent
Block Grant w ill provide tw o thirds of the estim ated cost of $300,000 over three years for
each site, and the local partners, one third.
Creating networking
opportunities has
proven to be a
simple and highly
effective way of
attracting and
retaining
entrepreneurs.
25
E N T R E P R E N E U R I A L A R K A N S A S : C O N N E C T I N G T H E D O T S
Connecting the Dots…Creating netw orking opportunities has proven to be a sim ple
and highly effective w ay of attracting and retaining entrepreneurs. It can be done very
inexpensively by hosting coffee and donut sessions, or it can be m ore structured through
the use of facilitators. Local cham bers, county governm ents, and other com m unity insti-
tutions are ideally placed to provide a m eeting ground for entrepreneurs, both aspiring
and active, and this should be encouraged. H ow ever, in those parts of the state w here
entrepreneurship needs particular encouragem ent, the Arkansas Departm ent of Eco-
nom ic D evelopm ent is w ell-placed to sponsor a series of enterprise facilitation projects,
building on the experience of other rural states.
Raising the Profile
Raising the profile of successful entrepreneurs is critical in both sparking interest am ong
those thinking about starting a new venture and creating a supportive environm ent in
w hich entrepreneurship can flourish. Each January, Arkansas holds an Entrepreneurship
D ay. In 2002, the Arkansas SBDC organized a trade center at the Rotunda in order to
bring to the attention of legislators the contribution that entrepreneurs and sm all
businesses m ake to Arkansas and the local econom ies.
Business plan com petitions are a w idely used m eans of shining the spotlight on local
talent. In Arkansas this has been done w ith great effect through the annual Governor’s
Aw ard for Entrepreneurial Developm ent organized by the Capital Resource Corporation
and sponsored by the Arkansas Capital Corporation Group, foundations (including the
W inthrop Rockefeller Foundation), and a num ber of private com panies.
Prize m oney for the 2002 com petition totaled $102,000, m aking it the nation’s fourth
largest aw ards pool. The aw ard for the best graduate and undergraduate business plans
attracted 46 student applicants from seven Arkansas universities. The w inning team of
graduate students from the U niversity of Arkansas at Fayetteville presented a business
plan for custom prefabricated residential outbuildings; second place w as an undergradu-
ate from the U niversity of Arkansas at Little Rock w ith a plan for an indoor shooting
range and retail firearm and safety device outlet. The organizers anticipate that the busi-
ness plan com petition w ill continue to be refined through netw orking w ith successful
entrepreneurs, lenders, and investors, m entoring, training, and m edia exposure. O f
particular im portance to the need to raise the profile of entrepreneurship in the state
w as the fact that the aw ards banquet attracted 1,000 attendees and significant m edia
attention.
Raising the profile
of successful
entrepreneurs is
critical in both
sparking interest
and creating a
supportive
environment in
which
entrepreneurship
can flourish.
26
E N T R E P R E N E U R I A L A R K A N S A S : C O N N E C T I N G T H E D O T S
Connecting the Dots…A w orthy objective w ould be to broaden the scope of the com -
petition so that the ideas and talents of students and adult entrepreneurs m ay also be
given due recognition. A good exam ple for encouraging entrepreneurship w ithin the
school system , for a m odest cost, is the new Springboard Entrepreneurship Aw ard
organized by the Appalachian Regional Com m ission w ith the U .S. Departm ent of Educa-
tion and the N ational Com m ission on Entrepreneurship. Six w inners from high schools
and m iddle schools in Appalachia w ere each aw arded $2,000 in prizes to support the
ongoing w ork of the school entrepreneurship program . W inners w ere selected accord-
ing to three m ain criteria: dem onstrated student com petency in opportunity recognition,
idea generation, venture creation and operation, and critical thinking; clearly defined and
m easurable outcom es that provide value to participants and the com m unity; and sus-
tainability. The w inners also traveled to W ashington, DC, to present their projects to a
m ajor conference and to attend a lunch on Capitol H ill, thus generating considerable
m edia attention in their hom e states and com m unities.
Recognition of aspiring and new ly active adult entrepreneurs could be given through
low -cost regional com petitions, w ith regional w inners being able to com pete for a state-
w ide prize as part of the Governor’s Aw ard.
Postscript
This report uses the analogy of a pipeline to convey the idea of a continuous supply of
aspiring entrepreneurs w ho have been m otivated by their experience in schools and uni-
versities to take the step to set up their ow n business ventures. A different analogy draw n
from baseball that m ay w ork better for som e is the “farm system .”Gregg Lichtenstein
and Thom as Lyons,
17
w ho have researched and w ritten extensively on entrepreneurship,
have proposed an entrepreneurial developm ent system for developing entrepreneurial
talent sim ilar in m any respects to the w ay professional sports ensure a continuous flow
of skilled players to the highest levels. An entrepreneur’s developm ent is defined by
degree of technical, m anagerial, and entrepreneurial skills, as w ell as personal m aturity.
U ltim ate success is m easured by high achievem ent in all these dim ensions. Lichtenstein
and Lyons go a step further by proposing a set of new entrepreneurial developm ent
functions that go w ell beyond traditional enterprise developm ent activities—scouts, diag-
nosticians, m entors, success team m anagers, alliance brokers, and a general m anager.
This represents an approach that is far m ore proactive and interventionist than proposed
in the Connecting the Dots strategy but one perhaps Arkansans m ay aspire to once the
fundam entals are in place.
27
E N T R E P R E N E U R I A L A R K A N S A S : C O N N E C T I N G T H E D O T S
Enhancing Business
Services for Entrepreneurs
The current array of business service providers should be upgraded into a seam less sys-
tem that can deliver effective financial, technical assistance, and real estate services to
entrepreneurs at different levels of developm ent. The aim is to “graduate”significant
num bers of start-up enterprises into com panies and organizations that w ill provide qual-
ity jobs in com m unities across the state. The strategy focuses on access to both equity
and debt capital and on integrating financial and technical assistance services.
Access to Equity Capital
As Federal Reserve Chairm an Alan G reenspan notes, “An im portant key to success of
sm all and large business is having access to capital and credit. First and forem ost, I
w ould em phasize that credit alone is not the answ er. Businesses m ust have equity cap-
ital before they are considered viable candidates for debt financing… the new er the
firm , the greater the im portance of the equity base.”
18
A 1998 study by M t. Auburn
Associates
19
looking at capital access in Appalachian states found that w ith the lack of
access to form al sources of equity, entrepreneurs w ere heavily dependent on personal
savings, retained business earnings, and support from fam ily m em bers, friends, and
colleagues for risk capital. As in Arkansas, given the low levels of personal w ealth in
the region, such reliance has translated into scarce levels of financing. M oreover, infor-
m al sources, “business angels,”w ere not a significant source, particularly for start-up
and early stage ventures.
Leslie Lane of the Arkansas Science and Technology Authority has conducted som e
initial research and analysis on the dem and for venture capital investm ent in the state.
U sing a set of optim istic assum ptions to gauge potential scale, his calculations indicate
that Arkansas m ight be able to support a venture capital industry of betw een $1.3 billion
and $2 billion that w ould successfully invest in over 60 firm s, yielding 8,500 jobs and
$18.7 m illion annually in corporate taxes. Raising the capital w ould be partly a m atter of
applying the Sm all Business Adm inistration’s Sm all Business Investm ent Com pany
(SBIC) program as leverage to a m ix of pension fund, insurance com pany, foundation,
and w ealthy donor contributions. Given Arkansas’s bottom 10 rankings in the Develop-
ment Report Card for the States for both SBIC and venture capital financing, and given
the fact that although the South has 28% of the nation’s population but only 3% of the
“Businesses must
have equity capital
before they are
considered viable
candidates for debt
financing… the
newer the firm,
the greater the
importance of the
equity base.”
18
28
E N T R E P R E N E U R I A L A R K A N S A S : C O N N E C T I N G T H E D O T S
nation’s venture capital under m anagem ent, the state clearly has a long w ay to go. N ev-
ertheless, Lane provides a target for w hich Arkansas m ust strive if it is to function as a
globally com petitive entrepreneurial state.
The state legislature passed tw o acts during 2001 w ith the purpose of stim ulating the
supply of equity to entrepreneurs and businesses. O ne, Act 1584, aim s to encourage indi-
viduals to m ake m ore seed investm ents in com panies too sm all for venture capital com -
panies by exem pting investm ents in certain technology businesses from state capital
gains taxes as long as the investm ent is held for at least five years. The other,
the Arkansas Venture Capital Act, provides $60 m illion in state tax credits for a fund of
funds—the Arkansas Institutional Fund—that w ill invest in a variety of venture capital
funds w illing to consider equity capital investm ents in locally based com panies. M odeled
on a sim ilar venture in O klahom a, the hope is to significantly increase the flow of funds
to retain and attract high-grow th com panies.
There is a need for low -return patient capital to support the risk capital needs of the large
m ajority of entrepreneurs w ho fall short of the grow th rate requirem ents of the typical
venture capital funds. There are few providers of such capital in Arkansas. The largest is
Diam ond State Ventures (DSV), an affiliate of Arkansas Capital Corporation. DSV is a $56
m illion venture capital fund that operates a federally licensed SBIC under the Sm all
Business Investm ent Act of 1958. DSV provides patient capital to revenue-generating
com panies w ith operations located prim arily in Arkansas and the region. Investm ents
range from $250,000 to $3 m illion, w hich can be used for early stage operations, later
stage expansion, or acquisition financing. Enterprise Corporation of the Delta Invest-
m ents m akes a lim ited num ber of investm ents each year in the range of $50,000 to $1
m illion in com panies that offer good w ages, benefits, and training opportunities to their
w orkers. Southern Financial Partners (form erly Arkansas Enterprise Group) has m ade
som e equity deals and has plans to raise capital for a com m unity developm ent venture
capital fund for its geographic area.
There are a few inform al angel netw orks in the state that invest entirely through estab-
lished relationships and referrals, but currently there is no form al angel investor netw ork
that w ould allow potential investors to share the risk on ventures or provide opportuni-
ties for entrepreneurs to m ake their case for investm ent. A m ajor step to addressing this
problem w as m ade in M ay 2002, w hen the inaugural Arkansas Venture Capital Forum
w as held in Little Rock. M ore than 350 entrepreneurs, venture capital investors, and state
officials—m ore than triple the organizers’expectations—cam e together in an attem pt to
m atch business ideas w ith equity capital, but it m ay take several years of such brokering
before the flow s reach a critical m ass.
29
E N T R E P R E N E U R I A L A R K A N S A S : C O N N E C T I N G T H E D O T S
Connecting the Dots…The challenge of m aking equity capital available to Arkansas
entrepreneurs has becom e a w idely accepted priority for state agencies and the private
sector. A com bination of legislative initiatives and high profile efforts to bring together
venture capitalists and entrepreneurs represents the crucial first steps in w hat w ill be
a long haul. An effective strategy m ay be to pursue a tw in-track approach of creating a
m id-South regional venture capital industry, recognizing that Arkansas alone w ill not
generate the deal flow necessary to divert capital from the m ain hubs in California,
M assachusetts, and N ew York, and pursuing local initiatives across the state to establish
angel netw orks that can provide relatively m odest investm ents in entrepreneurs and
sm all businesses.
Access to Debt Capital
As in m ost states, debt capital for businesses in Arkansas is m ainly provided by the
banks, w ith a m ix of nonprofit and public developm ent finance institutions serving
people and areas underserved by the banks.
Banks. The banking industry everyw here is undergoing radical change brought about
by consolidation, fierce com petition, and increasing uses of technology, w hich has left
Arkansas w ith one-third few er banks than it had a decade ago.
20
N ational trends indicate
that sm all loans of under $250,000 as a category represent a shrinking share of total
bank lending, w hile at the sam e tim e there is evidence to suggest that banks are increas-
ingly looking “dow n m arket”to find new m arkets for their products. M oreover, sm all
banks, particularly in rural areas, w hich have traditionally focused on agricultural, con-
sum er, and m ortgage lending, have been reluctant to engage significantly in lending to
entrepreneurs and early stage businesses.
O pinions vary as to w hether all these sw irling forces w ill ultim ately im prove access to
capital for entrepreneurs. Those w ho take the positive view see the em ergence of strong,
regional banks that can leverage econom ies of scale and portfolio diversification as being
better able to operate in difficult m arkets. Strong com petition also enables businesses to
shop around for the best loans, and w ider use of technology and credit scoring has
allow ed banks to reduce costs of m aking sm aller loans. The optim ists are also able to
point to the em ergence of new ly chartered niche banks that serve m arkets that regional
banks find hard or expensive to serve.
The counterview is that regional banks located out of state do not have the connections
w ith local businesses—indeed, som e sm all businesses have found them selves being
served by a succession of banks as m erger follow ed m erger—and the use of technology
and credit scoring has brought to an end longstanding lending relationships.
30
E N T R E P R E N E U R I A L A R K A N S A S : C O N N E C T I N G T H E D O T S
Development Financial Institutions. Developm ent financial institutions pursue sm all
business lending as a strategy for creating econom ic opportunities for people and com -
m unities that have been denied access to credit from banks and publicly funded sources.
They tend to be rooted in local com m unities and are w ell-positioned to partner w ith a
w ide array of private, public, and nonprofit organizations to achieve econom ic, social,
and com m unity goals. Arkansas has about 25 such institutions—private nonprofit organi-
zations, planning and developm ent districts (m ulti-county regional developm ent organi-
zations), and state-financed institutions.
The U .S. Treasury has certified eight organizations that serve Arkansas CDFIs, w hich
m akes them eligible for aw ards from the CDFI Fund and places them in good standing
w ith private financial institutions. The CDFI Fund also provides incentives to banks to
invest in CDFIs through its Bank Enterprise Aw ard program . After N ew York, Arkansas is
the m ost active state in the country in term s of the num ber of aw ardees, w ith som e 24
banks placing deposits in local CDFIs, including Elk H orn Bank and Trust and the Enter-
prise Corporation of the Delta.
There are tw o m ain state-financed institutions that provide debt capital. Arkansas D evel-
opm ent Finance Authority lends directly to businesses through five revolving loan funds
w ith different sectoral targets. The D isadvantaged Business Enterprise program , for
exam ple, provides w orking capital loans to m inority businesses that are successful bid-
ders on construction contracts; the Capital Access program provides a loan loss reserve
for banks and nonprofit lenders m aking loans to m arginal sm all businesses. Arkansas
Capital Corporation is a quasi-nonprofit state-funded institution that provides loan financ-
ing of $25,000 to $1.3 m illion directly to sm all businesses or as participants in bank
financing deals. Its subsidiary, Arkansas Certified Developm ent Corporation, m anages the
Sm all Business Adm inistration’s 504 loan program that provides financing for fixed assets
and has som e $100 m illion in net assets under m anagem ent.
Across the country, research and experience seem to suggest that, in both urban and
rural areas, debt capital is available in the m arketplace. Sources as diverse as the
N ational Federation of Independent Businesses and the U .S. D epartm ent of Agricul-
ture Econom ic Research Service concur that credit in rural areas is generally priced
com parably to urban credit, and that urban and rural banks perform as w ell as each
other in term s of capitalization, profitability, and problem loans.
21
Indeed, it is not
uncom m on for banks and other financing institutions to assert that the problem is
not lack of debt capital but deal flow —a shortage of bankable lending deals.
31
E N T R E P R E N E U R I A L A R K A N S A S : C O N N E C T I N G T H E D O T S
Connecting the Dots…The reality in Arkansas, how ever, is that an individual entrepre-
neur’s experience of access to debt capital is likely to be determ ined by the type of prod-
uct she is seeking and her location w ithin the state. The infrastructure is in place to
facilitate a greater deal flow , but greater collaboration betw een the banks and the
CD FIs w ould seem to be an essential prerequisite for addressing capital access chal-
lenges, particularly in the Delta and other m ore rem ote rural areas.
Technical Assistance
There is, and should be, a strong interplay betw een entrepreneurship training, technical
assistance, and the provision of finance. From the view point of the entrepreneur or sm all
business ow ner, com plicated, fractured provision of business services can be frustrating,
tim e consum ing, and potentially dam aging. The aim should be to create an effective sys-
tem that either offers “one-stop shop”services or a seam less referral process m anaged
by an equivalent to a casew orker.
The basic com ponents appear to be present in Arkansas upon w hich a system could be
developed, but there are concerns about poor coverage, especially in the rural areas, and
inconsistency in quality. The challenge facing Arkansas is the sam e that faces all states:
technical assistance is critical for both entrepreneurs and for the organizations that pro-
vide them w ith financing, but it is expensive and hard to fund in any sustainable w ay.
Apart from the university centers m entioned earlier that provide a num ber of related edu-
cation, advisory, and training services under one roof, there are a num ber of institutions,
netw orks, and program s that offer technical assistance across the state. O ne such net-
w ork, the Arkansas SBDC, is part of a m ajor nationw ide program initiated by the Sm all
Business Adm inistration. The lead center in Arkansas is housed w ithin the U niversity of
Arkansas at Little Rock and provides oversight and coordination of seven regional offices
and subcenters—recently reduced from 10—based at a variety of higher educational insti-
tutions. These SBDCs provide a range of inform ation, consulting, and training (including
N xLevel) services, either for free or at low cost, to aspiring and active entrepreneurs.
Continuing assessm ents of econom ic im pact, custom er satisfaction, and training evalua-
tions by the Arkansas SBDC, as w ell as form al review s conducted in line w ith Baldridge
criteria by the Association of SBDC’s N ational Accreditation Board, show that the quality
of individual SBDCs is greatly enhanced w hen there is a team of three advisors w ith
the expertise and experience to offer finance, m arketing, and training services. N ot all of
Arkansas’s SBDCs m eet this requirem ent, and as a consequence, the quality and scope
of service is not uniform from region to region. U nlike m any SBDC netw orks across the
Fromthe viewpoint
of the entrepreneur
or small business
owner, complicated,
fractured provision
of business services
can be frustrating,
time consuming,
and potentially
damaging.
32
E N T R E P R E N E U R I A L A R K A N S A S : C O N N E C T I N G T H E D O T S
country, there is no state funding of the netw ork, w ith the $750,000 annual budget cov-
ered by a Sm all Business Adm inistration grant and cash and in-kind contributions from
host universities and colleges. The netw ork’s financial vulnerability has been graphically
dem onstrated by the recent decision to reduce the num ber of centers from 10 to seven,
in effect as of January 2003. A m atching grant from the state w ould enable each of the
existing centers to be a full-service operation and possibly the netw ork to be expanded
into currently underserved areas, but this w ould require the SBDC netw ork to m ore
effectively dem onstrate how its services add value and w hy it deserves public support.
Another service w ith Sm all Business Adm inistration funding is the Arkansas W om en’s
Business Developm ent Center, one of 80 nationw ide. This center, w ith locations in Pine
Bluff, Forrest City, and H elena serving a 48-county area, is part of the Southern Financial
Partners organization. Created as a five-year initiative in 1999, the Arkansas W om en’s
Business Developm ent Center provides som e 400–500 w om en each year w ith inform a-
tion, training (First Step FastTrac), m entoring, counseling, and technical assistance serv-
ices.
A statew ide netw ork of a m ore specialized nature is the Arkansas M anufacturing Exten-
sion N etw ork, a program of the Arkansas Science and Technology Authority. Field engi-
neers, based in five locations, advise m ainly sm all m anufacturing firm s on how to
increase sales, cut costs, and im prove processes. This service is funded by the N ational
Institute of Standards and Technology and Arkansas Science and Technology Authority.
Tw o exam ples of organizations that provide com prehensive business developm ent
services are Southern Financial Partners and the Enterprise Corporation of the Delta;
they are profiled on the follow ing pages.
Business incubators are also part of the services infrastructure. These provide prem ises,
often w ith shared office support services, together w ith access to technical assistance
opportunities for netw orking am ong entrepreneurs and som etim es a critical m ass of
activity in areas needing revitalization. There are a num ber of active and proposed proj-
ects in Arkansas, including the Little Rock Incubator, the Genesis Technology Incubator
in Fayetteville, the Delta Center for Econom ic Developm ent in Jonesboro, and the new
Spotlight Business Accelerator for Entrepreneurs at Ashdow n.
Incubators can be expensive to create—Spotlight received a U .S. Econom ic Developm ent
Adm inistration grant of $466,000 together w ith $200,000 from the state. They can also be
expensive to operate, and it is not uncom m on for them to progressively reduce the level
of business services and revert to conventional real estate projects. It is not surprising that
there has been around the country w idespread interest in the concept of “incubators
w ithout w alls”—indeed there w as one proposed at the U niversity of Arkansas at Pine
33
E N T R E P R E N E U R I A L A R K A N S A S : C O N N E C T I N G T H E D O T S
With a mission to revitalize rural
economies, Southern Financial Partners
(SFP) is a 501(c)(3) nonprofit organiza-
tion providing lending services and
technical assistance to entrepreneurs
and small business owners. SFP is a
nonprofit affiliate of Southern Develop-
ment Bancorporation, a $350 million
community development bank holding
company based in Arkansas. SFP is
a certified CDFI, a Small Business
Administration Micro-Lender, and a
certified USDA lender that has provided
more than $30 million in small business
loans, creating or saving some 6,000
jobs.
SFP has four offices, each of which has a
discrete service area: Arkadelphia—
Southwest Arkansas (18 counties),
Helena—Delta (Phillips County, plus 9
Mississippi Delta counties), Stuttgart—
Southeast Arkansas (12 counties), and
Marianna—Northeast Arkansas (17 coun-
ties). SFP provides financing for start-up
businesses, business expansion, and
working capital lines of credit to small
businesses in rural communities that tradi-
tionally have difficulty obtaining access
to credit. Funding limits range from
$5,000 to $400,000. SFP works with a range
of funding partners, including local banks,
the Small Business Administration, state
and quasi-state agencies, and planning
and development districts. Through the
Arkansas Women’s Business Develop-
ment Center, women and minority entre-
preneurs are offered training, technical
assistance, and access to financing, men-
toring, and technical assistance.
The Good Faith Fund, a separate nonprofit
SFP affiliate organization, invests in peo-
ple by providing services that include:
?
Workforce development: Industry Part-
ners Employment Training Centers in
Pine Bluff, Stuttgart, and Helena pre-
pare low-income residents for jobs
in the health care and manufacturing
fields.
?
Asset development: The Rapid Asset
Individual Development Accounts pro-
gram helps low-income residents save
money for homeownership, home
improvements, education, and small
business development.
?
Public policy development: This pro-
gram focuses on legislative initiatives
to advocate for public policies and eco-
nomic development strategies that help
low-income families in Arkansas, pri-
marily the working poor, to increase
their income and assets.
Southern Financial Partners
Bluff. The current national m odel is operated by the Eastern M aine Developm ent Corpora-
tion, w hich w on the N ational Association of Developm ent O rganizations Pioneer Aw ard
for Leadership in Entrepreneurial Prom otion in Rural Am erica. The aw ard, m ade in con-
junction w ith the Kauffm an Center for Entrepreneurial Leadership, gave recognition to
the w ay the agency had used regional cooperation w ith a num ber of com m unity
action agencies to m eet the challenges of scale, the absence of rural entrepreneurial net-
w orks, distance to m arkets and services, and lim ited capital availability.
Connecting the Dots…The SBDC netw ork represents the beginning of the pipeline for
aspiring adult entrepreneurs and the catalyst through its services for converting a proportion
of these into active entrepreneurs. Its strong connections to the postsecondary education
system and its extensive outreach m ake its upgrading and possible expansion a priority.
34
E N T R E P R E N E U R I A L A R K A N S A S : C O N N E C T I N G T H E D O T S
A particular
challenge will be
to ensure that all
elements of the
entrepreneurship
strategy reach into
the more rural parts
of the state.
The Enterprise Corporation of the Delta
(ECD) is a private, nonprofit business
development organization whose primary
mission is to improve the quality of life
for low- and moderate-income residents
of the Delta and rural regions of
Arkansas, Louisiana, and Mississippi.
ECD accomplishes its mission by provid-
ing market-driven financial and technical
assistance to firms, entrepreneurs, and
homeowners; forging strategic partner-
ships with private, public, and nonprofit
organizations; and otherwise promoting
the development of the region’s human
and economic assets.
ECD has two offices in Arkansas, located
in J onesboro and Pine Bluff, and offers
products and services in 22 counties,
grouped by region: Southern Arkansas (6
counties), Central Arkansas (7 counties),
and Northeast Arkansas (9 counties).
ECD’s commercial financing products
include working capital lines of credit,
construction financing, short-term bridge
financing, letters of credit, and medium-
to long-term loans for fixed assets and
venture capital. ECD is certified to partic-
ipate in several Small Business Adminis-
tration, USDA, and state credit
enhancement and lending programs.
Since 1995 ECD has closed 171 loans
totaling more than $27 million, leveraged
$33 million in additional financing from
other sources, and made nearly 40% of
its loans to minority- and women-owned
businesses.
ECD has developed a network of public
and private technical assistance
providers that assist Delta businesses in
areas such as workforce development,
sales and marketing, accounting, and
engineering. Examples of these efforts
include:
?
FastTrac: The FastTrac training pro-
gram helps entrepreneurs learn to
use low-cost marketing strategies,
develop financing strategies, hire per-
sonnel, and manage cash flow.
?
Delta Employment Enhancement Pro-
ject (DEEP): DEEP promotes public pro-
grams and incentives that benefit low-
and moderate-income workers and
their employers.
?
Delta BusinessLINC: BusinessLINC
facilitates mentoring, buyer-supplier,
and other business relationships
between large corporations and
smaller Delta firms.
?
Over 1,000 entrepreneurs have bene-
fited from ECD’s technical assistance
and training programs.
The Enterprise Corporation of the Delta
A particular challenge w ill be to ensure that all elem ents of the entrepreneurship strategy
reach into the m ore rural parts of the state. The fear w as expressed in consultations that
resources w ould inevitably be channeled into the m ain urban centers and that once
m ore the econom ically disadvantaged w ould be left out. O ne strategy to be explored
m ight be to develop a very focused rural entrepreneurship program that w ould engage
w ith local com m unity-based organizations and churches to provide entrepreneurial
education, financial literacy, and individual developm ent account (m atched savings)
program s. A good starting point m ight be Southern Financial Partners and its Good Faith
Fund and the Arkansas W om en’s Business Developm ent Center.
Final Commentary
The argum ent has been m ade that for Arkansas to better position itself for the new econ-
om y, priority has to be focused on the closely interconnected them es of entrepreneur-
ship, education, and technology. A very sim ilar m essage is com ing from the Arkansas
D epartm ent of Econom ic D evelopm ent’s Know ledge-Based Task Force. The findings of
this report indicate that a great deal of the infrastructure is already in place both to cre-
ate a pipeline of entrepreneurs across the state and to provide advice, support, and
capital for entrepreneurial developm ent. For a relatively m odest financial investm ent
from public, private, and philanthropic sources in entrepreneurship, there could be sub-
stantial benefits in jobs, increased incom es, and econom ic grow th.
The priority for the state has been and continues to be to assist existing businesses to
expand and to recruit new businesses into the disadvantaged regions of the state. This
leads to a considerable em phasis on establishing a com petitive position against other
southern states using a variety of recruitm ent incentives and tax abatem ents. A recent
study
22
com m issioned by the Arkansas legislature pushed for the allocation of m ore
effort and resources to better position the state to attract a large m anufacturing plant.
CFED for m any years has consistently argued that entering into such com petition rarely
represents an effective strategy for sustained econom ic developm ent, particularly if it is
pursued at the cost of investing in the fundam entals—education, technology and innova-
tion, capital access, infrastructure, am enities, and of course, entrepreneurship. If
Arkansas believes that it should follow Alabam a’s exam ple and be prepared to offer
incentive packages on the order of $200 m illion to attract a car plant, then it should also
seriously consider dedicating a sm all proportion of that investm ent to encouraging
hom egrow n business developm ent.
For just 1% of such a package each year, it w ould be possible to introduce a statew ide
youth entrepreneurship program in the school system , upgrade and expand the SBDC
netw ork, contract for an enterprise facilitation program in the Delta, and further expand
the entrepreneurship activities w ithin the postsecondary educational system . For a fur-
ther 1% , the G overnor’s Aw ard for Entrepreneurial Developm ent could be significantly
expanded, and there could be further statew ide enhancem ents w ithin the K–12, tw o-
year, and four-year school system s and investm ents in interm ediary organizations that
can connect the dots in the m ore econom ically disadvantaged portions of the state.
35
E N T R E P R E N E U R I A L A R K A N S A S : C O N N E C T I N G T H E D O T S
In preparing this report, CFED encountered considerable enthusiasm for the strategy and
objectives—w hat is needed now is to translate this into firm com m itm ents. As a first
step, established business leaders and up-and-com ing entrepreneurs should be
encouraged to assum e leadership of an “entrepreneurial initiative”for the state. They
w ould need to w ork in close partnership w ith deans and program directors in the
tw o- and four-yearcollege system s, w ith leading nonprofit econom ic developm ent and
developm ent financial institutions, w ith senior state officials in education and econom ic
developm ent, and w ith others com m itted to econom ic progress and equity in the state.
The initiative could be structured as a standing com m ission or a board and w ould serve
as advocate and guardian of the strategy and publisher of an annual report on the state
of Arkansas entrepreneurship.
Entrepreneurship benchm arks should be established that m easure the perform ance of
Arkansas against its peers, the progress of the state’s sub-state regions, and of the various
agencies and institutions responsible for delivering the com ponents of the strategy. This
should be the responsibility of the partnership but undertaken by a business school, a
state agency, or a respected nonpartisan research organization. A design for an Arkansas
Entrepreneurship Benchm arks System developed as part of this study is presented in
Appendix 2.
36
E N T R E P R E N E U R I A L A R K A N S A S : C O N N E C T I N G T H E D O T S
For a relatively
modest financial
investment, there
could be substantial
benefits in jobs,
increased incomes,
and economic
growth.
37
E N T R E P R E N E U R I A L A R K A N S A S : C O N N E C T I N G T H E D O T S
Appendices
E N T R E P R E N E U R I A L A R K A N S A S : C O N N E C T I N G T H E D O T S
38
Rank
Index Sub-Index Measure (1=best)
Performance Employment Short-term Employment Growth 2
Mass Lay-offs 17
Equity Income Distribution 20
Quality of Life Net Migration 19
Charitable Giving 13
Resource Efficiency Recycling Rate 8
Business Vitality Competitiveness Business Closings 5
Competitive Index 19
Structural Diversity Dynamic Diversity 17
Development Capacity Financial Resources Loans to Small Business 10
Infrastructure Resources Highway Deficiency 12
Sewage Treatment Needs 7
Amenity Resources Energy Costs 16
Urban Housing Costs 19
Air Quality 8
Appendix 1:
Development Report Card
Rankings
Source: Corporation for Enterprise Development. 2002 Development Report Card for the States. Available: www.drc.cfed.org
Washington, DC: CFED
Table 1:
Arkansas Top 20 Rankings in 2002 Development Report Card for the States
39
E N T R E P R E N E U R I A L A R K A N S A S : C O N N E C T I N G T H E D O T S
Rank
Index Sub-Index Measure (1=best)
Performance Earnings and J ob Quality Average Annual Pay 46
Employer Health Coverage 44
Working Poor 41
Equity Poverty 48
Rural-urban Disparity 47
Quality of Life Teen Pregnancy 47
Heart Disease 42
Voting Rate 44
Resource Efficiency Per Capital Energy Consumption 44
Business Vitality Competitiveness Change in Traded Sector Strength 43
Entrepreneurial Energy New Companies 49
Change in New Companies 50
New Business J ob Growth 47
Technology J obs 43
Development Capacity Human Resources K-12 Education Expenditures 43
College Attainment 49
Financial Resources Income from Dividends, Interest 45
Venture Capital Investments 45
Infrastructure Resources Urban Mass Transit 44
Innovation Assets Ph.D. Scientists & Engineers 45
Households with Computers 47
University R&D 47
Federal R&D 50
SBIR Grants 48
Patents Issued 49
University Spin-offs 41
Table 2:
Arkansas Bottom10 Rankings in 2002 Development Report Card for the States*
*Abbreviations: R&D, research and development; SBIR, Small Business Innovation Research.
Source: Corporation for Enterprise Development. 2002 Development Report Card for the States. Available: www.drc.cfed.org
Washington, DC: CFED
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40
Background
Information Is the Cornerstone
Information provides a crucial cornerstone of an effective
entrepreneurship development strategy. The specific strategies
are framed by data analysis; appropriate benchmarks are iden-
tified for setting performance goals. This data-driven analysis is
also important, since data can play an important role as the lin-
gua franca for multiple stakeholders with varied perspectives
on entrepreneurship. During implementation, updating the ini-
tial market assessment and sharing information resources sup-
port the strategy and help position it for success.
While there is ample information on small business, the data
on entrepreneurship tend to be mostly qualitative, even anec-
dotal. In this information vacuum, data collection and analysis
must be done somewhat creatively. No one data set offers a
complete picture; however, taken together, the data can form
a credible pointillistic framework.
The Arkansas Entrepreneurship
Benchmarks System
Overview
To support the Entrepreneurial Arkansas project, CFED cre-
ated an Arkansas Entrepreneurship Benchmarks System
(AEBS) that includes indicators at both the state and sub-
state regional levels. The AEBS is based on four fundamental
concepts. First, the Arkansas economy is not homogenous—
it incorporates distinct and diverse sub-state regional
economies that often ignore state boundaries. Second, these
regional economies can be analyzed in ways that inform
effective market-oriented entrepreneurship strategies. Third,
key characteristics can be mapped (using GIS software) to
create a powerful, strategic communications vehicle. Finally,
data are most useful when offered in an interactive tool that
can be queried dynamically by local stakeholders.
With these principles in mind, the AEBS was developed to
support both the initial strategy development and subsequent
efforts to promote entrepreneurship in Arkansas. It is impor-
tant here to be clear about the role of benchmarks: simply
put, the goal is to assist decision-makers in helping Arkansas
to do better—not cast judgment. The state’s beleaguered
practitioners and policymakers know the story of the state’s
lagging performance all too well. Years of being at the bottom
of national rankings and lists of economic indicators have
taken their toll. “We beat ourselves up over this all the time,”
one state official noted. Rather, the AEBS was designed to
help highlight those areas that are performing well, while it
also assists to identify those areas needing improvement. In
the process, it is hoped the tool can be helpful in refocusing
the energies and efforts of key players in Arkansas.
The AEBS was also designed to complement efforts by other
organizations working to fill the information gap, including:
? The Southern Innovation Index—Developed by the South-
ern Technology Council (STC)—an advisory arm of the
Southern Growth Policies Board, co-chaired by Governor
Mike Huckabee—this index identifies benchmarks for
Arkansas and 12 other southern states. STC plans to work
with each state to develop state-specific 10-year targets for
each benchmark to encourage an outcome-oriented
approach to transforming the southern economy.
23
? Regional Entrepreneurship Catalyst—Supported by the
Kauffman Center for Entrepreneurship Leadership, this
initiative aimed to “develop a baseline of regional socio-
economic factors to inform regional analyses of entrepre-
neurial activity from an analysis of all 394 U.S. regions.
Comparable to other regions and the nation as a whole,
the data generated would provide a foundation for assess-
ing national activity and regional variation.”
24
To accom-
plish this, the project was to have conducted in-depth
research on 26 randomly selected U.S. regions, including
one in Southeast Arkansas.
25
Unfortunately this project
has been placed on indefinite hold pending review by the
Kauffman Center.
AEBS State Entrepreneurship Benchmarks
The AEBS State Entrepreneurship Benchmarks consolidate
key indicators that describe the state’s entrepreneurial
Appendix 2:
Arkansas Entrepreneurship
Benchmarks System
41
E N T R E P R E N E U R I A L A R K A N S A S : C O N N E C T I N G T H E D O T S
climate. These indicators are based on CFED’s annual
Development Report Card for the States, supplemented by
two key secondary sources: the Southern Innovation Index
and The State New Economy Index. Additional data were col-
lected from publicly available sources—including the U.S.
Census, Economic Development Administration, and the Small
Business Administration—that track issues such as self-
employment, minority business ownership, and growth rates
for the smallest businesses.
These state-level indicators allow Arkansas to be bench-
marked on both a regional and national basis. For this purpose,
CFED created a regional peer group of 10 Southern states that
includes largely rural states that are structurally similar to
Arkansas, including its neighbors Mississippi, Louisiana, and
Tennessee. The comparative framework is presented to help
identify relative strengths and weaknesses to inform an
Arkansas entrepreneurship strategy.
AEBS Sub-State Regional Benchmarks
The AEBS Sub-State Regional Benchmarks include extensive
data on the state’s economic activity by sector and sub-sector,
as well as key information on the businesses that drive its local
and regional markets. It also includes data on the state’s 184
banks and other financial institutions. To create the bench-
marks, primary data were collected for analysis at eight differ-
ent geographic levels:
? Countiesform the basic building blocks of the sub-state
regional benchmarking system (75 counties in Arkansas;
3,141 in the United States).
? Commuting Zones (CZs) are geographical areas con-
structed of continuous counties as spatial proxies for local
labor markets. County-level data are organized to corre-
spond to the CZ geography (24 CZs in Arkansas; 779 in the
United States).
? Labor Market Areas (LMAs)are aggregations of counties
into geographical regions that contain a high proportion of
residential-work location trips. Many of the LMAs cut
across state boundaries to better represent local economic
areas (13 LMAs in Arkansas; 394 in the United States).
? Sub-State Regions (SSRs) are designated areas tailored for
this project. The state’s SSRs are grouped into five regions
for strategic analysis: Central, Northwest, Northeast, Delta,
and Southwest.
? Economic Development Districts (EDDs)/Planning and
Development Districts (PDDs) are the traditional boundaries
used for economic development purposes. The state’s eight
EDD/PDD regions were designated when Congress passed
the Public Works and Economic Development Act of 1965.
? Bureau of Economic Analysis Economic Areas are defined
by the BEA. These are included primarily because they are
the unit of analysis utilized by Michael Porter and col-
leagues in their recent cluster mapping project (7 BEA
Economic Areas in Arkansas; 172 in the United States).
? Metropolitan Statistical Areas (MSAs) include the state’s
largest cities and surrounding areas (7 MSAs in Arkansas).
? State-level data remain important, particularly for develop-
ing state-level strategies. Primary and aggregated data are
both used at this level.
County-level data form the basic building blocks of the sys-
tem—there are abundant data available at this level that can
be analyzed by county or easily aggregated into larger geo-
graphic regions. This flexibility allows the benchmarks to
inform dynamic strategies that reflect local markets. It also
provides a framework for leveraging complementary efforts.
For example, a local analysis can be linked to the emerging
work of the Regional Entrepreneurship Catalyst project simply
by using the same unit of analysis—in this case, LMA 41 in
Southeast Arkansas.
The data are organized in a series of Excel workbooks that are
set up with filters for easy analysis. Much of the sub-state data
are also linked to GIS mapping software that provides a
powerful vehicle for both analysis and communications. Four
sample maps are attached for illustration. Three maps repre-
sent firm density by LMA, CZ, and SSR. A fourth map shows
1990–1998 population change by county. Even a quick look at
the large-scale population shifts here—most notably, the
growth in Northwest Arkansas and the Little Rock area, in
contrast to the decline in the Delta counties of Southeast
Arkansas—begins to tell a story that calls for further analysis.
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42
Endnotes
1
Hampton, Sybil. 1999. The Twenty-Five Year Journey. Little Rock, AR: Winthrop Rockefeller
Foundation.
2
Southern Growth Policies Board. 2001. Invented Here: Transforming the Southern Econ-
omy—The Southern Growth Policies Board 2001 Report of the Future of the South. Chapel Hill,
NC: Southern Growth Policies Board.
3
Kauffman Center for Entrepreneurial Leadership. 2001. Global Entrepreneurship Monitor
[On-line]. Available: www.entreworld.org
4
Rural Entrepreneurship Initiative(now Center for Rural Entrepreneurship). 2001. Entrepre-
neurs and Entrepreneurship. Monograph 2 [On-line]. Available: www.ruraleship.org
5
Economic Corporation of the Delta. 2002. Enterprise Development in the Delta. Internal docu-
ment summarizing work completed by Bain & Company for the Enterprise Corporation of the
Delta and the Emerging Markets Partnership.
6
See, for instance, Cortright, J oseph, with Brian Bosworth, Brian Dabson, Heike Mayer, Lee
Munich, and Mary J o Waits. 2002. 21
st
Century Economic Strategy: Prospering in a Knowledge-
based Economy. Unpublished Project Technical Memorandum: Westside Economic Study for
Westside Consortium for Economic Health, Oregon.
7
Stauber, Karl. 2001. Why Invest in Rural America—And How? A Critical Public Policy Ques-
tion for the 21
st
Century. In Center for the Study of Rural America, Exploring Policy Options for a
New Rural America. Kansas City, MO: Federal Reserve Bank of Kansas City.
8
See Dabson, Brian. 2001. Supporting Rural Entrepreneurship. In Center for the Study of Rural
America, Exploring Policy Options for a New Rural America. Kansas City, MO: Federal Reserve
Bank of Kansas City.
9
Corporation for Enterprise Development. 2001. Development Report Card for the States
[On-line]. Available: www.drc.cfed.org
10
Atkinson, Robert D. 2002. The 2002 State New Economy Index: Benchmarking Economic
Transformation in the States. Washington DC: Progressive Policy Institute. This Index uses 21
measures grouped into five categories—knowledge jobs, globalization, economic dynamism
and competition, transformation to a digital economy, and technological innovation capacity.
11
DeVol, Russ, with Rob Koepp and Frank Fogelbach. 2002. State Technology and Science Index:
Comparing and Contrasting California [On-line]. Available: www.milkeninstitute.org/. This
index comprises five major equally weighted composites: research & development inputs, risk
capital and entrepreneurial infrastructure, human capital investment, technology and science
workforce, and technology concentration and dynamism.
12
Corporation for Enterprise Development. 2001. op.cit.
13
The Kauffman Center for Entrepreneurial Leadership at the Ewing Marion Kauffman Founda-
tion commissioned the Gallup Organization, Inc., to conduct four major national surveys of
entrepreneurial aspirations between 1994 and 1997. For an analysis of the results see Walstead,
WilliamB., and Marilyn Kourilsky. 1999. Seeds of Success: Entrepreneurship and Youth.
Dubuque, IA: Kendall/Hunt.
43
E N T R E P R E N E U R I A L A R K A N S A S : C O N N E C T I N G T H E D O T S
14
The National Commission on Entrepreneurship, located in Washington, DC, was created by
the Ewing Marion Kauffman Foundation to promote public policy relating to the role of entre-
preneurship in the national economy. It acts a resource on policy and research to local, state,
and national leaders.
15
National Commission on Entrepreneurship. NCOE Update. No. 21, December 18, 2000.
16
It is appropriate to disclose that the author currently serves as the chair of the Board of
Directors of REAL Enterprises.
17
Lichtenstein, Gregg, and Thomas Lyons. 2001. The Entrepreneurial Development System:
Transforming Business Talent and Community Economics. In Economic Development Quarterly,
Volume 15, No. 1, February, pp 3-20.
18
Greenspan, Alan, Federal Reserve Chairman. Business Access to Capital and Credit Confer-
ence, Arlington, VA, March 9, 1999.
19
Mt. Auburn Associates. 1998. Capital and Credit Needs in the Appalachian Region. Prepared
for the Appalachian Regional Commission.
20
The characteristics of Arkansas’s banking sector can be summarized as follows:
?
As of December 2001, there were 187 banks located in Arkansas, with total assets of $31.6
billion.
?
There are some 100 locally owned independent banks with an average asset size of $209
million, which, with a few exceptions, tend to be traditional lenders with a focus on agricul-
tural lending and limited experience with small businesses.
?
There are 21 multi-bank holding companies headquartered in Arkansas and operating some
70 banks across the state with total assets of $8.2 billion. These may offer the best possibili-
ties for increased development lending. They have responded to competitive pressures by
emphasizing their community roots and continued reliance on relationship banking, yet are
large enough to absorb the risks and costs of developing small business lending programs.
?
There are six out-of-state bank holding companies. These are most likely to employ credit-
scoring techniques when assessing small business loans rather than rely on established
relationships and less likely to respond to community needs.
?
Data for 2000 show that 120 Arkansas banks reported over 72,000 small business loans (less
than $1 million) outstanding, totaling $4.2 billion. Banks with less than $500 million in assets
accounted for 80% of these loans; the smallest banks with less than $100 million in assets,
although amounting to one third of all banks, account for just 16% of small business loans
outstanding.
21
Appalachian Regional Commission. 2000. Capitalizing on Rural Communities: Emerging
Development Venture Capital Funds in Appalachia. Washington, DC: Appalachian Regional
Commission.
22
Smith, David. April 23, 2002. Big business passing state by: Incentives not sweet enough to
pull them in, study finds. Arkansas Democrat Gazette, pages 1A and 7A. Refers to study by
Fluor Global Location Strategies for the Arkansas Legislative Council.
23
Southern Growth Policies Board,Invented Here: Transforming the Southern Economy, p. 9.
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44
24
Regional Entrepreneurship Catalyst website: www.regionalcatalyst.org. The 394 regions
mentioned here are the labor market areas (LMAs) described later.
25
The Southeast Arkansas region (LMA 41) includes the following 12 counties: Ouachita,
Dallas, Calhoun, Union, Bradley, Cleveland, J efferson, Lincoln, Drew, Ashley, Desha, and
Chicot.
Winthrop Rockefeller
Foundation Entrepreneurship
Advisory Committee
This study benefited greatly from the expertise of a diverse group of individuals serving
in an advisory capacity. W hile the advisory com m ittee’s input helped guide the
research, the recom m endations contained herein are not necessarily those of individ-
ual com m ittee m em bers.
George Barber Westminster Village, Blytheville
Bill Brandon Southern Development Bancorporation, Arkadelphia
Ann Brown University of Arkansas Cooperative Extension, Marshall
Bill Bynum Enterprise Corporation of the Delta, Pine Bluff
Mark Diggs Ontology Works
Gene Eagle Arkansas Development Finance Authority, Little Rock
Andrew Honeycutt University of Arkansas at Pine Bluff, Pine Bluff
Leslie Lane Arkansas Science and Technology Authority, Little Rock
Bob Nash Shorebank Corporation, Chicago
J imPickens Arkansas Department of Economic Development, Little Rock
J imPledger Arkansas State Fair and Livestock Show, Little Rock
J ohn Squires Community Resource Group, Inc., Fayetteville
Gerry Thomas Tri-Link Technologies, Pine Bluff
SamWalls Arkansas Capital Corporation Group, Little Rock
The Corporation for Enterprise Development (CFED) fosters widely shared and sustainable economic well-being by promoting
asset-building and economic opportunity strategies — primarily in low-income and distressed communities — that bring
together community practice, public policy, and private markets in new and effective ways.
CFED supports the public, private, and nonprofit sectors through research and demonstration; field services; policy design,
analysis,and advocacy;and communications.Founded in 1979,CFED is headquartered in Washington,DC,and has offices in San
Francisco, CA and Durham, NC.
Corporation for Enterprise Development
777 North Capitol Street NE, Suite 800
Washington, DC 20002
TELEPHONE 202.408.9788 FACSIMILE 202.408.9793
CORPORATION FOR ENTERPRISE DEVELOPMENT
308 EAST EIGHTH STREET LITTLE ROCK, AR 72202
TELEPHONE 501.376.6854 FACSIMILE 501.374.4797
www.wrfoundation.org [email protected]
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