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GROWING SUCCESS
A Report on Entrepreneurship in Louisville
Prepared By
The Entrepreneurial Development Initiative Committee
of
The Louisville Area Chamber of Commerce
March 28, 1996
Table of Contents
Summary of Findings ........................................................................................................1
Summary of Recommendations........................................................................................2
Why is Entrepreneurship Important? .............................................................................3
Entrepreneurship in Louisville.........................................................................................5
Business Creation...........................................................................................................5
Cognetics' Entrepreneurial Hot Spots Rankings ............................................................5
Initial Public Offerings...................................................................................................7
Inc. 500 Companies........................................................................................................7
Venture Capital ..............................................................................................................7
Conclusion .....................................................................................................................8
Entrepreneurial Success Factors ......................................................................................9
Entrepreneurial Success Factors ....................................................................................9
How Does Louisville Measure Up?...............................................................................9
Conclusion ...................................................................................................................15
Entrepreneurial Economic Development.......................................................................16
Creating Entrepreneurship ...........................................................................................16
Is Entrepreneurial Economic Development Effective?................................................17
What Others Are Doing ...............................................................................................21
Conclusion ...................................................................................................................22
Recommendations ............................................................................................................23
Conclusion ........................................................................................................................25
Appendix A: Entrepreneurial Support Programs in Louisville.................................26
Endnotes ...........................................................................................................................29
Methodology.....................................................................................................................31
Acknowledgments ............................................................................................................32
1
Summary of Findings
Entrepreneurial companies are the source of nearly all of the net new jobs and most of the
new wealth created in the economy. Research by Cognetics, Inc. indicates that most new job
creation occurs in a small number of mostly young, small, rapidly growing companies. These
"Gazelle" companies–about 300,000 firms, or 3% of the total–accounted for all of the net job
growth in the U.S. between 1990 and 1994. In addition, entrepreneurial companies create much
of new wealth in the economy–wealth which helps fund civic projects and serves as the seed
capital for the next generation of growth companies.
Louisville trails its closest competitors significantly in the creation of high-growth
companies. When compared to nearby cities like Nashville and Indianapolis, Louisville has
fewer small companies per capita and fewer growth companies. For instance, since 1992
Louisville has produced just 3 new public companies, compared to 12 in Nashville and 11 in
Indianapolis. Similarly, Louisville has produced just 5 Inc. 500 high-growth companies since
1992, compared to 15 in both Nashville and Indianapolis. In a ranking of America's
entrepreneurial "hot spots" produced by David Birch of Cognetics, Inc., Indianapolis ranks 4th,
Nashville 12th, and Louisville 74th. Louisville has vastly less venture capital–an important
resource for growth companies–than either Nashville or Indianapolis.
Louisville has a number of characteristics that contribute to its relatively cool
entrepreneurial temperature. Louisville's deficit of significant growth companies is the result
of important weaknesses in each of the five key "entrepreneurial success factors" identified by
experts: Talent, Know-How, Capital, Technology, and Culture.
With regard to Talent, Louisville's population has not grown significantly in the past two
decades, while the populations of nearby cities such as Nashville have exploded. In the past 20
years, over 28,000 more young people have left Louisville–to seek education or job opportunities
elsewhere–than have moved into the city. Louisville trails its nearby competitors significantly in
the percentage of its population with either high school or college education.
As previously mentioned, Louisville has a much smaller pool of Capital than some of its nearby
competitors. With regard to Technology, Louisville has few institutional sources of innovative
new technology, and those that do exist trail competitors in other cities. While the community
does possess entrepreneurial Know-How, it does only a fair job of mining its base of knowledge.
Perhaps most significantly, our community's Culture is not particularly favorable to
entrepreneurship. Entrepreneurship is not accepted or encouraged in Louisville to the extent
that it is in some other cities, and our tax and regulatory environment does not encourage
entrepreneurship.
Entrepreneurship is a critical part of a sound economic development strategy. Since growth
companies create most of the jobs and much of the new wealth in the economy, communities that
wish to create jobs and wealth must have a healthy supply of home-grown entrepreneurial
companies. Contrary to conventional wisdom, which holds that entrepreneurship cannot be
taught, that most entrepreneurial companies fail, and that entrepreneurial companies create only
undesirable jobs, entrepreneurship can be a successful economic development strategy.
2
Communities can foster more entrepreneurship by fashioning a culture that supports and
encourages entrepreneurs and by offering programs like training, mentoring, and networking that
help deliver entrepreneurial know-how to new ventures.
Louisville has a few programs that offer support to entrepreneurial companies, but these
programs are fragmented, underfunded, and underpublicized. The community has begun taking
new steps to encourage entrepreneurship, but much work remains to be done.
3
Summary of Recommendations
If it is to be competitive, Louisville must adopt a strategy of supporting and encouraging
the creation of more growth companies. Louisville should make a commitment to
entrepreneurship as an economic development strategy. This commitment would include the
creation of an Enterprise Corporation of Louisville, which would become the focal point for the
community's entrepreneurial development effort.
The mission of the Enterprise Corporation would be to
• Create a new "Culture of Entrepreneurship" in Louisville
• Dramatically increase the number and quality of entrepreneurial companies in Louisville
with the result that Louisville becomes a more prosperous, dynamic, and resilient community.
The Enterprise Corporation could consolidate and coordinate existing entrepreneurial support
programs, and would launch significant new support programs. It would be a virtual incubator,
offering the support services commonly associated with incubators without the real estate. The
Enterprise Corporation would champion the cause of entrepreneurship in Louisville by producing
an annual "Celebration of Entrepreneurship" event, publishing an annual report on entrepre-
neurship in Louisville, and publicizing and promoting the Corporation's entrepreneurial support
programs. Across time, the Enterprise Corporation would also help lead the effort to overcome
Louisville's structural weaknesses in capital, technology, and talent.
The Enterprise Corporation would have equal status with other leading economic development
agencies, including the Chamber, the Partnership, and OED. It would be funded through
program revenues and fees, and through grants from the State, City, and County, local
businesses, and local and out-of-town foundations. It would have a board of leading supporters
of entrepreneurship, and a CEO with entrepreneurial experience.
4
Why is Entrepreneurship Important?
Why is entrepreneurship important? Why should
a community like Louisville be concerned about
the quantity and quality of its small, growing
companies? What difference does a thriving
entrepreneurial sector–or lack thereof–make to
the long-term prosperity of a community?
Entrepreneurial companies create nearly all
of the net new jobs in the economy. It is a
truism that small companies create most of the
new jobs in the economy. But a careful look at
the actual job-creation data shows the great
extent to which job creation actually is concen-
trated in a very few rapidly growing companies.
Research into job creation confirms that most of
the net new jobs in the economy are created by
small companies. The leading research into job
creation and entrepreneurship comes from
Cognetics, Inc., a consulting firm founded by
David Birch, formerly an MIT professor and one
of the deans of entrepreneurial research. In the
1994 report Who's Creating Jobs, Cognetics
explains that, if one divides all companies into
two equal groups by number of employees,
companies in the "bottom half" (roughly, those
employing 100 or fewer people) created 65% of
the gross new jobs between 1990 and 1994, and
about 195% of the net new jobs.
1
In other words,
small companies created enough jobs to com-
pensate for all the jobs lost in larger firms, and
then added millions more.
Birch points out that the period 1990 to 1991 was
a time of recession, and that small companies'
contribution to job creation in recession is higher
than in times of growth. Still, he concludes that,
across time, about two-thirds of the net new jobs
will be created by small companies.
It is not small companies per se but growing
companies--most of which are small--that create
jobs. When seeking the source of new jobs, it is
more useful to focus on the growth rate of
companies than on their size. While it is true that
most of the net new jobs are created by small
companies, not all small companies grow; in fact,
most do not. For instance, Cognetics reports that
54.8% of the firms which were started in 1965
(and which remained in business in 1994) had
fewer than 5 employees in 1994. Less than 5% of
those firms had more than 50 employees.
2
According to Cognetics, most new job growth
occurs in a small number of rapidly growing
companies, which it calls Gazelles. It is this
group of companies–about 300,000 firms, or 3%
of the companies in the U.S.–that accounted for
all of the net job growth between 1990 and 1994.
Most of these companies are small–over 80%
have fewer than 20 employees–but they have an
impact that far exceeds their size.
3
While most Gazelles are small, the few that are
large are very important. Cognetics found that a
very small group of larger Gazelle companies–
Gazelles that had over 100 employees in 1990–
produced 53% of the net jobs produced by all
Gazelle companies in the period 1990 to 1994.
This group of companies, which Cognetics calls
Superstars, make up just 3.6% of the Gazelles–
only .1% of all companies or about 11,000
companies nationwide–yet were responsible for
creating about half the new jobs between 1990 to
1994.
4
This despite the fact that larger com-
panies as a group create few net new jobs.
In short, it is growth companies–most of which
are small, but a few of which are large–that are
the crucial engines of economic growth. While
these companies represent just a tiny percentage
of the total number of companies, they create
nearly all the net new jobs in the economy.
Entrepreneurial companies create much of the
new wealth in the economy. As entrepre-
neurial companies grow and create jobs, they are
also creating wealth. While this wealth is the
private property of the owners of the business, in
another sense it is a real community asset.
For instance, think of the philanthropic work
done by organizations such as the Ford Foun-
dation and the Rockefeller Foundation, or the
personal philanthropy of Andrew Carnegie–all
the result of entrepreneurial success. On the
recent Urban Workshop to Kansas City, a
delegation of Louisvillians saw evidence of the
wealth created by home-grown companies
including The Crown Center (created by Hall-
mark) and the Ewing Marion Kauffman Foun-
dation (Marion Labs). In Louisville the wealth
created by our most successful entrepreneurs has
helped fund The Kentucky Center for the Arts,
The Riverfront Development, the Grawmeyer
Awards, and many other projects. Entrepre-
5
neurial wealth is also responsible for the Brown
Foundation, the Humana Foundation, and many
other local foundations.
The total wealth generated by entrepreneurial
businesses in a community is hard to measure,
since much of it remains hidden inside closely-
held businesses for generations. However, when
companies are sold or taken public it is possible
to get a glimpse of the wealth created. For
instance, in the 1990s several local entrepre-
neurial companies, all started in the 1980s–
including Healthcare Recoveries, CompDent,
The Cobb Group, Home Care Affiliates, and
Financial Alliance–were sold for an aggregate
price of over $200 million dollars. Much of this
wealth remains in the community, and some of it
is being reinvested in new growth companies.
Similarly, four companies have gone public in
Louisville since 1990: VideoLan, Papa John's
Pizza, Commonwealth Aluminum, and Res-Care.
These companies have an aggregate market value
of about $750 million. While much of this
wealth is held by investors outside of Louisville,
much of it remains in the hands of the com-
panies' investors, founders, and employees in
Louisville. When combined with value gen-
erated by earlier IPO companies such as Vencor
and Humana, this locally-held entrepreneurial
wealth is a vital community asset.
Entrepreneurship leads to more entrepre-
neurship, resulting in a thriving, resilient
economy. Research into the process of
entrepreneurship indicates that places with lots of
entrepreneurial companies are on the way to
having even more entrepreneurship. This is true
for several reasons.
Successful entrepreneurs serve as role models
for future entrepreneurs. The existence of
visibly successful entrepreneurs in a place can be
a powerful encouragement to potential entre-
preneurs. Aspiring entrepreneurs gain assurance
that "It can be done" by observing the successes
of earlier entrepreneurs, and the assurance that "I
can do it" as they hear stories of early-stage
struggles and mistakes of successful entre-
preneurs. Even more important is the role that
experienced entrepreneurs can play as mentors or
advisors for emerging entrepreneurs. According
to Jeffry Timmons, founder and director of the
Price-Babson College Fellows Program and
professor of entrepreneurship at the Harvard
Business School and Babson College
Numerous studies show a strong connection
between the presence of role models and the
emergence of entrepreneurs.
5
Successful entrepreneurs are an important
source of risk capital for new entrepreneurial
ventures. Research by William Wentzel, director
emeritus of the Center for Venture Research,
indicates that so-called "angel" investors–private,
wealthy individuals who provide funding for
entrepreneurial companies–invest up to $10
billion annually in up to 40,000 companies
nationwide.
6
The size of the angel market is
several times that of the professional venture
capital market, which in 1994 invested some $2.6
billion in about 1000 companies, and far less
than $1 billion in early stage companies.
7
And
the most important source of angels are
entrepreneurial companies: about three-quarters
of angels are self-made millionaires, many of
whom are entrepreneurs.
8
Entrepreneurial companies are an important
training ground for future entrepreneurs. Many
potential entrepreneurs apprentice in entre-
preneurial companies before embarking on their
own ventures. Jeffry Timmons writes
Most entrepreneurs follow a pattern of
apprenticeship, where they gain business
experience and knowledge from their jobs or
from parents who are self-employed.
9
One real-world example of this sort of
entrepreneurial training ground is Hospital
Corporation of America (now part of
Columbia/HCA) of Nashville. Some 65
companies have been founded by former
employees of that company, including Phycor, a
leading physician management company, and
Surgical Care Affiliates, the nation's largest
independent surgery center chain.
10
Entrepreneurial companies are crucial to a
prosperous economy. If it is true that
entrepreneurial companies create most of the
jobs and much of the new wealth in the economy,
then communities that wish to create jobs and
wealth should promote and support the
development of home-grown entrepreneurial
companies. According to Dr. Norris F. Krueger
of the firm Entrepreneurial Strategies,
A community that wishes to be competitive
in the future must grow its own new com-
panies, particularly highly-competitive, fast-
growing "gazelle" firms. If the community
6
wishes to stay competitive, it must become
increasingly hospitable to entrepreneurs.
11
If the production of home-grown companies is
the key to future competitiveness, the next
question to ask is how Louisville is doing in the
creation of these companies. We'll consider that
issue in the next section.
7
Entrepreneurship in Louisville
If entrepreneurship is, in fact, important to our
community's long-term vitality and prosperity,
then we must consider how well Louisville is
doing in creating growth companies.
Measuring the entrepreneurial vitality of a
community is not simple: There is no one
statistic or fact that captures all of the important
aspects of entrepreneurial vitality. In fact, there
is no one definition of entrepreneurship on which
all researchers agree.
There are, however, a number of useful metrics
that, when taken together, give a good picture of
the entrepreneurial health of a community. First,
the U.S. Census Bureau publishes information
about the number and sizes of companies by
metro area. A more refined look at growth
companies (as opposed to simple business starts)
is the Entrepreneurial Hot Spots ranking
produced by Cognetics, Inc. Other useful
measures of entrepreneurship include the number
of initial public offerings of companies
headquartered in the community, the number of
Inc. 500 companies, and the amount of venture
capital available and deployed in a community.
Business Creation
As shown in Table 1, in the period from 1988 to
1992 Louisville added 1,744 new small
companies (companies with fewer than 100
employees), an 8.0% increase. Although
Louisville trails most of its competitors in
absolute number of businesses created (1,744 for
Louisville compared to 1,810 for Nashville and
3,288 for Indianapolis), its comparative growth
rate is positive.
Table 1
Businesses with Fewer Than 100 Employees,
Selected MSAs
City 1988 1992 Growth Percent
Indianapolis 32,422 35,710 3,288 10.1%
Louisville 21,744 23,488 1,744 8.0%
Charlotte 30,275 32,514 2,239 7.4%
Cincinnati 39,342 42,105 2,763 7.0%
Nashville 25,360 27,170 1,810 7.1%
Kansas City 39,633 41,545 1,912 4.8%
Source: Business First of Louisville, July 10, 1994
Table 2 shows the number of small businesses
(companies with fewer than 100 employees) in
1992 per 100,000 population for several cities.
This data shows that, while Louisville is creating
new companies, it is behind its near competitors
in number of small businesses per capita and
appears to be falling further behind. For
instance, Louisville would have to add about
2,152 small companies in order to have the same
number per capita as Nashville. Given the
current rates of increase, however, the gap
between them is increasing, not decreasing. The
same is true for Louisville and Indianapolis.
Table 2
Small Businesses per 100,000 Residents, 1992
City Number Rank
Charlotte 2,686 11
Nashville 2,655 14
Kansas City 2,574 22
Indianapolis 2,508 30
Louisville 2,432 39
Cincinnati 2,261 60
Source: Business First of Louisville, July 10, 1994
So while Louisville is generating a fair number of
new small companies, it is not creating as many
as some of its near competitors. Further, as we'll
see in the following sections, there is a question
as to whether Louisville is generating enough of
the right kind of small companies: small
companies with growth potential.
Cognetics' Entrepreneurial Hot Spots
Ranking
Cognetics' Entrepreneurial Hot Spots ranking
combines two measurements of entrepreneurial
vitality: the number of "Significant Starts" and
the percentage of "Young Growers" in an area.
To rank high on the list, a place must have a
large number of significant startups and be able
to support their continuing growth.
12
Table 3 shows Cognetics' Entrepreneurial Hot
Spots list for the 100 highest ranking metro
areas. Louisville ranks 74th overall with an
index of 46, placing it ahead of such cities as
Cincinnati, Memphis, Dayton, Richmond, and
Kansas City. Notice, however, that Indianapolis
is tied for 4th with an index of 75 (more than
50% higher than Louisville's), that Nashville is
8
12th with an index of 65, and that Birmingham is
16th with an index of 62. Notice that Louisville
also trails a number of smaller nearby
competitors such as Huntsville (90), Knoxville
(61), Lexington (56), and Chattanooga (56).
Because this list is compiled by MSA or CMSA,
entrepreneurially hot smaller cities within larger
metro areas are obscured. When these smaller
cities are broken out, some of them rank quite
high. For instance, Sunnyvale, California (San
Francisco) has an index of 86 and Irvine,
California (Los Angeles) has an index of 64.
Table 3
Cognetics Entrepreneurial Hot Spots Ranking of Metro Areas, 1994
Rank Metro Area Index
1. Huntsville, AL 90
2. Las Vegas, NV 79
3. Atlanta, GA 76
4. Charlotte, NC 75
Indianapolis, IN 75
6. Green Bay-Appleton, WI 70
7. Salt Lake City-Provo, UT 69
8. Charleston, SC 68
9. Honolulu, HI 67
Hickory, NC 67
11. Raleigh-Durham, NC 66
12. Nashville, TN 65
13. Jacksonville, FL 64
Baton Rouge, LA 64
15. Montgomery, AL 63
16. Birmingham-Tuscaloosa, AL 62
17. Knoxville, TN 61
18. Milwaukee-Racine-Sheybogen, WI 60
Melbourne-Titusville, FL 60
20. Springfield, MO 59
Lafayette, LA 59
Albuquerque, NM 59
23. Miami-Ft. Lauderdale, FL 58
Denver-Boulder, CO 58
Boise, ID 58
South Bend-Benton Harbor, IN-MI 58
Pensacola, FL 58
Mobile, AL 58
29. Lynchburg, VA 57
Asheville, NC 57
31. Washington, DC-MD-VA 56
Greenville-Spartanburg, SC 56
Savannah, GA 56
Lexington, KY 56
Chattanooga, TN-GA 56
Burlington-Montpelier, VT 56
37. Wilmington, NC 55
Madison, WI 55
Fort Wayne, IN 55
40. Spokane, WA 54
Tallahassee, FL 54
Tulsa, OK 54
Sioux Falls, SD 54
Columbia, SC 54
45. West Palm Beach, FL 53
Columbus, GA 53
47. Phoenix, AZ 52
Terre Haute-Bloomington, IN 52
Austin, TX 52
Des Moines, IA 52
Source: Entrepreneurial Hot Spots, Cognetics, Inc.
9
Rank Metro Area Index
51. Orlando, FL 51
Macon, GA 51
El Paso, TX 51
Reading, PA 51
Anchorage, AK 51
Tucson, AZ 51
57. Jackson, MS 50
Fayetteville, NC 50
59. Greensboro-Winston-Salem, NC 49
Seattle, WA 49
Portland-Vancouver, OR 49
Ft. Smith, AR 49
Fargo, ND 49
Evansville, IN 49
65. Houston-Galveston, TX 48
San Antonio, TX 48
Minneapolis-St. Paul, MN-WI 48
Reno, NV 48
Augusta, GA 48
70. Columbus, OH 47
Ft. Meyers, FL 47
Toledo, OH 47
Fort Pierce, FL 47
74. Louisville, KY-IN 46
Manchester-Nashua, NH 46
Topeka-Lawrence, KS 46
77. Cincinnati, OH-KY-IN 45
Fort Collins, FL 45
Sarasota-Bradenton, FL 45
80. San Diego, CA 44
Grand Rapids-Muskegon, MI 44
Salinas-Seaside-Monterey, CA 44
Battle Creek-Kalamazoo, MI 44
Wichita, KS 44
Andersen-Muncie, IN 44
Panama City-Fort Walton Beach, FL 44
87. San Francisco, CA 43
Omaha, NE 43
Springfield-Decatur, IL 43
Eugene, OR 43
Cedar Rapids-Iowa City, IA 43
92. Los Angeles, CA 42
Memphis, TN-AR-MS 42
Dallas-Ft. Worth, TX 42
Lancaster, PA 42
Williamsport-State College, PA 42
97. Norfolk-Va Beach-Newport News, VA 41
Bloomington-Champaign, IL 41
Santa Barbara, CA 41
Little Rock, AR 41
10
Initial Public Offerings
Only a select few growth companies reach the
stage of an initial public offering. Most growth
companies never get large enough for an IPO,
and others that do attain the required size choose
to remain private or sell to other companies.
Nonetheless, publicly-traded growth companies–
the kind of companies most commonly listed on
the NASDAQ Stock Market–are powerful
engines of economic growth. The number of
IPOs of companies headquartered in a com-
munity across time is a good measurement of that
community's success in creating and nurturing
these most successful entrepreneurial companies.
As shown in Table 4, between January 1, 1993
and December 31, 1995, only three companies
headquartered in Louisville (Papa John's Pizza,
VideoLan Technologies, and Commonwealth
Aluminum) went public, raising $156 million.
This compares to 11 Indianapolis-based
companies, which raised $473 million, and 12 in
Nashville, raising $422 million.
13
The results by state were similar. A total of just
six Kentucky companies went public in the
period 1993 to 1995, compared to 31 Indiana-
based companies and 54 Tennessee companies.
Louisville is clearly lagging these competitive
cities in the creation of NASDAQ-type
companies.
Table 4
Initial Public Offerings, 1993 to 1995
City IPOs
Nashville 12
Indianapolis 11
Cincinnati 4
Kansas City 3
Charlotte 3
Louisville 3
Source: NASDAQ
Inc. 500 Companies
Each year since 1982 Inc. Magazine (the leading
magazine covering small business and growth
companies) has compiled and published its list of
the 500 fastest growing private companies in the
United States. This list is an annual "honor
role" of growth companies and, while there are
many successful growth companies that never
make the list, the number of Inc. 500 companies
created in a community across time is a good
indicator of that community's entrepreneurial
vitality.
As shown in Table 5, in 1995 Louisville had one
Inc. 500 company (Healthcare Recoveries, Inc.)
compared to three in Indianapolis and four in
Nashville. From 1993 to 1995, Indianapolis and
Nashville each produced 15 Inc. 500 companies,
while Louisville produced just five. In the three
previous years, Louisville produced 11 Inc. 500
companies, Indianapolis 15, and Nashville eight.
Table 5
Inc. 500 Companies, 1993 to 1995
City 1995 1994 1993 Total
Kansas City 9 6 2 17
Indianapolis 3 2 10 15
Nashville 4 5 6 15
Cincinnati 4 4 5 13
Charlotte 3 0 2 5
Louisville 1 2 2 5
Source: Inc. Magazine
When measured statewide, the results are similar.
From 1982 to 1995, Kentucky produced 36 Inc.
500 companies, compared to 91 in Indiana, 69 in
Tennessee, 185 in Ohio, and 41 in Alabama.
Even when normalized to account for differences
in population between the states, Kentucky trails
these neighboring states.
14
Venture Capital
The venture capital industry plays a catalytic role
in the entrepreneurial process. Venture
capitalists mobilize and allocate scarce capital to
new and early-stage businesses with significant
potential, and work with entrepreneurs to guide
those companies to success. The impact of
venture capital on the U.S. economy has been
tremendous. A survey by Venture Economics,
Inc. and Coopers & Lybrand of 235 venture-
backed companies revealed that between 1985
and 1989 these companies, while on average just
1.9 years old, had created 36,000 new jobs and
had made $170 million in tax payments.
15
The existence of locally-based venture capital is
an important ingredient in the entrepreneurial
vitality of a place. In their book Venture Capital
at the Crossroads, William D. Bygrave and
Jeffry A. Timmons write that
It is unlikely that a country or area can be
competitive in commercial exploitation of
innovative processes, products, or services
without a strong local venture capital
community.
16
11
Why is this true? First, because the existence of
local venture capital makes it easier for entre-
preneurs to seek funding for their innovative
businesses. Similarly, since venture capitalists
prefer to invest close to home (because nearby
companies are easier to research, and once
funded, supervise), local companies have some
advantage in the acquisition of venture capital.
Local venture capital also sends an important
cultural signal to potential entrepreneurs that
"entrepreneurship is important here." Finally,
local venture capital firms are conduits for the
flow of venture capital from out-of-town
investors into a community through locally-led
investment syndicates.
Table 6 shows that Nashville is the home to five
private venture capital firms with total capital of
approximately $375 million, and that Indiana-
polis has five firms with total capital of over
$160 million. By contrast, Louisville has only
one venture capital firm, Chrysalis Ventures,
which has $9 million in available capital.
Table 6
Private Venture Capital Resources, 1994
City Firms Capital
Nashville 6 $374 million
Indianapolis 5 $160 million
Cincinnati 2 $77 million
Kansas City 2 (a) $25 million
Louisville 1 $9 million
(a) Kansas City also has local offices of two out-of-
town venture capital firms. The two firms have a total
of $129 million in capital.
Source: Pratt's Guide to Venture Capital Sources,
1995 Edition
Louisville is the home to several private equity
investment firms (including Mayfair Capital,
Pattco, and R. Gene Smith, Inc.) which are
making venture capital-like investments in local
companies. These firms are different from
classic venture capital firms in that they have not
raised pools of capital from limited partners, but
instead invest the private capital of their
principals. While these firms are an important
source of capital for entrepreneurial businesses in
Louisville, they are not unique–most cities also
have a collection of private equity firms like
those in Louisville. For instance, Indianapolis
has at least four firms of this sort with total
capital of about $55 million.
17
Likewise, Pratt's
Guide to Venture Capital Sources lists two firms
of this sort in Kansas City.
Louisville is also home to the $8 million African-
American Venture Capital Fund, which was
created in 1994 by a group of concerned
Louisvillians lead by Irv Bailey (Providian
Corporation) and David Jones (Humana, Inc.) to
provide risk capital to Louisville-area ventures
headed by African-Americans. This fund is
unique: No other comparable city has raised
anything like $8 million for an African-American
or minority venture capital fund. The fund has
made three investments and is continuing to
consider new ideas and opportunities. However,
the AAVCF is a special interest fund that is not
accessible to most of the businesses in the
community.
Finally, Louisville is also the home of the
Humana Venture Capital Fund, a venture capital
subsidiary of Humana, Inc. According to Pratt's
Guide to Venture Capital Resources, this fund
invests only in businesses in the managed health
care industry.
Conclusion
Judging by the factors we have considered here–
number of small companies, number of growth
companies, number of Inc. 500 companies,
number of IPOs, and the amount of venture
capital available–Louisville is not a leader in the
creation of growth companies. Louisville is
creating more growth companies than some
cities, but it is creating far fewer than the nation's
hottest metro areas, including Louisville's nearest
competitors–Nashville and Indianapolis–which it
trails significantly.
If it is true that entrepreneurial companies are
important engines of economic development,
Louisville's lack of a strong entrepreneurial
sector is not good news. In the next section, we
will consider why.
12
Entrepreneurial Success Factors
Why are some places more entrepreneurial than
others? What is it about one city that makes it
the home of many high growth companies while
another languishes with just a few? And how is
Louisville doing when it comes to the key factors
that lead to entrepreneurial success?
Entrepreneurial Success Factors
What are the key factors that lead to
entrepreneurial success? Various researchers
have considered this question, and while their
conclusions differ somewhat, there is some
consensus that five key factors influence the
ability of a place to be an entrepreneurial "hot
spot." These key factors are Talent, Know-How,
Capital, Technology, and Culture.
18
Figure 1
Entrepreneurial Success Factors
Entrepreneurial
Environment
Culture
Talent
Technology
Capital Know-How
Talent is the people involved in the entre-
preneurial process, including entrepreneurs,
value-added investors, and the professional
community. For a place to be an entrepreneurial
hot spot, it must have both a supply of potential
entrepreneurs–people with the personal
characteristics (determination, self-motivation,
work ethic, and others) that favor entrepreneurial
success–as well as investors, accountants,
attorneys, bankers, and others who understand
the entrepreneurial process. Talent also includes
the quality and quantity of a place's work force–
the workers and managers required to staff
growing companies.
Know-How is the experience and skill required
to turn an idea and capital into a successful
business. Entrepreneurial know-how is a
community resource that resides in a place's
professional firms (accountants, lawyers,
bankers, executive recruiters, and others with
experience advising and working with
entrepreneurs); in business schools; in support
agencies (such as Chambers of Commerce and
Small Business Development Centers); and, most
importantly, in the community's pool of
experienced entrepreneurs.
Capital is financial resources–the lifeblood of
new and growing businesses. This includes
everything from R&D and seed funds to start-up
and later-stage venture capital to equipment
leasing and bank debt. Because capital is so
important to rapidly growing companies, the
ready availability of entrepreneurial capital in a
place is a critical ingredient of entrepreneurial
vitality.
Technology is the basic raw material of the
entrepreneurial venture–ideas for new or
improved products or services with real potential
to become successful businesses. Technology is
the intellectual capital needed to develop new
products, services, and markets. Institutional
sources of technology include universities,
private and public research institutions and labs,
and large corporations. Places with a large
number of high quality "technology engines"
have a good chance of producing a steady stream
of high-potential ideas.
Culture is the attitude and atmosphere of a place.
It includes such things as the social acceptability
of entrepreneurship (including recognition of
success and acceptance of failure), the presence
of entrepreneurial successes to serve as role
models, and the active involvement of
community leaders in the support of entrepre-
neurship. Culture also includes the absence of
entrepreneurial stumbling blocks like high taxes
and heavy government regulation. Finally,
culture includes the support system a community
creates for growth companies.
How Does Louisville Measure Up?
If it is true that the five factors explained above–
Talent, Know-How, Capital, Technology, and
Culture–are the forces that determine the
entrepreneurial vitality of a place, then the next
important question to ask is how Louisville
performs on these factors.
Talent
13
Every place has entrepreneurial talent, and
Louisville is no exception. The amount of
entrepreneurial talent in a place is not easy to
measure, because entrepreneurs do not fit neatly
into any one mold. Given the right circum-
stances, it is possible for almost anyone to
become an entrepreneur. And the history of
entrepreneurship in Louisville shows that people
with a wide range of backgrounds, skills, and
abilities have become successful entrepreneurs in
our city.
There are a few common characteristics of
entrepreneurs that can be measured to determine
the size and quality of the entrepreneurial talent
pool in a place. One interesting fact about
entrepreneurs is that they tend to start their
companies in the cities where they already live.
Research by Dr. Paul Reynolds of Marquette
University's College of Business Administration
shows that 90% of new entrepreneurs had lived
in a state for six years before they incorporated a
business there.
19
In other words, the pool of
potential entrepreneurs in a place is a subset of
the existing population. Further, if the overall
population is growing, the pool of entrepreneurs
is probably growing; if it's shrinking, the pool of
entrepreneurs is shrinking.
Moreover, research has found that entrepreneurs
tend to start businesses between the ages of 25
and 40 (Louisville entrepreneurs who fit this
mold include David Jones, Bruce Lunsford, and
John Schnatter), have on average about thirteen
years of education, and have previous work
experience, most recently in a small company.
20
In other words, places with growing populations
(especially growing populations of 25 to 40 year
olds), reasonably well-educated people, and a
healthy community of small companies where
future entrepreneurs can apprentice are likely to
have a good supply entrepreneurial talent.
Population First, as shown in Table 7,
Louisville's population is not growing as fast as
that of many surrounding cities, meaning that
we're not adding as much new talent to our
community as are our competitors.
Table 8 shows another aspect of the Talent
problem in Louisville: Many of our young
people leave our community to pursue
educational and employment opportunities
elsewhere and do not return. Table 8 shows a
comparison between the number of children aged
0 to 9 in Louisville in 1970, the number of
children aged 10 to 19 in 1980, and the number
of young adults aged 20 to 29 in 1990.
21
Table 7
Change in Population, Selected MSAs, 1980 to
1994 (000s omitted)
City 1980 1994 Growth
Charlotte 971 1,260 29.8%
Nashville 851 1,070 25.7%
Indianapolis 1,306 1,462 11.9%
Cincinnati 1,726 1,894 9.7%
Kansas City 1,566 1,646 5.1%
Louisville 954 981 2.8%
Source: US Bureau of the Census, State and County
Population Estimates and Components of Change
1990-1994
Table 8
Migration of Louisville's Youth
1970 1980 1990
Age 0-9 10-19 20-29
Population 171,791 163,944 143,107
Change -7,847 -28,684
Source: US Bureau of the Census, 1990 Census of
Population and Housing
Clearly, we're losing a steady stream of young
people, and we're not recruiting enough new
residents to make up the difference. Anecdotal
evidence indicates that many of those who are
leaving are exactly the people we need to keep if
we are to be an entrepreneurial "hot spot."
Further, the lack of significant immigration of
young people from other communities into
Louisville means that we're lacking an important
source of new ideas and new perspectives.
Education Louisville lags in educational
attainment. As shown in Table 9 on the next
page, we trail our competitors only slightly in the
percentage of our residents who have completed
high school. On the other hand, only 17.2% of
our citizens have completed college, compared to
21.4% in Nashville, 20.2% in Indianapolis, and
20.3% for the nation as a whole.
A college degree is not a requirement for an
entrepreneur. Still, the relatively low education
level of our workforce means that we have fewer
people with the education usually associated with
successful high-growth entrepreneurs. It also
means that we have a smaller pool of skilled,
14
educated workers to staff the entrepreneurial
ventures we do create.
Table 9
Percent of Residents Who Have Completed
High School and College, 1990
High
City College School
Kansas City 23.2% 82.3%
Nashville 21.4% 74.0%
Indianapolis 20.2% 78.1%
Cincinnati 19.9% 74.4%
Charlotte 19.6% 72.5%
Louisville 17.2% 73.3%
U.S. Average 20.3% 75.2%
Source: US Bureau of the Census, 1990 Census of
Population and Housing, Supplementary Reports,
Metropolitan Areas as Defined by the Office of Budget
and Management, June 30, 1993
Conclusion None of this is to say that Louisville
does not have entrepreneurial talent, or that the
talent we have is inferior to that in other
communities. Clearly neither is true. But it is
also true that our pool of talent is growing more
slowly than that of other communities, that we
are not retaining enough of our young talent, and
that our talent pool, on average, lacks the
education that is important to entrepreneurial
success. These are serious weaknesses.
Know-How
Just as Louisville has a supply of entrepreneurial
talent, it also has a body of entrepreneurial know-
how. As in most cities, our "body of
knowledge" is diverse and fragmented.
Educational Institutions Our educational
institutions are a source of entrepreneurial know-
how. The University of Louisville's College of
Business and Public Administration has two
professors of entrepreneurship and offers several
courses in entrepreneurship, including New
Venture Creation and Entrepreneurship I and II.
Bellarmine College's W. Fielding Rubel School
of Business offers courses in entrepreneurship,
including Small Business Problems and New
Business Ventures. The Small Business Institute
at Indiana University Southeast offers courses
such as Small Business Management/
Entrepreneurship, Venture Growth Management,
and a Small Business Practicum. The Jefferson
Community College Entrepreneurial Institute,
located at the college's Southwest Campus, offers
classes for small business owners.
Professional Community The professional
community is also an important repository of
15
know-how. Accounting and law firms–including
both local firms and local offices of national
firms–have significant experience working with
entrepreneurial companies. Louisville is weaker
in finance–venture capital, banking, and
corporate finance–and recruiting, but nonetheless
has some skills in these areas. While it's difficult
to compare one city to another in this regard, it is
likely that Louisville has, or could quickly
develop, sufficient professional expertise to
support a growing entrepreneurial community.
Entrepreneurs Like all cities Louisville has a
group of experienced entrepreneurs who serve as
role models and (in some cases) mentors to new
entrepreneurs. Still, our collection of
entrepreneurial successes is smaller than those in
surrounding communities.
Further, fewer of Kentucky's citizens are
employed in our fastest growing companies than
in nearly any neighboring states. Table 10 shows
the number of employees of Inc. 500 companies
per 100,000 employees, by state, in 1994.
Kentucky trails all surrounding states (except for
West Virginia), and trails all states in the
Southeast (except for Alabama and Mississippi),
in this measure. In other words, fewer of
Kentucky's citizens are gaining entrepreneurial
know-how by apprenticing in successful
entrepreneurial companies.
Table 10
Number of Inc. 500 Employees per 100,000
Employees for Selected States
State Number
Virginia 77.4
Georgia 69.2
South Carolina 60.2
Tennessee 55.0
Florida 45.6
Missouri 40.2
Ohio 29.3
North Carolina 27.7
Illinois 27.0
Indiana 17.1
Kentucky 13.4
Alabama 11.8
Mississippi 2.7
West Virginia 0.0
Source: Inc., The Inc. 500 1995, p. 38
Economic Development Agencies Louisville
also has a group of not-for-profit supporters of
small business and entrepreneurship, including
the Chamber's Center for Small Business, Small
Business Development Centers at both
Bellarmine and U of L, the Small Business
Institute at Indiana University Southeast, and
others. Appendix A details Louisville's existing
entrepreneurial support programs.
Conclusion Our current efforts to support
entrepreneurship through increasing
entrepreneurial Know-How are fragmented,
underfunded, and not well coordinated. As a
result, they are not reaching as many
entrepreneurs as they might. Further, these
existing programs have not yet been effective in
molding our culture. While they provide a base
for future efforts in entrepreneurial economic
development, there is much more that we can do.
We'll consider some of our options in the next
section of this report.
Capital
Although Louisville does have a variety of
sources of capital for entrepreneurial firms, it
trails its direct competitors on the availability of
Capital for growth companies.
Equity Capital In the previous section we noted
that Louisville has only one private venture
capital firm, Chrysalis Ventures, which has $9
million in committed capital. The Louisville
Chamber's catalog Financing Options for Small
and Growing Companies lists 12 sources of
equity capital for local companies, including
local private equity firms (including Mayfair
Capital, and Pattco), the previously-mentioned
African American Venture Capital Fund, and
venture capital firms from other cities (including
CID Equity Partners from Indianapolis). Several
of these sources indicate a willingness to make
subordinated debt investments as well as equity.
Louisville also has a new angel network, the
Venture Capital Club of Louisville. Organized in
late 1995 by several Louisville area investors, led
by Robert Ogden, Henry Hensley, and Peter
Barrick, the Club, which has about 150 members,
has been meeting monthly since October 1995
and has reviewed three investment opportunities
at each meeting.
(In the late 1980s, another angel network, the
Louisville Chamber's Louisville Venture Forum,
existed in the community. This network helped
fund such notable Louisville-area ventures as
Active Ankle and Kentucky Kingdom.)
16
In addition, The Louisville/ Jefferson County
Office for Economic Development offers another
program, InvestNet, which attempts to link
entrepreneurs who need capital with a network of
venture and angel investors.
When we asked local entrepreneurs to rate out
community's sources of equity capital, several
said that, to their knowledge, there was no formal
venture capital in the community. One said that
comparing Louisville to Nashville with regard to
the availability of capital was a "night and day
picture." Another said that venture capitalist
from out of town were "conservative about this
area" because of our lack of high-technology and
the difficulty of travel to Louisville. One
mentioned that there is "no true seed round
investors" in Louisville. He also mentioned that
Louisville had "no strengths in the area of capital
for startups."
Another idea that came up in the focus groups
was the lack of sophistication of area
entrepreneurs in raising capital. One experienced
entrepreneur indicated that Louisville-area
entrepreneurs are "unrealistic about how much
equity they need to give up" to obtain funding.
Yet another interesting observation was that
Nashville's entrepreneurial climate was enhanced
by the presence of J.C. Bradford, a leading
investment bank.
In summary, there is some risk capital available
locally to new and early stage businesses. Still,
compared to surrounding cities Louisville has a
serious weakness in the area of risk capital.
Debt Louisville's banks are another source of
capital for entrepreneurial ventures. The
Financing Options catalog lists 10 local banks
that indicate an interest in small business lending.
The Chamber's Financing Options catalog also
lists six sources of lease financing for small
companies, five of which are banks.
However, banks are not regarded by
entrepreneurs as a realistic source of capital for
their ventures. When we asked local
entrepreneurs to rate out community's banks, they
said that it was "unrealistic to expect banks to
fund startups." One entrepreneur indicated that
she had tried to obtain a line of credit for her
business at four banks before finding one that
would fund her company.
Government In addition to the private sources,
the Louisville/Jefferson County Office of
Economic Development offers seven different
loan programs and services for small and
growing companies. Several of these are
administered under the Metropolitan Business
Development Corporation (METCO). These
programs include the Business Loan Program,
which offers long term loans targeted at job
creation within the city of Louisville; the SBA
504 Loan Program; several programs targeted at
specific neighborhoods; and several programs
targeted at minority businesses.
The Commonwealth of Kentucky also offers a
collection of capital programs, including the
Kentucky Investment Capital Network, which
attempts to link entrepreneurs with capital
statewide, and the Kentucky Development
Finance Authority (KIDFA) loan programs. The
Federal Small Business Administration also
offers its loan guarantee programs in the state.
Other Sources Other possible sources of equity
and debt capital for local entrepreneurs include
pension funds and insurance companies.
Interestingly, Kentucky is one of the few states in
the nation that has not set aside a portion of its
state pension fund for use in venture capital.
Providian Corporation has an active venture
investment program but makes most its
investments through venture capital funds, none
of which are located in Louisville.
Conclusion There is some capital available in
Louisville for growth companies. Nonetheless,
we trail nearby competitive cities in this success
factor, especially with regard to venture capital.
In our focus groups, entrepreneurs indicated that
improving the availability of capital–especially
capital for start-ups–would be one of the most
important steps toward improving our city's
entrepreneurial vitality.
Louisville's capital shortage is probably a direct
result of fewer historic entrepreneurial successes
than its competitors. Recall that entrepreneurial
companies are an important source of new
wealth, and successful entrepreneurs are an
important source of angel capital .
The bottom line? A thriving venture capital and
angel investor community is a crucial factor in
the development of high-growth companies.
Louisville does not have nearly the sources of
capital available in other nearby cities.
17
Technology
Louisville is not blessed with a large number of
high quality institutional sources of
entrepreneurial technology. The University of
Louisville is our only significant research
institution, and it does not command the research
resources available to some universities. As
shown in Table 11, The University of Louisville
ranked 167th in the nation in 1994, with R&D
expenditures of just over $22 million. Notice
how Louisville trails institutions such as MIT,
Stanford, Texas, and the Research Triangle
schools–which are associated with entrepre-
neurially hot regions–as well as nearby urban and
state universities.
U of L has the potential to be an important
source of entrepreneurial technology for the
community. The University's Medical School,
Speed Scientific School, and Telecom-
munications Research Center all have the
potential to be significant sources of
entrepreneurial ideas and opportunities. But there
is much work to do to realize that potential.
Table 11
1994 Research and Development
Expenditures for Selected Universities
R&D
School Expenditures Rank
MIT $364 4
Stanford University $319 8
University of Texas $261 17
Duke University $220 25
University of North Carolina $202 27
North Carolina State University $173 35
Purdue University $173 37
University of Alabama-Birmingham $142 46
Indiana University $137 50
Vanderbilt University $110 66
University of Kentucky $106 67
University of Cincinnati $94 76
Virginia Commonwealth University $77 89
University of Dayton $48 121
University of Louisville $22 167
University of Memphis $13 201
Source: National Science Foundation, Division of
Science Resource Studies, Survey of Scientific and
Engineering Expenditures at Universities and
Colleges, Fiscal Year 1994, Table B39
Other possible sources of entrepreneurial
technology include local corporations, some of
which have active R&D or product development
functions, and Ft. Knox, which is an important
magnet for federal government dollars In
addition, the existence of the UPS air hub in
Louisville is a possible source of new ideas for
entrepreneurial ventures in logistics and
distribution. Currently, however, little is being
done to exploit whatever opportunities might be
available through these organizations.
Kentucky's technology assets are poor. The 1995
Development Report Card for the States, pub-
lished by the Corporation for Economic Devel-
opment, lists Kentucky 47th in the number of
Ph.D. Scientists and Engineers in the workforce
per 1000 workers, 47th in the number of science
and engineering graduate students per million
population, and 45th in the number of patents
issued in 1994 per one million population.
22
In our focus groups, entrepreneurs confirmed
Louisville's weakness in the area of technology.
They specifically mentioned that there were "not
enough good ideas in Louisville" and that the
city "does not have "enough technical
infrastructure." Several indicated that improving
our community's educational resources,
especially higher education, would be one of the
most important steps toward creating more
entrepreneurship in Louisville.
Louisville is clearly at a disadvantage to its
competitors with regard to institutional sources
of entrepreneurial technology. Further, we're
probably not exploiting what we have to
maximum advantage. Still, Louisville's lack of
institutional sources of technology is not an
insurmountable hurdle. While institutions like
universities are an important source of entre-
preneurial technology, many (if not most) ideas
for new businesses–especially high-growth
service businesses–are not the result of institu-
tional research. Companies based on high-tech
products or processes are likely to have roots in
Universities and R&D labs, but high-growth
service companies are not. Ideas for many
successful businesses come not from research
labs or corporate R&D departments but from the
kitchen tables of persistent entrepreneurial
geniuses. Of Louisville's local entrepreneurial
"home runs"–companies like Humana, Vencor,
Active Transportation, Papa John's Pizza,
Kentucky Kingdom, and SerVend, and many
others–none is the result of institutional R&D.
Culture
Does Louisville have a culture that encourages
entrepreneurship? Because culture is a
subjective factor, it is difficult to measure, and
18
opinions about it are likely to be diverse. Still,
this factor is so important that we need to try to
make at least a rough measurement of our city's
entrepreneurial culture.
Acceptance of Entrepreneurship Dr. Jack
Karsarda of the University of North Carolina
offers an interesting test of the entrepreneurial
culture. He offers a list of ten questions–shown
in Table 12–one can use to judge the entre-
preneurial climate of a place. Seven or more yes
answers is a passing grade. Anything less than a
7 indicates that the community is closed to
entrepreneurs and entrepreneurial success.
Each reader will judge for himself or herself
Louisville's score. However, when we asked
local entrepreneurs to evaluate this list of
questions, the average score was 2, and only one
score (a 6) was above 4.
Table 12
Entrepreneurial Climate Test
1. When the mayor of the city meets with business
leaders, are there as many chief executives
officers of mid-sized growth companies as
bankers and corporate executives?
2. Are entrepreneurs invited to join the best athletic,
social, and country clubs? Have they joined?
3. Does the local newspaper follow the fortunes of
start-ups and mid-size growth companies with the
same intensity and sophistication as it does large
corporations?
4. Are innovative companies able to recruit nearly
all of their professional work force from the local
area?
5. Is there a sizable, visible venture capital
community?
6. Does the local university encourage its faculty
and students to participate in entrepreneurial
spin-offs, and do they?
7. Do growth company CEOs and venture
capitalists hold at least a quarter of the seats on
the boards of the three largest banks?
8. Does the city's economic development
department spend more time helping local
companies grow than it does chasing after branch
facilities of out-of-state corporations?
9. Is there decent, affordable office and industrial
space available for new businesses in the central
business district?
10. Can you think of 10 recent spin-offs–growth
companies started by entrepreneurs who have left
large companies?
Source: Entrepreneurial Hot Spots, David Birch,
Anne Haggerty, and William Parsons, © Cognetics,
Inc., 1994, p. 17
Specific comments obtained during our focus
groups from entrepreneurs about the commun-
ity's entrepreneurial culture included the ob-
servation that Louisville's "city fathers" did not
seem to have much interest in entrepre-neurship.
Another entrepreneur indicated that Louisville
had a "deep-set anti-business sentiment" that
was discouraging to potential entrepreneurs.
The media was singled out in our focus groups as
an important force shaping Louisville's entre-
preneurial climate. One entrepreneur mentioned
that the Courier-Journal was a leader of the
community's anti-business sentiment, and another
said that an improvement in the paper's coverage
of business "could help to create a pro-business
attitude" in Louisville. Another indicated that
19
Business First does a good job of promoting the
importance of business in the community.
Other Factors A place's entrepreneurial climate
also includes factors such as tax rates, business
regulations, and other factors that have the power
to discourage potential entrepreneurs.
With regard to taxes, the recent Barents Group,
LLC report Comparative Analysis of Kentucky's
Tax Structure concluded that "Kentucky's
business tax structure is generally competitive for
the states and industries covered by this study."
23
However, the report pointed out several "red-
flag" issues that may create obstacles to business
investment and economic development,
including:
• High income and franchise tax burden–18%
higher than the fifteen-state average
• Inclusion of debt in the franchise tax base,
which "has particularly important conse-
quences ... on entrepreneurship, because
start-up companies rely more on debt..."
• The intangible personal property tax , which
discourages the formation of capital
In our focus groups, at least one entrepreneur
mentioned Kentucky's tax climate as one factor
that discourages entrepreneurship in the state.
Another problem for business in Kentucky is the
state's high worker's compensation and
unemployment insurance costs. Table 13 shows
worker's compensation payments as a percentage
of wages and salaries for Kentucky and several
surrounding states in 1993.
Another factor that may help influence the
entrepreneurial culture of several of our nearby
competitors–including Nashville and
Indianapolis–is that these cities are state capitals.
Further, both of these cities, as well as Charlotte,
have adopted unified city/county government.
Finally, it is worth noting that several states that
have experienced significant entrepreneurial
success in recent years–including Tennessee and
North Carolina–are right-to-work states.
Table 13
Worker's Compensation Payments as a
Percentage of Wages and Salaries, 1993
State Percent
Ohio 1.63%
Kentucky .43%
Tennessee .11%
North Carolina .05%
Indiana .04%
Source: U.S. Bureau of Economic Analysis, Local
Area Personal Income, 1969-1993, May 1995
Conclusion Louisville's entrepreneurial culture
is not healthy. Our community lacks the
excitement and activity of such entrepreneurially
hot places as Nashville, Austin, and Silicon
Valley. Entrepreneurs do not feel that the
community respects, understands, or values their
contributions. State and local government policy
is not particularly favorable to entrepreneurship.
It is encouraging to note that Louisville's culture
may already be shifting to be more favorable to
entrepreneurship as a result of the Growing
Success: A Celebration of Entrepreneurship
day, the founding of the Venture Capital Club
and the African American Venture Capital Club,
and other recent events. Still, changing a
community's culture is not easy, and much work
remains to be done.
As we'll see in the next section, culture may be
the most important factor contributing to the
entrepreneurial success of a city. It is certainly
the one factor that can be addressed quickly,
without the need for huge capital investment, and
it may be the factor that, if changed, has the most
impact on a community's entrepreneurial success.
Conclusion
Louisville falls short of its competitors on most
of the key entrepreneurial success factors:
Talent, Know-How, Capital, Technology, and
Culture. If we want to improve our ability to
create growth companies, we must begin to
address each of these weaknesses.
A couple of these weaknesses–especially Culture
and Know-How–could be improved fairly
quickly; others will take longer. But all can be
improved if the community decides that it wants
to be more entrepreneurial.
20
Entrepreneurial Economic Development
What can an entrepreneurially cool city like
Louisville do to raise its entrepreneurial
temperature? How can we overcome our
weaknesses in Talent, Capital, Technology, and
Know-How to begin creating and nurturing more
new entrepreneurial ventures?
Creating Entrepreneurship
The idea that communities can create more
entrepreneurship is fairly new. It was only in the
1980s that leading cities like Austin and regions
like North Carolina's Research Triangle Park
began investing in programs to help stimulate the
development of more home-grown companies.
While the trend has gathered momentum in
recent years, the idea of entrepreneurship as a
tool of economic development is in its infancy.
Still, there is reason to think that a community
that wants to increase its entrepreneurial
temperature can do so. In fact, the task is as
simple–and as difficult–as improving the
community's performance on the five
entrepreneurial success factors: Talent, Know-
How, Capital, Technology, and Culture.
Culture and Know-How
In the study Prescription for Opportunity: How
Communities Can Create Potential for
Entrepreneurs, Dr. Norris F. Krueger explains
that increasing the level of entrepreneurial
activity in a community requires the community
to take action to increase both the perceived
desirability of entrepreneurial activity and its
perceived feasibility.
If we want more potential entrepreneurs, we
must create policies that enhance percep-
tions among community members that entre-
preneurial activity is both desirable and
feasible.
24
By combining efforts to improve the culture with
a robust entrepreneurial support program,
communities can develop more entrepreneurial
ventures. Krueger reasons:
... a particularly clever community could
actually spawn entrepreneurs by sincerely
committing itself to the creation of a
welcoming and supportive environment for
business start-ups. Ideally, it would couple
this with comprehensive assistance programs
to ensure entrepreneurs had access to every
possible tool necessary for success. In such
an environment, many entrepreneurs will
emerge.
25
Desirability: The Cultural Factor The
perceived desirability of starting a venture is
influenced by the entrepreneur's perceptions
about the likelihood of success or failure, his or
her prior experiences with entrepreneurship
(through family or career experiences), the
opinions of family and friends, and the
receptivity of the community to entrepreneurial
activity. Krueger explains:
The task, then, for communities is to foster
entrepreneurship by taking actions that
enhance the perceptions among citizens that
the community values and supports
entrepreneurial activity.
26
In other words, the task is to create a culture
that encourages entrepreneurship. Among the
actions that communities can take to improve
their entrepreneurial culture are:
• Recognizing and celebrating entrepreneurial
ventures at every stage
• Honoring entrepreneurial successes
• Promoting the importance of
entrepreneurship to the community
• Providing venture capital funds and other
capital initiatives
• Reducing tangible and perceived barriers to
entrepreneurship such as excessive taxes,
burdensome regulations, and barriers to
capital formation
• Offering assistance programs that nurture
entrepreneurial companies
• Improving education and research
Taken together, these actions have the effects of
persuading entrepreneurs that the community
values their efforts and of encouraging potential
entrepreneurs that the venture they are con-
templating will be welcomed by the community.
Feasibility: The Know-How Factor The
perceived feasibility of a new venture is
influenced by the entrepreneur's perceptions
about his or her own personal competence, as
well as the existence of role models ("If she did
it, so can I"), and the availability of training and
support in the community.
21
A community that wishes to raise its
entrepreneurial temperature must offer an
entrepreneurial support effort that helps nurture
new ventures. Such an effort would include
programs, such as training, coaching, mentoring,
and networking, to help increase and improve
access to the entrepreneurial know-how of the
community. It could also include the creation of
seed and start-up venture capital funds, small-
business loan funds, and other capital initiatives.
It might also include the creation of an incubator
to house promising early-stage businesses.
As it turns out, an entrepreneurial support
program is one of the best "actions" that a
community can take to enhance the perception
that it desires entrepreneurial activity. So
entrepreneurial support programs work both by
helping specific entrepreneurs with specific
problems and by helping to create a culture of
entrepreneurship.
Long Term Factors
If the effort to increase entrepreneurship begins
by focusing on Culture and Know-How, it cannot
ignore the other factors of entrepreneurial
success: Talent, Capital, and Technology.
Unfortunately, overcoming weaknesses in these
factors requires time. For instance, it may take
many years to improve the skills of the workforce
in a community, or to create new institutional
sources of technology.
The good news is that efforts to improve Culture
and Know-How will also help improve Talent,
Technology, and Capital. While a change of
culture will not overcome weaknesses in the
other entrepreneurial success factors overnight, it
will help to ensure that a community gets the
most entrepreneurship possible out of its existing
resource base. Once the entrepreneurial ball gets
rolling, it picks up speed as each generation of
entrepreneurial firms spawns the next.
Even better is the news that efforts to improve
the availability of Talent, Technology, and
Capital in a community also help improve its
Culture. As potential entrepreneurs see the
community tackling these tough long-term
problems, they will be increasingly convinced of
the community's commitment to entrepre-
neurship, and will be encouraged about the
desirability of their own entrepreneurial efforts.
Is Entrepreneurial Economic
Development Effective?
Several arguments have been made across time to
argue that entrepreneurship is an ineffective
strategy for economic development. Let's take a
look at these issues.
Don't Most Small Companies Fail ?
One of the most enduring "truths" about
entrepreneurship is that four out of five new
companies fail. The widespread acceptance of
this truism has been a major factor discouraging
communities from pursuing entrepreneurship as
an important economic development strategy.
The truth is that many new companies survive,
and many that close do not "fail."
Cognetics has found that almost 70% of the firms
that were four years old or younger in 1989 were
still in business in 1994. In other words, only
about 30% of the youngest firms in existence in
1989 closed by 1994. In addition, only about
27% of firms that were between five years old
and nine years old in 1989 had closed by 1994.
Further, Cognetics found that about 50% of the
firms started in 1989 were still in business in
1994.
27
This result is confirmed by Bruce
Phillips (of the Small Business Administration)
and Bruce Kirchloff (of the New Jersey Institute
of Technology), who found in a study of the
government's Small Business Data Base that
39.8% of new firms survive their first six years.
28
Further, businesses that grow have much higher
survival rates that those that do not. Phillips and
Kirchloff discovered that 78.4% of firms that
grow at a rate of 10% or more survive six years
or more.
29
In addition, research indicates that
companies backed by experienced venture
capitalists have failure rates of only 15% to 20%,
implying that the high-growth opportunities that
attract venture financing have a much higher
chance of success than average.
30
It is also important to recognize that a firm
closing is not the same as that firm failing.
Failing implies that the business has "gone
broke," leaving creditors unpaid or equity
investors with a loss. Many firms that close do
so in an orderly fashion, having fulfilled their
missions and paid their obligations, because the
owner sells out, takes another job, or starts
another business. In fact, Kirchloff estimates that
only about 18% of all new businesses end in real
failure.
31
Cognetics, Inc. writes:
It is important to make a sharp distinction
between closing and failure. The majority of
22
firms that close are not failures. The firm
has provided an income to its owners for
several years, it has perhaps even built up a
substantial net worth which can be sold or
liquidated at the end, and the owners walk
away far ahead of where they were when
they started. Only a small percentage (5% to
10%) of the firms that close are forced to do
so because they owe more money than they
have, and are forced into some sort of
bankruptcy. Bankruptcy is a rare event;
closing is a common one.
32
Finally, it is important to note that many so-
called failures are stepping stones to significant
entrepreneurial success. Many successful
entrepreneurs have, at one time or another,
failed. Persistent entrepreneurs gain valuable
experience from their failures which later helps
them achieve success.
Aren't All High-Growth Companies High-
Tech Companies?
Some object that entrepreneurship is dependent
on creating high-tech companies. The objection
continues that, since our community doesn't have
much technology, we won't be effective in
creating high-growth companies.
The fact is that high-growth Gazelle companies
are found in every industry segment. Cognetics'
study Hot Industries 1995 reports that Gazelles
are found in all industries, and that they are about
as common in one industry as another. Contrary
to the popular belief that all high growth
companies are high tech companies, Cognetics
found that just 1.8% of Gazelles are high tech
firms, while about 25% are service companies
and 12% are manufacturers. Birch writes that "it
is no longer the production of technology, but its
application, that creates growth opportunities."
33
Further, Cognetics points out that, in every
industry group, small companies outgrew large
companies, and that, in many cases, the
advantage of small companies increased the more
poorly a sector was performing. Table 14 shows
the percentage net job growth from 1990 to 1994
for a selected group of industries.
The dispersion of the 1995 Inc. 500 companies
further confirms this trend. While 143 of the 500
were in the computer industry (including
software and computer services), 97 were in the
business services sector, 76 in consumer goods
and services, 23 in construction, 20 in industrial
equipment, and 20 in financial services.
34
Cognetics concludes that this wide dispersion of
growth companies "means that innovation is
occurring everywhere in the economy–not just in
certain hot sectors like high tech or bio tech."
Birch also points out that "knowledge-value is
being added to all sectors, and no one sector
offers the path to future growth."
35
Table 14
Percent Job Growth, 1990 to 1994, by
Company Size, for Selected Industries
Number of Employees
Industry 1-99 100+
Manufacturing 6.2% -4.2%
Trade 2.8% -.3%
Financial, Insurance, Real Estate 2.8% -1.1%
Services 6.0% 1.9%
Other 1.6% -4.3%
Source: Who's Creating Jobs 1995, David Birch,
Anne Haggerty, and William Parsons, © Cognetics,
Inc., 1995, p. 5
Aren't Most Growth Companies in
California or Massachusetts?
In fact, while California, Massachusetts, and a
few other states command a large number of the
country's most successful entrepreneurial
companies, Gazelle companies are located
everywhere in the United States.
According to Inc. Magazine, between 1982 and
1994 every state (including the District of
Columbia and Puerto Rico) created at least a
handful of Inc. 500 companies. Granted,
California produced 14.9% of all Inc. 500
companies in that time, but California has about
12% of the nation's population. Other leading
producers of Inc. 500 companies included New
York, Florida, Massachusetts, and Michigan.
Even small, poor, rural states produced a few
rapid growers: Mississippi had 5, Arkansas 14,
and West Virginia 7.
36
Don't Small Companies Create "Bad" Jobs?
First, there is some debate about whether any job
is a "bad" job. That argument aside, it is true
that small companies tend to create jobs that pay
less and offer fewer benefits than larger
companies.
However, this truism misses a crucial point:
Gazelle companies are not like other small
23
companies. Gazelles, which produce most of the
jobs, also appear to create good jobs. According
to Cognetics, Inc., Gazelle companies "hire a
workforce with above average skill levels" and
"pay above average wages."
37
A community that
focused on the creation of growth companies
would likely raise, not lower, its average wage.
Can Entrepreneurship Be Taught?
It's true that many successful entrepreneurs have
some characteristics–such as creativity,
independence, and determination–that are more
personal traits than acquired skills. However,
research by Afar Bhide of the Harvard Business
School indicates that there is no one ideal
entrepreneurial personality. According to Bhide,
"Successful founders can be gregarious or
taciturn, analytical or intuitive, risk-averse or
thrill seeking..."
38
Further, the work of Jeffry Timmons indicates
that entrepreneurship is a career that can be
taught. He writes:
How do you teach students to be entre-
preneurs? The bedrock is instruction:
technical skills, finance skills. Then, expose
them to some real entrepreneurs to educate
by inspiration, by example, and by demon-
stration of what is possible.
It does work. We have a hugely dis-
proportionate number of graduates who wind
up doing entrepreneurial things.
39
Perhaps the best way to think of the nature/
nurture argument is to say that entrepreneurship,
like law, medicine, or any other career, requires
certain abilities, and that people with those
abilities may be attracted to entrepreneurship as a
career. Just like law and medicine, however,
natural ability is not enough. Success in
entrepreneurship requires the mastery of
numerous skills, which can be taught.
What About Incubators?
In many places, the effort to develop more
entrepreneurship has resulted in the creation of a
small business incubator. Incubators offer low
rent, shared office resources, training, mentoring,
and support–and, in some cases, capital–to early
stage businesses. Further, incubators offer a
supportive environment where entrepreneurs can
learn from and encourage one another.
The National Business Incubator Association
reports that there are now over 500 incubators
across the country, housing 80,000 companies,
and that 45,000 companies have graduated from
incubators. The NBIA estimates that incubator
companies have produced over 100,000 jobs.
40
There are numerous examples of successful
incubators. The Austin Technology Incubator,
headed by Laura Kilcrease, has incubated more
than 38 companies which have created more than
550 jobs. The Center for Business Innovation in
Kansas City was selected the 1993 Incubator of
the Year. The center is headed by Robert
Sherwood, himself an experienced technology
entrepreneur. Other successful incubators are
located in Pittsburgh, Minneapolis, and
throughout California.
While some incubators have been quite
successful, the track record of incubators is, at
best, mixed. For one thing, a successful
incubator is more than just a big building in a
bad part of town filled with small businesses. A
good incubator requires a good incubator
manager–preferably one with entrepreneurial
experience. The incubation process is slow, so
successful incubators require patient community
support. Further, incubators are expensive and
require significant financial support. In the book
Growing New Ventures, Creating New Jobs Dr.
Jana Matthews writes
...the process of business incubation is much
more important than the incubator facility
within which the companies co-located.
However, many communities have focused
on the bricks and mortar aspect of incubators
to the detriment of the incubation process.
41
This problem has led some to consider the idea
of a "virtual" incubator–an organization that
offers the support and know-how of an incubator
without the cost of a building. Bob Sherwood
has commented:
It's important to understand that the
incubator building is a very minor part of the
incubator's array of services–a necessary evil
for being able to provide assistance with the
'Three Ms'–marketing, management, and
money–to client entrepreneurs. For most of
the people I talk with, this is truly a
paradigm shift in thinking. They think the
building is the incubator, but nothing could
be farther from the truth.
42
Incubators can work, but they are expensive to
create and operate, and require great skill to
manage. Communities that wish to have more
24
entrepreneurship should consider creating an
incubator facility. But much of the work of an
incubator can be accomplished without the cost
of a physical incubator.
What Not To Do
While there is general agreement that
entrepreneurship can be an effective economic
development strategy, there are a few tempting
strategies that seem unlikely to be successful.
Don't Pick Winners There is a strong
temptation for entrepreneurial development
efforts to turn into industrial policies encouraging
the development of certain types of companies.
For instance, a place might decide that it needs
more high-tech companies, more health care
companies, or more companies that build on a
local strength such as manufacturing or
distribution, and launch efforts designed to
support only such companies.
While it makes sense for a community to build
on its strengths, entrepreneurial development
efforts must cast the net wide, offering assistance
to all promising small businesses and not just
those in a few attractive industries. For one
thing, focusing on existing strengths almost
certainly means missing some hot new
opportunity. For instance, a city that focused on
its advantages in distribution might miss the
opportunity to incubate new companies
pioneering on-line sales.
In addition, a quick look at some of Louisville's
most successful entrepreneurial companies shows
how unlikely they are for Louisville: Who in
1963 would have predicted that Louisville would
become the headquarters for a fast-growing
hospital management company (now a health
insurance company) or in 1984 that the city
would become the home of the leading publisher
of computer newsletters?
David Birch of Cognetics concludes:
To base an economic development strategy
on one, or a few key sectors is, in today's
world, to ignore most. To pick "winners" is
extremely difficult, if not downright
dysfunctional. Most kinds of companies can
be started and grown in most places.
43
Don't focus only on glamorous startups. As
we've seen, it is not small companies but growing
companies (many or which are small) that create
the new jobs and the new wealth. According to
Cognetics,
It is not the local drug store, body shop, or
restaurant that is the main engine of job
growth–it is the Gazelle.
44
So an entrepreneurial development policy should
focus not just on creating more small companies,
but on creating more companies that grow.
However, it is important to realize that growth
companies are very hard to distinguish from
other small companies at birth. Who's to say that
a pizza delivery business being run out of a
neighborhood bar is not just another small
business? Or how about a nursing home built
with borrowed money by two young lawyers?
Since it's difficult–if not impossible–to tell new
growth companies from other small companies,
entrepreneurial economic development should
offer help to all promising comers. At the same
time, though, it should focus its efforts on
programs and services to help companies grow,
and should devote a majority of its attention to
companies that are growing.
Entrepreneurship vs. Attraction
Which is the more effective strategy for
economic development: Business Attraction or
Business Creation? While both are important,
there are reasons to think that creating home-
grown business is, in the long run, the more
effective strategy.
According to Cognetics, between 1990 and 1994,
locally headquartered, independent companies
increased their employment, on average, by
about 2.5%. Local branches of companies head-
quartered out-of-town experienced decreased
employment, on average, of 1.2%. Birch adds
this comment:
There is a tendency to look to out-of-state
firms for a big economic boost. Economic
developers chase after them with never-
ending persistence. Governments offer
financial incentives. Landlords seek them
out as tenants. The fact is, however, that
out-of state firms are a highly overrated
currency. Across the nation, it was the
home-grown, single unit company that
carried most places (and the nation) through
the recession.
45
In the book The New Technology Incubator, Dr.
Raymond Smilor writes:
25
Industrial relocation, long the central focus
of regional economic development, tends to
be a zero-sum game–one region or location
benefits only at the expense of another.
Indigenous company growth may be a more
beneficial and necessary long-term
development strategy for several reasons.
First, it harnesses local entrepreneurial
talent. Second, it builds companies which, it
turn, create jobs and add economic value to
a region and community. Third, this strategy
keeps home-grown talent–a scarce resource–
in the community. Fourth, it encourages
economic diversification and technological
innovation by creating a climate that rewards
productivity and innovation.
46
Should a community abandon business attraction
in favor of entrepreneurial economic
development? No. In a competitive world,
communities should do all they can to attract
businesses that wish to relocate. On the other
hand, neither should a community place all of its
eggs in the attraction basket. A balanced
approach–one that supports both attraction and
creation–is the right approach.
Conclusion
Entrepreneurial economic development is not
simple. But it is also not impossible. When the
facts about growth companies are carefully
considered, they support the idea that
entrepreneurship can be an effective strategy for
economic development.
What Others Are Doing
Louisville is not the first community to ask what
it can do to improve its entrepreneurial climate.
Others, including Pittsburgh, Raleigh-Durham,
San Diego, and Kansas City have launched
initiatives to stimulate and nurture
entrepreneurship.
Pittsburgh
The Enterprise Corporation of Pittsburgh was
founded in 1983 to increase the number of jobs
in southwestern Pennsylvania by promoting
entrepreneurship and helping those individuals
starting and building businesses. Enterprise is
affiliated with Carnegie Melon University and
the University of Pittsburgh.
Enterprise is a leader in the entrepreneurial
efforts in the community. The assistance
Enterprise offers includes business plan
preparation, networking introductions, and
attracting both financial and human resources. It
produces an annual Entrepreneur's Day where
hundreds of entrepreneurs attend workshops,
hear speakers, and seek advice, information, and
contacts, and an annual Venture Idea Fair where
entrepreneurial companies showcase their
innovative products and services. The
Corporation also hosts Entrepreneur Forums and
an angel network, the Private Investors Group.
Since its founding, Enterprise has consulted with
over 1,400 people seeking to start new
businesses. Companies helped by Enterprise
raised over $260 million of outside capital and
employ over 4,000 people in this region. Many
have the potential for further substantial growth.
Unlike other business assistance organizations in
the community which have broader charters,
Enterprise has remained focused exclusively on
high potential, early stage businesses.
The Enterprise Corporation of Pittsburgh has an
annual budget of $729,000.
Research Triangle
The Council for Entrepreneurial Development in
Research Triangle Park, North Carolina,
stimulates the creation and growth of high impact
companies in the Research Triangle region.
Founded in 1984, CED is a private, non-profit
organization which brings investors,
professionals, and entrepreneurs together.
CED works to heighten the awareness of the
contribution that entrepreneurial companies make
to the economy. It provides programs and
services in four key areas: education, capital
formation, mentoring, and other communica-
tions. Each month, CED responds to hundreds of
queries from entrepreneurs, innovators, and
others. CED acts as a central clearinghouse and
makes referrals to CED volunteer consultants,
financial resources, and other non-profit
organizations that can provide assistance.
CED was founded in 1984 as an outgrowth of the
Triangle Venture Capital Committee, which
comprised the three area universities and the
Raleigh, Durham, and Chapel Hill-Carrboro
Chambers of Commerce. The Council's founding
members recognized a need for more business
guidance for entrepreneurs, more regional
venture capital operations and a network for the
exchange of information between entrepreneurs,
investors and service professionals. CED held its
26
first general meeting on January 12, 1984 and
has since held regular monthly meetings. The
Council's membership has grown from 26 to over
750.
In May 1984 the Council sponsored the first
Southeastern Financing Conference for Emerging
Growth Companies, which provided an
opportunity for selected growth companies to
present their business plans to an audience of
over 100 investors. Because of its success, the
Venture Capital Conference has become an
annual event, sponsored by the Council and the
Fuqua School of Business at Duke University.
CED has an annual budget of $431,000.
San Diego
Founded in 1985 at the urging of the local
business community, UCSD CONNECT was
created to contribute to the economic devel-
opment of San Diego by nurturing high-tech
entrepreneurship, facilitating interaction between
the University and the business community, and
further developing San Diego's infrastructure.
CONNECT accomplishes its mission through
educational and networking programs, practical
business seminars and technology transfer
illustrations, and international strategic and
financial forums. CONNECT's programs are
practical rather than theoretical, and have been
credited with giving company executives a
mental picture of what they can achieve, while
providing access to the resources which accom-
plish these goals. CONNECT's programs also
serve business service providers–attorneys,
accountants, and others–by providing them with
knowledge about emerging technologies and
access to new business opportunities.
CONNECT is described by some as an incubator
without walls. It functions as a catalyst for
growth, providing a forum for the exchange of
ideas and the opportunity to network with peers,
and facilitates the ripple effect that the success of
various high-tech industries has on the
community which supports them. CONNECT
has helped numerous high-tech companies obtain
financing and develop effective business
strategies.
CONNECT would not disclose its budget.
Kansas City
Kansas City has two institutions that are working
to improve its entrepreneurial environment.
The Center for Entrepreneurial Leadership of
the Ewing Marion Kauffman Foundation is a
national leader in the effort to support
entrepreneurship. CEL promotes the
development of healthy economic communities
by nurturing and encouraging entrepreneurial
leadership through educational activities targeted
at adult and youth entrepreneurship. CEL is an
independent not-for-profit educational institution
with resources in excess of $600 million.
While CEL has a national mission, it has a
special interest in developing entrepreneurship in
its hometown. Programs developed by CEL and
introduced in Kansas City include
• Premier FastTrac, a leading entrepreneurial
training program
• Entrepreneurial Leadership Program
• YESS! (Youth Empowerment and Self-
Sufficiency), an entrepreneurship education
curriculum for students K through 6.
• Energizing Entrepreneurs, a celebration of
entrepreneurship in Kansas City
The Center for Business Innovation is Kansas
City's growth company incubator. The CBI was
founded in 1985 through a joint effort of the
Missouri Department of Economic Development
and the University of Missouri-Kansas City.
CBI is supported by fee income and rent, and by
grants from the State of Missouri. Its annual
budget is $2 million per year.
CBI provides typical incubator services to client
companies, including business advice, business
services, assistance with fund raising, and
inexpensive space. Capital programs offered by
CBI include a microloan fund, a seed capital
fund (Capital for Entrepreneurs, Inc.), and an
angel network (the Capital Resource Network)
which provides seed capital to new ventures.
In exchange for the services it provides, CBI
receives an equity stake in each of its client
companies. Eventually, CBI hopes that returns
on these investments will make it self-sufficient.
CBI is headed by Robert Sherwood, an
experienced technology entrepreneur. In 1993,
CBI was selected the national 1993 Incubator of
the Year. The CBI currently hosts 53 companies.
Conclusion
27
As we have seen, communities that wish to create
jobs and wealth–and create a vibrant, resilient
economy–must invest in the creation and
nurturing of new companies. To do that, they
must make an investment in entrepreneurial
economic development, offering programs to
support emerging entrepreneurial companies and
attacking long-term structural weaknesses such as
capital, talent, and technology shortages. In
addition, community leaders must make a
commitment to a culture that welcomes and
encourages entrepreneurs.
The good news is that there is an emerging
awareness of the importance of entrepreneurial
growth in our community. Many of the
necessary elements are in place, but we do not
employ our scarce resources in a way that will
make enough of an impact on the challenges we
face. The missing elements are coordination,
commitment, and focus. In the recommendations
that follow, we call for a partnership of
organizations, business leadership, higher
education, government, and the community to
bring those elements to our entrepreneurial
development efforts.
28
Recommendations
If it is to remain competitive, Louisville must
adopt a strategy of supporting and encouraging
entrepreneurship.
Our community should begin by making a
commitment to entrepreneurship as an economic
development priority. This commitment should
be demonstrated by the creation of an Enterprise
Corporation of Louisville, which would become
the focal point for entrepreneurial support in the
community. The Enterprise Corporation would
have equal stature with the other key economic
development efforts: The Chamber, the
Partnership, and OED.
The Enterprise Corporation
The mission of the Enterprise Corporation would
be to
• Create a new "Culture of Entrepreneurship"
in Louisville
• Dramatically increase the number and
quality of entrepreneurial companies in
Louisville
with the result that Louisville becomes a more
prosperous, dynamic, and resilient community.
Short-Term Objectives
The Enterprise Corporation would have both
short-term and long-term objectives. In the short
term, the Enterprise Corporation would work to
assure that Louisville gets the maximum possible
results out of our existing entrepreneurial talent
pool, our existing capital base, and our existing
technology. This would be accomplished by
• Offering programs to support entrepreneurs
• Championing the cause of entrepreneurship
in the community.
The creation of the Enterprise Corporation would
send an important signal that we welcome,
desire, and support entrepreneurship. This would
be an important first step in creating a more
entrepreneurial culture in our community.
Programs The Enterprise Corporation could
coordinate and consolidate many of our
community's existing entrepreneurial support
programs, including programs offered by:
• The Chamber's Center for Small Business
• The Office for Economic Development
• The Small Business Development Centers at
Bellarmine and the University of Louisville
• The Venture Capital Club of Louisville
Coordinating and consolidating these programs
into one agency would eliminate duplication,
improve efficiency, and promote the
accessibility of the programs.
In addition to these existing programs, the
Enterprise Corporation would launch a number
of new entrepreneurial support programs such as:
• Entrepreneur Roundtables
• Mentoring Program
• "Board of Directors" Program
• "Congregation" Program
• Topical Seminars: Finance, Marketing,
Strategic Planning, Compensation, etc.
• Entrepreneur of the Year Panel Discussions
• Displaced Executives Workshops
• Opportunity Recognition Workshops
• Idea Forums
• Internship Program for students
• Other programs for students
• Minority entrepreneurship programs
The Enterprise Corporation of Louisville would
not be a physical incubator, but a virtual one,
offering the support services commonly
associated with incubators without the real estate.
Its clients would be entrepreneurial growth
companies of all ages and sizes, including
companies that are in the process of being
created.
The Enterprise Corporation would work closely
with emerging efforts to launch mini-incubators
at U of L's Telecommunication Research Center
and new Health Sciences Research Center, at the
Naval Ordnance Station, and at the Community
Development Bank center at 28th and Broadway,
and would offer support programs to companies
housed in those incubators.
Community Awareness The Enterprise
Corporation would also be responsible for
continuing to measure the entrepreneurial
condition of the community, and publicizing and
celebrating entrepreneurship in Louisville. This
would be accomplished through
• Producing an annual "Celebration of
Entrepreneurship" event
29
• Publishing an annual report on
entrepreneurship in Louisville
• Other publications, including a newsletter
and periodic special reports
• Publicizing and promoting the Corporation's
entrepreneurial support programs
• An annual "Best Business Plan" contest
• A Speakers Bureau
• An annual recognition program for emerging
entrepreneurial companies (modeled on
Nashville's "Future 50" program)
Long-Term Objectives
In the long term, the Enterprise Corporation
would help lead the community effort to
overcome our structural weaknesses in capital,
technology, and talent. The Enterprise Cor-
poration would take a leading role in efforts to
• Create more sources of entrepreneurial
capital in Louisville
• Retain more of our bright young
entrepreneurial talent
• Reform Kentucky's tax laws
• Improve U of L's ability to serve as a source
of entrepreneurial technology
• Work with the Jefferson County Public
Schools, Junior Achievement, and others to
stimulate more entrepreneurial education in
area schools
The Enterprise Corporation would also cooperate
with emerging statewide efforts to encourage
entrepreneurship.
Leadership
The Enterprise Corporation of Louisville would
require excellent entrepreneurial leadership from
both its board and its staff. The Board would
include leaders of Louisville's entrepreneurial
community (including both proven and emerging
entrepreneurs) and entrepreneurial support
community (bankers, lawyers, accountants,
venture capitalists, and so on) as well as leaders
from government and education.
The Enterprise Corporation would seek a CEO
with significant experience in entrepreneurship
and entrepreneurial economic development. It
would also seek managers for its programs and
for its communications and planning efforts who
have experience with growing companies.
Funding
Delivering the programs described here would
require an annual budget of between $500,000
and $750,000 per year. Some part of this amount
could be raised through fees and program
sponsorships, but the majority of the budget
would be funded through grants. Funding would
be sought from state, city, and county
governments, from local business (especially our
successful entrepreneurial corporations) and
from foundations, including local foundations
and the Ewing Marion Kauffman Foundation.
Location
The Enterprise Corporation would be housed
with the other leading economic development
agencies at the Commerce Center at
600 W. Main Street.
Measuring Success
The success of the Enterprise Corporation will be
determined by measuring its ability to improve
Louisville's performance on many of the
indicators used in this report: The city's
Entrepreneurial Hot Spots ranking, the number
of Louisville-based Inc. 500 companies, the
number of IPOs of Louisville-based companies,
and other measures. The Corporation's success
will also be measured by its ability to help
improve Louisville's weaknesses in Talent,
Technology, Capital, Know-How, and Culture.
30
Conclusion
Louisville is an entrepreneurial city. It has produced some great entrepreneurial companies–
companies like Humana, Vencor, Active Transportation, Papa John's Pizza, and many others–that
have produced many jobs and much wealth for the community. Still, Louisville is not producing
as many new growth companies as some of its competitors. Given the importance of growth
companies as engines of job creation and wealth production, our weakness in entrepreneurship is
a serious problem.
Louisville may not have as much talent as some other places, but we do have thousands of
entrepreneurs and potential entrepreneurs, some of whom have the potential to create great
companies. We may not have as much capital as some places, but we do have capital that is
ready to help launch tomorrow's hot growth companies. We may not have as much technology as
some places, but we do have plenty of good ideas for new products and services.
What we lack is a coordinated strategy for mobilizing the resources we do have for maximum
impact, and a plan for overcoming our weaknesses across time. What we lack is a culture that
encourages and supports entre-preneurs and entrepreneurship.
These weaknesses can be addressed by making a commitment to entrepreneurship as a key to our
city's economic future. That commitment would require the creation of a new institution–an
Enterprise Corporation of Louisville–that would become the focal point for our efforts to create
and support entrepreneurship in Louisville.
Louisville can be more entrepreneurial. If we want to have a prosperous, resilient economy, we
must be more entrepreneurial. Now is the time to begin building our entrepreneurial future.
31
Appendix A
Entrepreneurial Support Programs in Louisville
Louisville already has some programs designed
to help small business and entrepreneurial
ventures. Many of these programs have emerged
recently as a part of the community's new interest
in entrepreneurship.
Existing Programs
Louisville's existing program for small business
support include the Center for Small Business at
the Louisville Area Chamber of Commerce, the
Small Business Development Centers at
Bellarmine College and the University of
Louisville. These programs are primarily
focused on delivering know-how to entre-
preneurs and potential entrepreneurs in the
community.
The Center for Small Business (Chamber of
Commerce) offers a number of programs for the
personal and professional development of the
growing company owner or manager and is
beginning to create a support system to foster the
start of entrepreneurial ventures. The Center for
Small Business is dedicated to nurturing and
encouraging the growth of small-to-mid-sized
companies. Programs include:
• Business at Breakfast Series
• Business Solutions Center
• CEO Roundtable Program
• CEO Strategic Planning Program
• Climbing Mountains Seminar
• Fine-Tuning Workshops
• Topical Seminars
• Videotape Library
The Small Business Development Center
(Bellarmine College) provides comprehensive
training and management assistance to existing
small businesses and start-up companies. One-
on-one counseling is provided at no charge to
business owners with particular problems or
opportunities related to their business operations.
Counseling reaches into all areas of business,
including financing, management, personnel,
operations, marketing, sales, etc. Courses and
seminars are scheduled on a regular basis and
cover a variety of topics important to the small
business owner. For individuals who are starting
a business, the SBDC provides a comprehensive
training plan which prepares the individual for
one-on-one contact with the counselor. Courses
offered include:
• Pre-Startup Skills
• Financing a Small Business/Preparing a
Loan Application
• Developing a Business Plan
The Small Business Development Center
(University of Louisville) provides counseling
services to entrepreneurs and companies that
have technology-dependent enterprises. The
SBDC draws upon the expertise of its staff and
on the University of Louisville's faculty,
including that of the Speed Scientific School.
The Center provides business management
assistance to technology-based enterprises and
provides services to local companies interested in
making application for federal Small Business
Innovative Research (SBIR) grants.
The Small Business Institutes (University of
Louisville and Bellarmine College) are
designed to give Kentucky small business owners
an opportunity to receive intensive management
counseling from qualified college-level business
students working under expert faculty guidance.
The students meet frequently over the course of a
full university term with the small business
owner to identify and solve specific management
problems. Business clients receive a detailed
report on the steps they need to take to make
improvements in their operations.
The Jefferson Community College
Entrepreneurial Institute (Jefferson
Community College Southwest) offers classes
for small-business owners. The classes are
designed to provide new business owners with
information necessary for solid business planning.
The primary purpose is to adequately prepare
those individuals who wish to start their own
small businesses. The instructors employ a
fundamental, hands-on approach to business
ownership covering aspects such as developing a
business plan, bookkeeping systems, legal
considerations and marketing techniques. JCC's
Entrepreneurial Institute has been named a
National Model Program, and is one of only three
programs in the nation to receive this honor.
The Indiana University Southeast Small
Business Institute offers classes in entrepre-
32
neurship and offers periodic Small Business
Forums–short breakfast forums on topics of
interest to small firms. In addition, several IUS
faculty members, including SBI Director Dr.
Edward Hufft, provide consulting help for small
businesses.
The Division of Small Business (State of
Kentucky) encourages small business
development in the state by providing potential
and existing small businesses with information
on start-ups, training, financing and business
planning; directing individuals to resources that
offer specialized assistance; counseling
craftspersons and critiquing business plans and
loan applications for crafts loans; coordinating
and initiating programs, workshops and seminars
beneficial to small businesses; and providing
assistance to individuals interested in success-
fully operating businesses from their homes.
The Small Business Administration (SBA) is a
federal agency created by Congress in 1953 to
assist small businesses that are independently
owned and operated. The SBA offers a broad
range of loan programs including a loan
guarantee through banks. The agency provides
counseling, business education, and training
seminars to existing and potential entrepreneurs
and corporations in cooperation with SCORE
and the Small Business Development Centers
throughout Kentucky. The agency also
specializes in general courses, workshops and
one-on-one counseling five days a week. The
SBA provides publications related to business
operation and management.
The Service Corps of Retired Executives
(SCORE) volunteers provide management
counseling without charge to assist companies
with business start-up, expansion, review
operations and management problems. SCORE
provides regular courses in Owning Your Own
Business, Forecasting and Cash Flow,
Recordkeeping, Accounting and other topics
pertinent to new ventures.
The Louisville/Jefferson County Office for
Economic Development (OED) is a joint
city/county government agency which provides
expansion and retention assistance to local
businesses through a variety of economic
development programs. Programs of interest to
entrepreneurial ventures include:
• Business loans
• Expediting the bureaucratic process when
accessing government services (permitting,
zoning, licensing, etc.)
• Minority business assistance
• Neighborhood commercial development for
targeted areas
• Export trade assistance
• A BUY LOUISVILLE program to link local
suppliers to local buyers
• Government procurement assistance to help
businesses obtain contracts with local, state
and federal government agencies
• The INVESTNET capital network
The Louisville Minority Business
Development Center (LMBDC) provides
counseling, management and technical
assistance, and training and business
development programs to ethnic minority
businesses and individuals. LMBDC specializes
in business planning, loan packaging and
contract procurement. Additional services
include: advertising and promotion; bidding and
estimating; marketing strategies; demographic
reports; finance and accounting; lines of credit;
and construction project reports. Data resources
include information on marketing, construction,
export, loan programs, government contracts,
and bonding. LMBDC is an advocate for
minority business and identifies business capital
and procurement opportunities.
The Minority Business Development Division
(The Chamber) facilitates and promotes pro-
curement opportunities and technical training for
African-American-owned businesses in the
community. These educational and networking
opportunities are promoted through the division's
Procurement Through Partnership program,
which meets monthly, and its Electronic Data
Interchange (EDI) Training program.
Our Recent Progress
In the past year, several new programs and
initiatives have been launched in Louisville,
some of which are intended to help improve the
community's entrepreneurial culture and others of
which are designed to offer training and support
to entrepreneurs.
Urban Workshop In the summer of 1995, a
group of Louisville leaders journeyed to Kansas
City on the Louisville Chamber's annual Urban
Workshop. On this trip, these Louisvillians were
exposed to the programs of the Center for
Entrepreneurial Leadership of the Kauffman
33
Foundation and to the Center for Business
Innovation, a Kansas City incubator.
Growing Success Day In September 1995, the
Chamber produced a one-day event called
Growing Success: A Celebration of
Entrepreneurship in Louisville. Growing
Success featured some of Louisville's most
successful entrepreneurs–people like David
Jones, Bruce Lunsford, Charlie Johnson, and
Debbie Scoppechio–who told their success
stories to the audience of over 650 entrepreneurs
and potential entrepreneurs. The event also
included an exhibition highlighting 25 local
entrepreneurial companies and 15 providers of
services to entrepreneurs. A one-hour edited
version of the program was broadcast numerous
times on the local public-access channel, where it
was seen by thousands more.
FastTrac In early 1996, the Louisville Chamber
launched a new training program for entrepre-
neurs, Premier FastTrac. Premier FastTrac is a
practical and effective business development
program for entrepreneurs. It is designed to
assist entrepreneurs in getting their new ventures
off to the right start or to quickly develop the
skills they need to manage and grow their
businesses. FastTrac I, a nine-session course,
offers basic training to entrepreneurs who are
considering launching new ventures. FastTrac II,
an eleven-session course, offers more advanced
training to entrepreneurs in existing ventures.
FastTrac was created by Dr. Courtney Price and
is endorsed by the Center for Entrepreneurial
Leadership, and is offered in Louisville by the
Chamber in conjunction the Midwest Center for
Entrepreneurial Education.
Conclusion
The existing entrepreneurial support programs in
Louisville are an important source of Know-how
for entrepreneurs in the community. But because
they are small, underfunded, underpublicized,
and lack coordination, they are not reaching as
many entrepreneurs as they might. Further, these
existing programs have not yet been effective in
molding our culture. While they provide a base
for future efforts in entrepreneurial economic
development, there is much more that we can do.
34
EndNotes
1. Who's Creating Jobs 1995, David Birch,
Anne Haggerty, and William Parsons, ©
Cognetics, Inc, 1995, p. 4
2. Corporate Evolution, David Birch, Anne
Haggerty, and William Parsons, ©
Cognetics, Inc, 1995, p. 3
3. Who's Creating Jobs 1995, p. 6
4. ibid., p. 8
5. New Venture Creation: Entrepreneurship in
the 1990s, Third Edition, Jeffry A. Timmons
with Leonard E. Smollen and Alexander l.M.
Dingee, Jr., Irwin, © Jeffry Timmons, p. 24
6. Heaven Help Us ('Business Angels' Provide
Investment Capital, Dale D. Buss, Nation's
Business, November 1993 v81 n11 p29
7. How to be an Angel, Susan Oliver, Forbes,
June 19, 1995, v155 n13 p. 228
8. Heaven Help Us ('Business Angels' Provide
Investment Capital, p. 29
9. The Entrepreneurial Mind, Jeffry Timmons,
Success, April 1994, v41 n3 p. 48
10. "Frist 'family tree' has roots firmly planted in
Nashville," Sandy Lutz, Modern Healthcare,
September 11, 1995
11. Prescription for Opportunity: How
Communities Can Create Potential for
Entrepreneurs, Norris F. Krueger, Jr., Small
Business Foundation of America, © Norris
F. Krueger, Jr., 1995, p. 5
12. Entrepreneurial Hot Spots, David Birch,
Anne Haggerty, and William Parsons, ©
Cognetics, Inc, 1994, p. 2
Significant Starts are companies founded
within the last 10 years which now employ at
least 5 people. Young Growers are firms
that were 10 years old or less four years ago
and which have grown significantly during
the last four years. A places rank in the
Entrepreneurial Hot Spots listing is based
on a weighted average of its Significant Start
Index and its Young Grower Index.
Cognetics uses a metric called the Growth
Index to measure the growth of firms. The
Growth Index for a firm is its percent
employment growth (expressed as a
decimal) times its absolute employment
growth. For instance, a firm that grew from
20 to 30 employees would have a growth
index of (30/20) x (30-20) or 5. The Growth
Index captures both the absolute number of
jobs created by a firm and the percentage
growth of jobs, thus avoiding distortions
caused by very small firms that add one or
two jobs but have high growth rates and very
large firms that add a large number of jobs
but have very small percentage growth in
employment.
Cognetics considers firms with a Growth
Index of 3 or more to be growing
significantly.
13. One other Louisville-based firm, Res-Care,
completed its IPO in December, 1992. Its
current market capitalization is about $106
million. Other recent Louisville-based IPOs
include Caretenders, Rally's, and Vencor.
14. Inc. 500 Companies By State, 1982-1994,
Compiled by Inc. Magazine
15. "The Economic Impact of Venture Capital,"
a joint study conducted by Coopers &
Lybrand, Strategic Management Services,
and Venture Economics, Inc., quoted in
Venture Capital at the Crossroads, William
D. Bygrave and Jeffry A. Timmons, Harvard
Business School Press, 1992, p. 3
16. Venture Capital at the Crossroads, p. 286
17. Telephone interview with Robert Compton,
partner, CID Equity partners, Indianpolis,
Indiana
18. See, for example, The New Business
Incubator: Linking Talent, Technology,
Capital and Know-How, Raymond W.
Smilor and Micheal Doud Gill, Jr.,
Lexington Books, © 1986 D.C. Heath and
Company, pp. 13-14; Venture Capital at the
Crossroads, p. 251-258; and Entrepre-
neurial Hot Spots, p. 13-18
35
19. Inc., Special Issue: The State of Small
Business, May 16, 1995, p. 61
20. Change Agents in the New Economy:
Business Incuabtors and Economic
Development, Candice Campbell, National
Business Incubator Association, October
1987, p. 6
21. Assuming that Louisville invested $2500 per
year (in 1995 dollars) to educate each of the
21,000 young people who left the
community after 1980, and assuming that
each of these people spent 8 years in our
schools before moving, Louisville's net
export of educational investment in the
1980s was approximately $420 million.
22. The 1995 Development Report Card for the
States, Ninth Edition, © 1995 The Cor-
poration for Enterprise Development, p. 166
23. Comparative Analysis of Kentucky's Tax
Structure, prepared by Policy Economics
Practice of Barents Group LLC, a KMPG
Peat Marwick Company, Washington, DC,
July 19, 1995
24. Prescription for Opportunity: How
Communities Can Create Potential for
Entrepreneurs, Norris F. Krueger, Jr., Small
Business Foundation of America, © Norris
F. Krueger, Jr., 1995, p. 15
25. ibid., Introduction
26. ibid., Executive Summary
27. Corporate Evolution, p. 11
28. U.S. Small Business Administration, August
29, 1988; B.D. Phillips and B. A. Kirchoff,
"An Analysis of Firm Survival and Growth,
Frontiers in Entrepreneurship Reseach:
1988, ed. B. Kirchoff et al., pp. 266-267,
quoted in New Venture Creation:
Entrepreneurship in the 1990s, Third
Edition, Jeffry A. Timmons with Leonard E.
Smollen and Alexander l.M. Dingee, Jr.,
Irwin, © Jeffry Timmons, p. 11
29. ibid., p. 11
30. ibid., p. 11
31. Inc., Special Issue: The State of Small
Business, May 16, 1995, p. 24
32. Corporate Evolution, p. 11
33. Hot Industries 1995 , David Birch, Anne
Haggerty, and William Parsons, ©
Cognetics, Inc, 1994, p. 7
34. Inc., The Inc. 500 1995, p. 39
35. Who's Creating Jobs 1995, p. 7
36. Inc. 500 Companies By State, 1982-1994
37. Entrepreneurial Hot Spots, p. 13
38. Truths and Falsehoods about
Entrepreneurs, Donald J. McNerny, HR
Focus, August 1994, V71 n8 p. 7
39. The Entrepreneurial Mind, Jeffry Timmons,
Success, April 1994, v41 n3 p 48
40. Growing New Ventures, Creating New Jobs:
Principles & Practives of Successful
Business Incubation, Mark P. Rice and Jana
B. Matthews, Quorum Book, © 1995 Center
for Entrepreneurial Leadership, Inc., p. xiv
41. ibid., p. xx
42. ibid., p. 145
43. Hot Industries 1995, p. 9
44. Who's Creating Jobs 1995, p. 7
45. Who's Creating Jobs 1995, p. 5
46. The New Business Incubator, p. 15
36
Methodology
This report was commissioned as an outcome of
the Louisville Area Chamber of Commerce 1995
Urban Workshop. At the Workshop's follow-up
meeting, the attendees requested Douglas Cobb,
Chairman-elect of the Chamber, to form a
committee and create a "business plan" for
entrepreneurial development in Louisville. This
report is that plan.
The Entrepreneurial Development Committee
met for the first time in October 1995. The
members of the committee are
Douglas Cobb Chrysalis Ventures, Inc.
David L. Armstrong County Judge/Executive,
Jefferson County
Nolan Allen Cotton and Allen
Brad Baumert Zip Express
Malcolm Chancey Bank One Kentucky
Dr. Paul Coomes University of Louisville
Tonya York Dees Chamber of Commerce
Bill Federhofer Small Business
Administration
Lynn Fischer Hospitality TV
Bill Frentz InvestNet
Ed Glasscock Brown, Todd, & Heyburn
Norm Gill Bohn-Gill Design
Jerome Hutchinson Greater Louisville
Communications
Mark Kristy Coopers & Lybrand
Bruce Lunsford Vencor
Neil MacDonald Independent Container
Merrily Orsini Eldercare Solutions
Jerome Parham African Amerian Venture
Capital Fund
Andy Payton Professional Search
Consultants
Dr. Ed Popper Bellarmine College
Jim Rives Rives Development
Debbie Scoppechio Creative Alliance
Paul Schulte Horizon Research
Brad Smith Ernst & Young
Maurice Smith Heritage Hardwoods
Rudy Straub E&H Integrated Systems
Al Sullivan Sullivan College
Dr. Robert Taylor University of Louisville
Karen Taylor Chamber of Commerce
Paul Thistleton Office of Economic
Development
Sharon Williams Chamber of Commerce
After considering the proper outline and scope of
the project, the Committee decided to create a
Research Subcommittee that would gather the
data and draft the report. That Subcommittee
was lead by Mr. Cobb and included:
Brad Smith Ernst & Young
Mark Kristy Coopers & Lybrand
Barbara Keane Deloitte & Touche
Hart Hagan Carpenter & Mountjoy
Paul Schulte Horizon Research
Paul Coomes University of Louisville
This committee’s research included
• A thorough review of academic and popular
literature on entrepreneurship and
entrepreneurial economic development
• Study of other data sources (such as census
data) for information about Louisville’s
economic health
• Focus groups with both experienced and
new entrepreneurs
• Interviews with leaders of successful
entrepreneurial economic development
agencies in other communities
After collecting its data, the Research
Subcommittee drafted this report. After careful
review, the final report was submitted to the
Entrepreneurial Development Committee on
March 11, 1996, and was adopted by that
committee on March 28, 1996.
37
Acknowledgments
This report was produced at no cost to the
Louisville Area Chamber of Commerce as a
result of the tireless efforts of many volunteers.
As Chairman of the Entrepreneurial
Development Committee of the Louisville Area
Chamber of Commerce, I would like to thank
each of them and acknowledge their contribution
to this effort.
Douglas Cobb
First, many thanks to the members to the
Entrepreneurial Development Committee: David
L. Armstrong, Nolan Allen, Brad Baumert,
Malcolm Chancey, Dr. Paul Coomes, Tonya
York Dees, Bill Federhofer, Lynn Fischer, Bill
Frentz, Ed Glasscock, Norm Gill, Jerome
Hutchinson, Mark Kristy, Bruce Lunsford, Neal
MacDonald, Merrily Orsini, Jerome Parham,
Andy Payton, Dr. Ed Popper, Jim Rives, Debbie
Scoppechio, Paul Schulte, Brad Smith, Maurice
Smith, Rudy Straub, Al Sullivan, Dr. Robert
Taylor, Karen Taylor, Paul Thistleton, and
Sharon Williams.
Also, much thanks to the members of the
Research Subcommittee–Brad Smith of Ernst &
Young, Mark Kristy of Coopers & Lybrand,
Barbara Keane of Deloitte & Touche, and Hart
Hagan of Carpenter & Mountjoy–and to the
firms they represent for donating their time to
this project. Special thanks to Paul Schulte, CEO
of Horizon Research, for donating his time and
the resources of his firm to perform the focus
groups. Special thanks also to Dr. Paul Coomes
from University of Louisville for his help in
identifying factors that could be used to measure
the entrepreneurial vitality of our community.
Thanks to Jim Rives, Vice Chair of the Center
for Small Business, and Dr. Robert Taylor, Dean
of the College of Business and Public
Administration at the University of Louisville,
for their advice, guidance, and assistance.
Thanks to Jim Wilhelm from Horizon Research
for conducting the survey and the focus groups
that provided critical information to the report.
Thanks to Michie Slaughter, Dr. Ray Smilor, and
Dr. Jana Matthews of the Center for
Enterpreneurial Leadership at the Ewing Marion
Kauffman Foundation, for their advice and their
assistance, and for their leading role in
supporting entrepreneurship across the country.
Thanks to Tonya York Dees, Karen Taylor,
Leslie Hebert, and Kathy Conway of the
Chamber’s Center for Small Business, and to
Curt Martin, Information Center Manager, for
their help in collecting data for the report.
Thanks to Bob Gayle, CEO of the Chamber, for
allowing these people to assist with the project.
Thanks to Vicki Wolfinger of Chrysalis
Ventures, Inc. for her assistance and support.
Thanks to Jefferson County Judge/Executive
David L. Armstrong for his encouragement.
doc_630097831.pdf
On this brief paper about growing success a report on entrepreneurship in louisville.
GROWING SUCCESS
A Report on Entrepreneurship in Louisville
Prepared By
The Entrepreneurial Development Initiative Committee
of
The Louisville Area Chamber of Commerce
March 28, 1996
Table of Contents
Summary of Findings ........................................................................................................1
Summary of Recommendations........................................................................................2
Why is Entrepreneurship Important? .............................................................................3
Entrepreneurship in Louisville.........................................................................................5
Business Creation...........................................................................................................5
Cognetics' Entrepreneurial Hot Spots Rankings ............................................................5
Initial Public Offerings...................................................................................................7
Inc. 500 Companies........................................................................................................7
Venture Capital ..............................................................................................................7
Conclusion .....................................................................................................................8
Entrepreneurial Success Factors ......................................................................................9
Entrepreneurial Success Factors ....................................................................................9
How Does Louisville Measure Up?...............................................................................9
Conclusion ...................................................................................................................15
Entrepreneurial Economic Development.......................................................................16
Creating Entrepreneurship ...........................................................................................16
Is Entrepreneurial Economic Development Effective?................................................17
What Others Are Doing ...............................................................................................21
Conclusion ...................................................................................................................22
Recommendations ............................................................................................................23
Conclusion ........................................................................................................................25
Appendix A: Entrepreneurial Support Programs in Louisville.................................26
Endnotes ...........................................................................................................................29
Methodology.....................................................................................................................31
Acknowledgments ............................................................................................................32
1
Summary of Findings
Entrepreneurial companies are the source of nearly all of the net new jobs and most of the
new wealth created in the economy. Research by Cognetics, Inc. indicates that most new job
creation occurs in a small number of mostly young, small, rapidly growing companies. These
"Gazelle" companies–about 300,000 firms, or 3% of the total–accounted for all of the net job
growth in the U.S. between 1990 and 1994. In addition, entrepreneurial companies create much
of new wealth in the economy–wealth which helps fund civic projects and serves as the seed
capital for the next generation of growth companies.
Louisville trails its closest competitors significantly in the creation of high-growth
companies. When compared to nearby cities like Nashville and Indianapolis, Louisville has
fewer small companies per capita and fewer growth companies. For instance, since 1992
Louisville has produced just 3 new public companies, compared to 12 in Nashville and 11 in
Indianapolis. Similarly, Louisville has produced just 5 Inc. 500 high-growth companies since
1992, compared to 15 in both Nashville and Indianapolis. In a ranking of America's
entrepreneurial "hot spots" produced by David Birch of Cognetics, Inc., Indianapolis ranks 4th,
Nashville 12th, and Louisville 74th. Louisville has vastly less venture capital–an important
resource for growth companies–than either Nashville or Indianapolis.
Louisville has a number of characteristics that contribute to its relatively cool
entrepreneurial temperature. Louisville's deficit of significant growth companies is the result
of important weaknesses in each of the five key "entrepreneurial success factors" identified by
experts: Talent, Know-How, Capital, Technology, and Culture.
With regard to Talent, Louisville's population has not grown significantly in the past two
decades, while the populations of nearby cities such as Nashville have exploded. In the past 20
years, over 28,000 more young people have left Louisville–to seek education or job opportunities
elsewhere–than have moved into the city. Louisville trails its nearby competitors significantly in
the percentage of its population with either high school or college education.
As previously mentioned, Louisville has a much smaller pool of Capital than some of its nearby
competitors. With regard to Technology, Louisville has few institutional sources of innovative
new technology, and those that do exist trail competitors in other cities. While the community
does possess entrepreneurial Know-How, it does only a fair job of mining its base of knowledge.
Perhaps most significantly, our community's Culture is not particularly favorable to
entrepreneurship. Entrepreneurship is not accepted or encouraged in Louisville to the extent
that it is in some other cities, and our tax and regulatory environment does not encourage
entrepreneurship.
Entrepreneurship is a critical part of a sound economic development strategy. Since growth
companies create most of the jobs and much of the new wealth in the economy, communities that
wish to create jobs and wealth must have a healthy supply of home-grown entrepreneurial
companies. Contrary to conventional wisdom, which holds that entrepreneurship cannot be
taught, that most entrepreneurial companies fail, and that entrepreneurial companies create only
undesirable jobs, entrepreneurship can be a successful economic development strategy.
2
Communities can foster more entrepreneurship by fashioning a culture that supports and
encourages entrepreneurs and by offering programs like training, mentoring, and networking that
help deliver entrepreneurial know-how to new ventures.
Louisville has a few programs that offer support to entrepreneurial companies, but these
programs are fragmented, underfunded, and underpublicized. The community has begun taking
new steps to encourage entrepreneurship, but much work remains to be done.
3
Summary of Recommendations
If it is to be competitive, Louisville must adopt a strategy of supporting and encouraging
the creation of more growth companies. Louisville should make a commitment to
entrepreneurship as an economic development strategy. This commitment would include the
creation of an Enterprise Corporation of Louisville, which would become the focal point for the
community's entrepreneurial development effort.
The mission of the Enterprise Corporation would be to
• Create a new "Culture of Entrepreneurship" in Louisville
• Dramatically increase the number and quality of entrepreneurial companies in Louisville
with the result that Louisville becomes a more prosperous, dynamic, and resilient community.
The Enterprise Corporation could consolidate and coordinate existing entrepreneurial support
programs, and would launch significant new support programs. It would be a virtual incubator,
offering the support services commonly associated with incubators without the real estate. The
Enterprise Corporation would champion the cause of entrepreneurship in Louisville by producing
an annual "Celebration of Entrepreneurship" event, publishing an annual report on entrepre-
neurship in Louisville, and publicizing and promoting the Corporation's entrepreneurial support
programs. Across time, the Enterprise Corporation would also help lead the effort to overcome
Louisville's structural weaknesses in capital, technology, and talent.
The Enterprise Corporation would have equal status with other leading economic development
agencies, including the Chamber, the Partnership, and OED. It would be funded through
program revenues and fees, and through grants from the State, City, and County, local
businesses, and local and out-of-town foundations. It would have a board of leading supporters
of entrepreneurship, and a CEO with entrepreneurial experience.
4
Why is Entrepreneurship Important?
Why is entrepreneurship important? Why should
a community like Louisville be concerned about
the quantity and quality of its small, growing
companies? What difference does a thriving
entrepreneurial sector–or lack thereof–make to
the long-term prosperity of a community?
Entrepreneurial companies create nearly all
of the net new jobs in the economy. It is a
truism that small companies create most of the
new jobs in the economy. But a careful look at
the actual job-creation data shows the great
extent to which job creation actually is concen-
trated in a very few rapidly growing companies.
Research into job creation confirms that most of
the net new jobs in the economy are created by
small companies. The leading research into job
creation and entrepreneurship comes from
Cognetics, Inc., a consulting firm founded by
David Birch, formerly an MIT professor and one
of the deans of entrepreneurial research. In the
1994 report Who's Creating Jobs, Cognetics
explains that, if one divides all companies into
two equal groups by number of employees,
companies in the "bottom half" (roughly, those
employing 100 or fewer people) created 65% of
the gross new jobs between 1990 and 1994, and
about 195% of the net new jobs.
1
In other words,
small companies created enough jobs to com-
pensate for all the jobs lost in larger firms, and
then added millions more.
Birch points out that the period 1990 to 1991 was
a time of recession, and that small companies'
contribution to job creation in recession is higher
than in times of growth. Still, he concludes that,
across time, about two-thirds of the net new jobs
will be created by small companies.
It is not small companies per se but growing
companies--most of which are small--that create
jobs. When seeking the source of new jobs, it is
more useful to focus on the growth rate of
companies than on their size. While it is true that
most of the net new jobs are created by small
companies, not all small companies grow; in fact,
most do not. For instance, Cognetics reports that
54.8% of the firms which were started in 1965
(and which remained in business in 1994) had
fewer than 5 employees in 1994. Less than 5% of
those firms had more than 50 employees.
2
According to Cognetics, most new job growth
occurs in a small number of rapidly growing
companies, which it calls Gazelles. It is this
group of companies–about 300,000 firms, or 3%
of the companies in the U.S.–that accounted for
all of the net job growth between 1990 and 1994.
Most of these companies are small–over 80%
have fewer than 20 employees–but they have an
impact that far exceeds their size.
3
While most Gazelles are small, the few that are
large are very important. Cognetics found that a
very small group of larger Gazelle companies–
Gazelles that had over 100 employees in 1990–
produced 53% of the net jobs produced by all
Gazelle companies in the period 1990 to 1994.
This group of companies, which Cognetics calls
Superstars, make up just 3.6% of the Gazelles–
only .1% of all companies or about 11,000
companies nationwide–yet were responsible for
creating about half the new jobs between 1990 to
1994.
4
This despite the fact that larger com-
panies as a group create few net new jobs.
In short, it is growth companies–most of which
are small, but a few of which are large–that are
the crucial engines of economic growth. While
these companies represent just a tiny percentage
of the total number of companies, they create
nearly all the net new jobs in the economy.
Entrepreneurial companies create much of the
new wealth in the economy. As entrepre-
neurial companies grow and create jobs, they are
also creating wealth. While this wealth is the
private property of the owners of the business, in
another sense it is a real community asset.
For instance, think of the philanthropic work
done by organizations such as the Ford Foun-
dation and the Rockefeller Foundation, or the
personal philanthropy of Andrew Carnegie–all
the result of entrepreneurial success. On the
recent Urban Workshop to Kansas City, a
delegation of Louisvillians saw evidence of the
wealth created by home-grown companies
including The Crown Center (created by Hall-
mark) and the Ewing Marion Kauffman Foun-
dation (Marion Labs). In Louisville the wealth
created by our most successful entrepreneurs has
helped fund The Kentucky Center for the Arts,
The Riverfront Development, the Grawmeyer
Awards, and many other projects. Entrepre-
5
neurial wealth is also responsible for the Brown
Foundation, the Humana Foundation, and many
other local foundations.
The total wealth generated by entrepreneurial
businesses in a community is hard to measure,
since much of it remains hidden inside closely-
held businesses for generations. However, when
companies are sold or taken public it is possible
to get a glimpse of the wealth created. For
instance, in the 1990s several local entrepre-
neurial companies, all started in the 1980s–
including Healthcare Recoveries, CompDent,
The Cobb Group, Home Care Affiliates, and
Financial Alliance–were sold for an aggregate
price of over $200 million dollars. Much of this
wealth remains in the community, and some of it
is being reinvested in new growth companies.
Similarly, four companies have gone public in
Louisville since 1990: VideoLan, Papa John's
Pizza, Commonwealth Aluminum, and Res-Care.
These companies have an aggregate market value
of about $750 million. While much of this
wealth is held by investors outside of Louisville,
much of it remains in the hands of the com-
panies' investors, founders, and employees in
Louisville. When combined with value gen-
erated by earlier IPO companies such as Vencor
and Humana, this locally-held entrepreneurial
wealth is a vital community asset.
Entrepreneurship leads to more entrepre-
neurship, resulting in a thriving, resilient
economy. Research into the process of
entrepreneurship indicates that places with lots of
entrepreneurial companies are on the way to
having even more entrepreneurship. This is true
for several reasons.
Successful entrepreneurs serve as role models
for future entrepreneurs. The existence of
visibly successful entrepreneurs in a place can be
a powerful encouragement to potential entre-
preneurs. Aspiring entrepreneurs gain assurance
that "It can be done" by observing the successes
of earlier entrepreneurs, and the assurance that "I
can do it" as they hear stories of early-stage
struggles and mistakes of successful entre-
preneurs. Even more important is the role that
experienced entrepreneurs can play as mentors or
advisors for emerging entrepreneurs. According
to Jeffry Timmons, founder and director of the
Price-Babson College Fellows Program and
professor of entrepreneurship at the Harvard
Business School and Babson College
Numerous studies show a strong connection
between the presence of role models and the
emergence of entrepreneurs.
5
Successful entrepreneurs are an important
source of risk capital for new entrepreneurial
ventures. Research by William Wentzel, director
emeritus of the Center for Venture Research,
indicates that so-called "angel" investors–private,
wealthy individuals who provide funding for
entrepreneurial companies–invest up to $10
billion annually in up to 40,000 companies
nationwide.
6
The size of the angel market is
several times that of the professional venture
capital market, which in 1994 invested some $2.6
billion in about 1000 companies, and far less
than $1 billion in early stage companies.
7
And
the most important source of angels are
entrepreneurial companies: about three-quarters
of angels are self-made millionaires, many of
whom are entrepreneurs.
8
Entrepreneurial companies are an important
training ground for future entrepreneurs. Many
potential entrepreneurs apprentice in entre-
preneurial companies before embarking on their
own ventures. Jeffry Timmons writes
Most entrepreneurs follow a pattern of
apprenticeship, where they gain business
experience and knowledge from their jobs or
from parents who are self-employed.
9
One real-world example of this sort of
entrepreneurial training ground is Hospital
Corporation of America (now part of
Columbia/HCA) of Nashville. Some 65
companies have been founded by former
employees of that company, including Phycor, a
leading physician management company, and
Surgical Care Affiliates, the nation's largest
independent surgery center chain.
10
Entrepreneurial companies are crucial to a
prosperous economy. If it is true that
entrepreneurial companies create most of the
jobs and much of the new wealth in the economy,
then communities that wish to create jobs and
wealth should promote and support the
development of home-grown entrepreneurial
companies. According to Dr. Norris F. Krueger
of the firm Entrepreneurial Strategies,
A community that wishes to be competitive
in the future must grow its own new com-
panies, particularly highly-competitive, fast-
growing "gazelle" firms. If the community
6
wishes to stay competitive, it must become
increasingly hospitable to entrepreneurs.
11
If the production of home-grown companies is
the key to future competitiveness, the next
question to ask is how Louisville is doing in the
creation of these companies. We'll consider that
issue in the next section.
7
Entrepreneurship in Louisville
If entrepreneurship is, in fact, important to our
community's long-term vitality and prosperity,
then we must consider how well Louisville is
doing in creating growth companies.
Measuring the entrepreneurial vitality of a
community is not simple: There is no one
statistic or fact that captures all of the important
aspects of entrepreneurial vitality. In fact, there
is no one definition of entrepreneurship on which
all researchers agree.
There are, however, a number of useful metrics
that, when taken together, give a good picture of
the entrepreneurial health of a community. First,
the U.S. Census Bureau publishes information
about the number and sizes of companies by
metro area. A more refined look at growth
companies (as opposed to simple business starts)
is the Entrepreneurial Hot Spots ranking
produced by Cognetics, Inc. Other useful
measures of entrepreneurship include the number
of initial public offerings of companies
headquartered in the community, the number of
Inc. 500 companies, and the amount of venture
capital available and deployed in a community.
Business Creation
As shown in Table 1, in the period from 1988 to
1992 Louisville added 1,744 new small
companies (companies with fewer than 100
employees), an 8.0% increase. Although
Louisville trails most of its competitors in
absolute number of businesses created (1,744 for
Louisville compared to 1,810 for Nashville and
3,288 for Indianapolis), its comparative growth
rate is positive.
Table 1
Businesses with Fewer Than 100 Employees,
Selected MSAs
City 1988 1992 Growth Percent
Indianapolis 32,422 35,710 3,288 10.1%
Louisville 21,744 23,488 1,744 8.0%
Charlotte 30,275 32,514 2,239 7.4%
Cincinnati 39,342 42,105 2,763 7.0%
Nashville 25,360 27,170 1,810 7.1%
Kansas City 39,633 41,545 1,912 4.8%
Source: Business First of Louisville, July 10, 1994
Table 2 shows the number of small businesses
(companies with fewer than 100 employees) in
1992 per 100,000 population for several cities.
This data shows that, while Louisville is creating
new companies, it is behind its near competitors
in number of small businesses per capita and
appears to be falling further behind. For
instance, Louisville would have to add about
2,152 small companies in order to have the same
number per capita as Nashville. Given the
current rates of increase, however, the gap
between them is increasing, not decreasing. The
same is true for Louisville and Indianapolis.
Table 2
Small Businesses per 100,000 Residents, 1992
City Number Rank
Charlotte 2,686 11
Nashville 2,655 14
Kansas City 2,574 22
Indianapolis 2,508 30
Louisville 2,432 39
Cincinnati 2,261 60
Source: Business First of Louisville, July 10, 1994
So while Louisville is generating a fair number of
new small companies, it is not creating as many
as some of its near competitors. Further, as we'll
see in the following sections, there is a question
as to whether Louisville is generating enough of
the right kind of small companies: small
companies with growth potential.
Cognetics' Entrepreneurial Hot Spots
Ranking
Cognetics' Entrepreneurial Hot Spots ranking
combines two measurements of entrepreneurial
vitality: the number of "Significant Starts" and
the percentage of "Young Growers" in an area.
To rank high on the list, a place must have a
large number of significant startups and be able
to support their continuing growth.
12
Table 3 shows Cognetics' Entrepreneurial Hot
Spots list for the 100 highest ranking metro
areas. Louisville ranks 74th overall with an
index of 46, placing it ahead of such cities as
Cincinnati, Memphis, Dayton, Richmond, and
Kansas City. Notice, however, that Indianapolis
is tied for 4th with an index of 75 (more than
50% higher than Louisville's), that Nashville is
8
12th with an index of 65, and that Birmingham is
16th with an index of 62. Notice that Louisville
also trails a number of smaller nearby
competitors such as Huntsville (90), Knoxville
(61), Lexington (56), and Chattanooga (56).
Because this list is compiled by MSA or CMSA,
entrepreneurially hot smaller cities within larger
metro areas are obscured. When these smaller
cities are broken out, some of them rank quite
high. For instance, Sunnyvale, California (San
Francisco) has an index of 86 and Irvine,
California (Los Angeles) has an index of 64.
Table 3
Cognetics Entrepreneurial Hot Spots Ranking of Metro Areas, 1994
Rank Metro Area Index
1. Huntsville, AL 90
2. Las Vegas, NV 79
3. Atlanta, GA 76
4. Charlotte, NC 75
Indianapolis, IN 75
6. Green Bay-Appleton, WI 70
7. Salt Lake City-Provo, UT 69
8. Charleston, SC 68
9. Honolulu, HI 67
Hickory, NC 67
11. Raleigh-Durham, NC 66
12. Nashville, TN 65
13. Jacksonville, FL 64
Baton Rouge, LA 64
15. Montgomery, AL 63
16. Birmingham-Tuscaloosa, AL 62
17. Knoxville, TN 61
18. Milwaukee-Racine-Sheybogen, WI 60
Melbourne-Titusville, FL 60
20. Springfield, MO 59
Lafayette, LA 59
Albuquerque, NM 59
23. Miami-Ft. Lauderdale, FL 58
Denver-Boulder, CO 58
Boise, ID 58
South Bend-Benton Harbor, IN-MI 58
Pensacola, FL 58
Mobile, AL 58
29. Lynchburg, VA 57
Asheville, NC 57
31. Washington, DC-MD-VA 56
Greenville-Spartanburg, SC 56
Savannah, GA 56
Lexington, KY 56
Chattanooga, TN-GA 56
Burlington-Montpelier, VT 56
37. Wilmington, NC 55
Madison, WI 55
Fort Wayne, IN 55
40. Spokane, WA 54
Tallahassee, FL 54
Tulsa, OK 54
Sioux Falls, SD 54
Columbia, SC 54
45. West Palm Beach, FL 53
Columbus, GA 53
47. Phoenix, AZ 52
Terre Haute-Bloomington, IN 52
Austin, TX 52
Des Moines, IA 52
Source: Entrepreneurial Hot Spots, Cognetics, Inc.
9
Rank Metro Area Index
51. Orlando, FL 51
Macon, GA 51
El Paso, TX 51
Reading, PA 51
Anchorage, AK 51
Tucson, AZ 51
57. Jackson, MS 50
Fayetteville, NC 50
59. Greensboro-Winston-Salem, NC 49
Seattle, WA 49
Portland-Vancouver, OR 49
Ft. Smith, AR 49
Fargo, ND 49
Evansville, IN 49
65. Houston-Galveston, TX 48
San Antonio, TX 48
Minneapolis-St. Paul, MN-WI 48
Reno, NV 48
Augusta, GA 48
70. Columbus, OH 47
Ft. Meyers, FL 47
Toledo, OH 47
Fort Pierce, FL 47
74. Louisville, KY-IN 46
Manchester-Nashua, NH 46
Topeka-Lawrence, KS 46
77. Cincinnati, OH-KY-IN 45
Fort Collins, FL 45
Sarasota-Bradenton, FL 45
80. San Diego, CA 44
Grand Rapids-Muskegon, MI 44
Salinas-Seaside-Monterey, CA 44
Battle Creek-Kalamazoo, MI 44
Wichita, KS 44
Andersen-Muncie, IN 44
Panama City-Fort Walton Beach, FL 44
87. San Francisco, CA 43
Omaha, NE 43
Springfield-Decatur, IL 43
Eugene, OR 43
Cedar Rapids-Iowa City, IA 43
92. Los Angeles, CA 42
Memphis, TN-AR-MS 42
Dallas-Ft. Worth, TX 42
Lancaster, PA 42
Williamsport-State College, PA 42
97. Norfolk-Va Beach-Newport News, VA 41
Bloomington-Champaign, IL 41
Santa Barbara, CA 41
Little Rock, AR 41
10
Initial Public Offerings
Only a select few growth companies reach the
stage of an initial public offering. Most growth
companies never get large enough for an IPO,
and others that do attain the required size choose
to remain private or sell to other companies.
Nonetheless, publicly-traded growth companies–
the kind of companies most commonly listed on
the NASDAQ Stock Market–are powerful
engines of economic growth. The number of
IPOs of companies headquartered in a com-
munity across time is a good measurement of that
community's success in creating and nurturing
these most successful entrepreneurial companies.
As shown in Table 4, between January 1, 1993
and December 31, 1995, only three companies
headquartered in Louisville (Papa John's Pizza,
VideoLan Technologies, and Commonwealth
Aluminum) went public, raising $156 million.
This compares to 11 Indianapolis-based
companies, which raised $473 million, and 12 in
Nashville, raising $422 million.
13
The results by state were similar. A total of just
six Kentucky companies went public in the
period 1993 to 1995, compared to 31 Indiana-
based companies and 54 Tennessee companies.
Louisville is clearly lagging these competitive
cities in the creation of NASDAQ-type
companies.
Table 4
Initial Public Offerings, 1993 to 1995
City IPOs
Nashville 12
Indianapolis 11
Cincinnati 4
Kansas City 3
Charlotte 3
Louisville 3
Source: NASDAQ
Inc. 500 Companies
Each year since 1982 Inc. Magazine (the leading
magazine covering small business and growth
companies) has compiled and published its list of
the 500 fastest growing private companies in the
United States. This list is an annual "honor
role" of growth companies and, while there are
many successful growth companies that never
make the list, the number of Inc. 500 companies
created in a community across time is a good
indicator of that community's entrepreneurial
vitality.
As shown in Table 5, in 1995 Louisville had one
Inc. 500 company (Healthcare Recoveries, Inc.)
compared to three in Indianapolis and four in
Nashville. From 1993 to 1995, Indianapolis and
Nashville each produced 15 Inc. 500 companies,
while Louisville produced just five. In the three
previous years, Louisville produced 11 Inc. 500
companies, Indianapolis 15, and Nashville eight.
Table 5
Inc. 500 Companies, 1993 to 1995
City 1995 1994 1993 Total
Kansas City 9 6 2 17
Indianapolis 3 2 10 15
Nashville 4 5 6 15
Cincinnati 4 4 5 13
Charlotte 3 0 2 5
Louisville 1 2 2 5
Source: Inc. Magazine
When measured statewide, the results are similar.
From 1982 to 1995, Kentucky produced 36 Inc.
500 companies, compared to 91 in Indiana, 69 in
Tennessee, 185 in Ohio, and 41 in Alabama.
Even when normalized to account for differences
in population between the states, Kentucky trails
these neighboring states.
14
Venture Capital
The venture capital industry plays a catalytic role
in the entrepreneurial process. Venture
capitalists mobilize and allocate scarce capital to
new and early-stage businesses with significant
potential, and work with entrepreneurs to guide
those companies to success. The impact of
venture capital on the U.S. economy has been
tremendous. A survey by Venture Economics,
Inc. and Coopers & Lybrand of 235 venture-
backed companies revealed that between 1985
and 1989 these companies, while on average just
1.9 years old, had created 36,000 new jobs and
had made $170 million in tax payments.
15
The existence of locally-based venture capital is
an important ingredient in the entrepreneurial
vitality of a place. In their book Venture Capital
at the Crossroads, William D. Bygrave and
Jeffry A. Timmons write that
It is unlikely that a country or area can be
competitive in commercial exploitation of
innovative processes, products, or services
without a strong local venture capital
community.
16
11
Why is this true? First, because the existence of
local venture capital makes it easier for entre-
preneurs to seek funding for their innovative
businesses. Similarly, since venture capitalists
prefer to invest close to home (because nearby
companies are easier to research, and once
funded, supervise), local companies have some
advantage in the acquisition of venture capital.
Local venture capital also sends an important
cultural signal to potential entrepreneurs that
"entrepreneurship is important here." Finally,
local venture capital firms are conduits for the
flow of venture capital from out-of-town
investors into a community through locally-led
investment syndicates.
Table 6 shows that Nashville is the home to five
private venture capital firms with total capital of
approximately $375 million, and that Indiana-
polis has five firms with total capital of over
$160 million. By contrast, Louisville has only
one venture capital firm, Chrysalis Ventures,
which has $9 million in available capital.
Table 6
Private Venture Capital Resources, 1994
City Firms Capital
Nashville 6 $374 million
Indianapolis 5 $160 million
Cincinnati 2 $77 million
Kansas City 2 (a) $25 million
Louisville 1 $9 million
(a) Kansas City also has local offices of two out-of-
town venture capital firms. The two firms have a total
of $129 million in capital.
Source: Pratt's Guide to Venture Capital Sources,
1995 Edition
Louisville is the home to several private equity
investment firms (including Mayfair Capital,
Pattco, and R. Gene Smith, Inc.) which are
making venture capital-like investments in local
companies. These firms are different from
classic venture capital firms in that they have not
raised pools of capital from limited partners, but
instead invest the private capital of their
principals. While these firms are an important
source of capital for entrepreneurial businesses in
Louisville, they are not unique–most cities also
have a collection of private equity firms like
those in Louisville. For instance, Indianapolis
has at least four firms of this sort with total
capital of about $55 million.
17
Likewise, Pratt's
Guide to Venture Capital Sources lists two firms
of this sort in Kansas City.
Louisville is also home to the $8 million African-
American Venture Capital Fund, which was
created in 1994 by a group of concerned
Louisvillians lead by Irv Bailey (Providian
Corporation) and David Jones (Humana, Inc.) to
provide risk capital to Louisville-area ventures
headed by African-Americans. This fund is
unique: No other comparable city has raised
anything like $8 million for an African-American
or minority venture capital fund. The fund has
made three investments and is continuing to
consider new ideas and opportunities. However,
the AAVCF is a special interest fund that is not
accessible to most of the businesses in the
community.
Finally, Louisville is also the home of the
Humana Venture Capital Fund, a venture capital
subsidiary of Humana, Inc. According to Pratt's
Guide to Venture Capital Resources, this fund
invests only in businesses in the managed health
care industry.
Conclusion
Judging by the factors we have considered here–
number of small companies, number of growth
companies, number of Inc. 500 companies,
number of IPOs, and the amount of venture
capital available–Louisville is not a leader in the
creation of growth companies. Louisville is
creating more growth companies than some
cities, but it is creating far fewer than the nation's
hottest metro areas, including Louisville's nearest
competitors–Nashville and Indianapolis–which it
trails significantly.
If it is true that entrepreneurial companies are
important engines of economic development,
Louisville's lack of a strong entrepreneurial
sector is not good news. In the next section, we
will consider why.
12
Entrepreneurial Success Factors
Why are some places more entrepreneurial than
others? What is it about one city that makes it
the home of many high growth companies while
another languishes with just a few? And how is
Louisville doing when it comes to the key factors
that lead to entrepreneurial success?
Entrepreneurial Success Factors
What are the key factors that lead to
entrepreneurial success? Various researchers
have considered this question, and while their
conclusions differ somewhat, there is some
consensus that five key factors influence the
ability of a place to be an entrepreneurial "hot
spot." These key factors are Talent, Know-How,
Capital, Technology, and Culture.
18
Figure 1
Entrepreneurial Success Factors
Entrepreneurial
Environment
Culture
Talent
Technology
Capital Know-How
Talent is the people involved in the entre-
preneurial process, including entrepreneurs,
value-added investors, and the professional
community. For a place to be an entrepreneurial
hot spot, it must have both a supply of potential
entrepreneurs–people with the personal
characteristics (determination, self-motivation,
work ethic, and others) that favor entrepreneurial
success–as well as investors, accountants,
attorneys, bankers, and others who understand
the entrepreneurial process. Talent also includes
the quality and quantity of a place's work force–
the workers and managers required to staff
growing companies.
Know-How is the experience and skill required
to turn an idea and capital into a successful
business. Entrepreneurial know-how is a
community resource that resides in a place's
professional firms (accountants, lawyers,
bankers, executive recruiters, and others with
experience advising and working with
entrepreneurs); in business schools; in support
agencies (such as Chambers of Commerce and
Small Business Development Centers); and, most
importantly, in the community's pool of
experienced entrepreneurs.
Capital is financial resources–the lifeblood of
new and growing businesses. This includes
everything from R&D and seed funds to start-up
and later-stage venture capital to equipment
leasing and bank debt. Because capital is so
important to rapidly growing companies, the
ready availability of entrepreneurial capital in a
place is a critical ingredient of entrepreneurial
vitality.
Technology is the basic raw material of the
entrepreneurial venture–ideas for new or
improved products or services with real potential
to become successful businesses. Technology is
the intellectual capital needed to develop new
products, services, and markets. Institutional
sources of technology include universities,
private and public research institutions and labs,
and large corporations. Places with a large
number of high quality "technology engines"
have a good chance of producing a steady stream
of high-potential ideas.
Culture is the attitude and atmosphere of a place.
It includes such things as the social acceptability
of entrepreneurship (including recognition of
success and acceptance of failure), the presence
of entrepreneurial successes to serve as role
models, and the active involvement of
community leaders in the support of entrepre-
neurship. Culture also includes the absence of
entrepreneurial stumbling blocks like high taxes
and heavy government regulation. Finally,
culture includes the support system a community
creates for growth companies.
How Does Louisville Measure Up?
If it is true that the five factors explained above–
Talent, Know-How, Capital, Technology, and
Culture–are the forces that determine the
entrepreneurial vitality of a place, then the next
important question to ask is how Louisville
performs on these factors.
Talent
13
Every place has entrepreneurial talent, and
Louisville is no exception. The amount of
entrepreneurial talent in a place is not easy to
measure, because entrepreneurs do not fit neatly
into any one mold. Given the right circum-
stances, it is possible for almost anyone to
become an entrepreneur. And the history of
entrepreneurship in Louisville shows that people
with a wide range of backgrounds, skills, and
abilities have become successful entrepreneurs in
our city.
There are a few common characteristics of
entrepreneurs that can be measured to determine
the size and quality of the entrepreneurial talent
pool in a place. One interesting fact about
entrepreneurs is that they tend to start their
companies in the cities where they already live.
Research by Dr. Paul Reynolds of Marquette
University's College of Business Administration
shows that 90% of new entrepreneurs had lived
in a state for six years before they incorporated a
business there.
19
In other words, the pool of
potential entrepreneurs in a place is a subset of
the existing population. Further, if the overall
population is growing, the pool of entrepreneurs
is probably growing; if it's shrinking, the pool of
entrepreneurs is shrinking.
Moreover, research has found that entrepreneurs
tend to start businesses between the ages of 25
and 40 (Louisville entrepreneurs who fit this
mold include David Jones, Bruce Lunsford, and
John Schnatter), have on average about thirteen
years of education, and have previous work
experience, most recently in a small company.
20
In other words, places with growing populations
(especially growing populations of 25 to 40 year
olds), reasonably well-educated people, and a
healthy community of small companies where
future entrepreneurs can apprentice are likely to
have a good supply entrepreneurial talent.
Population First, as shown in Table 7,
Louisville's population is not growing as fast as
that of many surrounding cities, meaning that
we're not adding as much new talent to our
community as are our competitors.
Table 8 shows another aspect of the Talent
problem in Louisville: Many of our young
people leave our community to pursue
educational and employment opportunities
elsewhere and do not return. Table 8 shows a
comparison between the number of children aged
0 to 9 in Louisville in 1970, the number of
children aged 10 to 19 in 1980, and the number
of young adults aged 20 to 29 in 1990.
21
Table 7
Change in Population, Selected MSAs, 1980 to
1994 (000s omitted)
City 1980 1994 Growth
Charlotte 971 1,260 29.8%
Nashville 851 1,070 25.7%
Indianapolis 1,306 1,462 11.9%
Cincinnati 1,726 1,894 9.7%
Kansas City 1,566 1,646 5.1%
Louisville 954 981 2.8%
Source: US Bureau of the Census, State and County
Population Estimates and Components of Change
1990-1994
Table 8
Migration of Louisville's Youth
1970 1980 1990
Age 0-9 10-19 20-29
Population 171,791 163,944 143,107
Change -7,847 -28,684
Source: US Bureau of the Census, 1990 Census of
Population and Housing
Clearly, we're losing a steady stream of young
people, and we're not recruiting enough new
residents to make up the difference. Anecdotal
evidence indicates that many of those who are
leaving are exactly the people we need to keep if
we are to be an entrepreneurial "hot spot."
Further, the lack of significant immigration of
young people from other communities into
Louisville means that we're lacking an important
source of new ideas and new perspectives.
Education Louisville lags in educational
attainment. As shown in Table 9 on the next
page, we trail our competitors only slightly in the
percentage of our residents who have completed
high school. On the other hand, only 17.2% of
our citizens have completed college, compared to
21.4% in Nashville, 20.2% in Indianapolis, and
20.3% for the nation as a whole.
A college degree is not a requirement for an
entrepreneur. Still, the relatively low education
level of our workforce means that we have fewer
people with the education usually associated with
successful high-growth entrepreneurs. It also
means that we have a smaller pool of skilled,
14
educated workers to staff the entrepreneurial
ventures we do create.
Table 9
Percent of Residents Who Have Completed
High School and College, 1990
High
City College School
Kansas City 23.2% 82.3%
Nashville 21.4% 74.0%
Indianapolis 20.2% 78.1%
Cincinnati 19.9% 74.4%
Charlotte 19.6% 72.5%
Louisville 17.2% 73.3%
U.S. Average 20.3% 75.2%
Source: US Bureau of the Census, 1990 Census of
Population and Housing, Supplementary Reports,
Metropolitan Areas as Defined by the Office of Budget
and Management, June 30, 1993
Conclusion None of this is to say that Louisville
does not have entrepreneurial talent, or that the
talent we have is inferior to that in other
communities. Clearly neither is true. But it is
also true that our pool of talent is growing more
slowly than that of other communities, that we
are not retaining enough of our young talent, and
that our talent pool, on average, lacks the
education that is important to entrepreneurial
success. These are serious weaknesses.
Know-How
Just as Louisville has a supply of entrepreneurial
talent, it also has a body of entrepreneurial know-
how. As in most cities, our "body of
knowledge" is diverse and fragmented.
Educational Institutions Our educational
institutions are a source of entrepreneurial know-
how. The University of Louisville's College of
Business and Public Administration has two
professors of entrepreneurship and offers several
courses in entrepreneurship, including New
Venture Creation and Entrepreneurship I and II.
Bellarmine College's W. Fielding Rubel School
of Business offers courses in entrepreneurship,
including Small Business Problems and New
Business Ventures. The Small Business Institute
at Indiana University Southeast offers courses
such as Small Business Management/
Entrepreneurship, Venture Growth Management,
and a Small Business Practicum. The Jefferson
Community College Entrepreneurial Institute,
located at the college's Southwest Campus, offers
classes for small business owners.
Professional Community The professional
community is also an important repository of
15
know-how. Accounting and law firms–including
both local firms and local offices of national
firms–have significant experience working with
entrepreneurial companies. Louisville is weaker
in finance–venture capital, banking, and
corporate finance–and recruiting, but nonetheless
has some skills in these areas. While it's difficult
to compare one city to another in this regard, it is
likely that Louisville has, or could quickly
develop, sufficient professional expertise to
support a growing entrepreneurial community.
Entrepreneurs Like all cities Louisville has a
group of experienced entrepreneurs who serve as
role models and (in some cases) mentors to new
entrepreneurs. Still, our collection of
entrepreneurial successes is smaller than those in
surrounding communities.
Further, fewer of Kentucky's citizens are
employed in our fastest growing companies than
in nearly any neighboring states. Table 10 shows
the number of employees of Inc. 500 companies
per 100,000 employees, by state, in 1994.
Kentucky trails all surrounding states (except for
West Virginia), and trails all states in the
Southeast (except for Alabama and Mississippi),
in this measure. In other words, fewer of
Kentucky's citizens are gaining entrepreneurial
know-how by apprenticing in successful
entrepreneurial companies.
Table 10
Number of Inc. 500 Employees per 100,000
Employees for Selected States
State Number
Virginia 77.4
Georgia 69.2
South Carolina 60.2
Tennessee 55.0
Florida 45.6
Missouri 40.2
Ohio 29.3
North Carolina 27.7
Illinois 27.0
Indiana 17.1
Kentucky 13.4
Alabama 11.8
Mississippi 2.7
West Virginia 0.0
Source: Inc., The Inc. 500 1995, p. 38
Economic Development Agencies Louisville
also has a group of not-for-profit supporters of
small business and entrepreneurship, including
the Chamber's Center for Small Business, Small
Business Development Centers at both
Bellarmine and U of L, the Small Business
Institute at Indiana University Southeast, and
others. Appendix A details Louisville's existing
entrepreneurial support programs.
Conclusion Our current efforts to support
entrepreneurship through increasing
entrepreneurial Know-How are fragmented,
underfunded, and not well coordinated. As a
result, they are not reaching as many
entrepreneurs as they might. Further, these
existing programs have not yet been effective in
molding our culture. While they provide a base
for future efforts in entrepreneurial economic
development, there is much more that we can do.
We'll consider some of our options in the next
section of this report.
Capital
Although Louisville does have a variety of
sources of capital for entrepreneurial firms, it
trails its direct competitors on the availability of
Capital for growth companies.
Equity Capital In the previous section we noted
that Louisville has only one private venture
capital firm, Chrysalis Ventures, which has $9
million in committed capital. The Louisville
Chamber's catalog Financing Options for Small
and Growing Companies lists 12 sources of
equity capital for local companies, including
local private equity firms (including Mayfair
Capital, and Pattco), the previously-mentioned
African American Venture Capital Fund, and
venture capital firms from other cities (including
CID Equity Partners from Indianapolis). Several
of these sources indicate a willingness to make
subordinated debt investments as well as equity.
Louisville also has a new angel network, the
Venture Capital Club of Louisville. Organized in
late 1995 by several Louisville area investors, led
by Robert Ogden, Henry Hensley, and Peter
Barrick, the Club, which has about 150 members,
has been meeting monthly since October 1995
and has reviewed three investment opportunities
at each meeting.
(In the late 1980s, another angel network, the
Louisville Chamber's Louisville Venture Forum,
existed in the community. This network helped
fund such notable Louisville-area ventures as
Active Ankle and Kentucky Kingdom.)
16
In addition, The Louisville/ Jefferson County
Office for Economic Development offers another
program, InvestNet, which attempts to link
entrepreneurs who need capital with a network of
venture and angel investors.
When we asked local entrepreneurs to rate out
community's sources of equity capital, several
said that, to their knowledge, there was no formal
venture capital in the community. One said that
comparing Louisville to Nashville with regard to
the availability of capital was a "night and day
picture." Another said that venture capitalist
from out of town were "conservative about this
area" because of our lack of high-technology and
the difficulty of travel to Louisville. One
mentioned that there is "no true seed round
investors" in Louisville. He also mentioned that
Louisville had "no strengths in the area of capital
for startups."
Another idea that came up in the focus groups
was the lack of sophistication of area
entrepreneurs in raising capital. One experienced
entrepreneur indicated that Louisville-area
entrepreneurs are "unrealistic about how much
equity they need to give up" to obtain funding.
Yet another interesting observation was that
Nashville's entrepreneurial climate was enhanced
by the presence of J.C. Bradford, a leading
investment bank.
In summary, there is some risk capital available
locally to new and early stage businesses. Still,
compared to surrounding cities Louisville has a
serious weakness in the area of risk capital.
Debt Louisville's banks are another source of
capital for entrepreneurial ventures. The
Financing Options catalog lists 10 local banks
that indicate an interest in small business lending.
The Chamber's Financing Options catalog also
lists six sources of lease financing for small
companies, five of which are banks.
However, banks are not regarded by
entrepreneurs as a realistic source of capital for
their ventures. When we asked local
entrepreneurs to rate out community's banks, they
said that it was "unrealistic to expect banks to
fund startups." One entrepreneur indicated that
she had tried to obtain a line of credit for her
business at four banks before finding one that
would fund her company.
Government In addition to the private sources,
the Louisville/Jefferson County Office of
Economic Development offers seven different
loan programs and services for small and
growing companies. Several of these are
administered under the Metropolitan Business
Development Corporation (METCO). These
programs include the Business Loan Program,
which offers long term loans targeted at job
creation within the city of Louisville; the SBA
504 Loan Program; several programs targeted at
specific neighborhoods; and several programs
targeted at minority businesses.
The Commonwealth of Kentucky also offers a
collection of capital programs, including the
Kentucky Investment Capital Network, which
attempts to link entrepreneurs with capital
statewide, and the Kentucky Development
Finance Authority (KIDFA) loan programs. The
Federal Small Business Administration also
offers its loan guarantee programs in the state.
Other Sources Other possible sources of equity
and debt capital for local entrepreneurs include
pension funds and insurance companies.
Interestingly, Kentucky is one of the few states in
the nation that has not set aside a portion of its
state pension fund for use in venture capital.
Providian Corporation has an active venture
investment program but makes most its
investments through venture capital funds, none
of which are located in Louisville.
Conclusion There is some capital available in
Louisville for growth companies. Nonetheless,
we trail nearby competitive cities in this success
factor, especially with regard to venture capital.
In our focus groups, entrepreneurs indicated that
improving the availability of capital–especially
capital for start-ups–would be one of the most
important steps toward improving our city's
entrepreneurial vitality.
Louisville's capital shortage is probably a direct
result of fewer historic entrepreneurial successes
than its competitors. Recall that entrepreneurial
companies are an important source of new
wealth, and successful entrepreneurs are an
important source of angel capital .
The bottom line? A thriving venture capital and
angel investor community is a crucial factor in
the development of high-growth companies.
Louisville does not have nearly the sources of
capital available in other nearby cities.
17
Technology
Louisville is not blessed with a large number of
high quality institutional sources of
entrepreneurial technology. The University of
Louisville is our only significant research
institution, and it does not command the research
resources available to some universities. As
shown in Table 11, The University of Louisville
ranked 167th in the nation in 1994, with R&D
expenditures of just over $22 million. Notice
how Louisville trails institutions such as MIT,
Stanford, Texas, and the Research Triangle
schools–which are associated with entrepre-
neurially hot regions–as well as nearby urban and
state universities.
U of L has the potential to be an important
source of entrepreneurial technology for the
community. The University's Medical School,
Speed Scientific School, and Telecom-
munications Research Center all have the
potential to be significant sources of
entrepreneurial ideas and opportunities. But there
is much work to do to realize that potential.
Table 11
1994 Research and Development
Expenditures for Selected Universities
R&D
School Expenditures Rank
MIT $364 4
Stanford University $319 8
University of Texas $261 17
Duke University $220 25
University of North Carolina $202 27
North Carolina State University $173 35
Purdue University $173 37
University of Alabama-Birmingham $142 46
Indiana University $137 50
Vanderbilt University $110 66
University of Kentucky $106 67
University of Cincinnati $94 76
Virginia Commonwealth University $77 89
University of Dayton $48 121
University of Louisville $22 167
University of Memphis $13 201
Source: National Science Foundation, Division of
Science Resource Studies, Survey of Scientific and
Engineering Expenditures at Universities and
Colleges, Fiscal Year 1994, Table B39
Other possible sources of entrepreneurial
technology include local corporations, some of
which have active R&D or product development
functions, and Ft. Knox, which is an important
magnet for federal government dollars In
addition, the existence of the UPS air hub in
Louisville is a possible source of new ideas for
entrepreneurial ventures in logistics and
distribution. Currently, however, little is being
done to exploit whatever opportunities might be
available through these organizations.
Kentucky's technology assets are poor. The 1995
Development Report Card for the States, pub-
lished by the Corporation for Economic Devel-
opment, lists Kentucky 47th in the number of
Ph.D. Scientists and Engineers in the workforce
per 1000 workers, 47th in the number of science
and engineering graduate students per million
population, and 45th in the number of patents
issued in 1994 per one million population.
22
In our focus groups, entrepreneurs confirmed
Louisville's weakness in the area of technology.
They specifically mentioned that there were "not
enough good ideas in Louisville" and that the
city "does not have "enough technical
infrastructure." Several indicated that improving
our community's educational resources,
especially higher education, would be one of the
most important steps toward creating more
entrepreneurship in Louisville.
Louisville is clearly at a disadvantage to its
competitors with regard to institutional sources
of entrepreneurial technology. Further, we're
probably not exploiting what we have to
maximum advantage. Still, Louisville's lack of
institutional sources of technology is not an
insurmountable hurdle. While institutions like
universities are an important source of entre-
preneurial technology, many (if not most) ideas
for new businesses–especially high-growth
service businesses–are not the result of institu-
tional research. Companies based on high-tech
products or processes are likely to have roots in
Universities and R&D labs, but high-growth
service companies are not. Ideas for many
successful businesses come not from research
labs or corporate R&D departments but from the
kitchen tables of persistent entrepreneurial
geniuses. Of Louisville's local entrepreneurial
"home runs"–companies like Humana, Vencor,
Active Transportation, Papa John's Pizza,
Kentucky Kingdom, and SerVend, and many
others–none is the result of institutional R&D.
Culture
Does Louisville have a culture that encourages
entrepreneurship? Because culture is a
subjective factor, it is difficult to measure, and
18
opinions about it are likely to be diverse. Still,
this factor is so important that we need to try to
make at least a rough measurement of our city's
entrepreneurial culture.
Acceptance of Entrepreneurship Dr. Jack
Karsarda of the University of North Carolina
offers an interesting test of the entrepreneurial
culture. He offers a list of ten questions–shown
in Table 12–one can use to judge the entre-
preneurial climate of a place. Seven or more yes
answers is a passing grade. Anything less than a
7 indicates that the community is closed to
entrepreneurs and entrepreneurial success.
Each reader will judge for himself or herself
Louisville's score. However, when we asked
local entrepreneurs to evaluate this list of
questions, the average score was 2, and only one
score (a 6) was above 4.
Table 12
Entrepreneurial Climate Test
1. When the mayor of the city meets with business
leaders, are there as many chief executives
officers of mid-sized growth companies as
bankers and corporate executives?
2. Are entrepreneurs invited to join the best athletic,
social, and country clubs? Have they joined?
3. Does the local newspaper follow the fortunes of
start-ups and mid-size growth companies with the
same intensity and sophistication as it does large
corporations?
4. Are innovative companies able to recruit nearly
all of their professional work force from the local
area?
5. Is there a sizable, visible venture capital
community?
6. Does the local university encourage its faculty
and students to participate in entrepreneurial
spin-offs, and do they?
7. Do growth company CEOs and venture
capitalists hold at least a quarter of the seats on
the boards of the three largest banks?
8. Does the city's economic development
department spend more time helping local
companies grow than it does chasing after branch
facilities of out-of-state corporations?
9. Is there decent, affordable office and industrial
space available for new businesses in the central
business district?
10. Can you think of 10 recent spin-offs–growth
companies started by entrepreneurs who have left
large companies?
Source: Entrepreneurial Hot Spots, David Birch,
Anne Haggerty, and William Parsons, © Cognetics,
Inc., 1994, p. 17
Specific comments obtained during our focus
groups from entrepreneurs about the commun-
ity's entrepreneurial culture included the ob-
servation that Louisville's "city fathers" did not
seem to have much interest in entrepre-neurship.
Another entrepreneur indicated that Louisville
had a "deep-set anti-business sentiment" that
was discouraging to potential entrepreneurs.
The media was singled out in our focus groups as
an important force shaping Louisville's entre-
preneurial climate. One entrepreneur mentioned
that the Courier-Journal was a leader of the
community's anti-business sentiment, and another
said that an improvement in the paper's coverage
of business "could help to create a pro-business
attitude" in Louisville. Another indicated that
19
Business First does a good job of promoting the
importance of business in the community.
Other Factors A place's entrepreneurial climate
also includes factors such as tax rates, business
regulations, and other factors that have the power
to discourage potential entrepreneurs.
With regard to taxes, the recent Barents Group,
LLC report Comparative Analysis of Kentucky's
Tax Structure concluded that "Kentucky's
business tax structure is generally competitive for
the states and industries covered by this study."
23
However, the report pointed out several "red-
flag" issues that may create obstacles to business
investment and economic development,
including:
• High income and franchise tax burden–18%
higher than the fifteen-state average
• Inclusion of debt in the franchise tax base,
which "has particularly important conse-
quences ... on entrepreneurship, because
start-up companies rely more on debt..."
• The intangible personal property tax , which
discourages the formation of capital
In our focus groups, at least one entrepreneur
mentioned Kentucky's tax climate as one factor
that discourages entrepreneurship in the state.
Another problem for business in Kentucky is the
state's high worker's compensation and
unemployment insurance costs. Table 13 shows
worker's compensation payments as a percentage
of wages and salaries for Kentucky and several
surrounding states in 1993.
Another factor that may help influence the
entrepreneurial culture of several of our nearby
competitors–including Nashville and
Indianapolis–is that these cities are state capitals.
Further, both of these cities, as well as Charlotte,
have adopted unified city/county government.
Finally, it is worth noting that several states that
have experienced significant entrepreneurial
success in recent years–including Tennessee and
North Carolina–are right-to-work states.
Table 13
Worker's Compensation Payments as a
Percentage of Wages and Salaries, 1993
State Percent
Ohio 1.63%
Kentucky .43%
Tennessee .11%
North Carolina .05%
Indiana .04%
Source: U.S. Bureau of Economic Analysis, Local
Area Personal Income, 1969-1993, May 1995
Conclusion Louisville's entrepreneurial culture
is not healthy. Our community lacks the
excitement and activity of such entrepreneurially
hot places as Nashville, Austin, and Silicon
Valley. Entrepreneurs do not feel that the
community respects, understands, or values their
contributions. State and local government policy
is not particularly favorable to entrepreneurship.
It is encouraging to note that Louisville's culture
may already be shifting to be more favorable to
entrepreneurship as a result of the Growing
Success: A Celebration of Entrepreneurship
day, the founding of the Venture Capital Club
and the African American Venture Capital Club,
and other recent events. Still, changing a
community's culture is not easy, and much work
remains to be done.
As we'll see in the next section, culture may be
the most important factor contributing to the
entrepreneurial success of a city. It is certainly
the one factor that can be addressed quickly,
without the need for huge capital investment, and
it may be the factor that, if changed, has the most
impact on a community's entrepreneurial success.
Conclusion
Louisville falls short of its competitors on most
of the key entrepreneurial success factors:
Talent, Know-How, Capital, Technology, and
Culture. If we want to improve our ability to
create growth companies, we must begin to
address each of these weaknesses.
A couple of these weaknesses–especially Culture
and Know-How–could be improved fairly
quickly; others will take longer. But all can be
improved if the community decides that it wants
to be more entrepreneurial.
20
Entrepreneurial Economic Development
What can an entrepreneurially cool city like
Louisville do to raise its entrepreneurial
temperature? How can we overcome our
weaknesses in Talent, Capital, Technology, and
Know-How to begin creating and nurturing more
new entrepreneurial ventures?
Creating Entrepreneurship
The idea that communities can create more
entrepreneurship is fairly new. It was only in the
1980s that leading cities like Austin and regions
like North Carolina's Research Triangle Park
began investing in programs to help stimulate the
development of more home-grown companies.
While the trend has gathered momentum in
recent years, the idea of entrepreneurship as a
tool of economic development is in its infancy.
Still, there is reason to think that a community
that wants to increase its entrepreneurial
temperature can do so. In fact, the task is as
simple–and as difficult–as improving the
community's performance on the five
entrepreneurial success factors: Talent, Know-
How, Capital, Technology, and Culture.
Culture and Know-How
In the study Prescription for Opportunity: How
Communities Can Create Potential for
Entrepreneurs, Dr. Norris F. Krueger explains
that increasing the level of entrepreneurial
activity in a community requires the community
to take action to increase both the perceived
desirability of entrepreneurial activity and its
perceived feasibility.
If we want more potential entrepreneurs, we
must create policies that enhance percep-
tions among community members that entre-
preneurial activity is both desirable and
feasible.
24
By combining efforts to improve the culture with
a robust entrepreneurial support program,
communities can develop more entrepreneurial
ventures. Krueger reasons:
... a particularly clever community could
actually spawn entrepreneurs by sincerely
committing itself to the creation of a
welcoming and supportive environment for
business start-ups. Ideally, it would couple
this with comprehensive assistance programs
to ensure entrepreneurs had access to every
possible tool necessary for success. In such
an environment, many entrepreneurs will
emerge.
25
Desirability: The Cultural Factor The
perceived desirability of starting a venture is
influenced by the entrepreneur's perceptions
about the likelihood of success or failure, his or
her prior experiences with entrepreneurship
(through family or career experiences), the
opinions of family and friends, and the
receptivity of the community to entrepreneurial
activity. Krueger explains:
The task, then, for communities is to foster
entrepreneurship by taking actions that
enhance the perceptions among citizens that
the community values and supports
entrepreneurial activity.
26
In other words, the task is to create a culture
that encourages entrepreneurship. Among the
actions that communities can take to improve
their entrepreneurial culture are:
• Recognizing and celebrating entrepreneurial
ventures at every stage
• Honoring entrepreneurial successes
• Promoting the importance of
entrepreneurship to the community
• Providing venture capital funds and other
capital initiatives
• Reducing tangible and perceived barriers to
entrepreneurship such as excessive taxes,
burdensome regulations, and barriers to
capital formation
• Offering assistance programs that nurture
entrepreneurial companies
• Improving education and research
Taken together, these actions have the effects of
persuading entrepreneurs that the community
values their efforts and of encouraging potential
entrepreneurs that the venture they are con-
templating will be welcomed by the community.
Feasibility: The Know-How Factor The
perceived feasibility of a new venture is
influenced by the entrepreneur's perceptions
about his or her own personal competence, as
well as the existence of role models ("If she did
it, so can I"), and the availability of training and
support in the community.
21
A community that wishes to raise its
entrepreneurial temperature must offer an
entrepreneurial support effort that helps nurture
new ventures. Such an effort would include
programs, such as training, coaching, mentoring,
and networking, to help increase and improve
access to the entrepreneurial know-how of the
community. It could also include the creation of
seed and start-up venture capital funds, small-
business loan funds, and other capital initiatives.
It might also include the creation of an incubator
to house promising early-stage businesses.
As it turns out, an entrepreneurial support
program is one of the best "actions" that a
community can take to enhance the perception
that it desires entrepreneurial activity. So
entrepreneurial support programs work both by
helping specific entrepreneurs with specific
problems and by helping to create a culture of
entrepreneurship.
Long Term Factors
If the effort to increase entrepreneurship begins
by focusing on Culture and Know-How, it cannot
ignore the other factors of entrepreneurial
success: Talent, Capital, and Technology.
Unfortunately, overcoming weaknesses in these
factors requires time. For instance, it may take
many years to improve the skills of the workforce
in a community, or to create new institutional
sources of technology.
The good news is that efforts to improve Culture
and Know-How will also help improve Talent,
Technology, and Capital. While a change of
culture will not overcome weaknesses in the
other entrepreneurial success factors overnight, it
will help to ensure that a community gets the
most entrepreneurship possible out of its existing
resource base. Once the entrepreneurial ball gets
rolling, it picks up speed as each generation of
entrepreneurial firms spawns the next.
Even better is the news that efforts to improve
the availability of Talent, Technology, and
Capital in a community also help improve its
Culture. As potential entrepreneurs see the
community tackling these tough long-term
problems, they will be increasingly convinced of
the community's commitment to entrepre-
neurship, and will be encouraged about the
desirability of their own entrepreneurial efforts.
Is Entrepreneurial Economic
Development Effective?
Several arguments have been made across time to
argue that entrepreneurship is an ineffective
strategy for economic development. Let's take a
look at these issues.
Don't Most Small Companies Fail ?
One of the most enduring "truths" about
entrepreneurship is that four out of five new
companies fail. The widespread acceptance of
this truism has been a major factor discouraging
communities from pursuing entrepreneurship as
an important economic development strategy.
The truth is that many new companies survive,
and many that close do not "fail."
Cognetics has found that almost 70% of the firms
that were four years old or younger in 1989 were
still in business in 1994. In other words, only
about 30% of the youngest firms in existence in
1989 closed by 1994. In addition, only about
27% of firms that were between five years old
and nine years old in 1989 had closed by 1994.
Further, Cognetics found that about 50% of the
firms started in 1989 were still in business in
1994.
27
This result is confirmed by Bruce
Phillips (of the Small Business Administration)
and Bruce Kirchloff (of the New Jersey Institute
of Technology), who found in a study of the
government's Small Business Data Base that
39.8% of new firms survive their first six years.
28
Further, businesses that grow have much higher
survival rates that those that do not. Phillips and
Kirchloff discovered that 78.4% of firms that
grow at a rate of 10% or more survive six years
or more.
29
In addition, research indicates that
companies backed by experienced venture
capitalists have failure rates of only 15% to 20%,
implying that the high-growth opportunities that
attract venture financing have a much higher
chance of success than average.
30
It is also important to recognize that a firm
closing is not the same as that firm failing.
Failing implies that the business has "gone
broke," leaving creditors unpaid or equity
investors with a loss. Many firms that close do
so in an orderly fashion, having fulfilled their
missions and paid their obligations, because the
owner sells out, takes another job, or starts
another business. In fact, Kirchloff estimates that
only about 18% of all new businesses end in real
failure.
31
Cognetics, Inc. writes:
It is important to make a sharp distinction
between closing and failure. The majority of
22
firms that close are not failures. The firm
has provided an income to its owners for
several years, it has perhaps even built up a
substantial net worth which can be sold or
liquidated at the end, and the owners walk
away far ahead of where they were when
they started. Only a small percentage (5% to
10%) of the firms that close are forced to do
so because they owe more money than they
have, and are forced into some sort of
bankruptcy. Bankruptcy is a rare event;
closing is a common one.
32
Finally, it is important to note that many so-
called failures are stepping stones to significant
entrepreneurial success. Many successful
entrepreneurs have, at one time or another,
failed. Persistent entrepreneurs gain valuable
experience from their failures which later helps
them achieve success.
Aren't All High-Growth Companies High-
Tech Companies?
Some object that entrepreneurship is dependent
on creating high-tech companies. The objection
continues that, since our community doesn't have
much technology, we won't be effective in
creating high-growth companies.
The fact is that high-growth Gazelle companies
are found in every industry segment. Cognetics'
study Hot Industries 1995 reports that Gazelles
are found in all industries, and that they are about
as common in one industry as another. Contrary
to the popular belief that all high growth
companies are high tech companies, Cognetics
found that just 1.8% of Gazelles are high tech
firms, while about 25% are service companies
and 12% are manufacturers. Birch writes that "it
is no longer the production of technology, but its
application, that creates growth opportunities."
33
Further, Cognetics points out that, in every
industry group, small companies outgrew large
companies, and that, in many cases, the
advantage of small companies increased the more
poorly a sector was performing. Table 14 shows
the percentage net job growth from 1990 to 1994
for a selected group of industries.
The dispersion of the 1995 Inc. 500 companies
further confirms this trend. While 143 of the 500
were in the computer industry (including
software and computer services), 97 were in the
business services sector, 76 in consumer goods
and services, 23 in construction, 20 in industrial
equipment, and 20 in financial services.
34
Cognetics concludes that this wide dispersion of
growth companies "means that innovation is
occurring everywhere in the economy–not just in
certain hot sectors like high tech or bio tech."
Birch also points out that "knowledge-value is
being added to all sectors, and no one sector
offers the path to future growth."
35
Table 14
Percent Job Growth, 1990 to 1994, by
Company Size, for Selected Industries
Number of Employees
Industry 1-99 100+
Manufacturing 6.2% -4.2%
Trade 2.8% -.3%
Financial, Insurance, Real Estate 2.8% -1.1%
Services 6.0% 1.9%
Other 1.6% -4.3%
Source: Who's Creating Jobs 1995, David Birch,
Anne Haggerty, and William Parsons, © Cognetics,
Inc., 1995, p. 5
Aren't Most Growth Companies in
California or Massachusetts?
In fact, while California, Massachusetts, and a
few other states command a large number of the
country's most successful entrepreneurial
companies, Gazelle companies are located
everywhere in the United States.
According to Inc. Magazine, between 1982 and
1994 every state (including the District of
Columbia and Puerto Rico) created at least a
handful of Inc. 500 companies. Granted,
California produced 14.9% of all Inc. 500
companies in that time, but California has about
12% of the nation's population. Other leading
producers of Inc. 500 companies included New
York, Florida, Massachusetts, and Michigan.
Even small, poor, rural states produced a few
rapid growers: Mississippi had 5, Arkansas 14,
and West Virginia 7.
36
Don't Small Companies Create "Bad" Jobs?
First, there is some debate about whether any job
is a "bad" job. That argument aside, it is true
that small companies tend to create jobs that pay
less and offer fewer benefits than larger
companies.
However, this truism misses a crucial point:
Gazelle companies are not like other small
23
companies. Gazelles, which produce most of the
jobs, also appear to create good jobs. According
to Cognetics, Inc., Gazelle companies "hire a
workforce with above average skill levels" and
"pay above average wages."
37
A community that
focused on the creation of growth companies
would likely raise, not lower, its average wage.
Can Entrepreneurship Be Taught?
It's true that many successful entrepreneurs have
some characteristics–such as creativity,
independence, and determination–that are more
personal traits than acquired skills. However,
research by Afar Bhide of the Harvard Business
School indicates that there is no one ideal
entrepreneurial personality. According to Bhide,
"Successful founders can be gregarious or
taciturn, analytical or intuitive, risk-averse or
thrill seeking..."
38
Further, the work of Jeffry Timmons indicates
that entrepreneurship is a career that can be
taught. He writes:
How do you teach students to be entre-
preneurs? The bedrock is instruction:
technical skills, finance skills. Then, expose
them to some real entrepreneurs to educate
by inspiration, by example, and by demon-
stration of what is possible.
It does work. We have a hugely dis-
proportionate number of graduates who wind
up doing entrepreneurial things.
39
Perhaps the best way to think of the nature/
nurture argument is to say that entrepreneurship,
like law, medicine, or any other career, requires
certain abilities, and that people with those
abilities may be attracted to entrepreneurship as a
career. Just like law and medicine, however,
natural ability is not enough. Success in
entrepreneurship requires the mastery of
numerous skills, which can be taught.
What About Incubators?
In many places, the effort to develop more
entrepreneurship has resulted in the creation of a
small business incubator. Incubators offer low
rent, shared office resources, training, mentoring,
and support–and, in some cases, capital–to early
stage businesses. Further, incubators offer a
supportive environment where entrepreneurs can
learn from and encourage one another.
The National Business Incubator Association
reports that there are now over 500 incubators
across the country, housing 80,000 companies,
and that 45,000 companies have graduated from
incubators. The NBIA estimates that incubator
companies have produced over 100,000 jobs.
40
There are numerous examples of successful
incubators. The Austin Technology Incubator,
headed by Laura Kilcrease, has incubated more
than 38 companies which have created more than
550 jobs. The Center for Business Innovation in
Kansas City was selected the 1993 Incubator of
the Year. The center is headed by Robert
Sherwood, himself an experienced technology
entrepreneur. Other successful incubators are
located in Pittsburgh, Minneapolis, and
throughout California.
While some incubators have been quite
successful, the track record of incubators is, at
best, mixed. For one thing, a successful
incubator is more than just a big building in a
bad part of town filled with small businesses. A
good incubator requires a good incubator
manager–preferably one with entrepreneurial
experience. The incubation process is slow, so
successful incubators require patient community
support. Further, incubators are expensive and
require significant financial support. In the book
Growing New Ventures, Creating New Jobs Dr.
Jana Matthews writes
...the process of business incubation is much
more important than the incubator facility
within which the companies co-located.
However, many communities have focused
on the bricks and mortar aspect of incubators
to the detriment of the incubation process.
41
This problem has led some to consider the idea
of a "virtual" incubator–an organization that
offers the support and know-how of an incubator
without the cost of a building. Bob Sherwood
has commented:
It's important to understand that the
incubator building is a very minor part of the
incubator's array of services–a necessary evil
for being able to provide assistance with the
'Three Ms'–marketing, management, and
money–to client entrepreneurs. For most of
the people I talk with, this is truly a
paradigm shift in thinking. They think the
building is the incubator, but nothing could
be farther from the truth.
42
Incubators can work, but they are expensive to
create and operate, and require great skill to
manage. Communities that wish to have more
24
entrepreneurship should consider creating an
incubator facility. But much of the work of an
incubator can be accomplished without the cost
of a physical incubator.
What Not To Do
While there is general agreement that
entrepreneurship can be an effective economic
development strategy, there are a few tempting
strategies that seem unlikely to be successful.
Don't Pick Winners There is a strong
temptation for entrepreneurial development
efforts to turn into industrial policies encouraging
the development of certain types of companies.
For instance, a place might decide that it needs
more high-tech companies, more health care
companies, or more companies that build on a
local strength such as manufacturing or
distribution, and launch efforts designed to
support only such companies.
While it makes sense for a community to build
on its strengths, entrepreneurial development
efforts must cast the net wide, offering assistance
to all promising small businesses and not just
those in a few attractive industries. For one
thing, focusing on existing strengths almost
certainly means missing some hot new
opportunity. For instance, a city that focused on
its advantages in distribution might miss the
opportunity to incubate new companies
pioneering on-line sales.
In addition, a quick look at some of Louisville's
most successful entrepreneurial companies shows
how unlikely they are for Louisville: Who in
1963 would have predicted that Louisville would
become the headquarters for a fast-growing
hospital management company (now a health
insurance company) or in 1984 that the city
would become the home of the leading publisher
of computer newsletters?
David Birch of Cognetics concludes:
To base an economic development strategy
on one, or a few key sectors is, in today's
world, to ignore most. To pick "winners" is
extremely difficult, if not downright
dysfunctional. Most kinds of companies can
be started and grown in most places.
43
Don't focus only on glamorous startups. As
we've seen, it is not small companies but growing
companies (many or which are small) that create
the new jobs and the new wealth. According to
Cognetics,
It is not the local drug store, body shop, or
restaurant that is the main engine of job
growth–it is the Gazelle.
44
So an entrepreneurial development policy should
focus not just on creating more small companies,
but on creating more companies that grow.
However, it is important to realize that growth
companies are very hard to distinguish from
other small companies at birth. Who's to say that
a pizza delivery business being run out of a
neighborhood bar is not just another small
business? Or how about a nursing home built
with borrowed money by two young lawyers?
Since it's difficult–if not impossible–to tell new
growth companies from other small companies,
entrepreneurial economic development should
offer help to all promising comers. At the same
time, though, it should focus its efforts on
programs and services to help companies grow,
and should devote a majority of its attention to
companies that are growing.
Entrepreneurship vs. Attraction
Which is the more effective strategy for
economic development: Business Attraction or
Business Creation? While both are important,
there are reasons to think that creating home-
grown business is, in the long run, the more
effective strategy.
According to Cognetics, between 1990 and 1994,
locally headquartered, independent companies
increased their employment, on average, by
about 2.5%. Local branches of companies head-
quartered out-of-town experienced decreased
employment, on average, of 1.2%. Birch adds
this comment:
There is a tendency to look to out-of-state
firms for a big economic boost. Economic
developers chase after them with never-
ending persistence. Governments offer
financial incentives. Landlords seek them
out as tenants. The fact is, however, that
out-of state firms are a highly overrated
currency. Across the nation, it was the
home-grown, single unit company that
carried most places (and the nation) through
the recession.
45
In the book The New Technology Incubator, Dr.
Raymond Smilor writes:
25
Industrial relocation, long the central focus
of regional economic development, tends to
be a zero-sum game–one region or location
benefits only at the expense of another.
Indigenous company growth may be a more
beneficial and necessary long-term
development strategy for several reasons.
First, it harnesses local entrepreneurial
talent. Second, it builds companies which, it
turn, create jobs and add economic value to
a region and community. Third, this strategy
keeps home-grown talent–a scarce resource–
in the community. Fourth, it encourages
economic diversification and technological
innovation by creating a climate that rewards
productivity and innovation.
46
Should a community abandon business attraction
in favor of entrepreneurial economic
development? No. In a competitive world,
communities should do all they can to attract
businesses that wish to relocate. On the other
hand, neither should a community place all of its
eggs in the attraction basket. A balanced
approach–one that supports both attraction and
creation–is the right approach.
Conclusion
Entrepreneurial economic development is not
simple. But it is also not impossible. When the
facts about growth companies are carefully
considered, they support the idea that
entrepreneurship can be an effective strategy for
economic development.
What Others Are Doing
Louisville is not the first community to ask what
it can do to improve its entrepreneurial climate.
Others, including Pittsburgh, Raleigh-Durham,
San Diego, and Kansas City have launched
initiatives to stimulate and nurture
entrepreneurship.
Pittsburgh
The Enterprise Corporation of Pittsburgh was
founded in 1983 to increase the number of jobs
in southwestern Pennsylvania by promoting
entrepreneurship and helping those individuals
starting and building businesses. Enterprise is
affiliated with Carnegie Melon University and
the University of Pittsburgh.
Enterprise is a leader in the entrepreneurial
efforts in the community. The assistance
Enterprise offers includes business plan
preparation, networking introductions, and
attracting both financial and human resources. It
produces an annual Entrepreneur's Day where
hundreds of entrepreneurs attend workshops,
hear speakers, and seek advice, information, and
contacts, and an annual Venture Idea Fair where
entrepreneurial companies showcase their
innovative products and services. The
Corporation also hosts Entrepreneur Forums and
an angel network, the Private Investors Group.
Since its founding, Enterprise has consulted with
over 1,400 people seeking to start new
businesses. Companies helped by Enterprise
raised over $260 million of outside capital and
employ over 4,000 people in this region. Many
have the potential for further substantial growth.
Unlike other business assistance organizations in
the community which have broader charters,
Enterprise has remained focused exclusively on
high potential, early stage businesses.
The Enterprise Corporation of Pittsburgh has an
annual budget of $729,000.
Research Triangle
The Council for Entrepreneurial Development in
Research Triangle Park, North Carolina,
stimulates the creation and growth of high impact
companies in the Research Triangle region.
Founded in 1984, CED is a private, non-profit
organization which brings investors,
professionals, and entrepreneurs together.
CED works to heighten the awareness of the
contribution that entrepreneurial companies make
to the economy. It provides programs and
services in four key areas: education, capital
formation, mentoring, and other communica-
tions. Each month, CED responds to hundreds of
queries from entrepreneurs, innovators, and
others. CED acts as a central clearinghouse and
makes referrals to CED volunteer consultants,
financial resources, and other non-profit
organizations that can provide assistance.
CED was founded in 1984 as an outgrowth of the
Triangle Venture Capital Committee, which
comprised the three area universities and the
Raleigh, Durham, and Chapel Hill-Carrboro
Chambers of Commerce. The Council's founding
members recognized a need for more business
guidance for entrepreneurs, more regional
venture capital operations and a network for the
exchange of information between entrepreneurs,
investors and service professionals. CED held its
26
first general meeting on January 12, 1984 and
has since held regular monthly meetings. The
Council's membership has grown from 26 to over
750.
In May 1984 the Council sponsored the first
Southeastern Financing Conference for Emerging
Growth Companies, which provided an
opportunity for selected growth companies to
present their business plans to an audience of
over 100 investors. Because of its success, the
Venture Capital Conference has become an
annual event, sponsored by the Council and the
Fuqua School of Business at Duke University.
CED has an annual budget of $431,000.
San Diego
Founded in 1985 at the urging of the local
business community, UCSD CONNECT was
created to contribute to the economic devel-
opment of San Diego by nurturing high-tech
entrepreneurship, facilitating interaction between
the University and the business community, and
further developing San Diego's infrastructure.
CONNECT accomplishes its mission through
educational and networking programs, practical
business seminars and technology transfer
illustrations, and international strategic and
financial forums. CONNECT's programs are
practical rather than theoretical, and have been
credited with giving company executives a
mental picture of what they can achieve, while
providing access to the resources which accom-
plish these goals. CONNECT's programs also
serve business service providers–attorneys,
accountants, and others–by providing them with
knowledge about emerging technologies and
access to new business opportunities.
CONNECT is described by some as an incubator
without walls. It functions as a catalyst for
growth, providing a forum for the exchange of
ideas and the opportunity to network with peers,
and facilitates the ripple effect that the success of
various high-tech industries has on the
community which supports them. CONNECT
has helped numerous high-tech companies obtain
financing and develop effective business
strategies.
CONNECT would not disclose its budget.
Kansas City
Kansas City has two institutions that are working
to improve its entrepreneurial environment.
The Center for Entrepreneurial Leadership of
the Ewing Marion Kauffman Foundation is a
national leader in the effort to support
entrepreneurship. CEL promotes the
development of healthy economic communities
by nurturing and encouraging entrepreneurial
leadership through educational activities targeted
at adult and youth entrepreneurship. CEL is an
independent not-for-profit educational institution
with resources in excess of $600 million.
While CEL has a national mission, it has a
special interest in developing entrepreneurship in
its hometown. Programs developed by CEL and
introduced in Kansas City include
• Premier FastTrac, a leading entrepreneurial
training program
• Entrepreneurial Leadership Program
• YESS! (Youth Empowerment and Self-
Sufficiency), an entrepreneurship education
curriculum for students K through 6.
• Energizing Entrepreneurs, a celebration of
entrepreneurship in Kansas City
The Center for Business Innovation is Kansas
City's growth company incubator. The CBI was
founded in 1985 through a joint effort of the
Missouri Department of Economic Development
and the University of Missouri-Kansas City.
CBI is supported by fee income and rent, and by
grants from the State of Missouri. Its annual
budget is $2 million per year.
CBI provides typical incubator services to client
companies, including business advice, business
services, assistance with fund raising, and
inexpensive space. Capital programs offered by
CBI include a microloan fund, a seed capital
fund (Capital for Entrepreneurs, Inc.), and an
angel network (the Capital Resource Network)
which provides seed capital to new ventures.
In exchange for the services it provides, CBI
receives an equity stake in each of its client
companies. Eventually, CBI hopes that returns
on these investments will make it self-sufficient.
CBI is headed by Robert Sherwood, an
experienced technology entrepreneur. In 1993,
CBI was selected the national 1993 Incubator of
the Year. The CBI currently hosts 53 companies.
Conclusion
27
As we have seen, communities that wish to create
jobs and wealth–and create a vibrant, resilient
economy–must invest in the creation and
nurturing of new companies. To do that, they
must make an investment in entrepreneurial
economic development, offering programs to
support emerging entrepreneurial companies and
attacking long-term structural weaknesses such as
capital, talent, and technology shortages. In
addition, community leaders must make a
commitment to a culture that welcomes and
encourages entrepreneurs.
The good news is that there is an emerging
awareness of the importance of entrepreneurial
growth in our community. Many of the
necessary elements are in place, but we do not
employ our scarce resources in a way that will
make enough of an impact on the challenges we
face. The missing elements are coordination,
commitment, and focus. In the recommendations
that follow, we call for a partnership of
organizations, business leadership, higher
education, government, and the community to
bring those elements to our entrepreneurial
development efforts.
28
Recommendations
If it is to remain competitive, Louisville must
adopt a strategy of supporting and encouraging
entrepreneurship.
Our community should begin by making a
commitment to entrepreneurship as an economic
development priority. This commitment should
be demonstrated by the creation of an Enterprise
Corporation of Louisville, which would become
the focal point for entrepreneurial support in the
community. The Enterprise Corporation would
have equal stature with the other key economic
development efforts: The Chamber, the
Partnership, and OED.
The Enterprise Corporation
The mission of the Enterprise Corporation would
be to
• Create a new "Culture of Entrepreneurship"
in Louisville
• Dramatically increase the number and
quality of entrepreneurial companies in
Louisville
with the result that Louisville becomes a more
prosperous, dynamic, and resilient community.
Short-Term Objectives
The Enterprise Corporation would have both
short-term and long-term objectives. In the short
term, the Enterprise Corporation would work to
assure that Louisville gets the maximum possible
results out of our existing entrepreneurial talent
pool, our existing capital base, and our existing
technology. This would be accomplished by
• Offering programs to support entrepreneurs
• Championing the cause of entrepreneurship
in the community.
The creation of the Enterprise Corporation would
send an important signal that we welcome,
desire, and support entrepreneurship. This would
be an important first step in creating a more
entrepreneurial culture in our community.
Programs The Enterprise Corporation could
coordinate and consolidate many of our
community's existing entrepreneurial support
programs, including programs offered by:
• The Chamber's Center for Small Business
• The Office for Economic Development
• The Small Business Development Centers at
Bellarmine and the University of Louisville
• The Venture Capital Club of Louisville
Coordinating and consolidating these programs
into one agency would eliminate duplication,
improve efficiency, and promote the
accessibility of the programs.
In addition to these existing programs, the
Enterprise Corporation would launch a number
of new entrepreneurial support programs such as:
• Entrepreneur Roundtables
• Mentoring Program
• "Board of Directors" Program
• "Congregation" Program
• Topical Seminars: Finance, Marketing,
Strategic Planning, Compensation, etc.
• Entrepreneur of the Year Panel Discussions
• Displaced Executives Workshops
• Opportunity Recognition Workshops
• Idea Forums
• Internship Program for students
• Other programs for students
• Minority entrepreneurship programs
The Enterprise Corporation of Louisville would
not be a physical incubator, but a virtual one,
offering the support services commonly
associated with incubators without the real estate.
Its clients would be entrepreneurial growth
companies of all ages and sizes, including
companies that are in the process of being
created.
The Enterprise Corporation would work closely
with emerging efforts to launch mini-incubators
at U of L's Telecommunication Research Center
and new Health Sciences Research Center, at the
Naval Ordnance Station, and at the Community
Development Bank center at 28th and Broadway,
and would offer support programs to companies
housed in those incubators.
Community Awareness The Enterprise
Corporation would also be responsible for
continuing to measure the entrepreneurial
condition of the community, and publicizing and
celebrating entrepreneurship in Louisville. This
would be accomplished through
• Producing an annual "Celebration of
Entrepreneurship" event
29
• Publishing an annual report on
entrepreneurship in Louisville
• Other publications, including a newsletter
and periodic special reports
• Publicizing and promoting the Corporation's
entrepreneurial support programs
• An annual "Best Business Plan" contest
• A Speakers Bureau
• An annual recognition program for emerging
entrepreneurial companies (modeled on
Nashville's "Future 50" program)
Long-Term Objectives
In the long term, the Enterprise Corporation
would help lead the community effort to
overcome our structural weaknesses in capital,
technology, and talent. The Enterprise Cor-
poration would take a leading role in efforts to
• Create more sources of entrepreneurial
capital in Louisville
• Retain more of our bright young
entrepreneurial talent
• Reform Kentucky's tax laws
• Improve U of L's ability to serve as a source
of entrepreneurial technology
• Work with the Jefferson County Public
Schools, Junior Achievement, and others to
stimulate more entrepreneurial education in
area schools
The Enterprise Corporation would also cooperate
with emerging statewide efforts to encourage
entrepreneurship.
Leadership
The Enterprise Corporation of Louisville would
require excellent entrepreneurial leadership from
both its board and its staff. The Board would
include leaders of Louisville's entrepreneurial
community (including both proven and emerging
entrepreneurs) and entrepreneurial support
community (bankers, lawyers, accountants,
venture capitalists, and so on) as well as leaders
from government and education.
The Enterprise Corporation would seek a CEO
with significant experience in entrepreneurship
and entrepreneurial economic development. It
would also seek managers for its programs and
for its communications and planning efforts who
have experience with growing companies.
Funding
Delivering the programs described here would
require an annual budget of between $500,000
and $750,000 per year. Some part of this amount
could be raised through fees and program
sponsorships, but the majority of the budget
would be funded through grants. Funding would
be sought from state, city, and county
governments, from local business (especially our
successful entrepreneurial corporations) and
from foundations, including local foundations
and the Ewing Marion Kauffman Foundation.
Location
The Enterprise Corporation would be housed
with the other leading economic development
agencies at the Commerce Center at
600 W. Main Street.
Measuring Success
The success of the Enterprise Corporation will be
determined by measuring its ability to improve
Louisville's performance on many of the
indicators used in this report: The city's
Entrepreneurial Hot Spots ranking, the number
of Louisville-based Inc. 500 companies, the
number of IPOs of Louisville-based companies,
and other measures. The Corporation's success
will also be measured by its ability to help
improve Louisville's weaknesses in Talent,
Technology, Capital, Know-How, and Culture.
30
Conclusion
Louisville is an entrepreneurial city. It has produced some great entrepreneurial companies–
companies like Humana, Vencor, Active Transportation, Papa John's Pizza, and many others–that
have produced many jobs and much wealth for the community. Still, Louisville is not producing
as many new growth companies as some of its competitors. Given the importance of growth
companies as engines of job creation and wealth production, our weakness in entrepreneurship is
a serious problem.
Louisville may not have as much talent as some other places, but we do have thousands of
entrepreneurs and potential entrepreneurs, some of whom have the potential to create great
companies. We may not have as much capital as some places, but we do have capital that is
ready to help launch tomorrow's hot growth companies. We may not have as much technology as
some places, but we do have plenty of good ideas for new products and services.
What we lack is a coordinated strategy for mobilizing the resources we do have for maximum
impact, and a plan for overcoming our weaknesses across time. What we lack is a culture that
encourages and supports entre-preneurs and entrepreneurship.
These weaknesses can be addressed by making a commitment to entrepreneurship as a key to our
city's economic future. That commitment would require the creation of a new institution–an
Enterprise Corporation of Louisville–that would become the focal point for our efforts to create
and support entrepreneurship in Louisville.
Louisville can be more entrepreneurial. If we want to have a prosperous, resilient economy, we
must be more entrepreneurial. Now is the time to begin building our entrepreneurial future.
31
Appendix A
Entrepreneurial Support Programs in Louisville
Louisville already has some programs designed
to help small business and entrepreneurial
ventures. Many of these programs have emerged
recently as a part of the community's new interest
in entrepreneurship.
Existing Programs
Louisville's existing program for small business
support include the Center for Small Business at
the Louisville Area Chamber of Commerce, the
Small Business Development Centers at
Bellarmine College and the University of
Louisville. These programs are primarily
focused on delivering know-how to entre-
preneurs and potential entrepreneurs in the
community.
The Center for Small Business (Chamber of
Commerce) offers a number of programs for the
personal and professional development of the
growing company owner or manager and is
beginning to create a support system to foster the
start of entrepreneurial ventures. The Center for
Small Business is dedicated to nurturing and
encouraging the growth of small-to-mid-sized
companies. Programs include:
• Business at Breakfast Series
• Business Solutions Center
• CEO Roundtable Program
• CEO Strategic Planning Program
• Climbing Mountains Seminar
• Fine-Tuning Workshops
• Topical Seminars
• Videotape Library
The Small Business Development Center
(Bellarmine College) provides comprehensive
training and management assistance to existing
small businesses and start-up companies. One-
on-one counseling is provided at no charge to
business owners with particular problems or
opportunities related to their business operations.
Counseling reaches into all areas of business,
including financing, management, personnel,
operations, marketing, sales, etc. Courses and
seminars are scheduled on a regular basis and
cover a variety of topics important to the small
business owner. For individuals who are starting
a business, the SBDC provides a comprehensive
training plan which prepares the individual for
one-on-one contact with the counselor. Courses
offered include:
• Pre-Startup Skills
• Financing a Small Business/Preparing a
Loan Application
• Developing a Business Plan
The Small Business Development Center
(University of Louisville) provides counseling
services to entrepreneurs and companies that
have technology-dependent enterprises. The
SBDC draws upon the expertise of its staff and
on the University of Louisville's faculty,
including that of the Speed Scientific School.
The Center provides business management
assistance to technology-based enterprises and
provides services to local companies interested in
making application for federal Small Business
Innovative Research (SBIR) grants.
The Small Business Institutes (University of
Louisville and Bellarmine College) are
designed to give Kentucky small business owners
an opportunity to receive intensive management
counseling from qualified college-level business
students working under expert faculty guidance.
The students meet frequently over the course of a
full university term with the small business
owner to identify and solve specific management
problems. Business clients receive a detailed
report on the steps they need to take to make
improvements in their operations.
The Jefferson Community College
Entrepreneurial Institute (Jefferson
Community College Southwest) offers classes
for small-business owners. The classes are
designed to provide new business owners with
information necessary for solid business planning.
The primary purpose is to adequately prepare
those individuals who wish to start their own
small businesses. The instructors employ a
fundamental, hands-on approach to business
ownership covering aspects such as developing a
business plan, bookkeeping systems, legal
considerations and marketing techniques. JCC's
Entrepreneurial Institute has been named a
National Model Program, and is one of only three
programs in the nation to receive this honor.
The Indiana University Southeast Small
Business Institute offers classes in entrepre-
32
neurship and offers periodic Small Business
Forums–short breakfast forums on topics of
interest to small firms. In addition, several IUS
faculty members, including SBI Director Dr.
Edward Hufft, provide consulting help for small
businesses.
The Division of Small Business (State of
Kentucky) encourages small business
development in the state by providing potential
and existing small businesses with information
on start-ups, training, financing and business
planning; directing individuals to resources that
offer specialized assistance; counseling
craftspersons and critiquing business plans and
loan applications for crafts loans; coordinating
and initiating programs, workshops and seminars
beneficial to small businesses; and providing
assistance to individuals interested in success-
fully operating businesses from their homes.
The Small Business Administration (SBA) is a
federal agency created by Congress in 1953 to
assist small businesses that are independently
owned and operated. The SBA offers a broad
range of loan programs including a loan
guarantee through banks. The agency provides
counseling, business education, and training
seminars to existing and potential entrepreneurs
and corporations in cooperation with SCORE
and the Small Business Development Centers
throughout Kentucky. The agency also
specializes in general courses, workshops and
one-on-one counseling five days a week. The
SBA provides publications related to business
operation and management.
The Service Corps of Retired Executives
(SCORE) volunteers provide management
counseling without charge to assist companies
with business start-up, expansion, review
operations and management problems. SCORE
provides regular courses in Owning Your Own
Business, Forecasting and Cash Flow,
Recordkeeping, Accounting and other topics
pertinent to new ventures.
The Louisville/Jefferson County Office for
Economic Development (OED) is a joint
city/county government agency which provides
expansion and retention assistance to local
businesses through a variety of economic
development programs. Programs of interest to
entrepreneurial ventures include:
• Business loans
• Expediting the bureaucratic process when
accessing government services (permitting,
zoning, licensing, etc.)
• Minority business assistance
• Neighborhood commercial development for
targeted areas
• Export trade assistance
• A BUY LOUISVILLE program to link local
suppliers to local buyers
• Government procurement assistance to help
businesses obtain contracts with local, state
and federal government agencies
• The INVESTNET capital network
The Louisville Minority Business
Development Center (LMBDC) provides
counseling, management and technical
assistance, and training and business
development programs to ethnic minority
businesses and individuals. LMBDC specializes
in business planning, loan packaging and
contract procurement. Additional services
include: advertising and promotion; bidding and
estimating; marketing strategies; demographic
reports; finance and accounting; lines of credit;
and construction project reports. Data resources
include information on marketing, construction,
export, loan programs, government contracts,
and bonding. LMBDC is an advocate for
minority business and identifies business capital
and procurement opportunities.
The Minority Business Development Division
(The Chamber) facilitates and promotes pro-
curement opportunities and technical training for
African-American-owned businesses in the
community. These educational and networking
opportunities are promoted through the division's
Procurement Through Partnership program,
which meets monthly, and its Electronic Data
Interchange (EDI) Training program.
Our Recent Progress
In the past year, several new programs and
initiatives have been launched in Louisville,
some of which are intended to help improve the
community's entrepreneurial culture and others of
which are designed to offer training and support
to entrepreneurs.
Urban Workshop In the summer of 1995, a
group of Louisville leaders journeyed to Kansas
City on the Louisville Chamber's annual Urban
Workshop. On this trip, these Louisvillians were
exposed to the programs of the Center for
Entrepreneurial Leadership of the Kauffman
33
Foundation and to the Center for Business
Innovation, a Kansas City incubator.
Growing Success Day In September 1995, the
Chamber produced a one-day event called
Growing Success: A Celebration of
Entrepreneurship in Louisville. Growing
Success featured some of Louisville's most
successful entrepreneurs–people like David
Jones, Bruce Lunsford, Charlie Johnson, and
Debbie Scoppechio–who told their success
stories to the audience of over 650 entrepreneurs
and potential entrepreneurs. The event also
included an exhibition highlighting 25 local
entrepreneurial companies and 15 providers of
services to entrepreneurs. A one-hour edited
version of the program was broadcast numerous
times on the local public-access channel, where it
was seen by thousands more.
FastTrac In early 1996, the Louisville Chamber
launched a new training program for entrepre-
neurs, Premier FastTrac. Premier FastTrac is a
practical and effective business development
program for entrepreneurs. It is designed to
assist entrepreneurs in getting their new ventures
off to the right start or to quickly develop the
skills they need to manage and grow their
businesses. FastTrac I, a nine-session course,
offers basic training to entrepreneurs who are
considering launching new ventures. FastTrac II,
an eleven-session course, offers more advanced
training to entrepreneurs in existing ventures.
FastTrac was created by Dr. Courtney Price and
is endorsed by the Center for Entrepreneurial
Leadership, and is offered in Louisville by the
Chamber in conjunction the Midwest Center for
Entrepreneurial Education.
Conclusion
The existing entrepreneurial support programs in
Louisville are an important source of Know-how
for entrepreneurs in the community. But because
they are small, underfunded, underpublicized,
and lack coordination, they are not reaching as
many entrepreneurs as they might. Further, these
existing programs have not yet been effective in
molding our culture. While they provide a base
for future efforts in entrepreneurial economic
development, there is much more that we can do.
34
EndNotes
1. Who's Creating Jobs 1995, David Birch,
Anne Haggerty, and William Parsons, ©
Cognetics, Inc, 1995, p. 4
2. Corporate Evolution, David Birch, Anne
Haggerty, and William Parsons, ©
Cognetics, Inc, 1995, p. 3
3. Who's Creating Jobs 1995, p. 6
4. ibid., p. 8
5. New Venture Creation: Entrepreneurship in
the 1990s, Third Edition, Jeffry A. Timmons
with Leonard E. Smollen and Alexander l.M.
Dingee, Jr., Irwin, © Jeffry Timmons, p. 24
6. Heaven Help Us ('Business Angels' Provide
Investment Capital, Dale D. Buss, Nation's
Business, November 1993 v81 n11 p29
7. How to be an Angel, Susan Oliver, Forbes,
June 19, 1995, v155 n13 p. 228
8. Heaven Help Us ('Business Angels' Provide
Investment Capital, p. 29
9. The Entrepreneurial Mind, Jeffry Timmons,
Success, April 1994, v41 n3 p. 48
10. "Frist 'family tree' has roots firmly planted in
Nashville," Sandy Lutz, Modern Healthcare,
September 11, 1995
11. Prescription for Opportunity: How
Communities Can Create Potential for
Entrepreneurs, Norris F. Krueger, Jr., Small
Business Foundation of America, © Norris
F. Krueger, Jr., 1995, p. 5
12. Entrepreneurial Hot Spots, David Birch,
Anne Haggerty, and William Parsons, ©
Cognetics, Inc, 1994, p. 2
Significant Starts are companies founded
within the last 10 years which now employ at
least 5 people. Young Growers are firms
that were 10 years old or less four years ago
and which have grown significantly during
the last four years. A places rank in the
Entrepreneurial Hot Spots listing is based
on a weighted average of its Significant Start
Index and its Young Grower Index.
Cognetics uses a metric called the Growth
Index to measure the growth of firms. The
Growth Index for a firm is its percent
employment growth (expressed as a
decimal) times its absolute employment
growth. For instance, a firm that grew from
20 to 30 employees would have a growth
index of (30/20) x (30-20) or 5. The Growth
Index captures both the absolute number of
jobs created by a firm and the percentage
growth of jobs, thus avoiding distortions
caused by very small firms that add one or
two jobs but have high growth rates and very
large firms that add a large number of jobs
but have very small percentage growth in
employment.
Cognetics considers firms with a Growth
Index of 3 or more to be growing
significantly.
13. One other Louisville-based firm, Res-Care,
completed its IPO in December, 1992. Its
current market capitalization is about $106
million. Other recent Louisville-based IPOs
include Caretenders, Rally's, and Vencor.
14. Inc. 500 Companies By State, 1982-1994,
Compiled by Inc. Magazine
15. "The Economic Impact of Venture Capital,"
a joint study conducted by Coopers &
Lybrand, Strategic Management Services,
and Venture Economics, Inc., quoted in
Venture Capital at the Crossroads, William
D. Bygrave and Jeffry A. Timmons, Harvard
Business School Press, 1992, p. 3
16. Venture Capital at the Crossroads, p. 286
17. Telephone interview with Robert Compton,
partner, CID Equity partners, Indianpolis,
Indiana
18. See, for example, The New Business
Incubator: Linking Talent, Technology,
Capital and Know-How, Raymond W.
Smilor and Micheal Doud Gill, Jr.,
Lexington Books, © 1986 D.C. Heath and
Company, pp. 13-14; Venture Capital at the
Crossroads, p. 251-258; and Entrepre-
neurial Hot Spots, p. 13-18
35
19. Inc., Special Issue: The State of Small
Business, May 16, 1995, p. 61
20. Change Agents in the New Economy:
Business Incuabtors and Economic
Development, Candice Campbell, National
Business Incubator Association, October
1987, p. 6
21. Assuming that Louisville invested $2500 per
year (in 1995 dollars) to educate each of the
21,000 young people who left the
community after 1980, and assuming that
each of these people spent 8 years in our
schools before moving, Louisville's net
export of educational investment in the
1980s was approximately $420 million.
22. The 1995 Development Report Card for the
States, Ninth Edition, © 1995 The Cor-
poration for Enterprise Development, p. 166
23. Comparative Analysis of Kentucky's Tax
Structure, prepared by Policy Economics
Practice of Barents Group LLC, a KMPG
Peat Marwick Company, Washington, DC,
July 19, 1995
24. Prescription for Opportunity: How
Communities Can Create Potential for
Entrepreneurs, Norris F. Krueger, Jr., Small
Business Foundation of America, © Norris
F. Krueger, Jr., 1995, p. 15
25. ibid., Introduction
26. ibid., Executive Summary
27. Corporate Evolution, p. 11
28. U.S. Small Business Administration, August
29, 1988; B.D. Phillips and B. A. Kirchoff,
"An Analysis of Firm Survival and Growth,
Frontiers in Entrepreneurship Reseach:
1988, ed. B. Kirchoff et al., pp. 266-267,
quoted in New Venture Creation:
Entrepreneurship in the 1990s, Third
Edition, Jeffry A. Timmons with Leonard E.
Smollen and Alexander l.M. Dingee, Jr.,
Irwin, © Jeffry Timmons, p. 11
29. ibid., p. 11
30. ibid., p. 11
31. Inc., Special Issue: The State of Small
Business, May 16, 1995, p. 24
32. Corporate Evolution, p. 11
33. Hot Industries 1995 , David Birch, Anne
Haggerty, and William Parsons, ©
Cognetics, Inc, 1994, p. 7
34. Inc., The Inc. 500 1995, p. 39
35. Who's Creating Jobs 1995, p. 7
36. Inc. 500 Companies By State, 1982-1994
37. Entrepreneurial Hot Spots, p. 13
38. Truths and Falsehoods about
Entrepreneurs, Donald J. McNerny, HR
Focus, August 1994, V71 n8 p. 7
39. The Entrepreneurial Mind, Jeffry Timmons,
Success, April 1994, v41 n3 p 48
40. Growing New Ventures, Creating New Jobs:
Principles & Practives of Successful
Business Incubation, Mark P. Rice and Jana
B. Matthews, Quorum Book, © 1995 Center
for Entrepreneurial Leadership, Inc., p. xiv
41. ibid., p. xx
42. ibid., p. 145
43. Hot Industries 1995, p. 9
44. Who's Creating Jobs 1995, p. 7
45. Who's Creating Jobs 1995, p. 5
46. The New Business Incubator, p. 15
36
Methodology
This report was commissioned as an outcome of
the Louisville Area Chamber of Commerce 1995
Urban Workshop. At the Workshop's follow-up
meeting, the attendees requested Douglas Cobb,
Chairman-elect of the Chamber, to form a
committee and create a "business plan" for
entrepreneurial development in Louisville. This
report is that plan.
The Entrepreneurial Development Committee
met for the first time in October 1995. The
members of the committee are
Douglas Cobb Chrysalis Ventures, Inc.
David L. Armstrong County Judge/Executive,
Jefferson County
Nolan Allen Cotton and Allen
Brad Baumert Zip Express
Malcolm Chancey Bank One Kentucky
Dr. Paul Coomes University of Louisville
Tonya York Dees Chamber of Commerce
Bill Federhofer Small Business
Administration
Lynn Fischer Hospitality TV
Bill Frentz InvestNet
Ed Glasscock Brown, Todd, & Heyburn
Norm Gill Bohn-Gill Design
Jerome Hutchinson Greater Louisville
Communications
Mark Kristy Coopers & Lybrand
Bruce Lunsford Vencor
Neil MacDonald Independent Container
Merrily Orsini Eldercare Solutions
Jerome Parham African Amerian Venture
Capital Fund
Andy Payton Professional Search
Consultants
Dr. Ed Popper Bellarmine College
Jim Rives Rives Development
Debbie Scoppechio Creative Alliance
Paul Schulte Horizon Research
Brad Smith Ernst & Young
Maurice Smith Heritage Hardwoods
Rudy Straub E&H Integrated Systems
Al Sullivan Sullivan College
Dr. Robert Taylor University of Louisville
Karen Taylor Chamber of Commerce
Paul Thistleton Office of Economic
Development
Sharon Williams Chamber of Commerce
After considering the proper outline and scope of
the project, the Committee decided to create a
Research Subcommittee that would gather the
data and draft the report. That Subcommittee
was lead by Mr. Cobb and included:
Brad Smith Ernst & Young
Mark Kristy Coopers & Lybrand
Barbara Keane Deloitte & Touche
Hart Hagan Carpenter & Mountjoy
Paul Schulte Horizon Research
Paul Coomes University of Louisville
This committee’s research included
• A thorough review of academic and popular
literature on entrepreneurship and
entrepreneurial economic development
• Study of other data sources (such as census
data) for information about Louisville’s
economic health
• Focus groups with both experienced and
new entrepreneurs
• Interviews with leaders of successful
entrepreneurial economic development
agencies in other communities
After collecting its data, the Research
Subcommittee drafted this report. After careful
review, the final report was submitted to the
Entrepreneurial Development Committee on
March 11, 1996, and was adopted by that
committee on March 28, 1996.
37
Acknowledgments
This report was produced at no cost to the
Louisville Area Chamber of Commerce as a
result of the tireless efforts of many volunteers.
As Chairman of the Entrepreneurial
Development Committee of the Louisville Area
Chamber of Commerce, I would like to thank
each of them and acknowledge their contribution
to this effort.
Douglas Cobb
First, many thanks to the members to the
Entrepreneurial Development Committee: David
L. Armstrong, Nolan Allen, Brad Baumert,
Malcolm Chancey, Dr. Paul Coomes, Tonya
York Dees, Bill Federhofer, Lynn Fischer, Bill
Frentz, Ed Glasscock, Norm Gill, Jerome
Hutchinson, Mark Kristy, Bruce Lunsford, Neal
MacDonald, Merrily Orsini, Jerome Parham,
Andy Payton, Dr. Ed Popper, Jim Rives, Debbie
Scoppechio, Paul Schulte, Brad Smith, Maurice
Smith, Rudy Straub, Al Sullivan, Dr. Robert
Taylor, Karen Taylor, Paul Thistleton, and
Sharon Williams.
Also, much thanks to the members of the
Research Subcommittee–Brad Smith of Ernst &
Young, Mark Kristy of Coopers & Lybrand,
Barbara Keane of Deloitte & Touche, and Hart
Hagan of Carpenter & Mountjoy–and to the
firms they represent for donating their time to
this project. Special thanks to Paul Schulte, CEO
of Horizon Research, for donating his time and
the resources of his firm to perform the focus
groups. Special thanks also to Dr. Paul Coomes
from University of Louisville for his help in
identifying factors that could be used to measure
the entrepreneurial vitality of our community.
Thanks to Jim Rives, Vice Chair of the Center
for Small Business, and Dr. Robert Taylor, Dean
of the College of Business and Public
Administration at the University of Louisville,
for their advice, guidance, and assistance.
Thanks to Jim Wilhelm from Horizon Research
for conducting the survey and the focus groups
that provided critical information to the report.
Thanks to Michie Slaughter, Dr. Ray Smilor, and
Dr. Jana Matthews of the Center for
Enterpreneurial Leadership at the Ewing Marion
Kauffman Foundation, for their advice and their
assistance, and for their leading role in
supporting entrepreneurship across the country.
Thanks to Tonya York Dees, Karen Taylor,
Leslie Hebert, and Kathy Conway of the
Chamber’s Center for Small Business, and to
Curt Martin, Information Center Manager, for
their help in collecting data for the report.
Thanks to Bob Gayle, CEO of the Chamber, for
allowing these people to assist with the project.
Thanks to Vicki Wolfinger of Chrysalis
Ventures, Inc. for her assistance and support.
Thanks to Jefferson County Judge/Executive
David L. Armstrong for his encouragement.
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