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 New Firm Creation 

The Role of Economic Development – 1 –

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The Role of Economic Development in Entrepreneurial Education

Monica Cornetti

EDE 6350

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

whom?

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

The Role of Economic Development – 6 –

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,

Birch said:

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)

The Role of Economic Development – 11 –

(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

(http://innovation.utdallas.edu).

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

presence.http://utsa.edu/sbdcregional/regmodules.cfmhttp://utsa.edu/sbdcregional/regmodules.cfm)

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

The Role of Economic Development – 14 –

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.

Conclusion

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 –

References

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/

  • ABSTRACT
  • 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
  • Conclusion
  • References

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.

b. Government

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.

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