When Bureaucrats Are a Boon
State and local governments offer help ranging from training to finance
The stereotype: Mention government to a small-business owner, and you'll get an earful about red tape and lazy time-servers.
The reality: Savvy small businesses are taking advantage of hundreds of state and local government programs geared to making their companies more competitive.
Consider the experience of Jean Jaffess, Sioux Jennett, and Mari Sinazze. Earlier this year, when they formed Mambo Design & Consulting, a Saratoga (Calif.) business providing Web-site development and promotion for small and midsize businesses, they needed help getting their company off the ground. "As silly as it may sound, choosing an insurance policy was one of our main problems," says Jaffess. "And we had no idea how to deal with our tax situation." Jaffess and her associates turned to the Silicon Valley Small Business Development Center, one of the nearly 1,000 SBDCs nationwide, for assistance. The Silicon Valley SBDC is funded by the California Trade & Commerce Agency, the West Valley-Mission Community College District, and the Small Business Administration. Jaffess attended a four-hour seminar on how to write a business plan, find a location, analyze the competition, make plans for future growth, advertise, and much more. She also worked with an accountant at the SBDC on tax and balance-sheet basics and got help on her insurance questions. Today, Mambo Design has monthly sales in the $20,000-to-$25,000 range.
MAKING JOBS. Cities and states across the nation are offering small business help in everything from raising cheap capital to upgrading workforce skills to learning about new technology. They got into the economic development business in a big way starting in the 1980s, when brutal global competition, high unemployment, and harrowing corporate restructuring drove them to action. Enterprising government officials began targeting more resources for small business as economic research suggested that entrepreneurial outfits accounted for the bulk of new job creation.
Of course, government programs still attract a fair amount of criticism. Even supporters concede that government could help the most by streamlining regulations, improving public services, and simplifying -- if not reducing -- taxes. Small-business owners often find it maddeningly difficult to learn about these programs. And few have the patience for the tortoise pace of many local officials. "We don't have the bureaucratic luxury of taking until tomorrow to get something done," says Michael F. Ghareeb, vice-president for sales and marketing at Stan Allen Co., a Ludlow (Mass.) maker of custom tools.
Yet why not take advantage of the many good programs that exist? Even Ghareeb admits that Stan Allen has benefited. To screen job applicants and acquire training assistance, the toolmaker has used the Massachusetts Career Development Institute, which runs job-training programs for a state-funded consortium in Springfield, Mass. The company, which employs 29 people, has hired five new machine operators through the institute over the past five years. "The consortium screened candidates successfully, which was an immense help to us," says Ghareeb.
The federal government, though sprawling, can be another good source. Click on the Small Business Administration Web site and you'll see a rich array of offerings. The U.S. Export-Import Bank, long seen as the federal government's banker for politically savvy multinational corporations, offers several programs geared toward smoothing the overseas path of small business.
For many small companies, the best way to gain access to a federal program seems to be through a local agency acting as a conduit or expediter to Washington. For example, Pico Systems Inc., a maker of programmable miniaturized electronic circuits, recently moved its 25 employees into an aging, four-story inner-city facility in Toledo. A portion of the building was turned into a 12,000-square-foot "clean room" production facility with more than $3 million in funds (including working capital and equipment-acquisition money) from various sources; these included the federal government's Housing & Urban Development Dept., the Toledo Development Dept., the state of Ohio, the Northwest Ohio Venture Fund, River Cities Capital Fund, and Neighborhoods in Partnership, a nonprofit corporation. Toledo's economic development department did a lot of the "hands-on" work finding and coordinating all the money, says Dennis A. Perna, vice-president for finance and administration at Pico.
In general, government seems to be most helpful when its programs take advantage of the public sector's ability to marshal vast quantities of information, contacts, and advice that is made available to entrepreneurs at little or no cost. State and local governments are also more effective when they act in concert with other organizations, such as industry groups, educational institutions, and nonprofit organizations. "Government has geographical networks and connections that small business doesn't have," says William Parent, executive director of the Innovations in American Government program at the J.F. Kennedy School of Government at Harvard University. "These programs work best when small business gets to take advantage of these networks."
LOOK IT UP. Many states and major metropolitan areas, for instance, gather extensive facts about market conditions overseas for potential small-business exporters. Public libraries are devoting more space and resources to issues that concern small business. New York City's state-of-the-art Science, Industry & Business Library -- one of the largest public business-information facilities in the world -- has already handled more than 600,000 research requests since it opened last year. And then there are technology centers, which link industry with academia and government to accelerate the diffusion of data on the latest research and development.
The Business & Industry Affairs Dept. in Littleton, Colo., a suburb of Denver, uses databases and research to develop competitive intelligence for its local businesses. The city's economic development department subscribes to seven commercial computer database services. It also subscribes to Dun & Bradstreet Corp.'s list of 14 million businesses in the country and various geographical and real estate information systems. Its tasks this year include developing a list of south metro-area homes built within the past three years that have changed ownership since the second quarter of 1996 (this for a small insurance company); background profiles on potential customers in Iowa, Colorado, Pennsylvania, Texas, and Georgia for a foundry; and the monitoring of public-contract opportunities for a local architecture firm. The first $150 worth of research is provided free of charge, though some companies pay $2,000 to $3,000 a year for the service, says Christian Gibbons, the department's director.
LOOKING ABROAD. Government agencies can be a particularly useful place to start for prospective entrepreneurs. A popular publication from the Fort Wayne (Ind.) Economic Development Dept. is its 40-page handbook providing information on everything a small-business owner needs to know to survive the regulatory and licensing processes. Minnesota's Trade & Economic Development Dept. publishes a 275-page guide to starting a business in the land of 10,000 lakes.
State governments are also eager to introduce small business to the nuts and bolts of exporting. The Ohio International Trade Div., for example, is a state agency with a staff of 40 professionals, a budget of $5 million, and seven locations around the world, including Hong Kong, Brazil, and Mexico. Susan Baker, founder and owner of Ohio River Bear Co. in Middleport, Ohio, turned to the trade agency when she decided it was time to investigate export-market opportunities. Baker attended seminars on selling abroad, met with Ohio trade representatives from various overseas offices, and attended several foreign-trade shows held in Ohio. Her company, with six full-time employees and 34 part-time workers, manufactures teddy bears for the adult collector market and currently exports a sixth of its 60,000 teddies to Japan, Hong Kong, Singapore, Britain, and Canada. "Maybe I could have started exporting without help from the state, but surely not as quickly or easily," Baker says.
A number of programs go far beyond information and networking. Business incubators, for example, are private/public partnerships that offer a facility with low rent to brand-new and growing businesses. Entrepreneurs keep costs down by sharing services and equipment, such as telephones. They also get access to a wide range of technical expertise. The Jackson Enterprise Center, a small-business incubator in Jackson, Miss., is a joint-venture project run by the Mississippi Economic & Community Development Dept., with much of its funding coming from a local construction company. The Jackson State University Small Business Development Center works out of the incubator so it can more easily help entrepreneurs with their business plans.
Charles Doty is an enthusiastic graduate of the incubator. When he started Lextron Corp., an electronics manufacturing company, in 1990, he was able to rent 400 square feet of incubator space at rates below market. Hinds Community College screened job applicants for him, and the incubator's business experts guided him to a state-backed project that paid part of his employees' salaries during their training week. Today, his 72 employees build electronic-wire harnesses and surge protectors for BellSouth Corp. and AT&T/Lucent Technologies Inc. at one plant and auto parts for Delphi Packard Electric Systems at another.
The public sector can also be surprisingly helpful where it counts most -- with money. Most states offer indigenous small businesses loan subsidies for new plants and equipment, working capital, export trade, and startup seed money. The capital is especially forthcoming if the business is in a depressed rural area or a downtrodden urban one. Often, it can be an entrepreneur's lifeline.
SALAD DAYS. Certainly, that was the case with Bud's Salads Inc., a nine-employee processor of fresh-cut fruit and vegetable salads in Dallas. In 1991, Bud's landlord put its facility up for sale, and owner Rosalie Budnoff was overwhelmed at the thought of buying property and assuming responsibility for a mortgage. "We were financially solid, but I didn't know anything about loans or financing," she says. Budnoff, on the advice of a casual acquaintance, turned to the Southern Dallas Development Corp., a not-for-profit agency partially funded by the city of Dallas to promote economic growth in its stagnant southern metro area. The SDDC helped her find a new workspace. It also put together a financing plan that included a first mortgage from Bank One Corp. and a second mortgage from the SDDC. Bud's now employs 85 people and has quadrupled its sales in less than five years.
Hard to believe, perhaps, but with perseverance, any smart small-business owner can get a leg up on the competition or help solving a problem by turning to government. No, that's not an oxymoron. That's good business.
By Christopher Farrell in St. Paul, Minn., with bureau reports