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Notes from Innovation Policyworks


All of a sudden, my projects converged. For the past eight months, every project I have worked on has been about how to infuse innovation and entrepreneurship into economies in transition. Whether it's in a small New England town, a rural manufacturing region, or a big city, everyone seems to be struggling with the same thing - we're coming out of the recession, but not fast enough. How can innovation help?


The answer seems to be contained in the concept of an innovation district, whether it's a redevelopment project in a city, or the re-imagination of Main Street in a smaller place. In all cases, the key elements appear to be some source of innovation, whether it's a college, university or hospital, plus entrepreneurs and entrepreneurial support, plus amenities that accrue toward a live, work, play environment.


The challenge, I think, is that all of this, even executed perfectly, cannot overcome the absence of a culture of innovation. The leadership opportunity is to include culture as well as physical infrastructure to truly transform a place. MORE



 Latest Startup Data Surprises


The latest Kauffman Foundation's annual report on startup activity focuses on businesses that are less than one year old and employ at least one person. The top five metropolitan areas are Austin, Miami, San Jose, Los Angeles and Denver. But, buried in the data are several surprises. One is that the rate of new entrepreneurs for Maine was the same as for Massachusetts - 0.29 - 290 entrepreneurs for every 100,000 adults. The rate for Vermont was 0.40 and for New York, 0.33, which was enough to rank 11th. Another important metric is called opportunity share, which is the percent of entrepreneurs are starting a business for an opportunity, rather than necessity. In New England, the top state on this metric is Rhode Island, with an opportunity share of 87.8, then New York (81.8), Maine (80.4), Vermont (79.4),  Connecticut (74.9) and New Hampshire (72.6). MORE


Capital- Chicken or Egg?


I've never met an entrepreneur who doesn't say that access to capital is their biggest challenge, and I've rarely met an venture capitalist or angel investor who doesn't say that there is plenty of money out there for qualified deals. So who's right? Kauffman has just completed a survey of Inc. 5000 firms since 1996 to see what's really going on. Recognizing that firms must apply to be on the Inc. 5000 list, so that it is a self-selected group, the data was staggering. Personal savings, and loans from close friends, family members and business acquaintances (the proverbial friends, family and fools) were used 82 percent of the time, with bank loans following at 51.3 percent. Kauffman found that angel investors and venture capitalists fund less than 8 percent and 6.5 percent of new firms, respectively, but firms with these backers tend to have an increased likelihood of an initial public offering and greater survival rates. MORE


New research from William Kerr, Josh Lerner, and Antoinette Schoar confirms that ventures funded by angel groups experience superior outcomes: improved survival, exits, employment, patenting and financing. However, the data also suggests that the reason for these results is not the financing itself, but the support and mentoring from the angel investors themselves. MORE


These results parallel the suggestions of former Small Business Administration head Karen Mills whose new paper outlines policies required to make our country more entrepreneurial. First, she suggests we focus more on small companies in our economic development strategies, compared to the practice of enticing large corporations with large tax incentive packages. Second, she advocates a "play book" of strategies for all types of small companies, including different types of capital, skills and ecosystem support programs. She notes that her policy suggestions are more activist than "cut taxes and reduce regulations" advocates prefer, and points to overwhelming market failures as the rationale for government involvement. MORE 


What Job Recovery?


Lots of press has been given to the nation's low unemployment rates, but these appear to be the result of less folks looking for work, since job growth has been uneven among the states. All states have added jobs since their low points during the recession, but ten states have seen job growth that is less than five percent since January 2008 - Alabama, Arkansas, Maine, Mississippi, Missouri, New Hampshire, New Jersey, New Mexico, Pennsylvania and West Virginia. Maine and West Virginia have seen the least growth. North Dakota, Texas and Utah have has the highest growth rates, due in large part to the influence of the oil boom there. Michigan is also a success story, but it also fell the furthest during the recession. MORE


Top Gun Showcase a Great Success


Last week was the sixth annual Showcase for the Top Gun program run by the Maine Center for Entrepreneurial Development (full disclosure, I'm Chair of the Board), with its partners the University of Maine, and Maine Technology Institute. Funded for the past three years by a gift from the Blackstone Charitable Foundation, Top Gun has emerged as a leading accelerator-type experiential program for entrepreneurs. The program operated in three locations simultaneously this year: Portland, Bangor and Rockland, ME, on the MidCoast.


Great startups need a real problem to solve, and the ten finalists that pitched at Showcase for a $10,000 cash prize from Blackstone and three $60,000 in-kind prizes from Microsoft's BizSpark were no exception.  Ranging from a software company focused on helping small and medium businesses generate sustainability reports required by their OEMs to an aquaculture business focused on growing American unagi (eel) for the domestic sushi market to a solution for the management of complex laboratory data, the winners displayed poise, deep subject knowledge and a sense of humor during their two minutes of fame. We're all expecting great things from the entire class of 30 companies, and can't wait until next year to see who else is emerging from our ecosystem.


What's Happening with US R&D Enterprise?


In the post WWII period, a great compromise was struck - the federal government should fund basic research through universities and the federal labs. And the states should stick to applied research, closer to commercialization.


However, in recent years, US spending on research and development has failed to keep up as a percentage of total spending. And, the percentage of total R&D performed by the federal government has declined from 20 percent in 1953 to below 10% in the early 1990s, with colleges and universities picking up the slack. They are now the largest performer in the country.


Industry is still a large funder, although not a performer of R&D. And, industry's R&D has been more "D" with a focus on short-term results. Corporate labs like Bell Labs or the Xerox PARC have greatly diminished.


With colleges and universities now the place where most R&D is performed, they have the opportunity to be an increasingly important player in their regional economies. With innovation now a networked and collaborative undertaking, rather than the more linear processes of fifty years ago, the role of the connected and regional university is even greater.


Mark Muro and Scott Andes of the Brooking Institution suggest that states and metropolitan areas are filling in the gaps left by lagging federal funding, but that funding is highly focused, as exemplified by the California Stem Cell Research effort and New York City's investment in a new Cornell-Techion campus on Roosevelt Island. It seems that the suggestion that the states and increasingly cities are the level of government that is functioning as "laboratories of democracy" yet again. 


Falmouth, ME Economic Development Plan Approved


In late May, the Falmouth ME Town Council voted unanimously to approve a new economic development plan developed by the Town's Economic Improvement Committee. Camoin Associates (Jim Damicis and Rachel Selsky) and Innovation Policyworks (Cathy Renault) served as consultants to the Committee and helped draft the action plan. In addition to recommendations to improve the business climate, and attract and retain both commercial and retail businesses, the plan includes tactics to increase Falmouth's interactions with entrepreneurs. 


In This Issue - June 2015

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Quote of the Month 

"First they ignore you, then they laugh at you, then they fight you, then you win." 

Mahatma Gandhi


Film Tax Credits Under Fire


Long-time readers of this newsletter will no doubt know that I've never been a big fan of film tax credits as in general they appear to cost taxpayers far more than they generate in local economic activity. The National Conference of State Legislators (NCSL) may agree. In a recent compendium of the 39 state film tax incentives, NCSL observes that Louisiana, one of the most generous states, has recently voted to cap the incentive at $200 million annually. Alaska killed their program, and Massachusetts' Republican Governor also proposed to end its program. In Mass, the House voted to keep the credit, and the Senate has yet to act. In Michigan, the program is looking at a substantial cut in funding. According to some observers, policymakers get star-struck, but in the end the credits don't pay for themselves. I liked the comment by Matthew Mitchell of George Mason University who said, "With enough incentives, you can oranges in Maine. Would it be wise to do so?" MORE


Manufacturing Embracing Innovation


A new KPMG Global Manufacturing Outlook suggests that there are six trends to watch in manufacturing:

  • Manufacturers are increasingly innovation-led.
  • Sales growth and cost reductions continue in importance.
  • Manufacturers are increasingly looking for breakthrough innovations and increasing investment in R&D.
  • Manufacturers are entering into partnerships and adopting new technologies to improve speed to market.
  • Reducing costs and preparing for new product launches is a big concerns for supply chain organizations.
  • Concerns about supplier performance and capacity are high, but visibility is low.



Moore's Law Turns Fifty


I just finished reading a book about Xerox's PARC and their amazing inventions that ended up flourishing almost everywhere but Xerox. What struck me was that although the book was written in 1999, the PARC inventions that seems outlandish to the author then have almost all been realized.


One big driver of the vision of PARC and other forerunners of our computer and Internet age is Moore's Law. First articulated by Gordon Moore, an early partner in Fairchild Semiconductor and co-founder of Intel, Moore's Law simply says that the number of transistors on a chip would double every two years, thus driving down costs, power usage and size of computers, and enabling almost all the tech gadgets we now take for granted. Moore first wrote about his prediction fifty years ago, and never thought that he had uncovered anything special with his observations. MORE


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135 Maine Street, Suite A-183 Brunswick, ME 04011 207.522.9028

Innovation Policyworks enables economic development officials at state, regional and local levels make better, data-driven decisions by providing expert research, analysis and recommendations. Our clients see innovation and entrepreneurship as critical elements of their economic development strategy, and are developing new programs or policies, and/or evaluating existing ones. 

Dr. Catherine S. Renault has been delivering innovation-based economic development results in rural states for 25 years, most recently as science advisor and Director of the Office of Innovation for the State of Maine. Cathy is currently working with CommerceRI to help them with a plan to revitalized the I-195 Corridor. 
For a list of selected projects, see www.innovationpolicyworks.com/projects.