Conference Explores How To Strengthen High In This Issue Growth Entrepreneurial Activities The conference, (only 26 percent of the U.S. work- Conference Explores How To and Public Policy: New Growth force holds a college degree), Strengthen High Growth Strategies for the 21st Century • Lagging investment in research Entrepreneurial Activities . . . .1 Economy, took place in Cambridge and development, April 10–11, 2001. This landmark • A shrinking base of science and New Advocacy Listserv Delivers event, sponsored by Harvard engineering graduates, Breaking News ...... 8 University’s Kennedy School of • The graying of America’s Government and the National workforce, and Commission on Entrepreneurship, • The need to improve local and brought together some 150 leaders regional from government, academia, and efforts. Message from the who explored issues of Throughout the conference, Acting Chief Counsel how government policy can stimu- entrepreneurs urged policymakers late and sustain entrepreneurship. to eliminate red tape, streamline Advocacy's Legislative Review Advocacy’s economist, Dr. Ying regulation, and create up-to-date Remains Vigilant ...... 3 Lowrey, attended the event and pro- rules governing e-. vided this summation. Government’s Role. Government While the United States is wide- representatives offered remarkable ly considered as a model incubator stories of creating conditions 2001 Small Business of entrepreneurial activity, chal- conducive to entrepreneurship. Awards lenges remain on the horizon. Under Michigan Gov. John Engler’s Harvard Prof. Michael Porter high- , the state’s unemploy- Highlights of the 2001 Advocacy lighted five looming problems: ment rate has remained below the Luncheon ...... 4 • The growing skills inequality Continued on page 2

Economic News

Minority-Owned Show Growth ...... 6

Advocacy Joins Effort To Better Define Women-Owned Businesses ...... 6

Small Businesses and the Downturn in the Economy . . .7

Advocate of the Year winners join Susan M. Walthall, Acting Chief Counsel for Advocacy (top row, center), for a photo after the Small Business Week Advocacy luncheon, attended by over 40 members of Congress. More photos on pages 4-5. The Small Business Advocate

EditorRebecca Krafft Managing EditorRob Kleinsteuber Contributing EditorsKathryn J. Tobias, Brian Headd, David Voight Production AssistantDarlene Moye- Mahmoud The Small Business Advocate(ISSN 1045-7658) is published monthly by the U.S. Small Business Administration’s Office of Advocacy and is distributed to Small Business Administration field staff and members of the U.S. Congress. The Small Business Advocateis available without charge from the Office ofAdvocacy, U.S. Small Business Administration, Mail Code 3114, Washington, DC 20416. Harvard Professor Michael Porter, Michigan Gov. John Engler, Sen. Thomas Back issues are available on microfiche from the National Technical Information Carper (D-Del.), and Rep. Edward Markey (D-Mass.) address the forum, Service, 5285 Port Royal Road, ”Entrepreneurship and Public Policy: What's Government Got to Do With It?” Springfield, VA 22161. Send address changes to: The Small Conference, from page 1 Academia’s Contribution. Business Advocate, Mail Code 3114, national average for 53 consecutive Institutions of higher education have U.S. Small Business Administration, months. His policies targeted both a key role to play in providing edu- Washington, DC 20416. Include your the demand and supply side of cation, technology transfer, and current address label. employment: he introduced in-school stimulation. From the The Small Business Advocate Online: and job-training programs to enhance formation of business concepts, to www.sba.gov/advo/news/ the state’s human , as well as start-up, to scale-up, academia has Electronic delivery of The Small Business Advocateis available by visiting a series of tax initiatives to reduce the potential to offer entrepreneurs www.sba.gov/advo/news/.Subscriber burdens on job providers. new inspiration, knowledge, and skills. information will be kept confidential and Austin Mayor Kirk Watson set out The success of regional not used for any purpose except for newsletter delivery. To discontinue print to create a “braggable” habitat— clusters such as Boston and Austin, delivery of The Small Business Advocate, onethat would attract and retain tal- anchored by such institutionsas send an e-mail with your current mailing entedpeople. Capitalizing on Harvard, MIT, and the University information to [email protected] call Austin’s location, its music scene, of Texas at Austin, are models of (202) 205-6533. and airport, he has helped shape this entrepreneurial/educational Federal Recycling Program policies that embrace diversity symbiosis. Printed on recycled paper. (including a large gay population), Growth Strategies for the 21st emphasize education, and encour- Century. In the face of current age lifetime learning. Watson challenges, the conference offered of business entrepreneurs. recently won his re-election bid plenty of growth strategies for the • Attracting Financing. Policy- with the largest majority of any new century. makers must create a local demand Austin mayor. • . The pivotal for venture capital by creating an Ray Moncrief, COO and execu- factor in building and strengthening environment attractive to , tive vice president of the Kentucky entrepreneurship is human capital. rather than focusing solely on Highlands Investment , As Professor Richard Florida point- enlarging the venture capital pool. pointed out that the SBA’s SBIC ed out, “When you get the best Special attention should also be programand related government people, you win!” Why has paid to businesses run by women programs have played a key role in America enjoyed such sustained and minorities, as well as to rural bringing risk and equity capital into and long-term ? It or underdeveloped regions. Programs the rural areas of Kentucky. These attracts the best talent in the world. such as the SBA’s SBIC should be programs have helped train people •Entrepreneurial Education. continued to bring opportunities to to use risk capital in order to start Universities must offer more inspi- those who have been left behind. and run successful , rational courses and more hands-on • Taking Venture Capital Global. helping create thousands of jobs in opportunities for talented students Venture capital investment in global the region. who represent the next generation Continued on page 3

The Small Business Advocate page 2 June 2001 Message from the Acting Chief Counsel Advocacy’s Regulatory Review Remains Vigilant by Susan M. Walthall, Acting Chief Counsel, Office of Advocacy I grew up in a small family-owned • Environmental Protection business and have many fond mem- In an ideal world we Agency proposals, including air ories of helping my father shape would work ourselves toxin rules that affect small plastic duct work for the air conditioning out of a job because the component manufacturers; lead systems that he installed. I also had agencies would do the toxin reporting rules; snowmobile a chance to see the impact that usage rules; and rules affecting excessive or unneeded regulations right thing in the first small manufacturers of nonroad had on his business. That experi- place. engines. ence is one of the reasons that I In all of these cases there is a really feel honored to have been is given an important role in seeing well-defined segment of the small named the acting chief counsel for that these laws are carried out. business community that would the Office of Advocacy. There is considerable variation in face significant problems if the The work of the Office of compliance. Some agencies have rules were not changed. We try to Advocacy goes right to the heart of gotten to be rather good in carrying work with the proposing agency to the kind of problems that my father out the letter and the spirit of the make sure that they are aware of encountered years ago—and that law. Others are not nearly as sensi- their obligations to small entities remain with us yet today. Congress tive to small business concerns as and that they seek the least burden- brought Advocacy into existence 25 they should be. some way of reaching their objec- years ago out of recognition that far Likewise, there is a wide range tives. too many agencies simply had no of issues and agencies involved. In an ideal world we would work idea what impact their regulations Consider a brief sampling of some ourselves out of a job because the had for small businesses. of the dozens of items that have agencies would become so sensitive The core mission of Advocacy is come across my desk in the short to small businesses’ needs and con- to be the voice for small business period I have been acting chief cerns that they would do the right when the government proposes counsel: thing in the first place. I can tell rules and regulations. That voice • Contract bundling; you that we are a long way from has gotten stronger over the years, • protection in foreign that nirvana. At the same time, especially when Congress passed markets for small inventors; however, I feel that there is a lot of the Regulatory Flexibility Act in • A Labor Department definition room for optimism. More and more 1980 and the Small Business of domestic companion that would agencies are working closely with Regulatory Flexibility Act in 1996. severely harm small home health us and are becoming better in con- Under these laws, agencies must care agencies; sidering the impacts their proposals consider the impact of their propos- • Bureau of Land have on small businesses. als on small entities, and Advocacy reclamation rules;

Conference, from page 2 • Technology Transfer. dialogue among entrepreneurs, aca- Entrepreneurial success hinges on demics, and policymakers is key to markets should be encouraged. Not new information and cutting edge molding the future environment only do U.S. investors have the ideas. It is also influenced by an that will stimulate and sustain opportunity to earn higher returns array of public policies. Continued entrepreneurship. to capital in developing countries, such investment stimulates entre- preneurship in the host countries. For More Information • Government’s Role. Govern- • The National Commission on Entrepreneurship report can be found ment has a very important role to at www.ncoe.org/newsletter/update/04_17_01.html. play in such areas as providing • Harvard University’s KennedySchool has materials linked to physical and legal infrastructure, www.ksg.harvard.edu/cbg/entrepreneurship_presentations.htm. improving education, attractingtal- • Dr. Ying Lowrey, can be reached at (202) 205-6947, by e-mail at ent, and building a strong economic [email protected] by mail to the Office of Advocacy, U.S. Small community. Business Administration, 409 Third Street, S.W., Washington, DC 20416.

The Small Business Advocate page 3 June 2001 Highlights of the 2001 Small Business Week Advocacy Luncheon

Sen. Christopher Bond (R-Mo.) shares his views on U.S. Sen. John Kerry (D-Mass.) stresses the importance of small small businesses. business to the economy.

Pennsylvania Small Businessperson of the Year Frank H. Rep. John Thune (R-S.D.) converses with cowinner of the Sarris displays his certificate with Rep. Frank Mascara (D- South Dakota Businessperson of the Year award, Eugene P. Pa.) and Mrs. Sarris. Burdick, and his wife.

Rep. Don Manzullo (R-Ill.) provides his unique perspective as Rep. Todd Akin (R-Mo.), Missouri Businessperson of the Year Chairman of the House Small Business Committee. Himanshu Bhatia, and her husband enjoy the festivities.

The Small Business Advocate page 4 June 2001 Sen. Craig Thomas (R-Wyo.) enjoys lunch with Wyoming Rep. Howard Coble (R-N.C.) shares his thoughts with North Regional Prime Contractor of the Year Bob Strasheim. Carolina Businessperson of the Year John L. Lomax.

R. William Hazelett, Small Business Exporter of the Year, Sen. Daniel Inouye (D-Hawaii) and Hawaiian Businesperson proudly takes center stage to accept his award. of the Year Jeffrey P. Bloom enjoy the spotlight together.

Sen. Paul Sarbanes (D-Md.) congratulates Accountant Alaskan Small Business Person of the Year David J. Cottrell Advocate of the Year Henry Aldana. (left) joins his wife and Sen. Ted Stevens (R-Alaska) for a photo.

The Small Business Advocate page 5 June 2001 Economic News Minority-Owned Small Businesses Show Strong Growth Over the course of the spring, the firms in 1997. They represented 6 The data show sharp increases from Census Bureau has released the percent and 4 percent, respectively, 1992 to 1997 in businesses, most of complete 1997 Survey of Minority- of the 20.8 million U.S. businesses them small, owned by Asiansand Owned Business Enterprises (defined as nonfarm business tax Pacific Islanders and by American (SMOBE). The reports covering returns with more than $1,000 in Indians and Alaska Natives. According African American- and Hispanic- receipts, excluding C ). to the data, therewere 913,000 owned firms were released in Nearly all of the firms covered in Asian- and Pacific Islander-owned March. Those covering Asians and the Census Bureau’s SMOBE businesses in 1997, and 197,300 Pacific Islanders and American release were small businesses. Continued on page 8 Indians and Alaska Natives were released in May. “These data show that the number of firms owned by each minority group, as well as by women, grew much more rapidly than the overall total,” said Acting Chief Counsel for Advocacy Susan M. Walthall. “The Office of Advocacyexpects to use the data in a variety of reports on small busi- ness by state, industry, and demo- graphic group.” The Census data show that the number of African American- owned firms increased by 25.7 per- cent from 1992 to 1997 and the number of Hispanic-owned firms increased by 30.0 percent, com- pared with an increase of 6.8 per- cent for all firms. There were 1.2 million Hispanic-owned firms and 820,000 African American-owned

Advocacy Joins Effort To Better Define Women-Owned Business In April, the Census Bureau released difference is that the 1997 data cover National Women’s Business Council’s the long-awaited 1997 economic cen- nonfarm businesses that were 51 per- task force to examine women- sus data on women-owned firms, the cent or more owned by women, while owned business coverage. An initial 1997 Survey of Women-Owned Bus- the 1992 survey covered firms in which review of 1992-1997 growth based iness Enterprises (SWOBE). Thedata women owned 50 percent or more on comparable definitions shows show that the number of women-owned of the business. In 1997, women and that the number of women-owned firms totaled 5.4 million in 1997, with men jointly owned 3.6 million busi- firms increased by 16 percent, com- 7.1 million employees and $819 bil- nesses, with $944 billion in receipts. pared with an increase of less than 2 lion in receipts. Women-owned firms None of these are included in the percent in firms owned by men. The made up 26 percent of the nation’s 1997 count of women-owned busi- number of women-owned firms with 20.8 million nonfarm businesses and nesses, but 2 million of them would employees grew more than three 4.4 percent of the $18.6 trillion in have been included under the 1992 times as fast (37 percent) as the receipts of all businesses in 1997. definition and methodology. number without employees (12 per- The SWOBE data differ in impor- To review definitional questions cent). In contrast, the number of tant respects from those covering concerning the universe of women- firms with employees owned by 1992, the last year women-owned owned businesses, the Office of men actually declined by 4 percent businesses were surveyed. One key Advocacy participated in the from 1992 to 1997.

The Small Business Advocate page 6 June 2001 Small Businesses and the Downturn in the Economy by Brian Headd, Acting Director, Office of Economic Research

What downturn? Well, it is going to back. Lay-offs by large firms give downswings, while services were show up sooner or later. (Because small firms a larger pool of poten- least sensitive. In the 2000s, differ- of the delay in receiving final sta- tial workers and can lead to self- ences in the capital intensity of ser- tistics, we may find out later that employment. Most of these new vices and manufacturing may be we are in a downturn now.) The owners resume working for firms less pronounced. (Mini-mills and question already being asked is, when the economy picks up, but modular manufacturing prevail in How will small businesses fare in this process bodes well for entre- heavy industry, and service firms the next downturn? preneurship, as it allows owners to are compelled to invest in computer The Sun and Moon Align.By learn how to run a business. Many software and equipment to remain almost any standard, the economy successful ventures are the 2nd, competitive.) Advocacy research did well during the 1990s. A rare 3rd, and 4th tries by entrepreneurs. also found that small firms felt that coincidence of conditions occurred, However, prolonged recessions high interest rates were the leading causing simultaneously declining can be devastating, as they stifle the cause of their problems, followed interest rates, inflation, and unem- emergence of new ventures and force by reduced . ployment rates. mergers to take up slack in indus- Let’s Put Off Learning For The 1990s gave us a stagnant glo- tries. Endeavors of an entrepreneur- Another Day.Very few lessons bal economy, baby-boomers entering ial or innovative nature have little were gleaned from the most recent their prime working years, increased going for them in this scenario, as recession, in the early 1990s, since from computers, a sta- there is nowhere to grow and few it was so short-lived and data by ble Federal Reserve policy against new market opportunities to fill. firm size were in short supply. For inflation, the “peace dividend” One-Size Fits Nobody.Market the sake of the current crop of busi- brought about by the end of the conditions affect small and large ness owners, however, Advocacy is cold war, a decline in U.S. govern- businesses differently. In a bust, optimistic that it will be some time ment borrowing, and an infusion of small businesses are more suscepti- before we have another opportunity consumer spending as homeowners ble to slowing demand and tighter to learn how small businesses fare refinanced. These factors came financing conditions. Small busi- in a recession. together to produce low inflation nesses have less room to shrink and The “r-word,” reality, is already and low unemployment, a combina- large businesses have more financ- upon us. Hopefully, small business- tion that had been considered virtu- ing options (sale of , bank es will continue to receive the ally impossible a few decades ago. loans, bonds), so tight credit can hit financing they need at reasonable Many of these factors were one- small businesses harder. rates to create employment oppor- time occurrences whose effects In the early 1980s, the Office of tunities and improve productivity have since leveled off. The major Advocacy studied how the different so the economy can continue to indexes bear the scars firm-size sectors fared in the reces- drive forward. of this, and they now stand at the sions of that decade. We found that levels they were at two years ago. industries requiring more capital, The economy is now at a cross- such as manufacturing, were most roads: Will the boom go bust, or sensitive during will the inertia continue? Recessions Can Be Good? For individual small businesses, down- For More Information turns are obviously perilous times, • Labor Shortages, Needs and Related Issues in Small and Large as financing becomes difficult to Businesses(Office of Advocacy, 1999). www.sba.gov/advo/research/ obtain, customers are slower to pay This report documents small businesses’ difficulties competing for labor their bills, and market demand during a sustained economic expansion. decreases. But recessions do have • An Analysis of the Effect of Recessions on Small Business Output in the economy. (Office of Advocacy, 1982). Short recessions can free up fi- • The Capital Crunch: Small High-Technology Companies and National nancing and labor for new ventures. Objectives During a Period of Severe Debt and Equity Shortages For instance, tight labor markets made (Office of Advocacy, 1983). finding labor the biggest problem These reports address issues arising from the recession of the 1980s. for small businesses a few years

The Small Business Advocate page 7 June 2001 Minority Owned, from page 6 grew by 179 percent. In compari- son, the total number of businesses New Press Release firms owned by American Indians other than C corporations was up 7 Listserv and Alaska Natives. percent, and total receipts of these The data for the first time include Advocacy’s press releases are firms were up 40 percent. C corporations, making the totals now available instantaneously Small businesses predominated more comprehensive than those via electronic Listserv. The new among both sets of owners. Two- collected in the last economic cen- Listserv complements the one thirds of Asian- and Pacific-Islander- sus, in 1992. The Census Bureau created for distribution of The owned firms and five out of six estimates that, excluding C corpo- Small Business Advocateearlier American Indian- and Alaska rations, the number of Asian- and this year. Subscriptions to either Native-owned firms had no paid Pacific Islander-owned businesses listserv can be initiated and employees. Among Asian- and Pacific rose 30 percent, and their total updated from a link on Islander-owned firms, 28 percent receipts climbed by 68 percent.The Advocacy’s main page had receipts of less than $10,000; number of American Indian- and www.sba.gov/advo. All sub- among American Indian- and Alaska Alaska Native-owned businesses scriber information will be kept Native-owned firms, 41 percent. rose 84 percent, and their receipts confidential and not used for any purpose except for newsletter and/or press release distribution. For More Information Readers may continue to receive hard copies or may dis- Recent Advocacy-produced or -funded research in this area includes: continue their subscriptions in The Role of Race and Gender in Business Survival; Business Success: lieu of an electronic copy. To Factors Leading to Surviving and Closing Successfully (www.ces.census.gov/ discontinue hard copies of The ces.php/home); and Analyses of Business Dissolution by Demographic Small Business Advocate, send Category of Business (www.sba.gov/advo/research/#business) an e-mail request with your cur- Census Bureau information about the SMOBE and SWOBE are locat- rent mailing information to: ed atwww.census.gov/csd/mwb/. Technical questions may be addressed to [email protected]. Or call 202- Dr. Ying Lowrey at (202) 205-6947, or by e-mail, [email protected]. 205-6533.

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