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                Center  for Community Economic Development                      
                    University of Wisconsin-Extension

                      Community Economics Newsletter

No. 301                                                 November 2001
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A Newsletter from the Center for Community Economic Development; 
Community,Natural Resource and Economic Development Programs, and 
University of Wisconsin-Extension, Cooperative Extension Service
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                     ENCOURAGE BUSINESS FORMATION

                         by Glen C. Pulver*


On this Community Economics, the previous three and the one following,
we are repeating the community economics numbers 112 through 116.  We
take this unprecedented step because as many of you start to wrestle
with the economic development portion of smart growth/comprehensive
planning it strikes us that what the late Glen Pulver said has
relevance in terms of economic development planning.

There is a continuing need for new businesses to meet changing needs
resulting from population growth or evolving goods and services (e.g.
video recorders, outpatient care, fast foods). A new business can mean
new income and employment as well as expanded trade with local
businesses. It can mean the capture of sales which otherwise go to
other communities. 

Historically, little has been done in most communities to take
advantage of this opportunity. Much can be done: 

1)   Investment of private funds locally can be encouraged through the
formation of capital groups. Beginning entrepreneurs normally rely on
their own financial resources and that of their family and friends to
get started. In a very short time they need more capital. Banks and
similar financial institutions are usually supportive in providing
debt capital to familiar businesses when loans can be adequately
collateralized.  The bigger problem is with unfamiliar types of
businesses or those which would otherwise be judged high risk. The
availability of a local capital pool for debt or equity investment may
provide the critical ingredient for success of a new business in the
community. This can be done informally or more formally with something
like a community development corporation. In either case, it is
important that potential entrepreneurs be well aware of its existence.


2)  The community can organize to provide individual counsel and
intensive education for those interested in forming a new business.
First time entrepreneurs seldom have much knowledge of business
management, marketing or business plans. They are usually unaware of
the government regulations which apply to their concern. A local
support structure can be very helpful and encouraging to business
start ups. 

3)   Community studies of the market potential for new retail,
wholesale, service and industrial input providing businesses may
identify opportunities for new local establishments. General insights
can be acquired through analysis techniques such as input-output,
location quotients, population/employment ratios, and trade area capture.
More detailed analysis will be required to identify real opportunity in 
those sectors which look promising. 

4)   Entrepreneurship is often stimulated by adversity. Plant closings
or lay-offs generate a great deal of interest in people going into
business for themselves. Local leaders should be sensitive to this and
encourage and support entrepreneurship at these critical times. 

5)   The general attitude of the community towards entrepreneurship is
important. Business failure after a short period of time is quite
common among startups. Highly successful small business operators have
often failed once or twice before finally achieving their goals. The
acceptance of this pattern and the constant encouragement to try again
is helpful. 

6)  Once again it is important to provide the same services and
incentive to businesses in formation as to businesses already in
existence or those being sought from outside.

*Professor of Agricultural Economics, University of Wisconsin-Madison
and Community Development Specialist, University of
Wisconsin-Extension.

*There are five general strategies by which employment and income can
be improved: (1) improving the efficiency of existing firms; (2)
improving the ability to capture dollars; (3) attracting new basic
employers; (4) encouraging business formation; and (5) increasing aids
received from broader governments. This issue of Community Economics
is one of five which focus on ways communities can improve their job
and income prospects.



Ron Shaffer
Community Development Economist
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Issued in furtherance of Cooperative Extension work, Acts of May 8,
and June 30, 1914, in cooperation with the U.S. Department of
Agriculture.  Carl O‘Connor, Cooperative Extension, University of
Wisconsin-Extension.

University of Wisconsin-Extension, U.S. Department of Agriculture and
Wisconsin counties cooperating.  UW-Extension provides equal
opportunities in employment and programming, including Title IX and
ADA.