Rural Communities Look for Entrepreneurial Spirit

The Community Affairs staff at the Federal Reserve Bank of St. Louis is focusing its efforts on small business and entrepreneurship during 2004 and 2005. This is the second of several articles scheduled in Bridges on those topics.

Entrepreneurs do not operate in a vacuum. Outside factors, such as where they live, can affect their success … or lack of it. In rural areas, where resources often are scarce, entrepreneurs might find it even more difficult to build their businesses.

The rural community's role in the process is vital. It can provide a supportive environment for entrepreneurs or inadvertently create an environment lacking the right combination of resources and support. Understanding the conditions that either support or hinder entrepreneurial activity is useful information for communities interested in fostering startup businesses. Knowing how to assess current community conditions and changes in entrepreneurial activity that are the result of specific programs and policies is also useful.

The Rural Entrepreneurship Initiative (REI) was created in 1999 by the Ewing Marion Kauffman Foundation, Rural Policy Research Institute, Partners for Rural America, National Rural Development Partnership and the Nebraska Community Foundation to strengthen rural America through entrepreneurship. REI also supports learning that enables rural America to build a stronger and more supportive environment for entrepreneurship.

In 2000, Missouri and three other states (Maine, Minnesota and West Virginia) were selected to participate in REI's Discovery State Academy Program. The purpose was to help leaders in these states better understand rural entrepreneurial opportunities and then develop programs and policies that support entrepreneurship. The Discovery State Academy Program began in Colorado and Texas the following year.

The Missouri REI team knew the U.S. Small Business Administration considered nearly 98 percent of Missouri's businesses “small,” and that they represented almost 50 percent of the state's total employment. In rural Missouri communities, as in most places, there is a wide spectrum of economic development activities. At one end are communities where businesses are beating a path to their door, offering good job opportunities. At the other end, the daily battle is to retain the few remaining retail establishments that bring in just enough sales-tax revenues to keep county services operating. For certain, the team knew little about what accounts for this unevenness in entrepreneurial activity and what makes a culture of entrepreneurship.

The team set out to test a Kauffman Foundation theory that every community has a culture related to entrepreneurship and that each could make improvements to its entrepreneurial environment. In reviewing and discussing the latest research, the team focused on four questions:

1. What are the environmental factors that influence rural entrepreneurship?
2. How can a community measure how healthy the entrepreneurial climate is?
3. How can these measurements be used in the decision-making process to choose programs and policies that will have a positive impact on the community's entrepreneurial climate?
4. What benchmarks can be used to measure changes in entrepreneurial activity over time?

Assessment Tool Developed

As a result of the research, Missouri REI worked with the Community Policy Analysis Center (CPAC) at the University of Missouri-Columbia to design a user-friendly assessment tool for rural communities to measure variables that influence entrepreneurial activity. The tool contains questions related to 10 variables that have an impact on the entrepreneurial climate of a community. Both tangible and intangible factors were identified, and questions were designed to solicit perceived performances in each of these 10 factors. (See table at bottom of article.)

The researchers developed a 65-question survey to quantify the perceived importance and performance of the variables identified as instrumental in a community's entrepreneurial climate. Perceptions of a community's performance in areas such as loan availability, education and training opportunities then could be compared with data available from secondary sources. Survey information can serve as a baseline for a community to compare its performance with future years.

In addition, it might be of some value for communities to compare their scores with communities of similar population size or comparative proximity to an urban center. An analysis that tracks changes of the perceived climate for entrepreneurs among a number of communities—along with documentation of strategies and policies implemented to improve a community's entrepreneurial climate—might lead to theories of what community variables and strategies have an impact on entrepreneurial activity.

Field Testing and Survey Results

The Missouri communities of Fayette, Albany and Dexter were selected for field testing the assessment tool primarily on the basis of differences in their population, proximity to metropolitan areas and availability of economic development staff to coordinate interviews with key people in the community.

Local economic development professionals were asked to arrange face-to-face interviews with individuals in the business community. The survey was not intended to be a random sampling. Rather, it targeted those with experience and knowledge of the community's entrepreneurial climate: new business owners or those who work with new business owners.

During November and December of 2002, surveys were conducted in the three communities. In Fayette and Albany, on average, one-hour, face-to-face surveys were completed. In Dexter, CPAC staff made a presentation on the intent of the REI project at a chamber of commerce event. Because a large percentage of the business community was in attendance, the questionnaire was distributed and individuals completed it over the next hour.

At least 20 people were surveyed in each of the three communities. Of the 63 people who completed surveys, 37 were business owners. The majority of the others provided business services, such as financial services, technical assistance or education.

A primary research question addressed during field testing of the survey was whether it is possible to quantify the perceived importance and performance of a community's entrepreneurial climate. Tangible factors, such as access to capital for business startups, can be compared with available data on the actual number of business startups, for example. As anticipated, less-tangible factors are harder to measure. The tool developed as part of this research serves as a starting point for communities that want to improve their entrepreneurial environment.

Conclusion

The self-assessment tool created by this project can be used to establish a baseline for the current entrepreneurial climate within a community. As an increasing number of rural communities use the tool, more will be learned about the factors that influence entrepreneurial development. Over time, researchers also will learn which local strategies produce results and in what kind of time period. The findings might help shape programs and policies at local, state and national levels.

During 2003, the Missouri Rural Opportunities Council partnered with CPAC to continue refining the assessment tool and to develop a guidebook that includes strategies for enriching a community's entrepreneurial environment. A revised version of the assessment tool went through a second field test in the three original communities plus nine additional rural communities. Preliminary responses indicate a strong interest in using the assessment tool and guidebook to target key areas for improving a rural community's entrepreneurial climate. A series of forums are scheduled throughout Missouri to introduce to community leaders the self-assessment tool, which has been dubbed Growing Entrepreneurs from the Ground Up. In addition, it will be published for wider distribution at the Fed's Small Business: The Fabric of Our Community conference in Memphis in April 2005.

Information for this article was extracted from the Missouri Entrepreneurship Initiative Final Report with permission from Vickie Rightmyre of the Community Policy Analysis Center (CPAC) at the University of Missouri-Columbia. For text of the entire report, go to CPAC's web site, www.cpac.missouri.edu.

Physical Infrastructure

• adequate and affordable building space
• adequate and affordable land
• highway accessibility
• adequate water and sewer services
• adequate phone services
• adequate high-speed Internet access

Business Support Services

• technical assistance available
• legal and accounting services available
• adequate financial services
• printing and marketing services available

Natural Resources

• attractiveness of area as a place to live
• quality and sound stewardship of natural resources

Human Resources

• adequate current and future skill levels for new businesses
• adequate education and training to meet business needs

Intangible Factors

Governance

• local government support for new business development through policies, ordinances and planning regulations
• local public bodies work together
• local government is open, transparent and democratically accountable
• local government is responsive to requests and needs of those starting a new business
• local government is willing to pursue and use public funds to support new business development

Market Access

• local businesses pursue markets, both local and beyond
• local businesses take advantage of trends and new marketing strategies

Social Infrastructure

• opportunities to network, either planned or unplanned, and formal or informal

Quality of Life

• affordable housing available
• affordable health care available
• low crime rates
• recreational and cultural opportunities available for wide range of community members
• local schools prepare youths for employment and/or entrepreneurship

Community and Cultural Norms

• an appreciation and acceptance of people who start businesses
• an acceptance of controversy as normal and an ability to deal with controversy
• broadly shared leadership
• sense of community identity
• supportive attitude toward innovation and initiation