New Firm Creation
The Role of Economic Development – 1 –
The Role of Economic Development in Entrepreneurial Education
November 20, 2006
I want to thank Monica for giving permission to use her paper as an example. The paper is done in the correct format and gives you an idea of what is required.
Monica is a member of the MSEDE program’s first graduation class. I think that you will see from her paper the high quality of student in the program.
The Role of Economic Development – 2 –
ABSTRACT Economic developers have traditionally used a variety of techniques to create jobs and wealth, strengthen the tax base and improve the quality of life within a specified region. Building an effective small business support system is becoming an increasingly significant component of a region’s economic development policy. Entrepreneurship skills are vital to the future of the US economy and its ability to support continual wealth creation. There are a number of activities that economic developers can undertake to assist small businesses, and one of the primary ways is to promote the available educational services for entrepreneurs. This paper focuses on the role of economic development in entrepreneurial education.
The Role of Economic Development – 3 –
The Role of Economic Development in Entrepreneurial Education
The focus of economic development has traditionally been on the creation of jobs and
wealth, strengthening the tax base and improving the quality of life within a specified region.
Economic developers have used a variety of techniques to accomplish these goals and each
strategy is highly dependent on the needs of the community and the resources available.
Strategies may include industrial development, neighborhood revitalization, workforce
development, business development and even globalization. (IEDC, 2001) TIP Strategies, an
Austin-based business and economic development-consulting firm, recently mapped out three
ways that Economic Development Professionals should leverage entrepreneurship to achieve
their objectives: 1) embrace entrepreneurial development as a key part of economic development
strategies, 2) develop programs for entrepreneurial education, networks, and mentoring and 3)
actively track the progress of entrepreneur-created jobs in the region.(Erramouspe, 2006).
While most communities will adopt a combination of strategies for their area, this paper
will focus on the role of economic development in entrepreneurial education. Many of the skills
that are necessary to be a successful entrepreneur can be taught, and developing the knowledge
base of regional entrepreneurs can and should be a major focus of economic developers. Small
and emerging businesses are a significant source of employment and wealth generation as
highlighted by MIT professor David Birch in 1978 when he reported that firms with fewer than
20 employees were the main source of job creation in the economy. Peter Drucker, recognized as
one of the leading management thinkers of our time, said, “The entrepreneurial mystique? It’s
not magic, it’s not mysterious, and it has nothing to do with the genes. It’s a discipline. And, like
any discipline, it can be learned” (Drucker, 1985). An additional support of this view comes from
The Role of Economic Development – 4 –
a 10-year (1985 to 1994) literature review of enterprise, entrepreneurship, and small business
management education that reported, “…most of the empirical studies surveyed indicated that
entrepreneurship can be taught, or at least encouraged, by entrepreneurship education” (Gorman,
Hanlon, & King, 1997).
Entrepreneurs within a community are a unique breed of individuals, who are typically
extremely motivated and focused on what they want to achieve. These small business owners are
buyers and suppliers of local products and services and the income generated by small businesses
generally remains within the community creating a multiplier effect that increases the wealth of
the area as a whole. Yet, even those persons who are driven and have entrepreneurial potential
need training and technical assistance to succeed in business. The failure rate for such entities
remains extremely high with typically fewer than 10% surviving a decade. As a result, building
an effective small business support system is becoming an increasingly significant component of
a region’s economic development policy (IEDC, 2001).
For the Economic Development Professional, it is important to realize that small
businesses vary substantially in size and character. The smallest businesses, called
microenterpises, usually employ fewer than five people and are often home-based operations.
Although many analysts use a parameter of 20 employees or less to describe a small business,
the SBA defines small business (for most industries) as entities with fewer than 500 employees.
In the report Who’s Creating Jobs, published by David Birch in 1996, he described two types of
firms who should be targeted to help ensure their success: the “gazelles” or older, well-
established firms with over 100 employees that have successfully adapted their methods and
structure to the knowledge-based economy, and more importantly the “baby gazelles”, the next
crop of knowledge-based, high growth firms, that have either just started or are a few years old
The Role of Economic Development – 5 –
and entering a rapid growth stage. Since small businesses vary so greatly in size and definition, it
is important for a region to have clear parameters when looking to assist small business
enterprises with educational opportunities (IEDC, 2001). One interesting study charting
employment growth among small establishments in both the Cleveland and Kalamazoo-Battle
Creek Metropolitan Statistical Areas found that it may be more fruitful to create an environment
encouraging small-business start-ups and expansions than to allocate resources to retention
efforts (Erickcek, 1997). If this is the case, what should be taught, how should it be taught, and to
Educational Needs of Entrepreneurs
Indiana University Professor Donald Kuratko feels that entrepreneurial education must
include skill-building courses in negotiation, leadership, new product development, creative
thinking, and exposure to technological innovation. In addition, awareness of entrepreneur career
options, sources of venture capital, idea protection, and the challenges associated with each stage
of venture development are essential components of a balanced entrepreneurial education.
(Kuratko, 2005). Renowned economist David Birch believes that there are three skills that an
entrepreneur needs to know and master: selling, managing people, and creating a new product or
service. (Aronsson, 2004)
In the Cleveland/Kalamazoo study (1997), one-on-one interviews were conducted in both
areas with individuals striving to start their own business, and owners of failed small businesses.
The common themes heard during these interviews were that a focused and well-researched
business plan was vital for the success of a business endeavor and that the stress of running a
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small business most times exceeded expectations. In many instances, the telling difference
between a successful and an unsuccessful entrepreneur was the understanding that following an
effective marketing strategy is just as important as producing a good product or service. Too
many entrepreneurs focus solely on their product or service and shirk their marketing duties.
These comments suggest that business planning assistance and the provision of business
mentors/counselors are services that could be highly beneficial to many individuals wanting to
start a business. (Erickcek, 1997)
In addition, many business failures are attributed to poor management. Many aspiring
entrepreneurs do not have prior experience or sufficient business knowledge to run a successful
business and as a result, are not aware of the problems that they may face in the first years of
business. Management skills on topics such as writing job descriptions, hiring employees, policy
and procedures manuals, and employee performance reviews are all areas where many small
business owners believe that they cannot afford the time or money needed to develop these skills.
Nevertheless, without these skills the business will suffer. A lack of understanding of the bigger
picture of management is also reflected when the small business owner is unaware of the burdens
of government regulations, paperwork, zoning laws, business licensing and permitting. Keeping
up with the abundance of regulations specific to that business is an additional management
concern. (IEDC, 2001)
The Collin County SBDC receives small business owner referrals from area chambers of
commerce, local lenders and economic development corporations. In an effort to meet the needs
of the residents of Collin County Texas, an assessment on courses of interest is conducted at the
end of each training class offered by the center. A random sampling of 100 such surveys from
clients who are currently in business and not yet in business shows that small business owners
The Role of Economic Development – 7 –
are interested in training that will provide them with resources on writing business plans,
advertising and sales promotion, general starting a business topics, increasing sales, sources of
credit and financing and financial statements.
Currently in Business 33 Not Yet in Business 77 Business Plan 59 Advertising and Sales Promotion 59 Starting a Business 57 Increasing Sales 42 Sources of Credit and Financing 38 Financial Statements 33 Bidding and Estimating 19 Computer Systems 18 Inventory Control 17 Selling to the Government 16 Personnel 16 Purchasing 15 Procurement 9 Credit and Collections 8 International Trade 5 Engineering/Research 2 Office or Plant Management 1 Other
Taxes 5 Payroll 1 Legal Aspects 2
The IEDC has developed a training curriculum for Economic Development Professionals
and has outlined five specific areas of technical assistance that should be provided to small
businesses: 1) Business Planning – business plan development, and identify the target market,
suppliers, and distributors, understanding business license requirements and business forms; 2)
Financial Administration – learning basic accounting concepts in order to organize a budget, to
produce the information necessary to complete financial statements, and to calculate
The Role of Economic Development – 8 –
profitability; 3) Cash Flow – knowing how to manage cash flow, including comparing cash flow
projections with actual outcomes; 4) Market Research – how to conduct the market research
necessary for understanding the target market and market potential; and 5) Marketing and Selling
Strategies – understanding product design, packaging, pricing and promotion. (IEDC, 2001)
Educational Solutions for Entrepreneurial Development
Entrepreneurship skills are vital to the future of the US economy and its ability to support
continual wealth creation. Traditional educational methods do not teach such skills; indeed they
may hinder them. (Hanke, Kisenwether & Warren, 2005) In an interview conducted with David
Birch by Magnus Aronsson of the Entrepreneurship and Small Business Research Institute,
For entrepreneurs to succeed they have to create a needed product or service, sell it, and
work with people. I have never come across a course in any business school called Sales.
If you do not have a course on selling, how are you going to be helpful to entrepreneurs?
So, a change in curriculum is needed. The first course is sales—how do you make sales?
The second course is on how to lead people and to get people to go with you to do
something. The third should be how to create a product or service that people or
companies need. If any curriculum is going to be relevant for entrepreneurs-to-be, it has
to have these courses. Think about it. It is either you as an entrepreneur selling yourself to
venture capitalists or other providers of resources for your company, or selling your idea
to potential customers and employees or partners (Aronsson, 2004, p. 289-290).
The Role of Economic Development – 9 –
There has been a significant rise of entrepreneurship education in academia. The number
of colleges and universities that offer courses related to entrepreneurship has grown from a
handful in the 1970’s to over 1,600 in 2005. (Kuratko, 2005). The demand for teaching exceeds
the supply of teachers. At the university level, funded chairs in entrepreneurship are being
established faster than they can be filled. (Hopkins, 2005) Kuratko (2005) identified three major
sources of information that supply the data related to the entrepreneurial process or perspective
as used in academia. The first source is research-based as well as popular publications such as
academic journals, textbooks on entrepreneurship, popular books about entrepreneurship,
biographies or autobiographies of entrepreneurs, news periodicals, and government publications.
The second major source of information about entrepreneurial perspective is direct observation
of practicing entrepreneurs. The final source of entrepreneurial information is speeches and
presentations, including seminars, by practicing entrepreneurs.
As the market interest in entrepreneurial education broadens, new interdisciplinary
programs for the non-business students are being developed, and there is a growing trend in
courses specifically designed for art, engineering, and science students. Educators are challenged
with designing effective learning opportunities for entrepreneurship students that emphasizes
individual activities over group activities, is relatively unstructured, and presents problems that
require a “novel solution under conditions of ambiguity and risk.” Students must be prepared to
thrive in the “unstructured and uncertain nature of entrepreneurial environments” (Solomon,
Duffy, & Tarabishy, 2002). A number of major academic institutions have developed programs
in entrepreneurial research, and every year Babson College conducts a symposium entitled
Frontiers in Entrepreneurship Research, providing an outlet for the latest developments in
entrepreneurship education. Most academic centers for entrepreneurship have focused on three
The Role of Economic Development – 10 –
major areas: (1) entrepreneurial education; (2) outreach activities with entrepreneurs; and (3)
entrepreneurial research. Today, the trend in most universities is to develop or expand
entrepreneurship programs and design unique and challenging curricula specifically designed for
entrepreneurship students (Kuratko, 2005).
Penn State University has initiated a “scalable” model to provide a valuable
entrepreneurial learning experience to a large number of students at all levels. The pilot program
at the University enrolled 135 students with the goal of developing entrepreneurial skills using a
unique problem-based learning (PBL) approach with all course materials and grading managed
online. PBL means learning is student-centered with teachers acting primarily in the role of
facilitators. The results of the pilot indicate that a PBL online approach to learn about
entrepreneurship is viable. A significant upside of this pilot program is that by enrolling in the
course students developed the confidence to start and run their own ventures. As a result, the
school is confident in predicting that, “students who take our introduction to entrepreneurship
course are far more likely to succeed at starting and developing ventures than those who do not”
((Hanke, et. al., 2005).
The University of Houston-Victoria started an Online Master of Science in Economic
Development & Entrepreneurship program for the Fall Semester 2006. It is the only program of
its kind, combining traditional economic development with entrepreneurship. The 36-hour
curriculum program includes applied learning, real-world case studies, and team projects. Its
focus will be on how to start, grow, and attract new business and the target audience is Economic
Development Professionals and current or future small business owners
(http://www.uhv.edu/bus/grad.asp). The Institute for Innovation and Entrepreneurship is another
interesting academic program that began in the fall of 2006 at The University of Texas at Dallashttp://www.uhv.edu/bus/grad.asp)
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(UTD) in a partnership with startup incubator STARTech Early Ventures. This eight week series
of entrepreneurial development workshops geared for entrepreneurs and aspiring entrepreneurs
was taught entirely by venture capitalists, CEOs, legal experts, experienced entrepreneurs and
startup executives, as well as UTD faculty members who specialize in entrepreneurship. Each
session incorporated a mix of theory, practice and real-world experience, including panel
discussions designed to address topics from multiple perspectives
These examples as well as many others throughout the nation are conducted at the
institutional level. Economic Development Professionals should encourage ongoing relationships
with their local colleges and universities as well as plugging into the plethora of other
information that is available for educating entrepreneurs. There are a number of federal and local
programs that provide educational assistance to small businesses. For example, Small Business
Development Centers (SBDCs) are a nation-wide network of centers for small businesses and
provide training, one-on-one counseling, workshops and other assistance. At the Collin County
SBDC (www.collinsbdc.com), classes are taught weekly on topics including How to Start a
Small Business, Start Smart Business Plans, IRS Tax Workshop, The Legal Aspects of Starting
Your Small Business, and The Art of Relationship Selling. As with most SBDCs
(http://www.asbdc-us.org), the classes are offered at no charge to the participants. In addition,
Online Training is now available through the South-West Texas Border Region SBDC
(http://utsa.edu/sbdcregional/regmodules.cfm). This free online learning for small businesses and
start-ups covers business plans, maintaining finances, starting a business, and creating a web
The Role of Economic Development – 12 –
The Service Core of Retired Executives (SCORE) matches small businesses that need
expert advice with retired and active business people, who volunteer to share their management
and technical expertise (www.score.org). The Small Business Administration (www.sba.gov)
offers free online training to help prospective and existing entrepreneurs understand the basics of
business management. These self-paced courses are easy to use and understand and cover topics
such as Starting a Small Business, Business Management, Finance and Accounting, Marketing
and Advertising and Government Contracting.
A brilliant program called the National Foundation for Teaching Entrepreneurship has
helped over 100,000 young people to build businesses. (75 Reasons) The younger generation of
the 21st century is becoming the most entrepreneurial generation since the Industrial Revolution.
As many as 5.6 million Americans younger than age 34 are actively trying to start their own
businesses, and nearly 80% of would-be entrepreneurs in the US are between the ages 18 and 34
(Kuratko, 2005). Formal peer groups may also serve as educational tools. The Entrepreneurs’
Organization (which was the Young Entrepreneurs’ Organization) now boasts 550,000 members
in 120 chapters in 40 countries. (Hopkins, 2005)
Problem: Perception of Educational Resources Available to Entrepreneurs
With the examples of resources listed above, it would seem that there is no shortage of
educational opportunities for entrepreneurs of all ages. However, often small business resources
go underutilized not because the resources are not sufficient but simply because the business
owners in the area are not aware that they exist. All small business programs must be effectively
marketed toward their targets. Far too often there is a misunderstanding between business
The Role of Economic Development – 13 –
assistance providers and businesses. The assistance providers may feel that their services go
underutilized while business owners and operators feel that there is a lack of resources. An
example of this can be seen in North Carolina where much work has been done to improve the
infrastructure of small business support. There is a wide array of initiatives to help North
Carolina residents get started in business or grow or sustain an existing small business, and the
bottom line is that the state does have a strong foundation of extensive and often effective small
business support services. Most entrepreneurs however expressed frustration dealing with the
service provider system in the state and do not know where or how to access needed services.
This is a frequently heard complaint, both in North Carolina and throughout the United States.
(Pages & Markley, 2004).
There are a number of activities that economic developers can undertake to assist small
businesses, and one of the primary ways is to promote the available educational services for
entrepreneurs. Many SBDCs are unable to market their programs aggressively – something that
is desirable from the entrepreneur’s perspective – because they’re grant funding does not permit
any of the dollars to be used for marketing or they may already have difficulty meeting the
current demand for services. Entrepreneurs are looking for one person who they can contact for
information, referral, and help to navigate through the service providers in the area, and they
want this person to really care about them as entrepreneurs and small business owners. Regional
marketing may include area business groups and chambers of commerce, articles and public
service announcements in local media, notices posted in local libraries or businesses, periodic
mailings from service providers to the target community, an active Web presence and word of
mouth. The City of New York has done an excellent job through their New York Public Science,
Industry and Business Library of creating a Small Business Resource Center through a three-year
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grant from the Technology Opportunities Program. The grant has enabled the Library, working
with seven partner organizations, to create a virtual small business community. Links and
Podcasts to meet the educational needs of New York residents are available at the SBIL site 24
hours a day. (www.smallbiz.nypl.org) To encourage entrepreneurship development, economic
developers should find a way to partner with other local, state and federal agencies to provide a
one-stop clearing house of information for their area businesses.
Although many small businesses may not be the gazelles or baby gazelles, there is much
to be said about the quality of life that a local dry cleaner, day care center, restaurant and beauty
salon add to a community. An Economic Development Professional should know the issues and
conditions that small businesses face in their area, and reach out to other entities to establish a
working cooperative relationship, not only to benefit small businesses in the area but also to
support their other economic development initiatives. Small business development strategies
should be constantly tied together with other economic development efforts in the area.
Economic Development Professionals should know what resources are available to them
understand the kinds of questions they may have to field from small business owners, and be
prepared to refer those owners to the resource that can best meet their needs. Because, in the end,
entrepreneurs are not a traditional tool to create economic development, but partnering with these
small business enterprises can help to create a thriving economy in any region.
The Role of Economic Development – 15 –
Aronsson, Magnus (2004, Vol. 3, No. 3). Education Matters – But Does Entrepreneurship Education Matter? An Interview with David Birch. Academy of Management Learning and Education. (289–292).
Drucker, P.F. (1985). Innovation and entrepreneurship. New York: Harper & Row.
Erickcek, George A. (1997) The Role of Small Business: A Tale of Two Cities. W.E. Upjohn Institute for Employment Research. (65–86).
Erramouspe, Jeff, (2006). Entrepreneurship Key for Economic Development Success. Tip
Strategies Newsletter, www.tipstrategies.com
Hanke, Ralph, Kisenwether, Elizabeth & Warren, Anthony (2005) A Scalable Problem-based Learning System for Entrepreneurship. Academy of Management Best Conference Paper ENT: E1
Hopkins, Michael S. (2005, October). 75 Reasons to be Glad You’re an American Entrepreneur
Right Now! Inc. Magazine. (88-95)
International Economic Development Council. (2001). Entrepreneurial and Small Business Development Strategies. Washington, DC: U.S. Department of Commerce
Kuratko, Donald F. (2005). The Emergence of Entrepreneurship Education: Developments,
Trends and Challenges. Baylor University
Pages, E. R. & Markley, D. M. (2004). Understanding the environment for entrepreneurship in rural North Carolina. Center for Rural Entrepreneurship. (January).
Solomon, G.T., Duffy, S., & Tarabishy, A. (2002). The state of entrepreneurship education in the
United States: A nationwide survey and analysis. International Journal of Entrepreneurship Education, 1(1),http://www.tipstrategies.com/
- The Role of Economic Development in Entrepreneurial Education
- Educational Needs of Entrepreneurs
- Educational Solutions for Entrepreneurial Development
- Problem: Perception of Educational Resources Available to Entrepreneurs
Paper Format: The paper should be limited to between ten and fifteen doubled spaced pages of text not including Abstract, references, charts, diagrams, etc. There should be a minimum of ten separate sources. All sources (a minimum of ten different sources is required) must be properly cited using the APA citation style. Most of the course readings are in APA format. The paper should include an abstract of no more than 150 to 200 words. This is graduate level work and proper sentence structure, spelling, and grammar are expected.
The topic is approved and you are good to move on. I look forward to your paper. (see notes below)
I. New Firm Creation:
New firm creation interests me as a research paper to write about. As I pursue higher learning education, I also have an itch for entrepreneurship. I have high interest and drive to start and grow my own business is. The focus of my research would be to follow the process of new firm creation from the beginning as an idea, the steps of creation and the last part of achieving success and sustainability.
II. The research question(s) being answered – In this research paper I will answer the following questions:
1. What (human) factors drive a person to create a new firm?
a. The needs Comment by Summers, David F.: Don’t limit to just these.
b. The wants
c. Supply and Demand
2. What environmental factors either approve or deny the new firm creation.
a. Economic conditions Comment by Summers, David F.: Don’t limit to these.
c. Human drive, dedication and intelligence.
3. Factors that create success and sustainability of the new firm.
III. Why the topic is important – i.e., what is the benefit of researching the topic?
The topic is important because it would identify a roadmap of what it is like to create a new firm through the eyes of an entrepreneur. This research would help a person who is wanting to create a new firm establish a high-level overview of the purpose of a firm, the initiative to create one and obstacles that will be in the journey to success or failure.