Undertaking efforts to coach up a cluster of businesses to higher levels of financial knowledge can readily support existing capital attraction initiatives. In many cases, these efforts end up greatly strengthening capital attraction, as regions become known as entrepreneurial clusters with deep support networks.
Just like in each individual business, demonstrating that a region produces less risky investments than neighboring regions and states creates attractive prospects for potential investors and financial institutions. In essence, an entire community- or cluster- of businesses with sophistication, with a reputation for successful returns, and with a proactive stance on business growth creates a hotbed for investors where they can see quicker and less risky returns.
Just as Silicon Valley is known for its vibrant tech cluster and creativity, it is possible to create a community of businesses not necessarily linked by industry but by positive energy and sophistication. Two fantastic examples include the vibrant entrepreneurial clusters in Kansas City and around Fayetteville, Arkansas, where influential entrepreneurship programs have helped raise the level of small business sophistication and, by extension, the amount of growth capital available in the region.
Intensely targeted and focused growth programs from organizations such as Kansas City’s famous Kauffman Foundation and Fayetteville’s Startup Junkie consulting group have directly empowered local business owners as they have sought financing. Until recently, both communities faced the same challenges as much of the Midwest; businesses lacked the financial sophistication needed to pull capital the ‘last mile’ into their firms, and most were stuck trying to generate growth within small local markets. Traditional methods of capital attraction weren’t generating the needed funding in these communities. While marketing helped investors notice the region, money still wasn’t flowing into the hands of local businesses.
While many small business training programs focus especially on the business plan and the nuts and bolts of getting started, the organizations in Kansas City and Fayetteville made sure to start entrepreneurs with scalable business models that planned for financial infusions down the road. Small business owners in their programs came right out of the gates preparing for financing, and knew the kinds of milestones, ideas, objectives, and forecast elements they needed to attract money in year two, three, and beyond. Even businesses that don’t directly participate in programs benefit; the new ideas shared around the community and the increased market pressure to improve have naturally pulled huge parts of each area’s business cluster to a higher level.
The overall result from making financing and scalability a focus from the get-go is that new investment firms in each area have popped up all over each region. Today, many of these firms are surely and steadily proving success in investing directly into regional startups and existing businesses, and places like Fayetteville- which saw extremely limited investment two decades ago- are seeing seed and venture funds raising tens of millions of dollars pop up year after year.
Leveraging reputation and sophistication to attract new supply is vital. Once a region’s reputation has grown to a point where investors can see that it’s a petri dish of potential, the ability to market and attract those investors (and their money) becomes much simpler. Local economic development agencies, chiefly responsible for encouraging new investment in an area, can point not just to anecdotes of success but hard data showing real return on investment for potential capital resources.
As these agencies pursue grants, government programs, or look to creatively work with influential donors to create seed funds and new capital resources, they are fully able to relay how their region is deserving of capital infusion. And, like with many industry clusters, the result is that one investor seeing success attracts another; and that investor’s success attracts another; and so on. It becomes critical to support the region’s small businesses to ensure that success happens.
Making financial investments in a region a priority can also often go further than purely focusing regional strategy on job creation. In regions where the population doesn't or can't support huge job gains or where attraction of massive manufacturing concerns might not be feasible (rural areas, for instance), creating sophisticated, structured businesses that can attract financing and grow organically is critical. While the job creation stats aren't immediately padded for local economic developers, each additional dollar in business owners' pockets improves the quality of life and overall wealth of the region, which pays off in the long run.
With this in mind, it becomes clear that empowering small businesses to grow by leveraging the experiences of business experts and coaches makes sense, especially in America's smaller cities and towns. It makes even more sense if this is done in the early stages, before a business owner runs out of motivation and before that owner has locked themselves into plans and investments that may not lead them down the road to bankability.
Many small businesses in rural areas and small cities are never exposed to the necessity of capital or don’t face intensive and obvious negative pressures that force growth, so they end up stagnant. Providing real coaching- and, more importantly, deep exposure to new and alternative business ideas- will kick off new entrepreneurial desire in many owners. Often, new ideas help them dig out of tough situations and give them the time and motivation to push their growth.
Without capital, businesses can’t open new locations, can’t expand capacity, and can’t hire. It’s critical to prepare each small city, regional ecosystem, and rural business cluster with the tools they need to successfully bring in and leverage capital resources. This starts at the business level.