Entrepreneurship and Economic Development Incentives and Small Biz Funding and Startup and Government & Economic Development and Small Business

State entrepreneurship drags despite wealth of resources

September 11, 2010

Hoosier entrepreneurs in recent years have been drenched by a waterfall of new resources intended to improve their odds of success—venture capital, angel investors, small-business incubators, and university degree and technology-transfer programs.

And don’t overlook the attention of a small army of lawyers, accountants and other professionals who have gone prowling for the next big client.

But what does Indiana have to show for the deluge? Judging by the number of people taking the plunge into business ownership, not as much as might be expected.

A May report by the Ewing Marion Kauffman Foundation said 0.26 percent of Indiana residents ages 20 to 64 started a business in 2007-2009. That was virtually unchanged from 1997-1999, said the Kansas City, Mo., organization, which promotes entrepreneurship.

In the decade, Indiana’s rank slipped from 28th to 32nd—figures easily swayed by tiny changes but nevertheless putting the Hoosier state in the middle of the pack.

Longtime observers and promoters of a more vibrant entrepreneurial environment in Indiana point out that the figures don’t distinguish between a consultant working from a spare bedroom, a flower shop or a company like Endocyte Inc., the West Lafayette cancer drug developer that last month filed to go public.

One expert, Donald F. Kuratko, who heads the entrepreneurship program at Indiana University, also pointed out that Indiana residents started businesses at about the same rates as their counterparts in such traditional entrepreneurial hotbeds as Massachusetts, North Carolina and Washington.

“We seem to be hanging in there with them,” Kuratko said. “It sort of demonstrates to me we’re doing a pretty good job.”

Kauffman tracks the number of people who do not own a business in a certain month but do own a business in a later month. The figures are gleaned from the federal government’s Current Population Survey of approximately 50,000 households.

Rob Fairlie, a University of California, Santa Cruz, economist who conducted the study for Kauffman, said he didn’t have enough specific information about Indiana to be able to elaborate.

Diversifying economy

Diversifying Indiana’s economy beyond its historic roots in durable goods manufacturing, and the industry’s boom-and-bust cycles, has been a tough slog. Leaders in politics, business and not-for-profits have been trying since the early 1980s to persuade more people to start businesses and others to invest in them.

In recent years, the state has seen capital formation in the form of seed and venture funds and the creation of a number of angel investor networks, with HALO Capital Group in Indianapolis perhaps the best known.

Nearly 20 technology parks dot the state. All major universities in the state have added entrepreneurship programs and the means to move discoveries from laboratories to businesses.

That’s not all. Not-for-profits such as life sciences group BioCrossroads and TechPoint information technology organization have started to promote entrepreneurship within narrow sectors. Professional firms have launched practice groups to focus on growth companies.

Taken together, the changes are sweeping, at least compared to 30 years ago.

Indeed, Kuratko said entrepreneurship is now embedded in the culture—a change all but unimaginable when he started an entrepreneurship program at Ball State University in 1983 that grew to national prominence before he joined IU six years ago.

“I’m happy as I look back. It’s become part of the vocabulary now,” he said. “That’s important.”

Bright spots

Despite treading water in the Kauffman study, Indiana can point to accomplishments.

Bruce Kidd, who has held roles in both the public and private sectors in supporting entrepreneurship, said Indiana’s climate is better than the Kauffman figures suggest.

The state is now home to a number of strong startups that didn’t exist in the 1990s, said Kidd, who joined consulting firm Walker Information Inc. in late 2008 after operating the state’s 21st Century Research and Technology Fund for three years. ExactTarget Inc., the e-mail marketing firm based on Monument Circle, is one example of a company with potential to go public, he said.

Startups with potential to grow and create dozens, if not hundreds, of jobs are launching at much faster rates than a decade ago, Kidd said. Still, he added, their number pales against the ongoing launches of tiny businesses that never will grow beyond the owner or perhaps beyond a few employees.

Most of the promising activity remains in a few pockets—not only the Indianapolis area but also places like the orthopedic center of Warsaw.

“It’s pretty static with regard to small companies,” said Kidd, now a Walker senior vice president. “We’re not seeing a lot of new mom-and-pops.”

Kuratko said Indiana likely will remain a creature of the Midwest. Hoosier entrepreneurs and investors will continue to lean conservative and steer clear of fads and boom-and-bust cycles characteristic of other areas of the country, a tendency Kuratko applauds.

Startup rates in the Kauffman study support the notion. Michigan saw 0.28 percent of its residents starting businesses in 2007-2009 and Illinois, 0.25 percent—rates similar to Indiana’s.

Indeed, Kuratko, Kidd and other observers say that, for as much progress as the state has made, much remains to be done.

Cam Carter, an Indiana Chamber of Commerce lobbyist focused on economic development and small-business policy, said the state could have pushed itself further down the road by putting more money behind what he sees as largely promotional efforts.

Budget cuts have sliced the 21st Century Fund, the state program created in 1999 to help bankroll businesses wanting to turn university research into products, by about half, to $35 million over two years. He noted that even the $75 million appropriated before the recession was too little.

“We’ve made a public relations campaign about entrepreneurship, and we’ve started programs and we’ve tried to drive attention to entrepreneurship,” Carter said. However, “You’ve got to have sustained effort at scale.”

Kuratko believes entrepreneurs would benefit as much from additional angel capital as anything else.

Indiana has no one in the league of California’s so-called super angels who are raising so much money that they’re challenging established venture capitalists, Kuratko said. Examples of super angels include former PayPal executive Dave McClure and former Google executive Aydin Senkut, who are so well-known that their sheer name recognition draws other angel investors to a deal.•

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