Posted by
Randy Burge on
Jan 18, 2004; 7:31pm
URL: http://friam.383.s1.nabble.com/Santa-Fe-New-Mexican-Think-Tank-Director-Has-Ideas-for-going-Local-tp519077p519079.html
Owen...
> Interesting article on local development. The state will never
> do anything along these lines, but still interesting.
>
http://www.santafenewmexican.com/print.asp?ArticleID=38953Thanks for the post on this article. I have some contrarian views on the
speaker's points and will demonstrate one of a number of reasonable
state-based small business assistance programs that fulfill the issues
raised in the article.
While the notion mentioned in the article is a patriotic one to most local
businesses (bookstores, tire stores, grocery stores, etc.) there are many
holes in the substance of the rhetoric behind the "going local" ("going
loco") methodologies.
In fact, the capital and resource gap he purports exists is being met in a
number of different ways to grow local businesses, mostly by banks and other
lending orgs and incubators as appropriate, but also including via the angel
or venture capital method he says is missing (VC is viable only in
situations that warrant its applications and meet its expectations). At the
core of his argument, he is trying to defy the market logic of capital and
create his own "novel' methods, often making uninformed assumptions about
the need for programs that already exist, or for small business challenges
that have no solution because of the lack of a viable business plan/model
relative to the assistance/impact sought.
For examples of the "state's" actual role in such small business assistance
(and to refute the claim that the state is not doing anything), see these
recent announcements from the NM SBIC. ( I made the initial recommendation
to the NM Small Business Investment Corp, per their request of me to help
guide them, to team with Accion, reflected in the announcement links below,
to achieve yet another program to help small businesses in NM find local
debt capital at the best terms):
http://albuquerque.bizjournals.com/albuquerque/stories/2003/12/15/daily15.html
http://www.accionnewmexico.org/inthenews.asphttp://www.abqtrib.com/archives/business03/122203_business_accion.shtmlI can point to a number of other programs, but for starters:
http://www.nmsbdc.org/http://www.edd.state.nm.us/PROGRAMS/incentives.htmlhttp://www.edd.state.nm.us/PROGRAMS/pr_train.htmlhttp://www.sba.gov/financing/index.htmlhttp://www.sba.gov/nm/micnm.htmlhttp://www.elcdc.com/http://www.wesst.org/http://nmprivateinvestors.orgTo follow the logic in the article, a community should not try to recruit
new businesses into the community, just try to grow the local general
retail, wholesale, and service sectors. The fallacy of this approach is that
there is a static amount of money in a community at the local retail,
wholesale and service levels and to not try to increase the flow of outside
money (in part through recruiting new businesses) is an erroneous and
damaging strategy .
Economic stasis occurs over time in a region balancing the local monetary
exchanges and accounting for and distributing the new money coming into the
economy (government, wealthy retirees, (these first two methods are really
wealth absorbing not wealth creating) and tourism dollars account for much
of the new money coming into Santa Fe).
True economic development occurs when new "new money," as measured by
amounts beyond the stasis, enters the region to be circulated among the
local businesses and workforce, often augmenting or, better yet,
diversifying the existing economic clusters. New diversifying businesses
which import money and export product and services (like the Info Mesa
community by-and-large--selling services to businesses, governments, orgs
around the world and bringing the dollars to accounts in Santa Fe.)
I have spoken at length with the guru/author/presenter cited in this article
and found most of his theories to be unfounded concoctions that he created
on the fly to sell his books and tell locally-sexy stories. [He was asking
me for support and leverage to advance his concepts per various community
referrals to me but after talking with him, I was challenged to support his
notions].
He has a notion of local "venture capital" that is without merit or
precedent, beyond the friends and family investments that already take place
(he is actually not proposing anything new). His arguments rely on a number
of untested personal assumptions and denial of the way venture funding
needs and orgs and processes/markets work. I found his misguided bravado and
lack of study and process-knowledge rather stunning when compared with his
bully-pulpit such as the NM Association of Grant-Makers and similar orgs
around the country.
For example, as his essential strategy to support these local businesses, he
purports to convert the normal borrowing functions used by local businesses
at banks (banks are bad in his argument) and replace that short term/long
term debt function with local "venture capitalists" (angels) who would
invest in these businesses instead, "saving" the businesses the interest
monies charged by banks (but causing the business to give up the much more
complicated equity ownership in the process). He makes the classic newbie
assumption that investor's money is "free" money without obligation to
provide competitive returns (or without complicated decisions) to those who
are risking the investment capital.
The downside of the model he presents is in answering the key question about
how the investors get their money out of proposed investments in such local
retail or service business (most investor pay-backs come from the sale of
companies which have rapid growth on a scale unattainable from local retail
establishments). Plus, he ignores the fact that such investors will "price"
the investment risks by setting their ownership percentages of a business,
just as banks "price" the debt risks: the higher the pay-back risk the more
percentage and control the investor will want to own in a company (a deal
killer for a local "life-style" business, i.e. a business that supports the
life-styles of its owner(s), but does not support outsider dilution or
significant growth on scale to provide substantial enough returns to the
investors).
Ergo, the need for commercial debt financing operations/markets at banks
which eases the transaction and complexities of ownership expectations. The
markets make themselves by measures of efficiencies, costs, expectations,
ownership, risks, etc.
What he proposes is actually being done via the lending community at rates
and risks that are already locally understood (per above article links). The
market is not a perfect one, but then neither is any particular business
case. Using foundation monies and other philanthropic monies to augment the
debt capital availabilities for small business is not "venture capital" nor
should it be confused as such.
My hunch and conversation with "Going Loco" is that he is seeking foundation
monies to put his novel notions into play...money wasted to be sure.
My opinions on the topic...
Randy