Cover Story

 

Spreading Startup Succes

 

By Curt Roberts & T. Craig Bott

 

While Utah has earned numerous accolades for its "Entrepreneurial Dynamism," many regions across the state have yet to cash in on the prosperity. Community leaders are taking the initiative to drive startup success  beyond Utah's major cities and bring economic growth to regions throughout the state.

Utah has long been recognized for its entrepreneurial energy. Consistently receiving high ranks by nearly every business poll and ranking, Utah is considered one of the national leaders in what might be coined "Entrepreneurial Dynamism" — the capability to conceivAlthough Utah looks great from a national perspective, our rankings are fueled by the entrepreneurial energy that comes primarily from Salt Lake and Utah Counties alone. Business creation and growth that occurs in these two regions accounts for most of the entrepreneurial success we take pride in as a state.

But should that be the case? Should we be satisfied with just two regions doing well in business creation?

The fact is that across the nation, and in Utah, entrepreneurism remains a local phenomenon. What works so successfully in one region, such as a Salt Lake or a Utah Valley, doesn't seem to have much positive effect on cranking up the entrepreneurial engine of even a neighboring region.

The regional focus of entrepreneurism is even more emphasized when one considers the necessary ingredients to entrepreneurial success and how regionally based these ingredients must be to make a difference. Take angel money for an example, a pretty vital ingredient to grow successful entrepreneurs. National statistics indicate that angel investors usually invest in business deals that are within a 45-minute drive of their location. Anything further away only gets marginal, if any, attention at all.

Simply stated, the capabilities and entrepreneurial ingredients that fuel the success of one region don't transfer well to another. Anyone who has tried knows its pretty hard to get investors, professional service providers, mentors and senior advisors — all essential components to fostering successful start up businesses — to travel the 50 minutes from Salt Lake to Davis and Weber Counties, or certainly the 90 minutes to Cache Valley.

Over the past 18 months, we have engaged key business and community leaders from many of the outlying regions of the state in an initiative that brings focus on what they can do to promote and foster business creation within their regions. Under the title of SEED Utah (Stimulating the Expansion of Entrepreneurial Development), we have analyzed with these leaders their potential to grow companies and to see those companies succeed. This analysis has led to some very interesting strategies about how to expand Utah's entrepreneurial dynamism beyond Salt Lake and Utah Counties.

 

Requirements for Regional Success

For any region to be entrepreneurially dynamic, four key elements must be in place.

>>Talent>> Within each region, there must be a strong and steady supply of talented individuals who are ready to step forward and begin the entrepreneurial ride. This talent base must be cultivated and encouraged to take the risks of entrepreneurship by seeing and having access to successful entrepreneurial role models.

>>Idea Generation>> There must be a specific degree of effort within the region that goes into generating viable business ideas. Many of these efforts include the research and development work undertaken at a local university or applied technology college. Even more are fostered by independent inventors and local corporations. Whatever the source, these ideas must flourish and be promoted within the region.

>>Funding>> Investment capital is essential to fund the early stage entrepreneurs. Access to local capital invested by regional angel investors is vital.

>>Support>> Within the region, there must be a wide array of support programs and resources that the entrepreneur can access when needed.

So, how are we doing across the regions of the state and where can we make improvements? Although not meant to be a comprehensive assessment, here are a few data points that compare regions across the Wasatch Front. As you will see, there is a strong base of talent and ideas in all regions, but a general lack of funding and effective support efforts outside of Salt Lake and Utah Counties.

 

Talent

Throughout virtually all regions of the state, we have a very highly educated workforce. Not surprising are the high percentage of workers in all regions that have a bachelor's degree. This percentage increases the farther we head north. Utah County comes in at approximately 28 percent of their population having bachelor's degrees with Box Elder County at 20 percent and Morgan County at 25 percent.

From such an educated workforce, all regions should have a sustainable supply of high-potential entrepreneurs.

 

Idea Generation

One indicator of the degree of regional idea generation is the overall inventiveness of the people of the region as indicated by patents issued to those inventors. There is a direct correlation between patent activity and business creation, which gives insight to the entrepreneurial dynamism of the region.

When adjusted for population, Cache and Box Elder Counties are the most prolific inventors in the state. Davis County exceeds that of Salt Lake County and, as expected, Utah County continues to remain strong.

The regional strength in idea generation coupled with such a strong talent base is indicative of the untapped potential for business creation and business growth throughout these regions.

 

Funding

So what about the essential ingredient of funding? Is capital equally available across these regions? The strength of the angel community in both Salt Lake and Utah County simply won't transfer to the other regions. It is up to local investors in each region, therefore, to take the lead and financially support their local entrepreneurs.

Much has been done to improve the angel capital landscape locally. Led primarily by Alan Hall of Grow Utah Ventures, a number of new angel groups have recently formed in such areas as Salt Lake County, Park City, Davis/Weber County and the southern Utah area. An angel group is forming in Cache Valley, as well. As these groups mature, they will make more funds available to their local entrepreneurs.

But what about venture capital? Will it extend its reach as well into these other regions? Clearly that depends a lot on the quality of investment opportunities that can be found in these regions. But it also depends in part on outreach efforts undertaken by the regions to cultivate a relationship with venture firms to expose them to these opportunities.

Innovative programs such as Utah's Fund of Funds are enticing venture capital to the state so the availability of venture capital in Utah is definitely improving. That said, historical data show that venture money is concentrated primarily in the Salt Lake region with some invested in Utah County businesses. Virtually no venture investments are made in businesses outside of this region.

 

Support

If you want to succeed as an entrepreneur, history suggests your chances of doing so are much greater in Salt Lake and Utah Counties. A key hallmark of these two regions is a wide array of support services that positively impact an entrepreneur and lead to his or her success. Support initiatives that help entrepreneurs access mentors, incubation space, sales and marketing assistance, technology commercialization and the like, do in fact increase the odds of success.

This is the area where the other regions of the state need to make dramatic improvements. And this is the area where the programs and initiatives that work in one region can easily be adapted and implemented in another.

The difference is measurable. By comparing the business survival rate — a measure that takes into account both the number of business startups and business failures — one can see across the regions the distinct impact more supportive regions have on business success.

An entrepreneur starting a business in Utah County has more than double the chance of success than one starting in Cache County. Although more analysis is needed to fully understand all of the reasons, these numbers indicate the significant opportunity across the regions of the state to increase success rate of entrepreneur-led businesses.

 

Conclusions

Utah is successful in its entrepreneurial dynamism, but clearly more can be done. Our base of talent and the quality of ideas extends across many regions and, if cultivated, can yield business growth well beyond our most populous counties.

Funding from local sources is required and must be made available with a regional mindset that "we take care of our own" first and foremost. Venture and institutional money will follow as the quality of regional businesses improves. And each region can adopt policies and implement programs that build on the successes seen in other counties and are tailored to help their businesses survive and grow.

As this all comes into place, the impact of Utah's entrepreneurial engine across all regions will significantly drive forward the state's overall economy. e, establish and support entrepreneurial businesses.

 

High-Profile State

Rankings in 2008

No. 2 - "2008 Best States for Business" (Forbes)

No. 3 - "Top States for Business" (CNBC)

 

Rankings in 2007

No. 1 - "Most Dynamic Economy in the Nation" (Kauffman)

No. 1 - "Best Managed State" (USA Today)

No. 1 - Salt Lake City "Best City for Job Seekers" (Forbes)

No. 2 - "Best State for Business" (Forbes)

No. 3 - "Best State for Business" (CNBC)

No. 5 - "Top 10 Pro-business States" (Pollina Corporate)

 

Launch - Fall & Winter 2008 (Special Print Edition)