St. Louis has received a lot of local, regional, and national attention about its welcoming startup climate and, as a business consultant based in St. Louis, this thrills me. It seems like every day a new article is released touting the success we’re having with startups and the entrepreneurial eco-system we’re developing in the area. According to CB Insights, St. Louis was the fastest growing area for total funding (1200% over the year before) for tech start-ups in 2014. Additionally, CNBC reports that in 2014 venture capitalists invested about $71.3 million in 21 deals in our area. We have several angel investor and incubator programs that help attract entrepreneurs to our city.
While it’s great to nurture and provide support to emerging new businesses and their owners, what about those that are more established? What about the “second stage” companies?
With the failure rate of startups ranging from 50-90% within the first five years, why do we insist on continuing to focus solely on providing support to startups, while second-stage companies—representing only 11.6 percent of U.S. establishments—generate nearly 34 percent of jobs and about 34.5 percent of sales? (YourEconomy.org) One of the problems we face in St. Louis is the lack of support and resources for this vital segment of the entrepreneurial community, the second-stage small businesses—the job creators.
Defined as growth-oriented companies that have moved beyond the startup phase and into growth mode, second-stage companies usually have 10-100 employees and annual revenue ranging from $1M to $50M. They play a critical role in job creation and vibrant economies, and are not getting the attention and support they deserve. I frequently speak with small business owners who, on one hand, are thrilled with the momentum we are gaining as a city and, on the other hand, feel slighted for not getting the attention their younger, more tech-focused peers are receiving. Some, in fact, are considering relocating their businesses. Just think if that became a ubiquitous solution…what that would mean for the St. Louis economy? It is naïve to think that these companies will stick around St. Louis forever…instead, they will be lured to other cities more focused on second-stage companies.
Employment hotbeds throughout the country have recognized this and embraced the concept of economic gardening. Loosely defined as an economic development policy that shifts from the primary goal of attracting new companies to focusing on growing local assets, economic gardening strives to create an entrepreneurial culture where local businesses can begin, grow, and prosper. A key component of economic gardening is supporting second-stage businesses by offering resources those business owners need (i.e., not resources to help with business plan creation but resources to help create strategic 5 year business vision plans).
The thinking was that if job-creating, second-stage companies had the proper push, and access to the right resources, they could drive a local economy upward. Economic Gardening originated in Littleton, Colo. in the 1980s under the direction of Chris Gibbons, then director of the city’s business and industry affairs and now CEO of the National Center of Economic Gardening. During the 20-year period Littleton practiced Economic Gardening, jobs grew from 15,000 to 30,000, and sales tax revenue more than tripled from $6M to $21M. Additionally, according to an economic impact analysis of Florida’s pilot economic gardening program, GrowFL, companies who participated in the program created an average of 5.2 net new jobs per company, with over 650 businesses participating. Statistics from the Network Kansas Economic Gardening pilot program of 28 companies cited that those companies grew revenues by an increase of 26.9% and jobs by an increase of 29%.
The proof is in the statistics, and more and more thought leaders are arguing in favor of this model.
Penny Lewandowski, Director of Entrepreneurship Development at the Edward Lowe Foundation, said “Think of the resources and efforts your city invests to attract outside businesses, and then ask what efforts you are doing to support the needs of businesses that are already in your area. Cities need to make sure they are focusing on both sides of the equation. ”
In my consulting business, I focus on second-stage business owners. After years of hearing their concerns, I launched the Midwest Women Business Owners’ Conference being held at The Ritz on October 23, 2015 to:
- Ask what these second-stage women business owners were struggling with
- Collect the data and address it in a conference with influential industry leaders
In the survey that was distributed to over 3000 women business owners throughout the Midwest, 43% acknowledged that cash flow management (a second-stage business owner challenge) was a primary financial concern, with only 12.5% saying “access to capital” (a startup challenge) was a concern.
In addition, 77% of the companies surveyed increased revenue in the past year and 85.7% anticipate revenue increases in 2016. Plus, 70% of respondents reported plans to increase staff (job creation!)
Supporting these organizations is vital to the St. Louis economy. As these businesses grow, they can create more jobs and add to a culture of entrepreneurship. Establishing strong local business support networks also increases the likelihood that a second-stage company will not relocate to another city. So, St. Louis, let’s welcome and fund entrepreneurs, but invest in sustainable support for second-stage companies. That is, after all, how we are going to keep prosperous companies in St. Louis and attract new ones to our city.