Southern Illinois: Garden of the Gods Readiness Assessment Chapter 4: Climate of Innovation, Incubation & Entrepreneurship. January 2, 2008. CONNECT SI. ViTAL Economy Alliance Frank Knott , Lead & Master Guru ; Stan Halle , Senior Editor ; - PowerPoint PPT Presentation
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One of the most important ways a 21st Century community creates growth is through the generation of new ideas, new processes, and new businesses. For this to happen, there needs to
be a well-established and highly collaborative network of resources to support innovation, incubation and entrepreneurship. This Chapter assesses how well SI does this.
Famous Innovators PerspectiveChapter 4: Introduction
“Innovation distinguishes between a leader and a follower.” - Steve Jobs
“Never before in history has innovation offered promise of so much to so many in so short a time.” - Bill Gates
"Entrepreneurs are risk takers, willing to roll the dice with their money or reputation on the line in support of an idea or enterprise. They willingly assume responsibility for
the success or failure of a venture and are answerable for all its facets." - Victor Kiam
“Innovation will drive the future of our economy. What happens in your community will largely be determined by you. Communities that position themselves to take
advantage of the entrepreneurial sector AND companies, businesses and individuals that have the education, background and ability to generate innovation are
going to drive the economy in the future. They're going to create the jobs andthe opportunities for our young folks.” - Steve Carter
Connect SI and ViTAL Economy participated in the 2-4 May 2007 “Exploring Innovation”, a Nat’l Conference on Community & Economic Development Innovation
Andrew Hargadon** was a keynote speaker on How Breakthroughs Happen; highlights include:
You need capital of all kinds to succeed, including financial, physical, intellectual & social — when we make connections, we need to ensure that all these ingredients are in place
Genius & innovation are learned, not born — learned through our connections Community development is about human beings, not product development. How do we link
the two? Innovation is acting locally to make connections. It's about individuals who move each other forward
It's about what you create in the networks around you, not just the network itself How do we re-frame people around networks? Social communities are very important,
including churches, schools, etc. — all of which can be leveraged The future is wireless, everything in mass media will be wireless including TV How we capitalize risk is changing as well
The following four slides capture the essence of Andrew’s keynote session
**Source: Andrew Hargadon is Associate Professor of Technology Management at the Graduate School of Management and Director of the Center for Entrepreneurship and of the Energy Efficiency Center at the University of California, Davis; “How Breakthroughs Happen”, Harvard Business School Press, 2003
Southern Illinois — "Garden of the Gods"While many innovation assets exist across Southern Illinois, there is no comprehensive SI-wide
strategy as yet to link these together, create centers of excellence or promote collaboration. Connecting these assets through a “starfish network” will provide the leverage SI needs to
capture substantial global opportunities (Chapter 1).
Why We Look at This Key elements for rural economic transformation:
A climate of entrepreneurship Systems and resources to support innovation
Small/Medium Enterprises are the job growth engine in the U.S. for the 21st century
1990-2003 Firms < 20 employees created 79.5% of net new jobs 1990-2003 midsize firms (20-499) created 13.25 % of net new jobs
Rural regions must develop a robust entrepreneurship support structure
Access to specialty forms of capital is essential Otherwise these emerging enterprises will be more attracted to
neighboring urban centers
Over the past 50 years, investment in R&D produced 50%+ of U.S. economic growth. Increased SI economic growth requires innovation
Source: The Alliance for Science and Technology Research in America, 2007 The Role of Small and Large Businesses in Economic Development, Federal Reserve Bank of Kansas City, 2007
It is equivalent in scope & depth to the emergence of the factory economy in the 1890’s and the mass-production, corporate economy in the 1940’s and 1950’s
It is knowledge dependent — knowledge workers have increased their share of total employment from 22% in 1979 to 34.8% in 2003…now the largest sector
It is global — since 1980, global trade has grown 2.5 times faster than the overall U.S. GDP; exports are now $12.5 trillion = 20% of world GDP
It is entrepreneurial — from 1917 to 1976 it took 30 years to replace 50% of the 100 largest public companies; from 1977-1998 it only took 12 years
From 1980-2001 all of the net U.S. job growth was from firms less than five years old; older firms actually lost jobs
It is rooted in information technology — IT is the key technology driving the economy through its use in all sectors to boost productivity, innovation and quality
Source: Information Technology & Innovation Foundation & National Governor’s Association 2007 State New Economy Index
The “old economy” refers to the economy in place from after World War II until the mid-1970’s when productivity growth slowed down significantly. The descriptors are
intended to reflect overall factors in each economic period. Robert D. Atkinson, The Past and Future of America’s Economy, 2004
Source: Information Technology & Innovation Foundation & National Governor’s Association 2007 State New Economy Index
Issue FROM: Old Economy TO: New Economy
Markets Stable Dynamic
Scope of competition National Global
Organizational Form Hierarchical Networked
Production system Mass production Flexible production
Key factor of production Capital/Labor Innovation/Ideas
Key technology driver Mechanization Digitization
Competitive advantage Economies of scale Innovation/quality
Climate of Innovation, Entrepreneurship and Incubation
Climate of Innovation:Zero-sum game mentality exists in the way of collaboration or even basic idea sharing. We are fragmented, jealous and secretive and motivated by risk aversion
Climate of Entrepreneurship:• Entrepreneurship is not considered to be a “real job”• Entrepreneurs exist but mostly underground• Early stage capital is limited, access is not well known• Research focus at SIUC: high potential for more tech transfer• Entrepreneur development resources in SI are very limited• Support systems for entrepreneurs need bolstering
Climate of Incubation:There are too few and unconnected incubation resources and staff. They have limited budgets and business experience. Several incubated firms left SI to get access to a system of support
SIU is one of the top 100 Research Universities in the U.S — 67% of SIU business and engineering students want to stay in SI —
SIU presents an opportunity to address SI’s KBE Worker Gap
Source of Quotes: RA & EF Hutton Interviews; chart data from BLS
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2
4
6
8
10
U.S. IL SI
The KBE Worker Gap:SI is well below the State and National
SI Innovation Assets: Activities with Promising Futures
SIUC’s Four R&D Pillars Energy & Environment Biotechnology Materials Technology Neuroscience
Small Business Development Centers Rend Lake College Shawnee College Southeastern Illinois College John A. Logan College SIUC and SIUE Illinois Eastern Colleges
SI Business Incubators SIUC Business Incubator West Frankfort Business Incubator DRA Mounds Incubator
Entrepreneurs & Innovators across SI
4.01: Innovation Assets: Assessment
Illinois Entrepreneurship Network• Southern Illinois Entrepreneurship Center• Illinois Small Business Development Ctr• Illinois Manufacturing Extension Center• Southern Tech• Illinois Procurement Technical Asst Ctrs• Technology Enterprise Centers• International Trade Centers• Camp CEO Programs• Challenge Grant Program
SIU Transportation Education Center
SIU 20+ Research Centers Dixon Springs Agriculture Research Ctr Illinois Clean Coal Institute National Corn-to-Ethanol Research Ctr SIU Business Research Parks SIUC Coal Research Center SIU School of Medicine
The Jackson County Opportunity Analysis Report stated: Leveraging the institutional resources of SIUC — including
innovation, knowledge, research, finances and business and social networks — and matching those resources with opportunities and individuals in SI must not be overlooked
The presence of a major research university should be treated as a unique and primary asset for fostering a culture of entrepreneurship in the area
Source: An Opportunity Analysis for Jackson County, May 2006. (Note: Jackson County was replaced with Southern Illinois)
“A bitterly cold winter day in the wilderness of Southern Illinois, minimal supplies, limited protection from the elements and no compass to find the way to warmth, comfort and shelter”
- SI Leader description of SI innovation climate
Source: RA & EF Hutton Interviews conducted by ViTAL Economy
4.01: Innovation Assets: Assessment
Current Climate of Innovation & Entrepreneurship in SI
What your neighbors had to say?Entrepreneurs, risk takers and lone-eagles are seen as counter-culture types and
not pursuing a “real job”
No clear and well understood path to business assistance resources
Weak understanding of risk assessment other than traditional business
Silo-vision and independence resulting in a lack of resources aligned for success
We have no champion to lead entrepreneurship nor a vision of an innovation-based culture
Innovation resources are too Carbondale-centric
Our business resources are set up as “spider organizations” (based on centralized hierarchy and power)
SIUC Business & Engineering Survey: Promise & Opportunity
Survey Objectives: Assess the level of student awareness of the SIUC Incubator and Research Park Measure student population’s level of entrepreneurial aspirations Identify future needs of the students and how Connect SI & related programs can
satisfy them
Survey Results (from 200± respondents): 67% of students would remain in Carbondale region to start and operate a business
if resources were available 43% of students have thought of starting their own business after graduation 24% of students would remain in Carbondale/SI region when they graduate 19% of students have heard of, visited, interned at, or knew someone who has
knowledge of the SIUC Research Park
• 16% of students have heard of, visited, interned at, or knew someone who has knowledge of the SIUC Business Incubator
• 5% of students currently own a business (while also attending SIUC)
• 4% of students have taken classes/courses on entrepreneurshipSource: VE Business Incubator, Research Park & Tec-Transfer Assessment Project Final Report, 19 April 2007
KBE workers (total jobs): 4% Rural Creative Class Counties: No
Research Facilities: No
Business Incubation Resources Yes
Entrepreneurship Resources Yes
Greater Egypt
KBE workers: 5%
Rural Creative Class Counties: Yes
Research Facilities: SIU & related facilities
Business Incubation Resources Yes
Entrepreneurship Resources Yes
Region-by-Region StatusThe great plus for the region is that two of the counties are identified as “creative class” communities
by USDA, implying a higher level of research and innovation; the low level of KBE workers in every region, however, is a weakness that limits innovative entrepreneurial growth**
4.01: Innovation Assets: Assessment
**See Chapter 1.03 Slides 32-35 for Creative Class definition
= Weak to None = Improving = Average = Good = Strong
Readiness Criteria Rating Assessment Rationale
Entrepreneurship Culture and Networks
Entrepreneurship is considered “not a real job” Entrepreneurs exist but mostly underground
Early Stage Capital for Startups Unique early stage capital is limited and access is not well known There are some angel investors in the region, but no formal network
Rate of Business Startups ? The region does not have a system to track or measure the quantity of
business startups
Partnerships and Community Outreach
Entrepreneurs in the region are unaware of business assistance resources
Entrepreneurship programs and strategies are not viewed as important to the economy
Limited number of business lending opportunities Limited experience with loan participations Limited success or experience with gap financing programs Lack of independent and experienced small business market valuations Big gaps in access to equity for early stage and venture capital, as well as
mezzanine financing, etc State programs geared to support large firms versus entrepreneurs Too many small local revolving loan funds. Collaboration of these funds would
create larger critical mass and more opportunity Limited expertise in assessing risk of knowledge based investments No organized network of angel investors focused on SI opportunities Financial literacy of prospective borrowers is not good Poor climate of support for innovation, risk taking and entrepreneurship
Source: RA & EF Hutton Interviews conducted by ViTAL Economy
SI Has Not Accessed Its Proportional Share of IFA Finance Programs
Source: IFA In Your Region 2007 Financial Summary Report; il-fa.com
Illinois Finance Authority (IFA) issues taxable and tax exempt bonds, makes loans and invests capital or businesses, non-profit corporations and local government units state-wide
Mission: to foster economic development to public and private institutions that create and retain jobs and improve the quality of life in Illinois by providing access to capital
Created 1/1/2004 — absorbed several Illinois authorities: Development Finance, Farm Development, Health Facilities, Educational Facilities, Community Development Finance, Rural Bond Bank, Research Park
SI accessed only about 1.9% ($91 million) of the $4.6 billion issued state-wide — vs. 3.5% of the population
Note: IFA’s website shows financed $10.6 billion in project financing since 2004, however, ‘In The Region’ detail only lists $4.6 billion in projects which is the source of SI financing data. Of the $91 million received by SI during this period, SIH alone accounts for 76% ($69 million)
Opportunity: SI can take greater advantage of this important funding vehicle
SI Infrastructure: Capital Estimates State of Illinois structural deficit has significantly impacted availability of local
funding for all forms of public services
IDOT has $400 million in short-term highway projects and another $1 billion in medium and long term projects waiting to be funded
Estimates for upgrade of drinking water projects in SI in range of $130 million+/-
Upgrades for SI wastewater systems are in range of $260 million+/-
Small versus larger municipalities express concerns about insufficient tax base to finance both annual maintenance & road upgrades
Approximately $150 million in tourism hospitality infrastructure investments will be needed for SI to achieve its revenue potential of $300-400 million/year
Raising 10,000 citizens out of poverty will require a significant investment in affordable housing in the range of $200-$300 million
Source: IDOT DRA Transportation Study December 2006, Regional CEDS Reports, USDA Regional Surveys, RA Interviews
Lack of trust:There is a belief that announcing projects or entrepreneurial business opportunities
in public will be stolen
Uncomfortable with the prospect of change:Fear of new investment and change in the area
No linkage between entrepreneurship and youth:The lack of entrepreneur culture emanates from both citizens that do not know how to do it, and from schools that don’t foster it — there is no creativity breed,
only minimal after-school activities, and a weak commitment of teachers
Negative impacts of competition:Other regions have been hostile when SI firms try to extend business across the rivers – yet their firms will not think twice about extending their business into SI
View from Financial Services Executives in SI (& elsewhere): We are risk-averse and opportunity handicapped
Climate of Risk and Entrepreneurship in SI
Source: RA & EF Hutton Interviews conducted by ViTAL Economy
Asset based financing is the normal experience. Lenders have limited experience assessing risk of soft assets
Early/Emerging Stage Capital for Startups
There are no formal angel networks organized for SI Micro-finance is very limited in the region IFA venture funding options have not been accessed by SI
Finance Literacy of Capital Users and Providers
Users do not understand difference between equity/debt costs Provider equity and subordinated debt experience is limited
Specialty Financing Access Debt financing is largely conventional SI has limited access to national specialty finance resources
Regionally controlled life cycle equity and debt resources
Lending limits are low and have not required participations Life cycle finance networks do not exist. Firms often move to gain financing for next stage of growth
Adequate public finance system for infrastructure growth with ED strategy
Bonding requirements are inadequate to meet current needs Limited experience in aggregating bond requirements Limited experience with REIT for hospitality/housing reqs.
SI Integrated Finance: Assessment 4.02: Integrated Finance & Risk: Assessment
SI Innovation, Entrepreneurship & Incubation: Implications
Entrepreneurship culture and networks Entrepreneurship is not seen as a “real job” — this suppresses a spirit of innovation
Financial literacy Limited risk assessment capacity for KBE soft asset business startups — this limits access to capital Entrepreneurs understanding of equity & debt is low — this results in poor deal flow quality
Partnerships and community outreach are centered in Carbondale A regional climate of innovation can not be achieved when the vast majority of resources are
centralized — SI needs a region-wide virtual network of innovation resources Underperformance of technology transfer, licensing and commercialization
SI cannot grow regional KBE innovation firms without regional access to SIU tech-transfer assets Disconnected entrepreneurship development and tracking systems
The Region’s business support services are not linked — result is KBE firms leave SI or innovations die on the vine
Lack of business startup-tracking demonstrates lack of policy commitment to entrepreneurship SI cannot manage what it cannot track or measure
Limited and unconnected incubation space and facility support services Incubation resources cannot supply diverse expertise needs of young emerging KBEs Incubator firms are not linked to potential value-chain partners in other parts of SI Innovation knowledge is silo-based, not shared and, therefore, not leveraged
These recommendations create the single most critical resource for establishing a successful innovation economy in SI, as recommended by Andrew Hargadon in “How Breakthroughs Happen””