mapping rural entrepreneurship

W.K. KELLOGG FOUNDATION

Corporation for Enterprise Development

About the W.K. Kellogg Foundation

The W.K. Kellogg Foundation was establishedin 1930 “to help people help themselvesthrough the practical application of knowledgeand resources to improve their quality of lifeand that of future generations.” Its program-ming activities center around the commonvision of a world in which each person has asense of worth; accepts responsibility for self,family, community, and societal well-being; andhas the capacity to be productive, and to helpcreate nurturing families, responsive institu-tions, and healthy communities.

To achieve the greatest impact, the Foundationtargets its grants toward specific areas. Theseinclude health; food systems and rural develop-ment; youth and education; and philanthropyand volunteerism. Within these areas, attentionis given to the cross-cutting themes of leader-ship; information systems/technology; capital-izing on diversity; and social and economiccommunity development programming. Grantsare concentrated in the United States, LatinAmerica and the Caribbean, and the southernAfrican countries of Botswana, Lesotho,Mozambique, South Africa, Swaziland andZimbabwe.

More information about the W.K. KelloggFoundation and its programs is available on the

Foundation’s Web site at www.wkkf.org.

About the Corporation for Enterprise Development

The Corporation for Enterprise Development isa nonprofit organization that creates economicopportunity by helping the poor save andinvest, succeed as entrepreneurs, and partici-pate as contributors to and beneficiaries of theeconomy. By helping individuals and communi-ties harness latent potential, we build long-term models to help people move from povertyto prosperity while strengthening the overalleconomy. The Corporation for EnterpriseDevelopment identifies and researches promis-ing ideas, collaborates with the private andpublic sectors to test them, and helps drive theapplication and adoption of proven concepts.

Established in 1979, the Corporation forEnterprise Development works nationally andinternationally through its offices inWashington, DC, Durham, North Carolina, San Francisco, California, and St. Louis,Missouri.

Acknowledgments ......................................................................................................3

Executive Summary ..................................................................................................4

Introduction ..............................................................................................................7

Economic Context for Rural America ......................................................................9

Entrepreneurship as a Rural Economic Development Strategy ..............................12

Rural Entrepreneurship by the Numbers ................................................................17

Policy Context ..........................................................................................................25

The Components of Entrepreneurship Development ..............................................31

A Closer Look at Two States ....................................................................................45

Orchestrating an Entrepreneurial Climate in Rural America ..................................56

Endnotes ..................................................................................................................60

W.K. Kellogg Foundation • Corporation For Enterprise Development 1

Table of Contents

The authors thank Deborah Markley, co-directorof the Rural Policy Research Institute (RUPRI)Center for Rural Entrepreneurship for her guid-ance in structuring this study and for allowingher meeting on entrepreneurship research spon-sored by the Farm Foundation to be used to testsome methodological assumptions.

Thanks also go to a number of people inKentucky and Nebraska for their insights andhospitality during the two main field visits: inKentucky, Jim Clifton, Phillip Danhauer, KrisKimmel, Joanne Lang, Tom Lyons, JustinMaxson, Becky Naugle, Jerry Rickett, KevinSmith, and Cheryl Moorhead Stone; and inNebraska, John Allen, John Bailey, GregChristensen, Janelle Anderson Ehrke, DougFriedli, Rob Hamer, Chuck Hassebrook, RoseJasperson, Loren Kucera, Glennis McClure,Judy Meyer, Stuart Miller, Lance Morgan, JeffReynolds, Marilyn Schlake, Sandra Scofield,Cory Smathers, Brian Thompson, and Jeff Yost.

Special thanks to David Dangler, Ray Daffner,Cornelia Flora, Jay Kayne, Tom Lyons (again),Don Macke, Erik Pages, and Nancy Stark fortheir helpful counsel on the “big picture.”Much appreciation is also due to the 60 expertsand practitioners who agreed to be interviewedby phone about their perspectives and experi-ences on different aspects of entrepreneurshipin rural America.

Finally, thanks to Rick Foster, CarolineCarpenter, and Gail Imig for the opportunity tocarry out this study and for their continuingsupport and encouragement.

Brian Dabson, Jennifer Malkin, Amy Matthews,Kimberly Pate, and Sean StickleCorporation for Enterprise Development

August 2003


Acknowledgements

At the invitation of the W. K. KelloggFoundation, the Corporation for EnterpriseDevelopment conducted a study to gather infor-mation on institutions, programs, and activitiesthat support entrepreneurship in rural America;to assess the distribution and scale of entrepre-neurial activity; and to identify potentiallyinfluential contextual factors. The study includ-ed the collection of best available publisheddata to map entrepreneurial activity, an exten-sive literature and Internet search, and a seriesof telephone interviews with 60 experts andpractitioners. In addition, site visits and person-al interviews were held with practitioners andentrepreneurs in Kentucky and Nebraska.

Rural America comprises an extraordinary anddynamic variety of economic, geographical, andcultural characteristics. Many rural communi-ties face enormous economic challenges of lowpopulation size and density and remoteness,which in turn bring diseconomies of scale andincreased costs of doing business. Poorly edu-cated and low-skilled workers, weak entrepre-neurial cultures, and entrenched racial inequali-ties inhibit full participation in the new econo-my. The public policy context is not encourag-ing with rural policy dictated by agri-businessinterests, fiscal crises at the state and countylevels, and no organized constituency for ruralAmerica in all its diversity. There is an urgentneed for rural people and communities todefine the future they want for themselves andtheir children. This will take vision, innovation,and risk-taking – the work of the entrepreneur.

There is growing understanding that economicdevelopment strategies founded primarily onbusiness recruitment are not in rural America’sbest interests and that there needs to be agreater emphasis on homegrown development.Many observers see entrepreneurship as being acritical, if not major piece of rural economicdevelopment, although not all are convincedthat entrepreneurship is likely to be an engineof economic growth in rural areas. However,there is a compelling argument that creating an

entrepreneurial climate where all kinds ofentrepreneurs can succeed, lays the ground-work for the five out of 100 small businessesthat evolve into the fast-growing drivers of thenational economy.

Efforts to measure entrepreneurial activity andperformance across rural America are still intheir developmental stages, but it is possible tocreate an initial impression of the scale and dis-tribution of entrepreneurial activity. Whereassuch activity is broadly distributed across thecountry, there appear to be particular concen-trations in heartland and northern mountainstates and in Appalachia.

Using a two-part framework – creating apipeline of entrepreneurs and enhancing busi-ness services for entrepreneurs – the studyteam gathered a large amount of informationon national, regional, and local programs andinitiatives. The components of the pipeline areentrepreneurship education in kindergartenthrough the 12th grade and at the post-second-ary level and entrepreneurship networks; forbusiness services, the components are trainingand technical assistance, and access to capital.There is a very wide array of programs and ini-tiatives, ranging from the old-established to

4 Mapping Rural Entrepreneurship

Executive Summary

exciting new experiments, but it is impossibleto gauge whether on the ground these cometogether in coherent, entrepreneurial systemsof support or as disconnected, bureaucraticprograms. These were the concerns thatbecame the focus of site visits and interviews inKentucky and Nebraska.

The study concludes that what is needed is anew framework that will animate people andinstitutions at all levels around four principlesfor entrepreneurship development in ruralAmerica:

• Community-driven: Local communitiesneed the tools and resources to identify andbuild upon their assets; to make choices thatappropriately balance economic, social, andenvironmental imperatives; to learn from theexperiences of others; and to be open toexperimentation and innovation.

• Regionally oriented: Only through regionalcooperation across multiple jurisdictionsand through regional institutions can there

be sufficient scale, resources, and expertiseto enable individual communities to playtheir full role. There are issues and concernscommon to both urban and rural areas thatcan best be addressed through regional solu-tions; regions represent the economicengines and markets that rural enterpriseshave to serve.

• Entrepreneur-focused: Systems thinking isrequired to align the plethora of training,technical assistance, and financing programsto meet the variety of needs of entrepreneursand their different levels of education, skills,and maturity.

• Continuously learning: Networks for peersupport and learning are essential for entre-preneurs and for practitioners, communityleaders, and policymakers. Learning aboutentrepreneurship should be part of theschool curriculum. The need for rigorousevaluation of the effectiveness of entrepre-neurship strategies and returns on invest-ment is pressing.


The study also highlighted a number of otherimportant essentials for promoting an entrepre-neurial climate:

• Anchor institutions: Universities, communitycolleges, community development financialinstitutions, and research and advocacygroups can play a vital role in articulating avision, building partnerships, and attractingand mobilizing resources for entrepreneurshipdevelopment.

• Supportive public policy: Creative publicpolicy can unlock resources and channelefforts into rural counties, but demonstrat-ing effectiveness and returns on investmentis crucial for generating further support atfederal and state levels. The need is not nec-essarily to create special legislation forentrepreneurship in rural areas but to ensurethat all programs have the capability andflexibility to be tailored to the needs of dif-ferent rural regions and their entrepreneurs.

• All entrepreneurs welcome: Fostering adiverse pool of entrepreneurs with differentmotivations, whether for survival, lifestyle,or wealth, increases the odds that there willbe some that will become the fast-growthenterprises that will bring improvement toeconomic conditions to rural communitiesand regions.

Four main strategies are recommended to cre-ate a more supportive environment climate inrural America:

• Investment strategies: Create incentivesand long-term investments that encourageurban-rural and regional collaborations andthe development of effective systems andaccountable systems of entrepreneurial sup-port. Invest in innovations in entrepreneur-ial education, technical assistance andtraining, capital access, and networkingthat show promise for widespread replica-tion in rural communities.

• Learning strategies: Ensure rigorous evalua-tion of strategies, systematic case studies,training programs for elected officials andopportunities for peer exchanges. Encourageexperiential education in schools, colleges,community centers, and camps.

• Advocacy strategies: Energize networks oforganizations and institutions that can usethe results of the investment and advocacystrategies to support entrepreneurshipdevelopment in rural America.

• Information strategies: Develop method-ologies and statistical tools that adequatelydescribe and measure entrepreneurial activ-ity and climates, including report cards andother benchmarking and assessment tools.

The study presents ample evidence of organiza-tions, institutions, and agencies pursuing vari-ous types of programs and initiatives that aremeant to encourage greater entrepreneurship inrural America. The task ahead is to make theirefforts more community-driven, regionally ori-ented, entrepreneur-focused, and continuously

learning.


Scope of Work

The W. K. Kellogg Foundation invited theCorporation for Enterprise Development (CFED)to carry out a consulting assignment that would:

• Gather data on current institutions, pro-grams, and activities that support ruralentrepreneurship;

• Develop a narrative and graphic presenta-tion of the data in ways that would high-light “hotspots” of activity that might offermodels and/or potential investment targets;

• Determine the factors that influence thedevelopment of these “hotspots;” and

• Present an analysis of the findings leadingto observations and options for Foundationintervention.

Definitions

For the purposes of this report, the followingdefinitions have been used:

• Rural refers to geographical areas outside sta-tistical metropolitan areas and thus includesover 80 percent of the U.S. land mass and itswide array of economic, physical, cultural,and demographic characteristics.

• Entrepreneurs are people who create andgrow enterprises. This definition is deliber-ately widely drawn to encompass the follow-ing types of entrepreneurs:

– Aspiring entrepreneurs: those who areattracted to the idea of creating enter-prises, including young people.

– Survival entrepreneurs: those whoresort to creating enterprises to supple-ment their incomes.

– Lifestyle entrepreneurs: those who create enterprises in order to pursue acertain lifestyle or live in a particularcommunity.

– Growth entrepreneurs: those who aremotivated to develop and expand theirbusinesses that create jobs and wealth.

– Serial entrepreneurs: those who go onto create several growth businesses.

• Social entrepreneurs are people who createand grow enterprises or institutions that areprimarily for public and community purposes.

• Entrepreneurship is the process throughwhich entrepreneurs create and grow enter-prises. This process includes four criticalelements: opportunity recognition, idea cre-ation, venture creation and operation, andcreative thinking.

• Entrepreneurship development refers to theinfrastructure of public and private supportsthat facilitate entrepreneurship.

• Entrepreneurial communities are thosewhere there is significant economic andsocial entrepreneurial activity and wherethere is an effective system of entrepreneur-ship development.


Introduction

Methodology

The consulting assignment was conducted inthree main stages:

• A quantitative assessment that used bestavailable published data to prepare maps ofentrepreneurial activity across ruralAmerica;

• An assessment of institutions, programs, andactivities that support entrepreneurshipdevelopment in rural America based on anextensive literature and Internet search anda series of telephone interviews with 60experts and practitioners; and

• Site visits and interviews with practitionersand entrepreneurs in Kentucky and Nebraska.

Report Structure

This report begins with an overview of the eco-nomic realities and options for rural Americaand explores the role that entrepreneurshipplays (or could play) as a rural economic devel-opment strategy. The next section presents thequantitative assessments, including some of thechallenges for measuring rural entrepreneur-ship, followed by a description of both the poli-cy context at national, regional, and local levelsand of the institutions and programs that sup-port different facets of entrepreneurship. Thisnational overview is then followed by a closerlook at entrepreneurship development inKentucky and Nebraska. The report concludeswith some thoughts about what the assessmentshave revealed and what opportunities may existfor policy and practical action.


Within rural America, there is an extraordinaryvariety of economic, geographical, and culturalcharacteristics. Moreover, the situation is verydynamic, with significant depopulation acrossthe Great Plains and net population growth inrural counties that are within reach of sprawl-ing metropolitan regions or in areas of highamenity. In addition, many counties with man-ufacturing or food processing plants are experi-encing a rapid growth in immigrant workersand the challenges associated with suddenexpanding diversity.

Poverty rates tend to be higher in rural areas –7.5 million rural residents are in poverty. Two-thirds of them live in households where at leastone member is working. Measures of persist-ently high poverty levels or of economic dis-tress show that the greatest hurt found in theDelta and the Cotton Belt, Appalachia, theTexas border, and Native American reserva-

tions. Map 1 shows the location of distressedrural counties using an index devised by theAppalachian Regional Commission (ARC) forits 10-state region and applied to all non-met-ropolitan America. The index combines meas-ures of a three-year average of unemployment,per capita market income, and poverty rates.

A critical issue for many rural counties is edu-cation. Although overall, rural high schoolgraduation rates match or exceed their urbancounterparts, out-migration of the youngest andmore highly-educated is a primary export formany communities. The result is that the adultworkforce is less well-educated. In fact, a studyof the rural South showed that 38 percent ofadults do not have high school diplomas.

From an economic development viewpoint,rural communities, especially those locatedsome distance from larger cities, face a number


Economic Context for Rural America

Map 1: Distressed Rural Counties (Source: Bureau of Labor Statistics, Bureau of Economic Analysis, Census Bureau, Appalachian Regional Commission)

of major challenges. Low population size anddensity and associated limited local demand,make it difficult for rural businesses and serv-ice providers to achieve economies of scale.This has an impact on the cost and availabilityof goods and services and drives many attemptsto achieve efficiencies through consolidation ineverything from schools to banking.Remoteness from markets and from key infra-structure limits the range of economic opportu-nities that can be supported and often resultsin a lack of connection to regional and globalpossibilities. Poorly educated and low-skilledworkers, weak entrepreneurial cultures, andentrenched racial inequalities all serve to inhib-it the participation of rural families and com-munities in the new economy.

The public policy context for rural America isnot encouraging. Powerful agri-business inter-ests have ensured that commodity price sup-port is the primary rural policy, leaving littlescope for diversified rural development. Large

tracts of federally-owned land have becomebattlegrounds around forestry, mining, recre-ational, and water rights issues, with local com-munities and local jobs left as merely by-standers. Fiscal crises at the state level arebeing passed onto counties in the form ofreduced financial support, resulting in severeservice cuts with disproportionate impacts onthe rural poor. Unfortunately, there is no organ-ized constituency for rural America, with polit-ical power increasingly suburban and no coher-ent public understanding of how and wherenational and rural interests intersect.

So what of the future? One of the morethoughtful and thought-provoking analysescomes from Northwest Area Foundation presi-dent, Karl Stauber.1 He first divides ruralAmerica into four main types:

• Urban periphery: rural areas within a 90-minute commute of urban employment,services, and social opportunities;


• High amenity: rural areas of significant sce-nic beauty, cultural opportunities, andattraction to wealthy and retired people;

• Sparsely populated: areas where the popu-lation density is low and often declining andtherefore demand for traditional services,employment, and social opportunities arelimited by isolation; and

• High poverty: rural areas characterized bypersistent poverty or rapid declines inincome.

Stauber then lays out four outcomes for a ruralpublic policy: increased human capital, conser-vation of the natural environment and culture,increased regional competitive investments,and investments in infrastructure that supportthe expansion of new competitive advantage.From these elements, he then proposes a set ofstrategic directions:2

• Redefine and restructure the rural-servingcollege and university so as to increasehuman capital in sparsely populated andhigh poverty rural areas – essentially dis-mantling the 19th century land-grant sys-tem in favor of a 21st century informationgrant system.

• Create new markets and linkages so as toincrease regional competitive investmentsin urban periphery and sparsely populatedareas – primarily investments in value-added production rather than commodityprice supports.

• Develop and use new technology to over-come remoteness to produce an infrastruc-ture that expands competitive advantage insparsely populated and high-poverty areas– creating and reinforcing links betweenmetropolitan and rural economies.

• Encourage immigration to rural communi-ties to increase human capital in sparselypopulated and high-poverty areas – with a particular emphasis on attracting entre-preneurs.

Two other expert rural observers, ThomasRowley and David Freshwater, contend that theanswers to the current challenges of ruralAmerica will only be found “by finally comingto terms with what we as a nation want ourrural areas to be. If we want them to be sourcesof cheap commodities, then the people whowill provide [them]…will be low-wage labor. Ifwe desire pristine wilderness, the people willnot fit at all. If receptacles for our refuse arewhat we seek, then trash heaps are what wewill get. What we want (and what we are will-ing to pay for) will go a long way in determin-ing what we get.” 3

There is no shortage of urban, suburban, andnewly settled rural dwellers willing to define afuture for rural America, but if rural people andcommunities are to take matters into their ownhands and succeed, it will take vision, innova-tion, and risk – the work of the entrepreneur.


Among researchers, policy advocates, and oth-ers engaged in community and economicdevelopment in rural America, there is broadagreement that relying on recruiting companiesfrom other states or overseas should not andcannot be the answer to struggling ruraleconomies. Yet each year, state governmentshave been willing to commit through taxincentives, tax breaks and direct investments,billions of dollars to snag a car assembly plant,a high technology production unit, or someother potentially transformative industrialactivity. Increased public scrutiny has shedlight on some of the more egregious examplesof “investments” that were poorly structured,had inadequate reporting or accountabilityrequirements, or yielded disappointingly lowreturns in terms of jobs and local multipliereffects. And this in turn has led to a greateremphasis on transparency, clear expectationson returns on investment, and clawbacks ifexpectations are not met. But concern remainsthat recruitment has to be balanced, if notreplaced altogether by policies that supporthomegrown development.

An Aspen Institute report that looks at theeconomy of rural Kentucky, noted: “Traditionalapproaches to economic development…havetheir place, but only as they help to create theconditions for dynamic, indigenous economicactivity. In a very real sense, Kentucky’s futurerests on its ability to nurture homegrown firmsand to encourage the innovation, risk-takingand investment that are the hallmarks of a vitaleconomy…In short, entrepreneurship mustbecome a matter of course and a habit of mindif Kentucky is to thrive.”4

The National Commission onEntrepreneurship in its guide for candidatesfor elected office put the argument this way:“While winning a new manufacturing facilitymay be a home run in economic developmentterms, these home-run opportunities arebecoming scarcer every day. As a result of glob-alization, technological evolution, and other

economic changes, fewer communities are host-ing large facilities that provide jobs over longperiods of time…At the same time, small andmedium-sized businesses are growing in impor-tance…Entrepreneurial growth companies –fast-growing new businesses – account for atleast two-thirds of new jobs in the Americaneconomy…These firms will drive the future ofinnovation and prosperity in nearly everyAmerican community, and thus should be thefocus of our economic development efforts.”5

The Federal Reserve Bank of Kansas Cityobserved: “Rural policymakers, who once fol-lowed traditional strategies of recruiting manu-facturers that export low-value products, haverealized that entrepreneurs can generate neweconomic value for their communities.Entrepreneurs add jobs, raise incomes, createwealth, improve the quality of life of citizens,and help rural communities operate in the glob-al economy…Rural policymakers are respond-ing to these challenges by making entrepreneur-ship the cornerstone of many economic devel-opment strategies.”6 In a similar vein, the ARC“views entrepreneurship as a critical element inthe establishment of self-sustaining communi-ties that create jobs, build local wealth, andcontribute broadly to economic and communitydevelopment.”7 And this was the basis of acommitment by the Commission in 1997 tocommit $17.6 million over a number of years toan initiative to build entrepreneurial communi-ties across Appalachia.

In 1999, the National Governors Association(NGA) surveyed its members to gauge eachstate’s perspective on entrepreneurship and itsimportance as part of an overall state economicdevelopment strategy. While 34 of the 37 statesthat responded indicated that they did indeedconsider entrepreneurship as part of their eco-nomic development strategy, only four had aclearly articulated statement within the strategydocument. Jay Kayne observed a “distinctionbetween states that try to meet the specific


Entrepreneurship as a Rural Economic Development Strategy

needs of aspiring and emerging entrepreneursand states that view entrepreneurs as a segmentof the state economy who can take advantageof state programs.”8 In other words, the surveyemphasized the difference between active andpassive support for entrepreneurship.Interestingly enough, given the assessmentsdescribed later in this report, Kentucky wasidentified as having one of the best articulatedgoals of creating an entrepreneurial economy.

An important obstacle to a more vigorous pur-suit of entrepreneurship as an economic devel-opment strategy is the lack of hard evidencethat it actually yields the results claimed. Asthe Federal Bank of Kansas City noted, “Aspolicymakers stretch the frontier of entrepre-neurial development, the impacts of these pro-grams will need to be assessed to identify thecosts and benefits of supporting high-growthentrepreneurs in rural America.”9

The Global Entrepreneurship Monitor (GEM)was created in 1997 by Babson College and theLondon Business School with support from theKauffman Center for EntrepreneurialLeadership as a long-term, multi-national

investigation into the relationship betweenentrepreneurship and economic growth. By2002, 37 countries were being surveyedaccording to a common protocol. The nationalreport on the United States10 provides somegood contextual information on the role andimportance of entrepreneurship:

GEM estimates that 10.5 percent of the U.S.adult population (aged 18-64) are engaged insome form of “entrepreneurial activity,” definedby the 2002 GEM as being involved in thestart-up process or is the owner/manager of anactive young business less than 42 months old.This population can be divided into two broadcategories: opportunity entrepreneurs, thosewho are starting a business to take advantage ofa business opportunity, and necessity entrepre-neurs, those who are starting a businessbecause they had no better choices for work.

In the United States, approximately 90 percentfall into the opportunity category.This high level of opportunity entrepreneur-ship appears to be the result of a strong econo-my, although recession, mass layoffs, andincreasing unemployment are likely to spur a


sharp rise in necessity entrepreneurship. As the2001 GEM report notes: “The difficulty withthis scenario is that although necessity entre-preneurship often creates self-employment, it isnot a strong driver for creating new jobs.Because the primary concern of necessity entre-preneurs is survival, they typically have a limit-ed vision for growth. Opportunity entrepre-neurs, however, tend to create high-potential,high-growth ventures. The majority of jobs cre-ated from entrepreneurial activity in the UnitedStates is a result of fast-growth businesses.”11

U.S. entrepreneurs, compared with their coun-terparts overseas, tend to be older – 36 percentof entrepreneurs are in the 45 to 64 age brack-et. Older Americans, the report asserts, aremore likely to have deep industry experienceand networks that help with identifying andfinancing opportunities. At the same time, theproportion of women entrepreneurs is increas-ing. There is one female entrepreneur for every1.5 male entrepreneurs, with parity in the 45 to64 age bracket.

The relationship between level of educationand entrepreneurial activity is not straightfor-ward. The highest entrepreneurial participationrate is for those who have completed highschool; for those who do not have a highschool diploma, the tendency is self-employ-ment and little vision for job creation; for thosewith college degrees, there is some drop-off inparticipation, possibly because of the greateropportunities to earn high incomes as employ-ees of other businesses.

A potentially contentious conclusion comesfrom the 2002 GEM report, which makes thepoint that entrepreneurship is an urban phe-nomenon, presumably as urban areas are wherethe highest density of entrepreneurship is to befound. The report went on to assert: “It shouldbe noted that entrepreneurship in rural areasmay not be the best mechanism for economicgrowth.”12

Another recent effort to provide evidence of theeffectiveness of entrepreneurial strategies is anOrganization for Economic Development andCooperation (OECD) publication,Entrepreneurship and Local EconomicDevelopment, researched and written by AlistairNolan. He noted: “For a variety of reasons, pro-moting entrepreneurship enjoys support fromgovernments at both ends of the political spec-trum. Pro-entrepreneurship policies have beenembraced as a means of increasing economicgrowth and diversity, ensuring competitivemarkets, helping the unemployed to generateadditional jobs for themselves and others,countering poverty and welfare dependency,encouraging labor market flexibility, and draw-ing individuals out of informal economic activ-ity. In short, an enterprise initiative has beencharged with addressing a broad array of eco-nomic and social aspirations…However, giventhe widespread interest in promoting enter-prise, it is perhaps surprising that few empiri-cal studies have systematically examined therelationship between the birth of new firms andlocal economic change.”13


The following are some of the main conclusionsof Nolan’s analyses of 30 OECD countries:

• There are many obstacles that hinder entre-preneurship in disadvantaged areas, influ-encing both the extent and form of entrepre-neurial activity and its prospects for sur-vival. Such obstacles range from limited net-works, low levels of effective local demand,finance constraints, lack of role models, andcultural barriers – all familiar to rural com-munities in the United States.

• Efforts to stimulate self-employment can raiseincomes and provide a cost-effective alterna-tive to paying unemployment insurance, butonly for the small sub-section of the unem-ployed who are more motivated, have workexperience, and some accumulated assets.

• Entrepreneurship strategies yield importantbenefits but do not constitute a panacea.Such strategies inevitably favor those whopossess superior financial, human, andsocial assets. There may not be a significantexpansion in employment opportunities forthe most disadvantaged. Entrepreneurshipstrategies are long-term in their effects andtherefore not appropriate to short-termcrises. There may be issues of displacementin local markets as new entrants cause lossesin revenues or employment among existingenterprises rather than create an expandedeconomy.

• Although every community hopes toencourage fast-growing businesses that willgenerate wealth and good jobs, the reality isthat in most cases, the direct employmenteffects will be modest – a reflection of thesmall average size of start-ups, low survivaland growth rates, and displacement.Moreover, employment in small enterprisesdoes not necessarily translate into good jobswith family-supporting wages and benefits.

Research on the impact of microenterprisedevelopment in the United States by The AspenInstitute14 provides some counter-evidence:

• Low-income microentrepreneurs reducedtheir reliance on government assistance by61 percent with the greatest reduction in theamount of cash benefits received. Averagebenefits fell by $1,679 per year.

• Seventy-two percent of low-incomemicroentrepreneurs experienced gains inhousehold income over five years. The aver-age gain was $8,485.

• Fifty-three percent of low-income entrepre-neurs had large enough household gains tomove out of poverty, with the business beingthe major source of earnings.

• Average household assets of low-income entre-preneurs grew by $15,909 over five years.

Earlier research conducted by CFED15 indicatedthat:

• Forty-nine percent of microenterprisesowned by low-income entrepreneurs sur-vived after five years – a rate comparable tothe national average for all small businesses.

• On average, microenterprises create 1.5 full-and part-time jobs per business

During field work in Kentucky, there was somesuggestion that a significant number of emerg-ing entrepreneurs were in fact making the tran-sition from the informal to the formal economy.A recent literature review on the informal econ-omy by Institute for Social and EconomicDevelopment and The Aspen Institute,16 con-firms that the informal economy – defined asindividuals operating unregistered businessesor engaging in “under the table” work – isindeed especially important to rural residents:

• Essential services are more likely to beunavailable or deficient in less densely settledareas, forcing people to develop and rely oninformal alternatives.


• The extent to which informal activitiesrequire access to land – crops, wood prod-ucts, game – increase their prevalence inrural areas.

• Austerity – in the form of lower wages anddeclining demand for labor and less publicspending – promotes informal economies asan important survival strategy.

• Informal economies exist in part because ofthe social interdependence of communitymembers, thus the “connected feeling” typi-cal of rural places makes them more con-ducive to informal economic activity.

The authors point to the fact that there are infact two main components of the informaleconomy – in total estimated to represent

around 10 percent of the gross domestic prod-uct. Those who work in some form of subcon-tracting capacity, often outside the frameworkof regulation, benefits, and health and safetyprotections. And those who work in odd jobsfor cash or operate microenterprises outsidethe realm of regulation and taxation. “In allcases, the greatest competitive advantage thatthese workers bring to the market is a priceadvantage built on lower labor and overheadcosts. While this creates access to income andemployment for many, it also constrains earn-ing power…and…for many microentrepreneursit is not clear whether the benefits of formaliza-tion would outweigh the costs involved. [Itwould appear that] the desire to grow and acorresponding need for financing [are] themost compelling triggers.”17


The conclusion to be drawn from theseexpert observations and research is thatentrepreneurship development appears to bea logical and appropriate counterpoint tobusiness recruitment strategies in ruralAmerica. There are strong advocates andarguments at the national level for laudingand supporting opportunity-driven entrepre-neurs – those most likely to create jobs andwealth at any scale.

There are also benefits for encouragingnecessity-driven entrepreneurs and thosewith only modest aspirations for their small enterprises. For some, microenterprise offers

scope for income supplementation and a wayout of poverty. While this is undoubtedlyimportant for individual families, it is unlike-ly that in the aggregate, such enterprises willhave a significant transforming impact onlocal economies. Nevertheless, in many hard-pressed communities, small improvementscan make the difference between communitysurvival and collapse. Moreover, there is thecompelling argument that creating an entre-preneurial climate where all kinds of entre-preneurs can succeed, lays the groundworkfor the five out of 100 small businesses thatdevelop into the fast-growing drivers of theeconomy.

Commentary

Efforts to measure entrepreneurial activity andperformance by geographical area are still intheir developmental stages. Progress is hamperedby a lack of any agreed and coherent frameworkfor understanding the essential factors (and theirinteractions) that shape the entrepreneurialprocess and by the dearth of available data thatserve as meaningful proxies for these factors.

Goetz and Freshwater in a recent paper18 pre-sented their framework for capturing state-leveldeterminants of entrepreneurship and formeasuring what they called “entrepreneurialclimate.” They focused on states, recognizingthat although these are not functional econom-ic units, they do have the power to influencemany of the factors important to economicdevelopment. Using a regression model thatequated entrepreneurial activityi within a statewith a set of inputs that related to ideas andinnovation, human capital, and financial capi-tal, they derived a measure of entrepreneurialclimate. If entrepreneurial activity exceeded thelevel of inputs, that would suggest a positiveentrepreneurial climate – a set of factors con-ducive to or supportive of entrepreneurship.Conversely, if the level of entrepreneurial activ-ity did not match the level of inputs, a poorentrepreneurial climate would be assumed.Goetz and Freshwater also thought it importantto distinguish entrepreneurial activity thatinvolves fundamental change in an economybased on new products, combination of inputs,or production processes from that which isdriven by income and population growth.

The resultant entrepreneurial climate measuresranked Colorado, California, Massachusetts,Virginia, and Maryland as the top five states,

which generally accorded with expectations.However, the authors observed, “Some resultsare perplexing: Florida, Nebraska, andKentucky do not make large investments inentrepreneurial activity, but they perform farbetter than the model predicts…they get verystrong returns.”19 As will be described later,this became one factor in the selection ofNebraska and Kentucky for further assessment.

The strong technology and innovation bias inthe Goetz and Freshwater analysis and theabsence of any differentiation between urbanand rural makes this less than ideal as a meansto measure entrepreneurship in rural America.Nevertheless, the authors did draw some inter-esting preliminary conclusions, the most signifi-cant of which was that entrepreneurship activitycan be expanded by improving the human capi-tal base of a state – a better educated workforceincreases the effectiveness with which ideas aretranslated into entrepreneurial opportunities.

In 2002, the National Commission onEntrepreneurship published the results ofresearch20 on the location of the fastest growingcompanies across the United States. Theresearch led to the creation of the GrowthCompany Index, which weighs the percentageof existing firms with high growth (at least 15percent per year over the period 1992-1997)and the percentage of firms that started in 1992or 1993 and had at least 20 employees by 1997.The data was presented at the level of LaborMarket Areas as defined by the U.S.Department of Agriculture.

Map 2 shows the top-performing labor marketareas with populations between 100,000 and


i “Entrepreneurial activity” for the purposes of the model was measured by the number of Inc Magazine’s 500 fastestgrowing firms in the state and the number of initial public offerings (IPOs) per million population. “Ideas and innova-tion” was measured by the number of Small Buisness Innovation Grants and patents, “human capital” by the proportionof college graduates in the population, and “financial capital” by the number of venture capital commitments and SmallBusiness Investment Companies. Goetz and Freshwater’s definition of “entrepreneurial climate” was based on the workof David Birch on what constituted “entrepreneurial hotspots” – a series of intangibles relating to political engagement,media interest, and supportive public policies.

Rural Entrepreneurship by the Numbers

150,000 (the smallest and assumed to be themost rural). Each of the nine labor marketareas shown on Map 2 had between 109 and232 high-growth companies with theirstrongest business sectors being local market(4), extractive (3), retail (2), distributive (1),and manufacturing(1). The strengths of thisIndex are that it uses the Census Bureau’sBusiness Information Tracking System databasethat allows researchers to track the employ-ment growth of individual firms over time andit seeks to measure the number of entrepre-neurial companies rather than local economicgrowth. Its weaknesses are that the data issomewhat out of date and it makes no distinc-tion between size of company.

CFED’s initial approach to the challenge ofmapping rural entrepreneurship was heavilyinfluenced by its Development Report Card forthe States methodology where multiple indica-

tors are ranked and combined into indexeswhich in turn are ranked and graded. However,the need to determine entrepreneurial activitywithin rural areas raised a number of dataavailability and methodological challenges.

The basic unit of measurement is the countyand for the purpose of this analysis, the focuswas on non-metropolitan counties – the gener-ally accepted definition of rural, encompassingas it does a wide range of economic and demo-graphic characteristics. But there are immediatelimitations on the availability of key data at thecounty level. For instance, SBA data on newfirm starts is only available at the state level, asis information on small company payroll;moreover, the level of analysis achieved byGoetz and Freshwater seems currently unat-tainable for rural areas. The closest availableproxies for entrepreneurial activity were meas-ures of self-employment and small firms:


Map 2: Top-performing Small Labor Market Areas for Fast Growing Companies(Source: National Commission on Entrepreneurship)

• Number of firms with no paid employees,annual business receipts of $1,000 or more,and subject to federal income taxes, bycounty. (Source: Census Bureau, 2000 andchange 1997-2000)

• Number of companies that employ 20employees or less by county. (Source:Census Bureau’s County Business Patterns,2000 and change 1997-2000)

• Number of private, non-farm jobs by county.(Source: Bureau of Economic Analysis, 2000)

At a special meeting on rural entrepreneurshipresearch convened by the RUPRI Center forRural Entrepreneurship and the FarmFoundation in May 2003, CFED staff presentedproposals for creating multi-factor indices thatincluded the above measures along with firmincome data. However, it was the consensus ofthe academic researchers that it would beadvisable to avoid such indices and present the

data, with all its limitations, in a separate andstraightforward manner.

Map 3 shows the distribution of self-employerfirms expressed as a proportion of jobs in eachcounty in 2000. The darkest green counties arethose in the top third of counties nationwide.These are concentrated in the Central Belt fromNorth Dakota to Texas, in the northern moun-tain states, central Appalachia, and northernNew England.

Map 4 shows the change that counties haveexperienced in the number of self-employerfirms expressed as a proportion of jobs in eachcounty from 1997 to 2000. Again, the darkestgreen counties are those in the top third ofcounties nationwide. These are more broadlyscattered across the Southeast, Appalachian andmid-Atlantic states, the Western mountainstates and across the Heartland.


Map 3: Self-Employer Firms 2000(Source: Census Bureau, Bureau of Economic Analysis)


Map 4: Growth in the Number of Self-Employer Firms 1997-2000 (Source: Census Bureau, Bureau of Economic Analysis)

Map 5: “Top-performing” Counties for Self-employer Firms, 2000

Maps 5 and 6 show the results of a Z-scoreanalysis to identify those counties whoseindices were positive two or more standarddeviations from the mean; in other words the“top-performing” counties for self-employerfirms in 2000 and growth from 1997-2000.

In Map 5, there is broad distribution across 17states, with clusters of counties in Nebraskaand Kentucky.

In Map 6, the distribution is mainly to the eastof the country with a few in the central states;clusters are evident in Kentucky and Georgia.

The following maps begin a second series of simi-lar presentation using data on small companiesthat employ 20 or fewer people.


Map 6: “Top-performing” Counties for Growth in Self-employer Firms, 1997-2000


Map 7: Small Companies, 2000 (County Business Patterns, Bureau of Economic Analysis)

Map 8: Growth in the Number of Small Companies, 1997-2000 (Source: County Business Patterns, Bureau of Economic Analysis)

Map 7 shows the distribution of small firmsexpressed as a proportion of jobs in each coun-ty in 2000. The darkest green counties arethose in the top third of counties nationwide.These are concentrated in the central andnorth-west states.

Map 8 shows the change that counties haveexperienced in the number of small firmsexpressed as a proportion of jobs in each coun-ty from 1997 to 2000. Again, the darkest greencounties are those in the top third of countiesnationwide. These more broadly scatteredacross the country.

Maps 9 and 10 show the results of a Z-scoreanalysis to identify those counties whoseindices were positive two or more standarddeviations from the mean; in other words the“top-performing” counties for small firms in2000 and growth from 1997-2000.

Map 9 shows a concentration in western stateswith two outliers in the east and clusters ofcounties in Colorado and Nebraska.

Map 10 indicates a broader spread across thecentral and south-eastern states.


Map 9: “Top Performing” Counties for Small Companies, 2000


Map 10: “Top-performing” Counties for Growth in Small Companies, 1997-2000

The data presented in this chapter provideonly glimpses of what constitutes entrepre-neurial activity in rural America. It showsthat high-performing small labor markets arefound widely distributed across the country –there appears to be no obvious common loca-tional characteristics. Counties in the heart-land and northern mountain states and inAppalachia appear consistently as being com-paratively strong for both small business andself-employment. But there is no sense ofhow much of this activity is opportunity- or

necessity-driven, or what the underlying fac-tors are that make one area more active thananother. As mentioned previously, the chal-lenge is the lack of both data at the countylevel that adequately captures entrepreneurialactivity and of an accompanying frameworkof the kind developed by Goetz andFreshwater. It is evident that some consider-able intellectual and statistical resources needto be invested so that entrepreneurship canbe measured with greater confidence.

Commentary

National Policy

Ten years ago, CFED suggested that the notionof rural development policy was misplaced.“Because rural areas are evolving into distinctlydifferent economic entities…an off-the-rack fed-eral strategy or state development policy basedon outmoded assumptions about rural areas islikely to be ineffective…Instead, state and feder-al policymakers should focus on building localand regional capacity to use flexible programsand tools, designing effective delivery systems,and creating supportive development institu-tions.”21 The report went on to recommend that“Rural advocates must work to ensure thatmainstream programs are designed so that ruralpeople, as well as urbanites and suburbanites,can benefit from them, and to ensure that ruralcommunity leaders are well-equipped to beactive and equal participants in local andregional development efforts. Effective urbanand rural development policies cannot be devel-oped separately, but instead must recognizetheir interrelationships. Thus regional strategiesare increasingly important.”22

In any event, many rural economic develop-ment leaders regard America’s national ruralpolicy as unfocused, if not non-existent.Organizations such as RUPRI note that federalrural development policies and programs “con-sist of a fragmented constellation of programsdispersed among several agencies… [and] acomprehensive, goal-driven, community-basedand regionally appropriate national rural policydoesn’t exist.”23

While fiscal crises have hit government fund-ing at all levels, including rural communitydevelopment in the federal policy agenda isstill a priority for rural advocates nationwide,including the Center for Rural Affairs, theNational Association of DevelopmentOrganizations (NADO), National RuralDevelopment Partnership, National Associationof Towns and Townships, and the NationalAssociation of Counties. In the past, rural poli-

cy was narrowly defined as funding for agricul-ture through programs supported by the UnitedStates Department of Agriculture (USDA), butthe changing nature of the rural economy hasspurred a broadening of the rural economicdevelopment policy framework. There appearsto be a growing national, state, and local policyconsciousness that rural communities matterand that entrepreneurship development shouldbe a core component of economic developmentpolicy for rural America.

Despite increased attention to non-farm ruraldevelopment issues, a national policy aroundrural entrepreneurship still has a long way togo. A recent analysis by the USDA EconomicResearch Service found that the highest level of per capita business financial assistance fromfederal government programs was concentratedin the West, North Central, and New Englandregions of the country and that 332 non-metrocounties received no federal assistance at all.24

Additionally, numerous federal agencies investmore resources in rural development than the


Policy Context

USDA (when agricultural programs are exclud-ed) – the agency congressionally mandated topromote the economic interests of ruralAmerica.

Industry leaders note a vacuum in the field withregard to organizations that promote federalrural entrepreneurship development policy. TheEwing Marion Kauffman Foundation has signif-icantly scaled back the policy activities of theNational Commission on Entrepreneurship,once the primary champion for federal entre-preneurship development policy. Other poten-tial champions for rural entrepreneurship areeither in their early stages of development (suchas the newly formed rural subcommittee of theAssociation for Enterprise Opportunity [AEO]),are not primarily focused on policy (such as theRUPRI Center for Rural Entrepreneurship), orare not specifically focused on entrepreneurshipdevelopment issues (such as the CongressionalRural Caucus or the National RuralDevelopment Partnership).

Consequently, the majority of national ruraldevelopment policies and programs still focuson natural resource conservation and industrialdevelopment, and very few resources supportentrepreneurs specifically and directly.25 Thefollowing is not intended to be a comprehensiveoverview of every government program or poli-cy effort that contributes to rural entrepreneur-ship development, but rather highlights somekey efforts that have recently emerged and/orhave significant impact on rural America.

• USDA business assistance programs primari-ly function through loan guarantees or sup-port to community entrepreneurship devel-opment initiatives and institutions.Programs such as the Business andIndustrial Guarantee and Direct LoanPrograms, Intermediary Re-lendingProgram, Rural Business Enterprise andOpportunity Grants, Rural EconomicDevelopment grants and loans and RuralEnterprise and Empowerment Zones all

contribute (either directly or indirectly) topromoting entrepreneurship development inrural areas by creating incentives for privateinvestments in rural enterprises or buildingthe capacity of communities or institutionsto support rural entrepreneurs. Rural eco-nomic development advocates maintain thatrural community development is not gettingadequate support from the USDA and wouldlike to see it more involved in promotingrural entrepreneurship. The good news isthat although there is a long way to go inequalizing support between entrepreneur-ship focused programs and agricultural sub-sidies through the USDA, within the last fewyears the budgets for USDA business devel-opment programs have increased.

• The U.S. Small Business Administration’s(SBA) SBA 7(a) guaranteed lending programcontinues to be the largest single businessassistance program. However, financing percapita data shows that non-metropolitanareas receive less than three-quarters of theircounterparts in metropolitan areas, the resultof both lower levels of economic activity andfewer private lending institutions. The mainrural beneficiaries are counties specializingin services, retirement-destination counties,and non-metropolitan areas in Westernstates.26 Other programs such as the 504Certified Development Program, MicroloanProgram, Program for Investment inMicroentrepreneurs (PRIME), Women’sBusiness Centers program, Service Corps ofRetired Executives program, and SmallBusiness Development Center (SBDCs) pro-gram, among others, are all elements of thenational small business development infra-structure that can support entrepreneurshipin low-income rural areas.

The potential benefits of these programs,however, have not been fully realized inrural areas, according to a 2001 report bythe SBA Office of Advocacy, AdvancingRural America, as well as from feedback


from six rural roundtable meetings spon-sored by the SBA in 2000. The roundtablesand report revealed that rural communitiesface significant barriers in accessing SBAprograms. Specifically, there has been adecline in SBA guaranteed rural lending anda lack of outreach by SBA programs such asthe 504 and SBDCs to rural entrepreneurs.Participants in the rural roundtables citedthe high cost of fees, lower guaranty levels,centralization of servicing, lack of decision-making authority at the local level, high lev-els of paperwork, and difficulties obtainingtechnical assistance as key reasons for inade-quate rural deal flow.27

Also of concern are the attempts by the cur-rent administration to cut SBA programs,particularly those that serve low-incomeentrepreneurs such as the PRIME,Microloan, and New Markets VentureCapital Programs. Moreover, the SBA’s ruralinitiative, created during the Clinton admin-istration in response to the findings of theRural Roundtable, has been stalled and its

status within the SBA is unclear. Fundingfor SBA programs that support disadvan-taged (rural and urban) entrepreneurs istenuous. Quoting the Administration’s 2003budget rationale, “economically distressedcommunities and individuals have access toa wide range of private for-profit and non-profit microenterprise organizations includ-ing federally supported CDFIs, which callsinto question the necessity for separate SBAprograms.” SBA Microloan and PRIME pro-grams, the only two supporting microenter-prise development, are consistently under-funded.

• Other federal programs include the CDFIFund of the U.S. Department of Treasury,which provides capital to community devel-opment financial institutions (CDFIs) in dis-tressed areas and could potentially be a valu-able source of funding for organizations thatpromote and support rural entrepreneurship.However, in 2002, only 11 percent of theseawards went to rural America, reflecting therelative lack of eligible rural CDFIs.According to NADO, the majority of rural


and small metropolitan regional developmentorganizations are ineligible for CDFI certifica-tion and support due to their quasi-govern-mental status.28 Other agencies, such as theEconomic Development Administration andARC have for years funded local and regionalintermediaries (Economic DevelopmentDistricts and Local Development Districts)that support local economic developmentacross rural America.

In recent years, efforts have been made toenable some of these regional developmentorganizations to play greater and more effec-tive roles in entrepreneurship and businessdevelopment. ARC’s EntrepreneurshipInitiative is an example of a focused publicsector effort to promote entrepreneurial edu-cation and training, entrepreneurial net-works and clusters, technology transfer,access to capital and financial assistance,and technical and managerial assistance torural entrepreneurs. Through September2001, ARC’s Entrepreneurship Initiative hadfunded 237 projects, providing a total ofmore than $20.1 million of support andleveraging an additional $19.3 million.Ninety-one projects had been completed,creating 389 new businesses and retaining1,283 jobs. One hundred forty-six ongoingprograms were projected to create 859 newbusinesses and create or retain 2,726 jobs.29

The initiative, although clearly successful,has been constrained by the continuing lackof local institutional capacity in ruralAppalachia to support entrepreneurs.

The Department of Health and HumanServices (HHS) also offers programs andfunding that support entrepreneurship devel-opment in rural communities, such as the JobOpportunities for Low-Income IndividualsProgram, Office of Refugee ResettlementMicroenterprise Development Project, Assetfor Independence Demonstration Programand Community Services Block Grant fund-ing. HHS also recently launched a new rural

initiative, charged with ensuring that all HHSprograms and policies meet the needs ofHHS’s rural constituents.

Although there have been significant shifts infederal policy in recent years, the major focusremains on farming and on physical infrastruc-ture investment. Rural entrepreneurship devel-opment is still a new concept to many local,state, and federal policymakers. While, there isno shortage of government programs that, invarious ways, provide some sort of small busi-ness support, there is much that can be done toincrease the effectiveness and outreach of fed-eral entrepreneurship programs in rural areas.Findings from the ARC initiative reveal thateffective rural entrepreneurship developmentpolicy needs to be brought to scale, sustainedover time, focused on enhancing the capacityof local and regional intermediary institutions,and valued as a legitimate economic develop-ment strategy.

State Policy

According to a 1999 report by the KaufmanCenter for Entrepreneurship Leadership(KCEL), State Entrepreneurship Policy andPrograms, state commitment in support ofentrepreneurs is mixed. The report notes that,“while state funding for entrepreneurshipdevelopment lags behind other economicdevelopment activities, many states have creat-ed programs or adopted policies that have apositive impact on entrepreneurs.”30 Somestates are intentionally providing direct or indi-rect financing, promoting entrepreneurshipsupport services, and providing tax incentivesto emerging entrepreneurs, while other statesare focused primarily on business recruitment,which translates into resources for marketingand incentives and continued expenditures onbasic physical infrastructure. In addition, manystates lack a vehicle for entrepreneurs andentrepreneurship development organizations tonetwork, share best practices, build new skills


and competencies, or pursue an agenda of poli-cy advocacy. Overall, findings from theKaufman study revealed that state entrepre-neurship programs:

• Do not generally focus on the needs ofentrepreneurs during the start-up stage.

• Provide debt, either through direct loans orloan guarantee programs, rather than equitycapital.

• Support entrepreneurship education at thepost-secondary, rather than early educationlevel.

• Promote linkages to innovation and researchprimarily through universities.

While these elements of support are important,they do not make up a comprehensive “pack-age” of services for emerging or establishedentrepreneurs. Yet, researchers and advocatesagree that state support is critical to the successof entrepreneurship development programs. Arecent three-state study of Maine, Nevada, andPennsylvania by the National Commission onEntrepreneurship and ACCRA’s Center forRegional Competitiveness found that statefunding represents an important revenuesource (between 37-42 percent of a program’sbudget) for entrepreneurship developmentorganizations in these states. In addition, find-

ings from the USDA Economic ResearchService’s Rural Manufacturing Survey revealthat state business assistance programs benefit-ed three fifths of rural manufacturing establish-ments. The national research notes, however,that only a “modest” amount of state businessdevelopment services are targeted to smallmanufacturing establishments in non-metrodistressed areas as compared to their largerurban counterparts. To encourage states toincrease their funding for [rural] entrepreneur-ial friendly policies and programs, a variety offoundations and state policy stakeholders havesponsored state entrepreneurship policy andresearch initiatives:

• NGA convened two State EntrepreneurshipPolicy Academies in 2000 and 2001 toassist nine state economic developmentteams (Idaho, Illinois, Maryland, Michigan,Mississippi, Nevada, Utah, Washington, andWyoming). These teams learned about therole that entrepreneurship plays in state eco-nomic competitiveness and about develop-ing strategic and implementation plans topromote a positive state entrepreneurial cli-mate. The initiative provided state economicdevelopment officials with exposure to theleading thinking on entrepreneurship devel-opment strategies and individualized techni-cal assistance in the development of animplementation plan.

While state budget crises retarded much ofthe potential impact of the academies, therewere some notable successes. Michiganintegrated entrepreneurship developmentinto the formal mission of the state eco-nomic development administration. Nevadalinked networks of angel investors andtechnology centers into formal economicdevelopment planning activities and inte-grated entrepreneurship education into thestate’s economic education standards.Washington is developing a statewideentrepreneurship assistance portal managedby the governor’s office to serve as a central


clearinghouse for all organizations servingentrepreneurs.

NGA’s Center for Best Practices is develop-ing a Governor’s Guide to EntrepreneurialPolicies and Programs drawing from thefindings of the research and the policyacademies.

• Rural Entrepreneurship Initiative waslaunched in 1999 with support from theEwing Marion Kauffman Foundation,Partners for Rural America, the NationalRural Development Partnership, and theNebraska Community Foundation. The ini-tiative assisted six state teams (Colorado,Maine, Minnesota, Missouri, Texas, andWest Virginia) in enhancing their climate forentrepreneurship development in rural areasand was designed to provide a nationallearning forum on rural entrepreneurship.The state teams received guidance and cus-tomized technical assistance in assessingtheir state entrepreneurship climate anddeveloping a strategy and action plan forimplementing policies and programs thatbenefit rural entrepreneurs:

– Maine: The Rural Development Councillaunched a “prototype” rural entrepre-neurial community and completed astudy on the needs of rural entrepre-neurs in the state. The project grew intoa collaboration with the Ewing MarionKauffman Foundation and the Mainegovernor’s office to develop a compre-hensive statewide entrepreneurshipdevelopment plan.

– Minnesota: Practitioners have expandedthe Minnesota Virtual EntrepreneurshipNetwork, linking entrepreneursthroughout the state to resources, mar-kets, and support services. A number ofother states, including North Dakotaand Nebraska have or are in the processof adopting this approach.

– Missouri: The state team is building amore focused and integrated supportsystem for Missouri’s small businessesand has launched an initiative to pro-mote core skill development for recipi-ents of public assistance.

– Texas: Higher education institutionsand nonprofit organizations are leadingan effort to implement a statewide com-munity-focused entrepreneurial supportsystem.

– West Virginia: A public-private partner-ship is working to develop a statewideintermediary organization to buildentrepreneurial capacity and programsamong non-governmental organiza-tions, and promoting demonstrationprojects such as the EntrepreneurialLeague System and the VirtualEntrepreneur Network.

Of the six states, only Colorado failed tomake progress. There, the rural develop-ment council folded due to federal andstate budget cuts. The state’s SDBC systemalso has been defunded. Results of the ini-tiative thus far suggest that those effortsrooted outside state government haveproved to be the most robust and consis-tent over time. As Don Macke observed,“While state governments tend to think interms of programs, comprehensive stateentrepreneurship policy development can-not be a programmatic approach and therole of nonprofit organizations is crucial toits success.”31


The starting point for gathering information onentrepreneurship development efforts acrossrural America was a framework developed byCFED for the Winthrop Rockefeller Foundationand published early in 2003.33 This frameworkhas two main parts: creating a pipeline of entre-preneurs and enhancing business services forentrepreneurs. The pipeline notion was that“there should be an infrastructure of lifelonglearning from elementary school to the goldenage, based on the simple principle that it isnever too early or too late to be an entrepre-neur…The aim is to create a large and diversepool of people, across a spectrum of entrepre-neurial motivations, out of which there willflow a steady stream of high achievers with aninterest in creating jobs and wealth in theircommunities.”34 With business services, “theaim is to “graduate” significant numbers ofstart-up enterprises into companies and organi-zations that will provide quality jobs…”34

The key components of the pipeline are entre-preneurship education and entrepreneur net-works; for business services, the componentsare training and technical assistance and accessto capital. For this assessment, some 65 publi-

cations were reviewed and 60 experts and prac-titioners were interviewed. The result is not acomprehensive directory of national, regional,and local programs and initiatives, but a cross-section of efforts that currently have or poten-tially have a significant impact on stimulatingentrepreneurship in rural America in each ofthese four components.

Entrepreneurship Education

For the past two years, ARC in partnershipwith the U.S. Department of Education hasheld an awards competition – the SpringboardAwards – to recognize outstanding youth entre-preneurship education programs targeted atrural communities across the region. ARC’sFederal Co-Chair, Ann Pope, captured theessence of this component when she com-mended the 2003 winners, “The educatorsreceiving this award are inspiring Appalachianyouth to reach as far as their imagination andenergy can take them…By giving our youngpeople the confidence and know-how to initi-ate their own business ventures, they are help-ing to prepare the region for the challenges ofthe 21st century.”35


The Components of Entrepreneurship Development

The Consortium for EntrepreneurshipEducation (CEE), an association of entrepre-neurship educators and advocates, reports thatentrepreneurship education is becoming a prior-ity within all systems of education beginning inkindergarten and continuing through college aswell as for adults in continuing education andentrepreneurship training programs. CEE hasdeveloped an on-line guide, with support fromARC, which highlights model entrepreneurialeducation initiatives and provides a clearing-house of information on entrepreneurship edu-cation resources. This year in Seattle, CEE willsponsor its 21st annual EntrepreneurshipEducation Forum, bringing together hundredsof practitioners from across the country.36

In the mid-1990s, the Ewing Marion KauffmanFoundation commissioned Gallup to surveyyouth on knowledge of and attitudes towardsentrepreneurship and small business. One sig-nificant finding was that 65 percent of youthsurveyed expressed interest in starting theirown business. Walstead and Kourilsky noted,“This interest in entrepreneurship is anuntapped reservoir with the potential to direct-ly affect standards of living and the economy. Ifjust a third of the youth who expressed aninterest in starting a business actually acted ontheir aspirations at some point over their life-times, such initiative could significantlyincrease new business formation in the UnitedStates.”37

Additionally, recent conferences on rural devel-opment and interviews with rural economicdevelopment leaders underline the importanceof entrepreneurship and youth development inany rural economic development strategy as ameans to population retention, leadershipdevelopment, and economic growth. Inresponse, an increasing number of programs,both in-school and after school, are providingentrepreneurship education to rural youth.Some programs cast a wide net and have small-er impact on a greater number of students,while others focus more in-depth programs on

target markets. Still others choose to providebroad support and development of tools foryoung entrepreneurs of all ages.

Elementary Through High School

The following is a selection of efforts currentlyunderway in the mainstream education systemsand through special initiatives.

• Public schools and vocational educationtracks traditionally have been closely linkedto vocational education the majority ofentrepreneurship efforts within the publicschool systems.38 The vocational tracks andtheir corresponding associations such asDistributive Education Clubs of America(DECA) – an association of marketing stu-dents, Future Farmers of America (FFA),Business Professionals of America (BPA),Future Business Leaders of America (FBLA),and Family, Career, and Community Leadersof America (FCCLA) see entrepreneurshipas a career opportunity for students whomay not go on to college. Neither theDepartment of Education nor these associa-tions track penetration of their programsinto rural schools or encourage state depart-ments of education or state affiliates toreach out to rural students. That said, it wasreported that the education departments inNebraska and New Mexico have modelefforts underway.39

• Junior Achievement is distinguished by itsprogram design that links real world entre-preneurs with students and its strong part-nership with classroom instruction. JuniorAchievement programs are offered in 120countries, all 50 states and reach 4 millionU.S. high school and 2.8 million U.S. ele-mentary school students. Currently, JuniorAchievement does not track its outreach intorural areas or gather demographic data fromindividual students. There is no focusedeffort at the national level to promote out-reach into rural communities, although there


are efforts to develop a distance learning ini-tiative for hard-to-reach areas. Examples ofmodel programs include Ft. Wayne, Indianaand Pueblo Colorado Springs.40

• National Council for Economic Education(NCEE) offers Economics America, a class-room and standards-based curriculum,which is focused on economics education,with entrepreneurship as one part of thebroader curriculum. NCEE courses are inte-grated into K-12 classroom curricula. NCEEdoes not track its outreach into rural com-munities. Examples of model states includeVirginia, Indiana, Illinois, and Washington.41

• Rural Entrepreneurship through ActionLearning (REAL) Enterprise program beganin 1990 and was originally designed forschool students in rural communities.Whereas REAL Enterprises offers a full rangeof entrepreneurship development productsand teacher training services across thecountry, it is the only national programspecifically developed for and targeted to arural target market. REAL currently has nine

active state organizations (Alabama, Georgia,Mississippi, North Carolina, Upper PeninsulaMichigan, Vermont, Virginia, Washington,and West Virginia) and the curriculum isbeing offered in over 20 additional statesnationwide. There has been little sustainedevaluation of REAL programming due tolack of funding. The best example of astatewide commitment to REAL is NorthCarolina where REAL programming is repre-sented in 84 out of 100 counties in the state.

• National Foundation for TeachingEntrepreneurship (NFTE) aims to teachentrepreneurship to low-income youth (ages11-18). Historically much of its work hasbeen targeted to inner-city youth and hasnot had any targeted rural focus. Since 1987NFTE has trained 1,200 teachers and morethan 30,000 youth in 43 states and 14 coun-tries. The most recent analysis of programsfound that NFTE graduates had improvedcommunications skills, increased interest instarting a business, and started a business atmuch higher rates than non-NFTE students.NFTE’s internet-based learning program,


BizTech, may be particularly useful for rural youth.

• The Ewing Marion Kauffman Foundationhas developed a variety of curricula and pro-grams to support young entrepreneurs of allages. Its Mini-Society program targets 3rdand 7th graders and provides teacher train-ing. The accompanying curricula is correlat-ed to state standards and designed for inte-gration directly into the core classroominstruction. While Mini-Society does notexplicitly track data on rural outreach oroutcomes, the primary vehicle for imple-menting Mini-Society into rural areas hasbeen through USDA’s 4-H system. Kauffmanhas also partnered with American IndianBusiness Leaders (AIBL) to provide entre-preneurship development training to 85Native American elementary school teachersfrom reservations nationwide. AIBL has con-tinued to sponsor this “train the trainers”effort nationally. Other programs providedby Kauffman include: Making a Job,designed for middle school students; Entre-prep, an entrepreneurship institute andinternship program targeted to 11th and12th graders; and Entrepreneurship 101, acurriculum adaptable for high school, com-munity college, and university students.

• 4-H is found at 105 land-grant universitiesin all states and territories and 3,150 coun-ties nationwide. Data on entrepreneurshipefforts have not been collected to date,although National 4-H will gather this datain the future due to its growing popularityamong its member organizations and fun-ders. In partnership with the KauffmanFoundation, over the last four years Mini-Society entrepreneurship programs havespread to 4-H programs in 47 states. Thosecommunities that have successfully imple-mented Mini-Society programs are nowdemanding curricula for older youth and, inresponse, the National 4-H CooperativeCurriculum System is currently creating anentrepreneurship curriculum to meet this

need. Examples of model programs includethe University of Illinois 4-H and 4-H pro-grams in Virginia and West Virginia.42

• Boys and Girls Clubs promote communityleadership and character building for youththrough a variety of programming.Increasingly, Boys and Girls Clubs are form-ing on Native American reservations andhave grown from one in 1992 to 145 in2003. Some of these clubs run small enter-prises and entrepreneurship programs fortribal youth. Examples of effective reserva-tion-based Boys and Girls Club entrepre-neurship development models include pro-grams on the Navajo reservation, Tulalipreservation in Washington, and Lac CourteOreilles reservation in Wisconsin.43

Post-Secondary Institutions

It is estimated that over 400 institutions ofhigher education offer coursework in entrepre-neurship across the country; there also hasbeen a 253 percent increase in entrepreneur-ship faculty positions from 1989 to 1998.44

Recent findings on the impact of entrepreneur-ship education conclude that entrepreneurshipgraduates are:

• Three times more likely to start new busi-nesses or be self-employed;

• Have annual incomes that are 27 percenthigher and own 62 percent more assets thantheir counterparts; and

• Are more satisfied with their jobs.45

Public community colleges are importantanchor institutions in rural America and oftenplay a critical role in community economicdevelopment. They are found in nearly everycounty, they serve a greater percentage ofminorities and women as compared to four-year institutions, and they tend to be employerdriven. Within the last decade, rural communi-ty colleges have increasingly diversified their


programming to embrace entrepreneurshipeducation as a local rural economic develop-ment strategy. Although, there has been no for-mal analysis conducted on the scale and scopeof these programs, recent research from theKauffman Foundation found that 20 percent ofthe 1,300 community colleges have at least onecourse in entrepreneurship.46

National and regional initiatives to promotecommunity college-based entrepreneurshipeducation include:

• The National Association for CommunityCollege Entrepreneurship (NACCE) wasfounded in 2002 to promote entrepreneur-ship and incubation education at the com-munity college level nationwide. NACCEintends to be the “major channel of distribu-tion for best practices.” While anecdotalevidence suggests “tremendous interest”from rural constituencies, there has been noformal tracking of the number of, much lesseffective practices in, entrepreneurship edu-cation at rural community colleges. The firstnational conference focused on effectivepractices took place on October 12-15,2003. An example of a model programincludes the Pappajohn EntrepreneurialCenter at the North Iowa Area CommunityCollege.47

• Nationally, USDA’s Regional RuralDevelopment Centers are implementing aRural Community College Initiative, designedto incorporate entrepreneurship training aspart of the core missions of rural communitycolleges in low-income communities acrossthe country. This initiative emerged from a$28 million project sponsored by the FordFoundation to support 16 colleges in verylow-income areas across the country. TheRegional Rural Development Centers are nowworking to spread this effort to communityand tribal colleges and land grant universities.Current efforts are underway in Minnesota,North Dakota, New Mexico, North Carolina,Mississippi, and Texas.

• Regional Technology Strategies (RTS) hasbenchmarked successful entrepreneurshipdevelopment practices at community col-leges and highlight Elizabethtown,Kentucky; Hagerstown, Maryland; Clyde,

North Carolina; Meridian, Mississippi; ElRito, New Mexico; Cumberland, Kentucky;and Albemarle, North Carolina as effectivepractice models in community college-basedentrepreneurship development efforts.

• Some initiatives are using community col-leges as community entrepreneurship edu-cation and training centers not only stu-dents, but also for community members.North Carolina, for instance, appropriatesmoney for a Small Business Center at everycommunity college. Many of these are inrural areas and are the only support forentrepreneurs in those regions. Anotherexample is the ARC Rural EntrepreneurshipInitiative that supports, in part, entrepre-neurship centers at rural community col-leges. An example of a model ARC programis The Advanced Technology Center atHagerstown Community College inAppalachian Western Maryland.48


Four-year colleges and universities are increas-ingly viewing entrepreneurship education as avehicle for innovative business research andstudent development. Several have been creat-ing specific entrepreneurship training programsintegrated into traditional courses of study witha focus on business start-ups, capital sources,stages of business development, and effectivemarketing. National and regional initiatives tosupport entrepreneurship development at col-leges and universities include:

• Lifelong Learning for EntrepreneurshipProfessionals, funded by the Ewing MarionKauffman Foundation, is a national teachingclinic for professors from any discipline inter-ested in teaching entrepreneurship. The foun-dation also provides grants ranging from$12,000-$50,000 to 51 colleges and universi-ties currently engaged in varying levels ofentrepreneurship activity including aware-ness, faculty development, curriculum devel-opment, experiential learning, and peer learn-ing. Although many of these grants havegone to colleges in rural areas, to date therehas been no intentional effort to specificallytarget students from rural communities. Thefoundation also manages the KauffmanCollegiate Entrepreneurship Network of 120colleges and universities with an interest inadvancing entrepreneurship. The strategy isdesigned to support the development of moreand better entrepreneurship teaching,research, and service through peer learningand to assist institutions in institutionalizingentrepreneurship into their “permanent fab-ric.” Babson College is noted as offering amodel entrepreneurship studies program.49

• Approximately 22 of the total 36 land granttribal colleges and universities offer entre-preneurship education as a course of studyor through their extension programs.Examples of model programs includeHaskell University in Kansas, SalishKootenai College in Montana, Sitting BullCollege in North Dakota, and College ofMenominee Nation in Wisconsin.

Entrepreneurship Networks

The National Commission on Entrepreneurship,a strong advocate of entrepreneurship net-works, argued that, “Successful entrepreneursare consummate networkers who thrive incommunities. Entrepreneurs know it is criticalto their success that they have access to net-works of their peers. Networks are essentialbecause they are the links to potential sourcesof capital, new employees, strategic alliancepartners, and service providers – such aslawyers, accountants, and consultants. Theyalso allow entrepreneurs to share informationand assessments of markets and technology aswell as lessons learned from their own entre-preneurial experiences.”50 The Commissionargues that thriving regions offer a range of for-mal and informal networks, with the informalpredominating in more entrepreneurial regionsencouraged by the larger numbers of entrepre-neurs and a more open culture of informationsharing and networking. This highlights one ofthe many challenges that rural entrepreneursface: lower density of entrepreneurs and sup-porting services and local cultures that oftentend to be inward-looking and less open.

However, rural entrepreneurship developmentorganizations honored by NADO agreed thatthe absence of entrepreneurial networks hin-dered entrepreneurs in their area. In response,they each created local or regional entrepre-neurship networks through business incuba-tors, business-to-business websites, buyers’groups, and clubs.51

Despite the benefits of such networks, they arenot necessarily easy to begin or maintain.Research by the National Commission onEntrepreneurship shows they will be more suc-cessful if they are created by and for entrepre-neurs, rather than as a government program.52

The public sector may play a valuable role insparking and supporting a networking organi-zation, but entrepreneurs have to be the driv-ing force behind the evolution of the network.


The Commission recently published a guide tobuilding entrepreneurial networks, completewith 10 action steps to consider.53

Networks can be started, revitalized, or injectedinto existing organizations. Because of uniquechallenges in rural areas, many rural entrepre-neurial support programs have integrated a net-working component into their activities ratherthan creating a separate network. For example,Northeast Alabama Entrepreneurial Systemand Unlimited Future, Inc in West Virginiaboth offer networking opportunities along withother services, such as business incubationfacilities, micro loans, and business training.54

The Center for Rural Affairs in Nebraska, aspart of its Rural Enterprise Assistance Program,facilitates groups of current or aspiring busi-nesses in a particular area into associations tonetwork and manage business loans.55 TheMinnesota Virtual Entrepreneur Network isboth on-line and place-based. Bizpathways.comconnects rural entrepreneurs with services theyneed and place-based clusters connect them toother entrepreneurs in their region. TheNetwork is currently conducting “RuralResource Roundups” in communities to intro-duce and demonstrate useful tools. The

Minnesota Rural Partnership supports theNetwork with funding from the Department ofCommerce.56

Other efforts identified as exemplary duringexpert interviews included Appalachian Centerfor Economic Networks (ACEnet) inAppalachian Ohio; Foodworks Culinary Centerin Arcada, California; Northeast MississippiBusiness Incubation System; KentuckyHighlands Investment Corporation in London,Kentucky; Sustainable Urban Rural Enterprisein Richmond, Indiana; and the Center forEconomic Options in Charleston, WestVirginia.57

Training and Technical Assistance

Aspiring and existing entrepreneurs needaccess to high-quality entrepreneurial supportprograms including issue-specific training andtechnical assistance in order for them to flour-ish. The following is a selection of programsand initiatives that particular relevance in ruralAmerica.

• SBDCs, a national network of federallyfunded business development centers, repre-sent the most widely available training andtechnical assistance resource for emergingand existing entrepreneurs. Mainly locatedon university and college campuses withstate-level coordination, they provide busi-ness plan development assistance and entre-preneurship training through curricula suchas FastTrac and NxLevel. While SBDC staffnoted that state networks, such as Texas andColorado, are partnering with other businesssupport organizations to provide joint train-ings and more customized assistance, manyexperts interviewed maintained that fewSBDCs provide such coordinated assistance.Congressional expectations are that SBDCsserve the needs of all aspiring entrepreneurs.But with growing funding restrictions thereis a tendency for them to be numbers-driven


rather than impact-oriented, which in turnleads to them being labeled as somewhatbureaucratic and reactive. Assessments ofthe Arkansas SBDC network showed thatthe quality of an individual SBDC is greatlyenhanced when there is a team of threeadvisors with the expertise and experienceto offer finance, marketing, and trainingservices. Because not all SBDCs meet thisrequirement, the scope and quality of servic-es varies from region to region.58

• The Corporation for National Service’sAmericorps MBA EntrepreneurshipMentors and SBA’s Service Corps of RetiredExecutives are both important national pro-grams that provide mentoring to entrepre-neurs, linking people with more sophisticat-ed business knowledge to entrepreneurswho are just beginning and building theirbusiness. While these are national programs,they may not be available in every area –especially not in rural areas. Many industryexperts cited the lack of and dire need foravenues to link the existing business sectorwith start-up entrepreneurs.

• Business Incubators are growing in promi-nence for the field of entrepreneurship.According to the National Business

Incubation Association (NBIA), there are950 business incubators in North America,which together assisted over 35,000 start-upcompanies in 2001. By providing entrepre-neurs with training and networking oppor-tunities, about 87 percent of all firms thatgraduate from incubators are still in busi-ness. Thirty-one percent of incubators reportdrawing their clients from rural areas. NBIAcites insufficient financial resources and lim-ited entrepreneurial mass as challenges forrural incubators. Examples of successfulrural business incubators include SchollEntrepreneurial Center in Alabama;Owatonna Incubator Incorporated in SouthCentral Minnesota; CAPsell Center inWautoma, Wisconsin; MEDZ incubator inMcAlister, Oklahoma; and the NortheastMississippi Incubator Network.59 As incuba-tors can be expensive to create and operate,it is not uncommon for them to progressive-ly reduce the level of business services andrevert to conventional real estate projects.60

Therefore it is to be expected that the ideaof “incubators without walls” is attractingconsiderable attention. One often-citedexample is operated by the Eastern MaineDevelopment Corporation, which embracesregional cooperation with a number of com-munity action agencies to meet the chal-lenges of scale, absence of rural entrepre-neurial networks, distance to markets andservices, and limited capital availability.61

• According to the NADO, 60 percent ofregional development organizations (LocalDevelopment Districts, EconomicDevelopment Districts, Tribal Planningorganization) are engaged in entrepreneur-ship development and are often the onlyinstitutionalized vehicles for promotingenterprise development in rural communi-ties. Primary products include small busi-ness and micro loan funds as well as entre-preneurship development training and tech-nical assistance. These organizations receivefederal support through the Economic


Development Administration or the ARC,together with an array of other federal, state,and local sources. Examples of successfulregional development organizations includethe Northwest New Mexico Council ofGovernments’ Entrepreneurial Developmentand Tourism Industry Project and theNorthwest Wisconsin Enterprise Program.62

• USDA promotes entrepreneurship trainingand technical assistance through a variety ofprograms. The Resource Conservation andDevelopment Councils is designed to assistcommunities in developing sustainable com-munity economic development strategies,including entrepreneurship developmentprograms. The Cooperative State Research,Education, and Extension Service works inpartnership with land grant universities,tribal colleges, and other schools to supporta variety of community building initiatives.The system reaches every county in thecountry, primarily impacts rural communi-ties, and provides services directly to bothstudents attending university as well ascommunity members. Many extension pro-grams are providing entrepreneurship devel-opment programming to their local commu-nities. USDA’s Rural Development’s Office ofCommunity Development partners withinstitutions of higher education to operateeight National Centers of Excellence topromote economic development in theirrespective regions, often through technicalassistance to entrepreneurs and small busi-nesses.63

• Economic Development Administration’sUniversity Center program supports 69University centers in 45 states to promoteeconomic and entrepreneurship develop-ment in their local service area throughdirect technical assistance to individualbusinesses, nonprofit capacity building serv-ices, applied research, and information dis-semination. Two rural programs of note areOhio University’s Institute for LocalGovernment and Rural Development, which

is dedicated to business incubation and BallState University programs, which is focusedon business development assistance inIndiana’s Amish community.

• Microenterprise Development Organizationsmore often than not target low-incomeentrepreneurs, many starting businesses as aresult of downsizing, unemployment, orunderemployment. According to AEO, thetrade association of microenterprise pro-grams in the United States, 120 of its nearly500 microenterprise organization memberswork in rural areas. Recent studies showthat most microentrepreneurs require a min-imum of 45 hours of technical assistancebefore a micro-loan ($500-$35,000) can bemade.64 As a special initiative, AEO has ini-tiated a two-year Rural MicroenterpriseSuccessful Practices Project, bringingtogether 34 sector-specific groups into learn-ing clusters that in turn identify successfulpractices in rural microenterprise develop-ment in the food, sustainable tourism, andartisan sectors. Examples of these effectiveprograms include ACEnet in AppalachianOhio; San Juan 2000 DevelopmentCorporation, San Juan, Colorado; andWomen’s Rural Entrepreneurial Network,New Hampshire.65

• Community-based organizations such asthe Rural Local Initiatives SupportCorporation and NeighborhoodReinvestment Corporation (NRC) coordi-nate networks of community based organi-zations, traditionally focused on housing,but increasingly offering entrepreneurshipdevelopment services and extending theiroutreach to organizations serving ruralareas. Of the existing 220 chartered mem-bers of NRC, approximately 50 are involvedin some type of enterprise developmentactivity; fewer still are rural programs,although the numbers are growing annually.Rural community based organizationsinvolved in model entrepreneurship devel-opment work include Community Ventures


Corporation in Lexington, Kentucky;Centex Certified Development Corporationin Austin, Texas; and NHS of DimmitCounty, Texas which works primarily withlow-income immigrants.66

Two major initiatives in the area of technicalassistance for entrepreneurs have emerged thathave attracted a great deal of attention andenthusiasm. The Entrepreneurial DevelopmentSystem is the brainchild of Tom Lyons andGreg Lichtenstein. In essence, this system rec-ognizes that entrepreneurs differ in the extentof their technical, managerial, entrepreneurial,and personal maturity skills. These skills canbe learned, measured, and monitored by thisassessment tool, which places entrepreneursinto “a hierarchy of skill development” basedon the professional baseball league system –essentially a system for developing talent.Depending upon their assessed level of skill,entrepreneurs are identified as Rookie, SingleA, Double A or Triple A. Complete mastery ofthe skills… qualifies them for the MajorLeagues of entrepreneurship.” 67

The advantage of this approach is that the pathto success is clear both to the entrepreneur andto those who would provide assistance. The aimis to drive changes in the way entrepreneurshipis delivered so that it is both tailored to theappropriate skill level of the entrepreneur and isintegrated into a seamless system of providers.The Entrepreneurial Development System is cur-rently operating or being introduced in Kentuckyin an urban context and in North Carolina andWest Virginia as a regional initiative engagingboth urban and rural communities.

Enterprise Facilitation, like the EntrepreneurialDevelopment System, is a people-centeredapproach to economic development. Developedby the Sirolli Institute, Enterprise Facilitationenables communities, through the appointmentof a trained, full-time local facilitator, to recog-nize local talent and mobilize leadership aroundthe support of entrepreneurs and small busi-

nesses. The Sirolli Institute has been activelyinvolved in implementing programs in Oregon,Idaho, Montana, California, and Kansas.Success rates in many communities are said tobe impressive, but the Enterprise Facilitationmodel has not yet been implemented andassessed on a large-scale. Accordingly, the SirolliInstitute, the National Association of RegionalCouncils, and the RUPRI Center for RuralEntrepreneurship are inviting expressions ofinterest for participating in a rigorously moni-tored six-community, three-year demonstrationto test its effectiveness against other economicdevelopment approaches.

Access to Capital

A recent Congressional study conducted bythe USDA found that rural financial marketsare distinct from urban markets in that equityfinancing is more difficult to obtain and thatrural areas typically have far fewer lenders andmore segmented markets, resulting in reducedcompetition among lenders.69 It also found,however, that while the financial markets differin nature from each other, rural and urbanfinancial service organizations that providedebt financing generally perform equally withregard to both provision and cost of credit.69

The RUPRI Center for Rural Entrepreneurshiprecently completed an analysis70 on capital forrural entrepreneurs and found that:

• Rural entrepreneurs are under and inappro-priately capitalized;

• Rural deals tend to be smaller in size, havesomewhat less growth potential, generally alower return on investments, are removedfrom investors, and have thinner manage-ment teams; and

• There is a significant “capital literacy” gapabout rural business financing. Rural entre-preneurs, service providers, community lead-ers, and capital providers all have differentlevels of experience with and perceptionsabout access to capital for rural entrepreneurs.


Findings from focus groups and interviewsconducted by the RUPRI Center for RuralEntrepreneurship also revealed that:

• Rural entrepreneurs were generally debt-adverse due to lack of experience withbusiness financing, are completely unawareof the basic requirements for leveragingequity investments, and for those living inlower income areas, have a preference forremaining in the informal economy.

• Rural service providers, although workingto prepare entrepreneurs to be “deal ready”,were found to have little understanding ofor direct experience with complicatedfinancing arrangements.

• Rural community leaders, while in the pastnetworked residents to invest in localenterprises and projects, now focus prima-rily on business recruitment.

• Large traditional capital providers simplyare not present in rural America, whilealternative financial institutions are work-ing on the “margins” in terms of deal flow,outreach, and linkages to the larger capitalmarkets.

Debt Capital

The issue of access to debt capital is heavilydebated in rural America between those whomaintain that there is a lack of affordable debtcapital and those who believe there is consider-able available debt financing, but inadequatedeal flow. The most prominent rural lenderscontinue to be commercial banks, the FarmCredit System, savings and loan associationsand Federal credit programs administered bythe USDA and other federal agencies. But manystart-up firms, particularly those run by minori-ty or low-income entrepreneurs, are increasing-ly turning to alternative sources for financing.71

The commercial banking system is the largestsupplier of credit services to existing/growingrural business and nonprofit development

organizations and serves the widest range ofborrowers and loan types. Research findingsshow that the major suppliers of commercialcredit in rural areas are financially strong andhave increased their rural lending in recentyears. However, the same research also notesthat the banking industry is undergoing radicalchange brought about by consolidations, com-petition, and increased uses of technology,which have left rural communities with farfewer banks.72 National trends indicate that

small loans of under $250,000 as a categoryrepresent a shrinking share of total bank lend-ing in rural America. The traditional communi-ty bank is increasingly being consolidated intoregional or national banks (undermining therelationship-based lending model currentlyprevalent in rural communities) and theremaining small banks are reluctant to engagesignificantly in lending to entrepreneurs andearly stage businesses. 73

Alternative financial providers such as CDFIsand micro/small business revolving loan funds(often housed in regional development organiza-tions or nonprofit microenterprise organizations)


not only provide training and technical assis-tance to rural entrepreneurs but also fill criticaldebt capital needs not met through mainstreamfinancial institutions. As the banking sectorbecomes more consolidated and less rooted inindividual communities, rural customers areincreasingly turning to more costly, though

often more accessible, services such as check-cashers and payday lenders.74 In response,CDFIs and other alternative lenders are notonly engaging in advocacy against predatorylending, but are also offering a variety ofaffordable financial products to meet this need.There are 800 to 1,000 CDFIs operating in all50 states and the District of Columbia. CDFIsare finance-led organizations, but also offer anarray of training and technical assistance serv-ices to their clients. The four main types ofCDFIs are community development loan funds,community development venture capital funds,community development credit unions, andcommunity development banks. Together reacha base of 53 percent female, 64 percent minori-ty, and 74 percent low-income customers.CDFIs are predominantly local institutions –

51 percent serve a single county or smaller areaand only 12 percent serve multi-state ornational markets.75

The majority of revolving loan funds run byregional development organizations operate inrural communities, and one quarter to one thirdof CDFIs and microenterprise programs serverural communities.76 The EnterpriseCorporation of the Delta (ECD) is an excellentexample of a regional CDFI that provides aspectrum of financial services to rural entrepre-neurs. ECD serves low-and moderate-incomeresidents of the Delta and rural regions ofArkansas, Louisiana, and Mississippi. ECD’scommercial financing products include workingcapital lines of credit, construction financing,short-term bridge financing, letters of credit,and medium to long-term loans for fixed assets.Since 1995 ECD has closed 171 loans totalingmore than $27 million, leveraged $33 million inadditional financing from other sources. Nearly40 percent of its loans were made to minorityand women owned businesses.77

Through traditional banks and developmentfinance organizations (as well as equity capitalinitiatives – see next section), there is a grow-ing infrastructure in place that could facilitate agreater deal flow in rural America, but greatercollaboration between banks and CDFIs is anessential prerequisite for addressing the capitalaccess challenges in rural areas. One exampleof linking banks to CDFIs and microloan fundsis an initiative of the Nebraska MicroenterprisePartnership Fund, the MicroenterpriseInformation Referral System (MIRS). MIRScreates the infrastructure, procedures, andinstitutional commitments needed to operatean informed customer referral process betweenNebraska’s commercial and micro/small-busi-ness lenders. The MIRS product is designed tonetwork the state’s entire spectrum of businesslenders into a more accountable referral sys-tem, while giving micro and start-up businessesa one-stop contact point.78


Equity Capital79

Entrepreneurs seeking non-debt financing pri-marily rely on personal savings, retained busi-ness earnings, and support from friends andfamily. Studies on access to equity in ruralAmerica have found that venture and equitycapital are concentrated in metropolitan areasand that equity investors generally focus onmarkets that are geographically close or havehigher concentrations of high tech, highgrowth firms – a strategy that does not matchthe conditions of rural communities. Industryleaders agree that rural equity markets tend tobe “unorganized or nonexistent.” The challengeof making equity capital available to rural entre-preneurs has become a widely accepted priorityfor state agencies and the private sector.80

Despite strong agreement on the need forincreased equity sources that serve rural entre-preneurs, there are varying opinions as to whyequity capital is so sparse in rural communi-ties. RUPRI created the Rural Equity CapitalInitiative to explore these impediments, identi-fy current innovation in the field, and promoterural equity finance strategies. Research fromthe initiative and the work of the RUPRICenter for Rural Entrepreneurship reveal thatthere is limited investment in rural areas bytraditional venture capital funds because ofthree characteristics of rural equity markets:

• Rural businesses are relatively concentratedin low, tech, slow-growth sectors.

• Venture capitalists face higher costs for mak-ing and managing investments in rural areas.

• Rural communities generally provide a lim-ited business infrastructure to meet themanagement and technical assistance needsof the entrepreneur and small business.81

In response to the lack of access to equity capital in rural communities, public policy-makers, nonprofits, and private investors areexperimenting with a variety of institutional

vehicles to provide equity financing to ruralentrepreneurs.82

• National efforts: Small Business InvestmentCorporations (SBICs), New Markets VentureCapital Companies (NMVCCs), the NewMarkets Tax Credit (NMTC) program, RuralBusiness Investment Companies (RBIC),and the Angel Capital Electronics Network(ACENetwork) are the five principal nation-al efforts, in varying stages of development,currently in place to serve the equity needsof entrepreneurs. SBICs are privately ownedand operated lending and investing firms,licensed by the SBA, that provide equity,long-term loans and management assistanceto small businesses. Despite the widespreadgeographic distribution of SBIC offices, rural businesses have relatively limitedaccess to SBIC funding. Of the approximate-ly 350 SBICs that exist in over 42 states,only five SBICs are located outside of metropolitan areas.83

The NMVCC program, also administered bythe SBA, provides up to $150 million indebenture guarantees and $30 million intechnical assistance grants for approvedNMVCC companies that target small busi-nesses in low-income communities. As ofMarch 2001, there were only four condition-ally approved NMVCC companies in ruralservice areas.84 The NMTC program, man-aged by the CDFI Fund, is designed toincrease equity capital in low-income areasthrough the availability of tax credits to pri-vate investors. Only 20 percent of the alloca-tions of tax credits are targeted at ruralareas. RBICs are for-profit entities created bythe recent passage of the Farm Bill, chargedwith providing equity capital for small busi-nesses in rural areas. To date this is the onlynational equity program particularly focusedon rural America, however, despite theirCongressional authorization, no funding forRBICs have been approved.


• State efforts: 2000 data from the NGA andRUPRI have found that approximately halfthe states have allocated state funds or dedi-cated state revenues in public or privateventure capital funds. Although effective“laboratories” for experimentation, the pro-grams have had varying degrees of successin implementation. There are only a handfulof state funds particularly targeted to ruralenterprises, one such fund being theKentucky Rural Innovation Fund. Stateshave also developed tax credit programsdesigned to stimulate private investments inlocal venture capital funds, such as the IowaCapital Investment Tax Credit as well asangel investor networks, such as theOklahoma Capital Network and theMontana Private Capital Network. Taxcredits vary from 20-60 percent dependingon the state.

• Private efforts: Private development venturecapital funds that seek to use the tools ofventure capital to promote business growthin distressed areas have grown in impor-tance in rural America. Today, the UnitedStates has approximately 50 such funds.Early studies of rural development venturecapital funds, such as the KentuckyHighlands Investment Corporation, show astrong performance in both financial andsocial returns. Targeting rural, unemployed,or low-income entrepreneurs, the fund hasinvested more than $65 million in morethan 145 companies, creating more than8,000 jobs. There is also a growing move-ment in rural America to develop angelinvestor networks such as the MinnesotaInvestor Network Corporation (MIN-CORP)’s Regional Angel Investor Network(RAIN). The RAIN program is “designed toease the task of creating angel networks andto provide a framework for discoveringdeals, undertaking due diligence, and struc-turing investments.” Based on the RAINmodel, MINICORP has developed a tem-plate for helping other angels organize angel

investor networks and funds.85 Private, com-munity development organizations also pro-vide equity financing to low-income ruralentrepreneurs, although there are still cur-rently very few programs in rural communi-ties. These nonprofit vehicles includeIndividual Development Account (IDA) pro-grams and other national entrepreneurshipgrant programs such as, “Trickle Up” andthe Four Times Foundation, which linkgrants to intense technical assistance servic-es for disadvantaged entrepreneurs.

Research findings reveal that lower deal flowand insufficient support services makes for achallenging environment for rural equityinvestors. According to a recent paper by DavidBarkley86 on policy options for financing ruralentrepreneurs, in addition to experienced man-agement, adequate funding, and a clear focuson profitability, successful rural venture capitalprograms have to:

• Promote deal flow through expansion ofservice areas and local and regional partner-ships;

• Assist rural entrepreneurs through cus-tomized technical support services;

• Assume active management role in a portfo-lio company (if needed); and

• Provide an array of financing products thatare not (necessarily) available to the ruralentrepreneur elsewhere.

Recent analysis of funds for rural equity initia-tives reveal that it is unlikely that anotherround of foundation support and its patientcapital will be available to venture capital fundsand rural funds must develop a clear strategyfor continuing to leverage public or privateinvestor capital. This is a major challenge aslocal private investors are sparse in rural com-munities and rural equity funds may need toconsider creative means of subsidizing theiroperating costs through nonprofit subsidiaries.


From the mapping exercises and the collectionof information on programs and initiatives thatsupport entrepreneurship, it became clear thatin order to understand the reality of entrepre-neurial development in rural America, a closerlook would be necessary. Of particular interestwas whether and to what extent these supportsoperated as entrepreneurial systems or asbureaucratic and disconnected programs, andhow important they are as enhancements ofentrepreneurial climate and culture.

Kentucky and Nebraska were chosen for fur-ther assessment because they were highlightedin Goetz and Freshwater’s study as havingstrong entrepreneurial climate despite onlymoderate investments in the critical inputs ofideas and innovations, human capital, andfinancial capital. Moreover, in the NationalCommission on Entrepreneurship’s GrowthCompany Index, a labor market in Kentucky isshown as one of the highest performing, and inCFED’s analyses, both states have high per-forming counties for self-employer firms andsmall companies.

Kentucky

The Mountain Association for CommunityEconomic Development, better known asMACED, was created over 25 years ago by 10community development corporations to createeconomic opportunity and build communitycapacity in the 51 counties that comprise east-ern Kentucky. Its latest strategic planning doc-ument provides a succinct summary of the eco-nomic and social environment in ruralKentucky.

“While many traditional indicators of condi-tions in the region have improved over the last15 years, the number of children in povertyremains too high; the available economicopportunities too few; the level of educationalattainment too low; and the environmentalproblems too many. The region is also one ofnatural beauty; possesses a strong sense of cul-tural identity; experiences pockets of successfulentrepreneurship; and reflects elements of realcommunity change.”87


A Closer Look at Two States

An Aspen Institute report88 prepared sevenyears ago, which sought to draw lessons fromKentucky in developing entrepreneurialeconomies in rural areas, pointed to a numberof major hurdles that were preventingKentucky from becoming an entrepreneurialregion. Many of these hurdles were attitudinal,others related to a shortfall of the essentialcomponents of an entrepreneurial support sys-tem. CFED’s 2002 Development Report Card forthe States89 ranks Kentucky 44th on its “entre-preneurial energy” sub-index, while theProgressive Policy Institute’s 2002 NewEconomy Index90 ranks the state 33rd for “eco-nomic dynamism” and 44th for “innovativecapacity.” The Goetz and Freshwater study 91

ranked Kentucky 49th in ideas and innova-tions, 46th in human capital, and 35th infinancial capital – their three entrepreneurialinputs – yet in entrepreneurial climate the stateis ranked 9th in the nation. So is there any evi-dence that, all these rankings notwithstanding,something is happening in Kentucky that couldmark the birth of an entrepreneurial culture?Could it be that either this data is measuringthe wrong things or is so out of date to bemissing new trends?

Many observers described state economicdevelopment policy as being driven by the pri-ority to recruit new firms to Kentucky. Much ofthe resources, both financial and staffing, of theKentucky Cabinet for Economic Developmentappear to go into marketing the state to attractinvestment from elsewhere in the United Statesand internationally. Supporters can point tonotable successes such as a recent Toyota facto-ry near Lexington, but detractors bemoan thefew resources targeted at encouraging home-grown development – a story that is hardlyunique to Kentucky.

But there has been one state initiative that offersconsiderable hope and potential for the future –the Kentucky Innovation Act of 2000. This leg-islation envisioned a “strong entrepreneurialeconomy in Kentucky, characterized by knowl-

edge, innovation and speed.” The force behindthis Act was the Kentucky Science andTechnology Corporation (KSTC), a Lexington-based nonprofit organization committed to theadvancement of science, technology, and inno-vative economic development founded onKentucky know-how. It has an interest in thewhole system from education and entrepreneur-ial development to investment in university andindustrial research to commercialization. KSTCdefines entrepreneurship in very broad terms:“the unconstrained pursuit of new ideas result-ing in an innovative creation,” which allowsthem to talk to a wide audience including poli-cymakers and educators as well as the businessand economic development communities.

Programs under the Innovation Act are housedin the Economic Development Cabinet, theCouncil on Postsecondary Education, and theKentucky Community and Technical CollegeSystem, as well as KSTC itself, with oversightfrom the Kentucky Innovation Commissionand the Office of the Commissioner for theNew Economy. There are five main groups ofprograms: research and development, commer-cialization, high skill education and training,infrastructure development, and technologysupport. Available statewide, these programsinclude peer-reviewed investments in appliedresearch to develop emerging technologies andscientific ideas (43 investments were made in2002), research and development vouchers toenable small and medium-sized firms to under-take such work in partnership with Kentuckyuniversity research partners, and underwritingof workforce training.

But of particular interest for this assessment aretwo novel programs targeted specifically atrural parts of the state. KSTC’s RuralInnovation Fund is designed to help small,rural, Kentucky-based firms carry out researchand development through a university or otherthird party. The fund provides $7,500 for busi-ness plan development and patent creation. Forthose who move to the next level, investments


can be made of up to $100,000 over two years.At the end of 2002, the Fund had made 23awards totaling over $400,000 in a range ofprojects, including an equine medical device,chicken house heating, design software for thehome woodworker, a new internal combustionengine, and heat drywall panels.

The other initiative introduces a series ofInnovation and Commercial Centers (ICCs)together with 14 satellites geared to the specialchallenges faced by rural communities in thenew economy. ICCs are intended to serveentrepreneurs who want to create technology-based businesses and scientists who want tocommercialize technologies. Described as a vir-tual incubator, there is a network of six centersin Murray, Bowling Green, Lexington,Louisville, Covington, and Richmond. The aimof the network is to increase quality deal flowof investments; increase understanding ofentrepreneurship, start-up processes, andinvestment practices; and provide value-addedservices to existing businesses, start-ups, andthe investment community.

Extending out from the ICC housed at EasternKentucky University in Richmond, whichserves 46 counties in what is called the EasternInnovation Region, there will be six satellites.Also known as business accelerators, these willbe located in community colleges, libraries,and community facilities across AppalachianKentucky. Each satellite will seek to fosterentrepreneurial opportunities, assist clientswith the application of appropriate technology,expand existing businesses, and provide accessto a synchronized statewide New EconomyNetwork of capital, web-based resources, tech-nical guidance, reference materials, and ICCprotocols.ii

An important design feature of the rural satel-lites is that they will be structured as partner-ships with regional Small Business Centers,Manufacturing and Cooperative Extensionservices, colleges and universities, chambers,

local governments, local banks, credit unions,businesses, and the ICC network, reinforced bythe fact that for each center a local fundingmatch of 20 percent is required.

The role of Eastern Kentucky University, and inparticular, its Center for EconomicDevelopment, Entrepreneurship, andTechnology (CEDET) is unusual. It is anEconomic Development Administration-sup-ported University Center, which acts as anincubator for economic development initia-tives. Apart from the ICC satellites, these haveincluded the Kentucky Wood ProductsCompetitiveness Corporation and the newKentucky Artisan Center in Berea. Interestingly,


ii ICC protocols refer to a process aimed at growing a company to a “pitchable” (for venture capital) level and involve two steps: a half-day financial workshop that introduces entrepreneurs to the ICC financial model, and a second workshop on company valuation. Theaim is to take companies to venture capitalists – there are already over 50 qualified Kentucky angel investors in ICC’s network.

the ICC satellites are, at least in part, modeledon an earlier CEDET initiative, the JacksonCounty Entrepreneur Center.

The idea for an Entrepreneur Center in ruralJackson County came from a county strategicplan facilitated by CEDET. It became a realitywhen the Kentucky Highlands Enterprise Zonewas approved in 1994, which provided$700,000 over seven years in funding for theCenter. Over a period of five years, out of apopulation of just 12,000 in one of the poorercounties in Kentucky, the manager workedwith 200 clients, translating into over 60 busi-ness start-ups with a failure rate of just one infour. Two 12-week classes (two three-hour ses-sions per week) were offered per year with 15people per class. A key lesson from this experi-ence was the value of intensive support to localentrepreneurs provided by someone living inthe community who they could trust and towhom they could relate.

The credit for securing an Enterprise Zone foreastern Kentucky goes to the KentuckyHighlands Investment Corporation (KHIC),based in London. KHIC was formed 35 yearsago to stimulate growth and create employmentopportunities in a nine-county area of south-eastern Kentucky. It became a venture capitalprovider in 1972, investing in businesses locat-ed in its area that would hire unemployed resi-dents, by providing hard-to-access start-up cap-ital and fair financing terms in return for anequity stake. KHIC is a certified CDFI and pro-vides a range of equity and debt products. TheRUPRI Center for Rural Entrepreneurshipdescribes KHIC as one of a small number ofestablished Entrepreneurial SupportOrganizations in the country: “[they] place pri-mary focus on entrepreneurs rather than theenterprises they create; they build a supportsystem that nurtures entrepreneurs during theidea phase, provides the resources and toolsneeded to create new enterprises, and guidesthe entrepreneur through the process of grow-ing a business; and they contribute to the cre-

ation of entrepreneurial environments whereentrepreneurship is supported in both the pub-lic and private sectors.”92

KHIC is a highly-regarded institution bothlocally and nationally. Many factors contributeto this reputation, but four are particularlyimportant. The first is philosophy. Recognizingthat strategies based on implanted companiesserving outside markets or local companiesserving only local markets do not work well inpoor rural regions, KHIC looks to invest incompanies in local markets that bring in exter-nal dollars. An example might be an adult daycare business that provides a local service andlocal jobs while pulling in Medicaid andMedicare dollars into the community.

A second factor is KHIC’s strong focus ongrantsmanship, ensuring access to any new fed-eral program that might be useful to localentrepreneurs. The Enterprise Zone brought in$30 million, KHIC is one of eight Rural TaxCredit community development corporations,and one of its subsidiary companies is a SmallBusiness Investment Corporation. The third,and related factor is its membership of nationalorganizations, such as Rural Local InitiativesSupport Corporation, National Congress ofCommunity Economic Development, NationalCommunity Capital Association, and theCommunity Venture Capital Alliance, whichhelp keep eastern Kentucky connected to newideas from around the country.

The fourth factor, and most critical for thisassessment, is KHIC’s willingness to partnerwith other organizations to create a positiveentrepreneurial climate in rural Kentucky. Thelatest example of this is the creation of theAppalachian Development Alliance. TheAlliance is a private nonprofit organizationformed by a consortium of eight multi-countycommunity economic development organiza-tions – Appalbanc, Community VenturesCorporation, MACED, Mountain EconomicDevelopment Fund, Southern Kentucky


Economic Development Corporation, PineMountain Community DevelopmentCorporation, and KHIC.

All of these organizations operate revolvingloan funds and provide technical assistance tosmall businesses located in eastern Kentucky.As many of their service territories overlap andgood deals are few and far between, there isobvious potential for competition, but the con-sortium members have come together to lever-age more resources and share information andexpertise. With $1 million from Coal SeveranceFunds and $400,000 contributed by the mem-bers, the aim is seek funds from the CDFIFund, the SBA, and other federal and statesources. These additional funds will be used tofinance deals that the individual memberswould not be able to do on their own.

Two of the members of the consortium mem-bers provide other complementary approachesto rural economic development and entrepre-neurship. The Berea-based MountainAssociation for Community EconomicDevelopment (MACED) was formed in 1976by 10 local community development corpora-tions to serve 51 counties of eastern Kentucky.

MACED’s strategy has four elements: creatingeconomic opportunity through building theassets of individuals, institutions, and commu-nities; building capacity of individuals andorganizations to be more effective in theirdevelopment efforts; impacting public policy byinforming decision-makers and the public bydocumenting and sharing lessons; and demon-strating innovation. Within its portfolio ofactivities, MACED has a $5 million loan fundfor business start-ups and expansions throughwhich it offers a variety of innovative financingoptions.

Appalbanc, also based in Berea, seeks to attackthe root causes of rural poverty by providingaccess to business, consumer, and housingfinance to low- and very low-income people.Its Central Appalachian community loan fundprovides technical assistance and credit to indi-viduals, cooperatives, and organizations start-ing or expanding small businesses. In 14 years,it has made 100 small business loans totaling$30 million to businesses employing 400 work-ers. Alongside its business lending, Appalbancprovides savings and loans to low and moder-ate income members of its federal credit union,as well as home financing products and variousservices to connect local people to the labormarket.

Another important piece of the entrepreneur-ship infrastructure is the statewide SBDC net-work, headquartered at the University ofKentucky in Lexington. There are 14 centersthat provide a range of counseling, training,and information services. Training programsare free or low-cost on topics such as businessplan development, advertising methods, andloan options; counseling is on a confidentialone-on-one basis. The Kentucky SBDC net-work is one of the earliest systems in the coun-try. It follows the typical higher educationmodel involving all of the state and regionalcampuses, and combines local presence withaccess to statewide resources. There are strongstakeholder expectations that the SBDCs will


serve everyone who needs help, and with limit-ed resources, the counselors tend to be thinlyspread, although the range of expertise in thenetwork enables it respond to a wide range ofneeds. The SBDCs do not bring capital to thetable although they do work closely with thebanks and with the other funding institutionsin the state.

The SBDCs and Kentucky HighlandsInvestment Corporation are also part of yetanother new network, the KentuckyEntrepreneurial Accelerator Network (KEAN).This provides services and connections throughmeetings, websites, and videoconferencing withthe aim of accelerating business developmentand diversification by linking entrepreneursand those in business to educational, technicalassistance, and funding resources. Access to the network is gained through offices of the

partners – Center for Rural Development,Southeast Community College, the Universityof Kentucky county extension network, theMcConnell Technology Transfer Center, as wellas KHIC and the SBDCs – and throughCenterNet and the Internet. KEAN is housed atSoutheast Community College, which amongother things has an Office of Entrepreneurship,a regional business incubator, a loan fund, andprovides consulting and brokerage services.

The growing interest in the potential power oftelecommunications to reach rural entrepre-neurs and communities is evident inCenterNet, an initiative of the Center for RuralDevelopment. CenterNet is a regional networkthat brings Internet and videoconferencingfacilities in 34 locations across rural south andeast Kentucky, one of the locations being at theoffices of KHIC.


In south and eastern Kentucky, there are inplace a number of critical components thatcomprise an entrepreneurial rural region.There are a number of long-established non-profit institutions that provide high-qualityentrepreneurial support services. There hasbeen innovative legislation that has taken acomprehensive view of what it takes to stim-ulate innovation and entrepreneurship in thestate, with special outreach efforts into therural regions. There is a growing number ofinstitutional and virtual networks andalliances that are weaving together the workof multiple nonprofit organizations, educa-tional institutions, and public agencies. Thereare people of vision and energy. There isrecognition that there are entrepreneurs of allkinds in the rural communities but that spe-cial efforts have to be made to engender trustand confidence. Finally, there is a readiness

to use technology to supplement outreachinto rural communities and an understandingof the importance of community capacity-building as a complement to economic development.

Much of what has been described is new anduntested, but putting all these together shouldenable rural Kentucky to offer somethingclose to a seamless system of support services.However, there appears to be no concertedeffort at scale to create a pipeline of entrepre-neurs through the engagement of young peo-ple in Kentucky’s rural communities. Thatsaid, the Kentucky Science and TechnologyCorporation’s pilot entreSchools Initiative, acompetition with the aim of encouraging“student-created, student-powered ventures”that help young people to learn in new ways,looks like a promising start.

Commentary

Nebraska

Half of Nebraska’s residents live in rural com-munities. Of the 532 incorporated communi-ties in the state, only 11 have a population ofover 15,000. Poverty rates in the rural farmcounties are 33 percent higher and per capitalincomes are $6,700 lower than in the metro-politan counties. Ten Nebraska counties withpopulations of less than 1,500 appear amongthe Bureau of Economic Analysis’ annual listsof the 250 counties nationwide with the lowestper capita income. Indeed, Loup County,Nebraska had the dubious distinction in 2001of having the nation’s lowest per capita incomeof $6,235. A recent poll93 found that farmersand ranchers in the state expect to be worse offin the next 10 years. In addition, Nebraska isexperiencing significant demographic changesas refugees and other immigrants make thestate their home.

Small businesses represent a large proportion ofthe Nebraska economy. In 2000, 86 percent ofthe state’s businesses had fewer than 20 employ-ees and were responsible for creating one thirdof all new jobs.94 According to U.S. CommerceDepartment data,95 businesses with five or feweremployees accounted for 90 percent of the totalin Nebraska’s most rural counties. In the 10year period to 1997, 70 percent of all jobgrowth in rural Nebraska was in non-farm self-employment and small businesses,96 making thestate unique in that new business start-up andsurvival rates in rural areas are as strong as orstronger than those in metropolitan areas.97

CFED’s 2002 Development Report Card for theStates98 ranks Nebraska 30th on its “entrepre-neurial energy” sub-index, while theProgressive Policy Institute’s 2002 NewEconomy Index 99 ranks the state 41st for “eco-nomic dynamism” and 34th for “innovativecapacity.” The Goetz and Freshwater study 100

ranked Nebraska 44th in ideas and innova-tions, 24th in human capital, and 33rd in

financial capital. While these rankings aresomewhat stronger than those for Kentucky,they do not capture the apparent extent ofentrepreneurial activity in rural Nebraska. Theexception is Goetz and Freshwater’s entrepre-neurial climate measure that shows Nebraskaas ranking 7th in the nation.

Like Kentucky, and indeed many other states,Nebraska’s economic development prioritiesfocus on business recruitment. According tothe Center for Rural Affairs,101 for every dollarit spends on support for small business andentrepreneurial development, the state provides$286 in tax incentives and other programs forlarge corporate business development.Moreover, rural areas generally do not benefitfrom such support. That said, the state doescurrently provide over $700,000 per year instaff and financial resources to assist microen-terprise and small business owners.

Much of the credit for raising awareness aboutthe importance of entrepreneurship toNebraska’s economy and communities goes tothe Center for Rural Affairs, a 30-year old non-profit organization that provides a range ofresearch, education, advocacy, and other services


in support of rural Nebraska. The Center’s mis-sion is a powerful statement about the inter-connectedness of economy and community inrural America: The Center for Rural Affairs iscommitted to building communities that standfor social justice, economic opportunity, andenvironmental stewardship. We encourage peo-ple to accept both personal and social responsi-bility for creating such communities. We pro-vide opportunities for people to participate inthe decisions that shape the quality of theirlives and the futures of their communities.102

Initially the Center had a strong agriculturalfocus but in 1990 with its seminal Half a Glassof Water publication became heavily engaged ineconomic development and entrepreneur-ship.103 Regarded as radical at the time, thereport drew attention to the lack of a rural eco-nomic development policy, the detrimentaleffects of business recruitment tax incentives,and the role of self-employment in Nebraska.More recently, the Center has been active inmany areas, but three are particular relevant tothis assessment.

The first is federal advocacy where the Centerwas active in arguing for funding for ruraldevelopment and microenterprise in the 2002Farm Bill, and in designing the New HomesteadAct, sponsored by Senators Dorgan, Hagel andothers, to provide incentives to live and estab-lish businesses in counties that have lost at least10 percent of their population over the last 20years. These incentives would include a 30 per-cent tax credit for investing in small owner-operated businesses and a $3 billion venturecapital fund for investments in rural businesses,as well as other measures to encourage savings,education, and home purchase.

State advocacy is the second area of note. Herethe Center has been calling for increasing sup-port for small business104 and microenterprisedevelopment and for legislation for a statewideIndividual Development Account program.Thirdly, the Center provides technical assistancethrough two programs, REAP and Project Hope.

Having provided services to farmers, ranchers,and small businesses for several years through


individual projects, the Center began in 2000to offer farm and ranch communities a packageof options for revitalizing their communitiesthrough Project HOPE – Hope and Opportunityfor People and the Environment. The package,which varies from community to community,includes information on alternative agricultureproduction systems, business managementtraining and loans, help in forming coopera-tives for marketing specialty agricultural prod-ucts, linkages between retiring farmers andbeginning farmers or ranchers, technical assis-tance, and leadership and advocacy training.Two years ago, the project received over 300requests to assist the development of value-added production systems but could onlyrespond to 10, with the Cooperative Extensionservice assisting another 40.

The Rural Enterprise Assistance Project(REAP) is a 10-year old microenterprise devel-opment program that reaches out to entrepre-neurs in communities with a population of15,000 or less. The program offers small busi-ness training, group-based e-commerce train-ing, monthly networking opportunities, indi-vidual technical assistance, and both individualand peer micro-lending. Peer groups or associa-tions have to be organized in each small com-munity in order to receive REAP services; cur-rently there are 46 such associations serving400 businesses. REAP also hosts a RuralWomen’s Business Virtual Center. In a concert-ed effort to scale-up its activities and impact,REAP has established six field offices and isincreasing collaboration through formal part-nerships with organizations such as GROWNebraska, and Nebraska EDGE.

Grassroots Resources and Opportunities forWinners (GROW) Nebraska is a marketingand training organization that works withcrafters, artisans, and other home-based entre-preneurs. It has 167 members in 88 countiesacross the state. Modeled after ACEnet inAppalachian Ohio, GROW Nebraska has a

national reputation for its juried services, prod-uct development assistance, and networkingand educational activities.

Nebraska EDGE – Enhancing, Developing, andGrowing Entrepreneurs – is a program of theUniversity of Nebraska’s Center for AppliedRural Innovation (CARI). EDGE is an entre-preneurial training program for small business-es, including agricultural enterprises. It part-ners with REAP to provide rural-oriented train-ing for microentrepreneurs. Since its inceptionin 1993, EDGE has served 1,600 individuals.CARI also runs a number of other programssuch as Connecting Nebraska, a community-based technology training course to teach busi-nesses how to use technology to increase theirmarkets, and communicate with suppliers andproviders, and the Nebraska CooperativeDevelopment Center, which helps agriculturalproducers and multi-owner businesses withcooperative development efforts particularlyaround value-added agriculture.

The University of Nebraska has recentlylaunched a Rural Initiative to focus resourcesand faculty on tackling the economic andsocial challenges that face rural Nebraska. Oneof the Initiative’s first ventures is the Coalitionfor Rural Economic Advancement, Training,and Entrepreneurship Team (CREATE). Thisis an emerging collaborative strategy among thekey players in entrepreneurship and economicdevelopment in the state. Its purpose is to raiseawareness in rural communities about thevalue of nurturing entrepreneurs in buildingtheir economies and the work needed to createa supportive entrepreneurial climate. Theintention is to make the most effective use oflimited training and financial resources inNebraska to assist entrepreneurs. By the end of2003, CREATE will have finalized its commu-nity engagement strategy, trained team mem-bers, and selected three or four pilot communi-ties. The pilots will be carefully documentedbased on a framework developed by the RUPRI


Center for Rural Entrepreneurship, and therewill be an ongoing effort to develop tools andresources, and to publicize the effort.

Another important player in rural Nebraska isthe Nebraska Community Foundation, whichhas been recognized as a national model by theAspen Institute, the National Rural FundersCollaborative, and the Ford Foundation. Withthe prospect of $94 billion being transferred byrural Nebraskans to their heirs over the next20 years and the potential that offers for phi-lanthropy across the state, the Foundation hasassisted over 150 affiliated community funds in63 counties.

One of the Foundation’s latest programs is theHometown Competitiveness Initiative, whichseeks to employ a three-part strategy of wealthcreation, community capacity, and entrepre-neurship to demonstrate ways in which leaderscan link charitable giving to economic andcommunity development. A number of coun-ties are experimenting with the initiative, andvarious strategies are emerging including entre-preneurship recruitment, encouraging youngfamilies who have left their hometowns toreturn, and retention of businesses that may begoing to close or relocate.

An affiliate of the Nebraska CommunityFoundation is the Nebraska MicroenterprisePartnership Fund, a statewide financial inter-mediary with the aim of creating a coordinatedand permanent infrastructure for microenter-prise programs. The Fund is a nonprofit organi-zation and a certified CDFI that served as themodel for the creation of National Fund forEnterprise Development. It raises funds from avariety of national and state sources and thenawards grants, loans, and related products tomicroenterprise programs through an annual“request for proposal” process. The Fund’s andthe microenterprise community’s greatest chal-lenge is the reduction and uncertainty of statefunding. Other activities include training, tech-

nical assistance, and peer learning services formicroenterprise development organizations, andthe preparation of an annual report to state leg-islators on outcomes of Nebraska microenter-prise programs. In 2002, 3,225 people receivedloans and training in business practices that cre-ated or retained 1,421 jobs. The Fund also sup-ports another piece of statewide infrastructure,Nebraska Enterprise Opportunity Network(NEON), which is a network of 35 memberorganizations, including microenterprise pro-grams, banks, and foundations. NEON providesinformation, effective practices, and networkingopportunities to programs and is engaged instate and federal policy advocacy to increasefunding for microenterprise.

A long-established part of the small businessdevelopment landscape is the NebraskaBusiness Development Center network based atthe University of Nebraska at Omaha. The net-work comprises seven centers across the stateand offers the usual array of business consultingand business plan development services, train-ing and workshops, procurement assistance andfinancial packaging. The network, however, doeshave some unusual features, including a require-ment that staff have to obtain an MBA and becertified by the National Development Council.Client interactions are extensively documentedand there is in place an evaluation process. Sixtypercent of businesses employ fewer than fivepeople. As was noted in the Kentucky SBDCnetwork, there is an expectation that all-comerswill be served, but in Nebraska a “response toinquiry” system has been introduced to separateout “tire kickers” from serious entrepreneurs.This requires the entrepreneur to fill out a con-sulting request form and a business plan outline.

The network is increasingly challenged by theneed to serve rural entrepreneurs. A decliningpopulation and little in the way of outreach hasled to reduced activity and performance, in turnresulting in the closing of two centers servingrural counties when funding cuts were made. In


addition, as the population diversifies, there areincreasing numbers of Latino entrepreneurswhose needs are not being met by the network.Entrepreneurship education in Nebraska is pri-marily focused on career and technical coursesin the 9th and 12th grades. There are stand-alonecourses and entrepreneurship classes are infusedinto agricultural, business, family and consumersciences, and marketing programs, and highschools host entrepreneurship-oriented eventsthrough DECA, FBLA, FCCLA, FFA, and VICA.There appears to be little in the way of experien-tial learning in the core curriculum although theDepartment of Education is a member of theConsortium for Entrepreneurial Education andoffers two scholarships annually to educators toattend the national Entrepreneurship Forum.The Center for Entrepreneurship at theUniversity of Nebraska at Lincoln has intro-duced a number of initiatives to engage youngpeople in entrepreneurship. These include KidsInvent Toys Camp for the 4th and 8th grades,where students are encouraged to invent a toy,write a business plan, create an advertising cam-paign and a webpage; Entrepreneur of the

Future, a five-day summer camp for high schoolstudents, and the annual Allen Dayton YoungEntrepreneur Contest to recognize outstandingpotential entrepreneurs which offers scholar-ships to the university as prizes. The Center alsooffers a number of undergraduate entrepreneur-ship courses.

An example of a local entrepreneurship initiativeis one jointly created by a tribal enterprise, HoChunk, Inc which is known nationally for itsfinancing of tribal enterprises and for its e-com-merce site, AllNative.com, and Ho ChunkCommunity Development Corporation, with amission to raise the socio-economic and educa-tion levels for Native Americans in ThurstonCounty. The corporation’s business developmentactivities include leasing incubator space to start-ups, a revolving loan fund, training workshops,and technical assistance, while Ho Chunk, Inc ishelping seed self-employed vendors to meet theneeds of tribal businesses. Together, the twoorganizations are developing a mixed use com-mercial and residential site on the Winnebagoreservation to create a town center.


Nebraska typifies the enormous challengesfacing the heartland states. With some of thepoorest rural counties in the nation, the needto pursue economic opportunity beyond thefarm gate is of paramount importance.Entrepreneurship, particularly microenter-prise, has proved to be an effective strategythat has attracted a steady, if modest streamof state funding for several years, in spite ofthe priority given to business attractionefforts. There are some significant key insti-tutions that advocate for and support entre-preneurship development across the state,including the Center for Rural Affairs, the

Center for Applied Rural Innovation, and theNebraska Microenterprise Partnership Fund.And there are a number of established net-works such as the SBDCs and NEON as wellas emerging coordination networks such asCREATE. The state also clearly benefits fromthe presence of the RUPRI Center for RuralEntrepreneurship. In spite of apparently sig-nificant gaps in the availability of debt andequity capital, and in entrepreneurial educa-tion, the Goetz and Freshwater study indi-cates that Nebraska offers a comparativelysupportive environment for entrepreneurs.

Commentary

For the purposes of this study, entrepreneurshiphas been defined as the process though whichentrepreneurs create and grow enterprises. Thisprocess has four principal elements:

• Identifying an opportunity for taking actionor a need that might be met.

• Developing an idea to seize that opportuni-ty or meet that need.

• Creating a venture that would bring togeth-er the necessary resources – intellectual,physical, financial – to translate the ideainto a reality, make it effective, and sustainit.

• Embracing creative thinking to resolveproblems, remove obstacles, and identifyfurther opportunities.

Although this process is usually applied to creat-ing and sustaining business ventures, it hasequal power in the worlds of social services, the arts, the sciences, and in community devel-opment – anywhere in fact where complex problems have to be solved in an uncertain envi-ronment. In government, certain and essentialconstraints are placed on officials and the extentof their entrepreneurial behaviors in order toensure appropriate levels of consistency, trans-

parency, and accountability. But even there, thereis room (and often a crying need) for creativity,flexibility, and openness to new ideas.

Entrepreneurship, contrary to common view, isneither an exercise in rash risk-taking nor asolo occupation. In fact, it is just the opposite.Entrepreneurship is about carefully assessingthe balance of risk and reward (costs and bene-fits). It flourishes in an environment wherethere are many entrepreneurs of all types.Moreover, entrepreneurship is not the preroga-tive of hard-charging Alpha males or ruggedindividualists. People of all kinds are and canbe entrepreneurs. Some may be naturallyinclined to be entrepreneurial, others learn tobe entrepreneurs, but there is nothing in therule book that prevents groups and communi-ties working together for a common cause inan entrepreneurial fashion.

Ensuring that a community, state, or nation hasthe right climate or culture in which entrepre-neurs and entrepreneurship can flourish is initself a creative process – one which requiresidentifying opportunities, developing ideas,creating mechanisms for marshaling resources,and embracing creative thinking. From the


Orchestrating an Entrepreneurial Climatein Rural America

research and experience described in this study,it is clear that no “one size fits all” set of pro-grams driven by some federal policy willachieve the desired results. Instead what isrequired is a new framework that will animatepeople and institutions at all levels and of allpersuasions to be part of a movement thatembraces a set of four organizing principles:

• Community-driven: The community –whether small city, county, or tribal reserva-tion – provides the immediate environmentwhich will determine whether entrepreneur-ship flourishes or withers. Local communi-ties need the tools and resources to identifyand build upon their assets, to make choicesthat appropriately balance economic, social,and environmental imperatives, to learnfrom the experiences of others, and to beopen to experimentation and innovation. Itrequires that all sectors of the communityare invited and expected to contribute.

• Regionally oriented: A regional focus torural development and entrepreneurship iscritical in three ways. First, for the mostpart, political jurisdictions make little sensein economic terms and the resources avail-able in any given rural county or reservationare inadequate to match the scale of need(or opportunity). Only through regionalcooperation across multiple jurisdictions,and through regional institutions can therebe sufficient scale, resources, and expertiseto enable individual communities to playtheir full role. Second, arbitrary distinctionsbetween urban and rural interests both maskthe issues and concerns that are common toall residents and businesses and prevent thesearch for regional solutions that might beof particular benefit to rural areas. Third, forentrepreneurs, local markets are generallyinadequate to sustain their businesses; theyneed access to the main regional economicdrivers to survive and expand.

• Entrepreneur-focused: Current ground-breaking work on entrepreneurship develop-

ment points to the ineffectiveness of entre-preneurial development supports that areboth programmatic and uncoordinated. Thenotion that entrepreneurs have differentneeds that are a function of their education,skills, and maturity seems obvious, but tai-loring the plethora of training, technicalassistance, and financing programs andproducts to these needs requires majoradjustments to current practice. Such afocus also brings along the need for systemsthinking, requiring providers of entrepre-neurship development services to alignthemselves as parts of regional systemsrather than independent fiefdoms with turfand resources to protect.

• Continuously learning: Entrepreneur net-works have been stressed by many as essen-tial ingredients of a supportive entrepre-neurial environment because they provideindividual entrepreneurs the opportunity tolearn from their peers. This is (or should be)true for practitioners, community leaders,and policymakers. The notion of a pipelineof entrepreneurs suggests that learningabout entrepreneurship should be openlyavailable – and integrated into school curric-ula. Students can learn the essential ele-ments of entrepreneurship from a young ageand be encouraged to apply them through-out life, as part of preparing them for thechanges and uncertainties of life in the neweconomy. At another level, there is a press-ing need for rigorous evaluation of the effec-tiveness of entrepreneurship strategies andthe returns on investment that can reason-ably be expected.

This study has also highlighted a number ofother important essentials for promoting anentrepreneurial climate:

• Anchor institutions: The presence of non-profit institutions with the capacity to artic-ulate a vision and/or advocate for change,build partnerships, and attract and mobilizeresources has been critical to entrepreneur-


ship and homegrown economic develop-ment. These can be universities, communitycolleges, CDFIs, community developmentcorporations, or nonprofit research andadvocacy groups. They are particularly

effective when they embrace the above fourprinciples by directly engaging in local com-munities, operating at a regional scale,focusing on the particular needs of entrepre-neurs as part of integrated systems of sup-port, and providing opportunities forexchange and reflection.

• Supportive public policy: The KentuckyInnovation Act is an example of a compre-hensive and creative approach to state policyto encourage innovation and entrepreneur-ship. Working through nonprofit and highereducational institutions with significantresources and a mandate to reach out toentrepreneurs in the most remote and poor-est rural counties provides a powerfulmodel. Otherwise there are mixed messagesfrom government. At the federal level, there

is a vacuum of leadership for pursuing anentrepreneurship agenda. This is reflected inrepeated attempts to cut back resources forprograms targeted at small business, devel-opment finance, microenterprise, and com-munity-based economic development. At thestate level, some legislators are showinginterest and support for comprehensiveapproaches to entrepreneurship develop-ment and education, while others are cut-ting back on supportive programs, even asthey continue to endorse expensive businessrecruitment policies. Demonstrating effec-tiveness and returns on investment as com-pared with other more conventional meth-ods of stimulating economic development iscritical to encouraging more supportive pub-lic policy. Another imperative at both federaland state level is to not create more legisla-tion and programs to support rural entrepre-neurship but to ensure all programs havethe capability and flexibility to be tailored tothe particular needs of different ruralregions across the country.

• All entrepreneurs welcome: The distinctionsdrawn between opportunity – and necessity– driven entrepreneurs or between lifestyleand growth businesses are both valid anduseful. The fact that these opportunity-driv-en growth entrepreneurs are the ones thatbecome the engines for wealth and job cre-ation means that they should attract priorityattention both nationally and locally. Thatsaid, most entrepreneurs start from modestbeginnings – 69 percent of the IncMagazine’s 500 fastest growing firms in theUnited States started with less than $50,000in capital; 50 percent had businesses thatwere non-technology-related, and 56 percentstarted their business at home.105 It is a pow-erful idea to create a diverse pool of entre-preneurs – with different motivations,whether for survival, lifestyle, or wealth –who develop fast-growth enterprises. It represents part of the American Dream thatanyone can make it with a little bit of support


and encouragement. So a microenterprise inLoup County, Nebraska or in Owsley County,Kentucky could be just a means to providesupplementary income to a poor family or itcould be the beginning of a rapidly growingventure with a global market.

This is a daunting set of requirements. Butthere are a number of entry points that advo-cates, communities, governments, foundations,and businesses should consider in order to cre-ate a supportive entrepreneurial climate inrural America. These can be grouped into fourmain strategies:

• Investment strategies: Encouraging behav-ioral changes in communities, institutions,and governments will require the creation ofa set of incentives and a willingness toinvest for the long haul. For instance, capac-ity-building and challenge grants should beused to encourage urban-rural and regionalcollaborations and the development of effec-tive and accountable systems of entrepre-neurship support. In addition, investmentsshould be made in innovations in entrepre-neurial education, technical assistance andtraining, capital access, and networking thatshow promise for widespread replication inrural communities.

• Learning strategies: Rigorous evaluation ofentrepreneurship strategies, systematic casestudies of effective practices and initiatives,“how to” guides, training programs forelected officials and policymakers, andopportunities for peer exchanges all repre-sent a vital strand of learning strategies.Other approaches might include experiential(hands-on) entrepreneurship educationefforts in schools, colleges, clubs, communi-ty centers, and camps.

• Advocacy strategies: Whether it involvesmoving the New Homestead Act or fightingthe defunding of a statewide SBDC network,there has to be information, organizing, andadvocacy to get the job done. The disbanding

of the National Commission onEntrepreneurship leaves a vacuum innational leadership for entrepreneurshipdevelopment policies. There is uncertaintyaround the direction the Ewing MarionKauffman Foundation may be heading in itsadvocacy and support for entrepreneurship.The RUPRI Center for Rural Entrepreneurshipis focused on learning strategies. What isneeded is to energize networks of organiza-tions and institutions across the countrythat can use the results of the investmentand learning strategies to generate publicand private resources to support entrepre-neurship development, particularly in ruralAmerica.

• Information strategies: One of the challengesis the absence of information tools that ade-quately describe and measure entrepreneurialactivity and climates. As discussed earlier,data and methodological deficiencies current-ly prevent a clear picture of status and trendsfrom emerging. But there could be consider-able value in developing an EntrepreneurshipReport Card to provide comparative dataabout the performance of rural regions andlabor markets nationwide, as other bench-marking and assessment tools.

As noted at the Center for the Study of RuralAmerica conference two years ago, “Startingand growing a business anywhere is fraughtwith well-documented perils. These are com-pounded in rural America by low populationdensity and remoteness, with their implicationsfor access to markets, capital, labor, peers, andinfrastructure, as well as the way they shapecultural attitudes towards entrepreneurship.”106

Yet this study presents ample evidence oforganizations, institutions, and agencies pursu-ing all manner of programs and initiatives thatare meant to encourage greater entrepreneur-ship in rural America. The task ahead is tomake their efforts more community-driven,regionally oriented, entrepreneur-focused, andcontinuously learning.


1 Stauber, Karl N. (2001). Why Invest in RuralAmerica – And How? A Critical Public PolicyQuestion for the 21st Century. In The Center forthe Study of America, Exploring Policy Optionsfor a New Rural America. Kansas City, MO:Federal Reserve Bank of Kansas City.

2 Ibid, pages 23-26.

3 Rowley, Thomas D. and Freshwater, David(2002). The Rural Dilemma. www.terrain.org.Page 9.

4 Rob Gerwitt (1996). DevelopingEntrepreneurial Economies in Rural Regions:Lessons from Kentucky and Appalachia.Washington DC: The Aspen Institute RuralEconomic Policy Program. Page 12.

5 National Commission on Entrepreneurship(2002). Entrepreneurship: A Candidate’s Guide:Creating Good Jobs in Your Community.Washington DC: Author. Pages 2-3.

6 Center for the Study of Rural America(August 2002). Are High-Growth EntrepreneursBuilding the Rural Economy. The Main StreetEconomist, Federal Reserve Bank of KansasCity. Page 4.

7 Appalachian Regional Commission (2001).Conference Proceedings: Building New Economiesin Rural America. Washington DC: Author.Page 2.

8 Kayne, Jay (1999). State EntrepreneurshipPolicies and Programs. Kansas City, MO:Kauffman Center for EntrepreneurialLeadership, Ewing Marion KauffmanFoundation. Page 5.

9 Center for the Study of Rural America(August 2002). Op.cit. page 4.

10 Neck, Heidi M., Zacharias, Andrew L.,Bygrave, William D, and Reynolds, PaulD.(2003). Global Entrepreneurship Monitor,National Entrepreneurship Assessment, UnitedStates of America, 2002 Executive Report. KansasCity, MO: Kauffman Center for EntrepreneurialLeadership at the Ewing Marion KauffmanFoundation.

11 Zacharias, Andrew L., Neck, Heidi M.,Bygrave, William D, and Cox, Larry W. (2002).Global Entrepreneurship Monitor, NationalEntrepreneurship Assessment, United States ofAmerica, 2001 Executive Report. Kansas City,MO: Kauffman Center for EntrepreneurialLeadership at the Ewing Marion KauffmanFoundation. Pages 6-7.

12 Neck, Heidi M. et al (2003) Op.cit. page 31.

13 OECD (2003). Entrepreneurship and LocalEconomic Development: Programme and PolicyRecommendations. Paris: Author. Pages 9-10.

14 Clark, M. and Kays, A (1999). Microenterpriseand the Poor: Findings from the Self-EmploymentLearning Project Five Year Survey ofMicroentrepreneurs. Washington DC: The AspenInstitute.

15 Friedman, R.E., Grossman, B.H., and Sahay P(1995). Building Assets: Self Employment forWelfare Recipients: Overview of the Findings fromthe Self Employment Investment Demonstration.Washington DC: Corporation for EnterpriseDevelopment.

16 Losby, Jan L., Else, John F. and Kingslow,Marcie E. (ISED Consulting and Research) andEdgcomb, Elaine L., Malm, Erika T. and Kao,Vivian (The Aspen Institute) (2002). InformalEconomy Literature Review, December 2002.Newark DE and Washington DC: ISED andThe Aspen Institute.

17 Ibid page 43.

18 Goetz, Stephan J. and Freshwater, David(2001). State-Level Determinants ofEntrepreneurship and a Preliminary Measure ofEntrepreneurial Climate. EconomicDevelopment Quarterly, Vol. 15, No. 1,February 2001, pages 58-70.

19 Ibid, page 65.

20 National Commission on Entrepreneurship(2001). High-Growth Companies: MappingAmerica’s Entrepreneurial Landscape.Washington DC: Author.


Endnotes

21 Corporation for Enterprise Development(1993). Rethinking Rural Development.Washington DC: Author. Page 2.

22 Ibid, page 3.

23 Fluharty, C. (1995). Opportunities for RuralPolicy Reform: Lessons Learned from RecentFarm Bills. Testimony presented by ChuckFluharty, Director of the Rural Policy ResearchInstitute, before the Senate Committee onAgriculture, Nutrition, & Forestry.

24 Collender, R., Sullivan, P., Milkove, & D.,Bagi, F. (n.d.). Financial Markets Serve RuralAreas Reasonably Well. Rural DevelopmentPerspectives. (Vol. 14, no. 1). WashingtonD.C.: USDA Economic Research Service.

25 Center for Rural Entrepreneurship. (March2002). National Environment for Entrepreneurs.(Monograph 8). www.ruraleship.org.

26 Dabson, Brian (2003, March). StrengtheningLocal Rural Economies through Entrepreneurship.In Walzer, N. (2003). The American Midwest:Managing Change in Rural Transition. NewYork, London: M.E. Sharpe

27 National Association of DevelopmentOrganizations. (March 2000 & January 2001).Economic Development Finance Service Reporter.(Vol. VI, no. 3 & Vol. VII, no. 1). Washington,D.C.: National Association for DevelopmentOrganizations

28 Interview with Matthew Chase, PolicyDirector, National Association of DevelopmentOrganizations

29 Appalachian Regional Commission (2001).Entrepreneurship Initiative Approved Projects.Washington DC: Author. Page 2.

30 Kayne, Jay (1999). Op.cit.

31 Interview with Don Macke, Co-Director,RUPRI Center for Rural Entrepreneurship, July 23, 2003.

32 Dabson, Brian with Marcoux, Kent (2003).Entrepreneurial Arkansas: Connecting the Dots.Little Rock, AR: Winthrop RockefellerFoundation.

33 Ibid page18.

34 Ibid page18

35 Appalachian Regional Commission (2003).Appalachian Youth Entrepreneurship EducationSpringboard Award: 2002 & 2003 AwardWinners. Washington DC: Author. Page 1.

36 Interview with Cathy Ashmore, ExecutiveDirector, Consortium for EntrepreneurshipEducation. For the resource guide seehttp://www.entre-ed.org/_arc/ee-index/htm

37 Walstead, William B. and Kourilsky, MarilynL. (1999). Seeds of Success: Entrepreneurship andYouth. Dubuque, IA: Kendall/Hunt PublishingCompany. Page 15.

38 Interview with Ed Davis, Executive Director,Distributive Education Clubs of America(DECA)

39 Interview with Cathy Ashmore, ExecutiveDirector, Consortium for EntrepreneurshipEducation.

40 Interview with Darrell Luzzo, Vice PresidentPrograms, National Junior Achievement

41 Interview with Claire Melican, Vice PresidentPrograms Administration, National Council forEconomic Education

42 Personal correspondence with Alan T. Smith,Program Leader, National 4-H

43 Interview with Mark Picairilli, consultant toBoys and Girls Clubs

44 Meyer, D. (2001, February 8).MajorUnresolved Issues and Opportunities inEntrepreneurship Education. Whitepaper pre-sented by G. Dale Meyer, President ICSB, at the2001 USASBE/SBIDA Joint NationalConference, Orlando, Florida.


45 Charney, A., & Libecap, G. (2000). Impact ofEntrepreneurship Education. Tucson, Arizona:University of Arizona.

46 Seymour, N. (2001). EntrepreneurshipEducation in American Community Collegesand Universities. Kansas City, Missouri:Kaufman Center for EntrepreneurshipLeadership Clearinghouse on EntrepreneurshipEducation

47 Interview with Betty Kadis, President,National Association for Community CollegeEntrepreneurship.

48 Regional Technology Strategies. (2003).Cultivating Successful Rural Economies:Benchmark Practices at Community andTechnical Colleges. Carrboro, NC: RegionalTechnology Strategies, Inc.

49 Interview with Betty Kadis, President,National Association for Community CollegeEntrepreneurship.

50 National Commission on Entrepreneurship(2002). Entrepreneurship: A Candidate’s Guide:Creating Good Jobs in Your Community.Washington DC: Author. Page16.

51 National Association of DevelopmentOrganizations. (2002, September). Business Notas Usual: Regional Development OrganizationsPromote Rural Entrepreneurship. Washington,D.C.: National Association of DevelopmentOrganizations Research Foundation.

52 National Commission on Entrepreneurship.(2001, December). Building EntrepreneurialNetworks. Washington, D.C.: NationalCommission on Entrepreneurship.

53 National Association of DevelopmentOrganizations (2001) Op.cit.

54 Interview with Tom Lyons, Director forResearch on Entrepreneurship and EnterpriseDevelopment, University of Louisville,Kentucky.

55 Interview with Wyatt Fraas, RuralOpportunities and Stewardship ProgramAssistant Director, Center for Rural Affairs,Nebraska.

56 www.minnesotaruralpartners.org

57 Interview with Tom Lyons, Director forResearch on Entrepreneurship and EnterpriseDevelopment, University of Louisville, Kentucky.

58 Dabson (2003) op.cit.

59 Interview with David Dangler, Director RuralInitiative, Neighborhood ReinvestmentCorporation

60 Adkins, D., Sherman H., & Yost C. A.(2002). Incubating in Rural Areas: Challengesand Keys to Success. Athens, Ohio: NationalBusiness Incubators Association.

61 Interview with staff of Eastern MaineDevelopment Corporation

62 Interview with Bill Amt, Director of Research,National Association of DevelopmentOrganizations

63 Interview with Ted Buelow, Title, Office ofCommunity Development, USDA

64 Appalachian Regional Commission. (2000,September 17-19). Tools for Entrepreneurship:Building New Economies in Rural AmericaConference Proceedings. Washington, D.C.:Appalachian Regional Commission.

65 Association for Enterprise Opportunity.(2003). Innovations in MicroenterpriseDevelopment from the Rural Experience: GuidingPractices for Entrepreneurial Development in theFood, Tourism, and Artisan Sectors. Arlington,VA: Association for Enterprise Opportunity.

66 Interview with David Dangler, National RuralInitiative Manager, NeighborhoodReinvestment Corporation

67 Lyons, Thomas S. (2003). Policies for Creatingan Entrepreneurial Region. Paper to the 2003Center for the Study of Rural AmericaConference, Kansas City, April, 2003


68 Collender, R., et al (n.d.). Op.cit.

69 Ibid

70 Center for Rural Entrepreneurship. (2002,March). Capital for Rural Entrepreneurs.(Monograph 9 www.ruraleship.org).

71 Collender, R. et al (n.d.) Op.cit.

72 Ibid

73 Dabson, Brian (2003) Op.cit.

74 Ibid

75 Corporation for Enterprise Development.(2003). CDFI’s: Opening the Door to a MoreInclusive Banking System. Washington, D.C.:Author

76 Ibid

77 Dabson (2003) Op.cit

78 Corporation for Enterprise Development.Local Capital Market Investment Fund (LCMIF)Product Descriptions. www.cfed.org

79 Equity capital is defined broadly to includemezzanine financing (subordinated debt), tra-ditional venture capital, pure shareholder equi-ty and other financing products, with theexception of traditional bank debt.

80 Markley, D., Barkley, D., Freshwater, D.,Shafer, R., & Rubin, J. (n.d.). A NationalSnapshot of Rural Equity Market Innovation.Washington, D.C.: Rural Policy ResearchInstitute (RUPRI).

81 Barkley, D. (2003, April 28-29). PolicyOptions for Financing Rural Entrepreneurs.Working Paper presented by David Barkley,Professor of Economic Development, ClemsonUniversity, at the 2003 Federal Reserve Bank ofKansas City conference, Kansas City, Missouri.

82 Markley, D. et al (n.d.) Op.cit.

83 Barkley, D (2003) Op.cit.

84 Ibid

85 Appalachian Regional Commission. (2000,September 17-19). Tools for Entrepreneurship:Building New Economies in Rural AmericaConference Proceedings. Washington, D.C.:Appalachian Regional Commission.

86 Barkley, David (2003), Op. cit.

87 Mountain Association for CommunityEconomic Development

88 Rob Gerwitt (1996). Op.cit.

89 Corporation for Enterprise Development(2002). 2002 Development Report Card for theStates. Http://drc.cfed.org

90 Progressive Policy Institute (2002). NewEconomy Index. Http://neweconomyindex.org

91 Goetz, Stephan J. and Freshwater, David(2001). Op.cit. Pages 65 and 67.

92 Markley, Deborah and Barkley, David (2003).Development of an Entrepreneurial SupportOrganization: The Case of the KentuckyHighlands Investment Corporation. RUPRICenter for Rural Entrepreneurship ResearchCase Studies Series, Number 1. Page 1.

93 Hender, David (2003). Rural poll finds more‘worse offs’. World-Herald Bureau, July 23, 2003

94 Center for Rural Affairs (2000). TrampledDreams: The Neglected Economy of the RuralGreat Plains. Walthill, NE: Author

95 U.S. Department of Commerce, CountyBusiness Patterns 2000, Nebraska, May 2002.

96 Center for Rural Affairs (2000). Op.cit.

97 Fitzsimmons, Edward L. (2002), Small CitiesAbuzz with Business in Nebraska. Business inNebraska, Bureau of Business Research,University of Nebraska-Lincoln, April 2002.

98 Corporation for Enterprise Development(2002). 2002 Development Report Card for theStates. Http://drc.cfed.org

99 Progressive Policy Institute (2002). NewEconomy Index. Http://neweconomyindex.org


100 Goetz, Stephan J. and Freshwater, David(2001). Op.cit. Pages 65 and 67.

101 Center for Rural Affairs (2002). Balancingthe Scales of Prosperity: Bringing Nebraska’sEconomic Development Policy Into Balance.Walthill, NE: Author

102 Center for Rural Affairs website:http://www.cfra.org

103 Center for Rural Affairs (1990). Half a Glassof Water: State Economic Development Policiesand the Small Agricultural Communities of theMiddle Border. Walthill, NE: Author.

104 Center for Rural Affairs (2002). Op.cit.

105 National Commission on Entrepreneurship(2002) Op.cit. page 7

106 Dabson, Brian (2001) Supporting RuralEntrepreneurship. In Center for the Study ofRural America, Exploring Policy Options for aNew Rural America. Kansas City, MO: FederalReserve Bank of Kansas City. Page 36.


FSRD4212Item #1012

1103 .1M SISPrinted on Recycled Paper

One Michigan Avenue East Battle Creek, MI 49017-4058 USA269-968-1611TDD on siteFacsimile: 269-968-0413www.wkkf.org

W.K.KELLOGGFOUNDATION

mapping rural entrepreneurship

Business

rural entrepreneurship

kellogg foundation corporation

enterprise development

rose corporation

foundation application

establishedthe corporation

farm foundation

kellogg foundationcorporation