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Accessing the new economic infrastructure for quality employment: a viable option for entrepreneurs.

Accessing the New Economic Infrastructure for Quality Employment: A Viable Option for Entrepreneurs

America has entered a new economic era and with it comes the realization that this country's future depends on a higher-skilled knowledge-based work force. Although this economic transformation is difficult and painful for America's work force, it offers new opportunities, virtually impossible a decade ago, for entrepreneurs with disabilities. As Fortune 500s eliminated 3.5 million jobs, the new economy created 17.5 million; 6.6% of these new jobs were by small businesses (Liles, 1989). Regardless of the number of jobs created, a segment of our population, persons with disabilities, did not keep pace with employment opportunities. One reason is because many employers continue to have reservations about employing applicants with disabilities, and these reservations are based on unwarranted fear and misinformation. As early as 1958, studies reported that safety is not a problem, productivity is good, attendance is good, turnover is low, and insurance costs do not rise (Allan, 1958; Ellner & Bender, 1980; Goodyear & Stude, 1975; Pati & Adkins, 1981; Rubin & Roessler, 1987). The 1987 Harris study surveyed 921 companies and found that only 43% of these companies had employed a person with a disability during the past year although 88% of top management, 91% of equal employment offices, and 91% of department heads rated performance of these employees as good to excellent. This is a paradox. With such widespread documentation of strong performance, why has employment not achieved a significant level? The major reason cited by management was a lack of qualified applicants in recent years. Although underemployment and employmen data continue to paint a dismal employment picture for the physically impaired population, today's new economic infrastructure offers a promising solution: self-employment.

The New Economy

Ten years ago, an economist from the Massachusetts Institute of Technology completed a study that profoundly impacted on state economy policy makers nationwide. Analyzing data from 5.6 million American firms representing 82% of all private sector employment, David Birch reported that more than one-half of all new jobs were created by small, independent firms with less than 21 employees, and that 80% of all new jobs were created by firms that had been in business less than 5 years (Osborne, 1987). During this time, 25% of all new jobs were generated by people who were self-employed (Vaughn, Pollard, & Dyer, 1985). Of all self-employed workers, 8.15% are persons with disabilities, and 7.3% are self-employed (U.S. Census Data).

Subsequent studies (Giamatti, 1983; Drucker, 1985; Fosler, 1987; Gaulding, 1988; Landis, 1989) continue to report that the time is right for entrepreneurs to examine their marketable skills and determine how they can access with this new economy: an economy that has caused states to take a proactive and, in some cases, a reactive role by developing a broad range of programs for different economies that encourage the growth of new, small businesses. Although most of these programs have been experimental, they are proving to be successful. Progressive states are beginning to focus on processes such as new business formation, technological innovation, capital formation, and the transfer and commercialization of research rather than on specific products and industries (Osborne, 1989). Chasing the Fortune 500 smokestacks is not the single economic development approach anymore: diversity exemplifies the new approach. Many states are using their leverage to reshape the marketplace through accelerating innovations, increasing productivity, and assisting small businesses to promote their products in national and international markets (Osborne, 1987). All entrepreneurs, particularly those with physical disabilities, have an opportunity to take advantage of these new programs, start their own businesses, contribute to the economy, and enjoy an independent, higher standard of living. The purpose of this paper is to describe four strategic approaches that may be particularly useful for entrepreneurs with disabilities to access the new economic infrastructure: (a) educational technical assistance, (b) small business incubators, (c) financing options and opportunities, and (d) international competition.

Strategic Approaches to Entrepreneurship

More than 100 years ago, J. B. Say, a French economist, discussed the role of the adventurer in economic endeavors. His treatise on shifting economic resources from an area of lower and into an area of higher productivity and greater yield led to dialogues of entrepreneurship (Say, 1826/1964). In the United States an entrepreneur often is viewed as one who starts his or her own new business. Entrepreneurship implies risk-taking and possible failure. To a degree, this conceptualization has merit; conversely, however, the financial returns offer rewards that often offset the risk taken. Consider a person, or persons, who open another hardware store, a restaurant, or any small business duplicating an existing business. Although there may be risk involved, the business venture may not involve entrepreneurship. The product or products of these businesses merely duplicate existing products. Neither a new satisfaction nor a consumer demand is created. According to Drucker's (1989) definition, these individuals do not meet the criteria to be designated "entrepreneurs." Success stories of entrepreneurship include Bell Lab, that uses strategic planning and innovation to achieve success even though it operates in the hightech field, and the 3M Company that created approximately 100 new business or major products in the past 60 years. More than 80% of these innovative creations have been successful (Drucker, 1985). The literature abounds with other entrepreneurial triumphs which support the reality that the global competitive economy and technical assistance programs have produced an unprecedented increase of new jobs during the past decade throughout America (Drucker, 1985; Gumpert, 1988; Johnson & Packer, 1987; Mancuso, 1978; Mueller, Albertson, & Techman, 1982).

Professional technical assistance programs and opportunities are available on college and university campuses nationwide, and new programs continue to emerge to assist entrepreneurs to meet contemporary economic development needs. Traditionally, few university research institutes and centers have had significant impact on the overall economic infrastructure because technical assistance or public service activities provided by faculty often are not rewarded at most major universities. When academic faculty perform in an academic environment where primary rewards are based on research results, when the technology transfer lag often is measured in decades (Giamatti, 1983), when most small and medium-sized firms which need a university's assistance cannot afford the time lag, consultant's fees, or cannot meet the proposed contractual agreements, it is time for universities to reassess their programs to assure consistency with the changing economy. Results of these assessments led many universities to identify human resource development as a major economic objective to help entrepreneurs. One program that focuses on developing skills of new business owners is the small business incubator (Gaulding and Walter, 1989).

During the past 10 years, a group of enthusiastic professionals led the small business incubator program to its present national prominence (Garcia, 1987). Small business incubators in the United States increased from 40 in 1983 to 271 in March 1988 (Weinberg, 1988). Business incubators are change agents of an economy that has been based on large manufacturing but is transforming to one with many new, small information or service-type firms. This program addresses many of the failures that new businesses face: restricted capital, lack of technology transfer, information costs, and unequal opportunity (Campbell, 1988). Small Business Incubators are facilities that support new and small firms by providing below-market affordable space, shared management support, and financing in a flexible and supportive environment (Campbell, 1988). In effect, a major role of the incubator program is to create an entrepreneurial environment that translates innovative ideas into the marketplace. Incubators link talent, technology, capital, and "know-how," to give leverage to entrepreneurial talent, to accelerate the commercialization of technology, and to encourage the development or start-up of new businesses (Smilor, 1987).

Although 95 of 100 small businesses fail within the first 5 years because of poor management (U.S. Small Business Administration, 1988), Smilor (1987) reported that almost twice as many firms succeeded as failed when participating in an incubator; a year later Kerr (1988) reported that 80% of incubator businesses were still in business 5 years after start-up: and two years later Gaulding (1989) reported "legitimate incubators increase their tenant companies' chance of success between 80 and 93% as compared with 20% in the general economy. Although incubators have limited potential for short-term economic growth, they have become a vital link to long-term economic development. This environment offers entrepreneurs with physical disabilities a supportive structure that dramatically reduces the odds of failure. It is through the incubating process that financing options are available.

Financing options are always a major concern for entrepreneurs, particularly those with physical disabilities. They often do not have the financial experience or banking accommodations required to finance a new business. These businessmen and women have difficulties securing financing beyond the value of their capital assets and net worth since most banks, especially those in small cities or towns, continue to administer very conservative loan programs. Surveys of entrepreneurs reveal that major start-up financing continues to be furnished from personal savings, investments by family and friends, and cash advances from credit cards (Gumpert, 1988). Although entrepreneurs are demonstrating more financial ingenuity, there is a wide range of financing options available which oftentimes is not accessed. Venture capitalists and non-conventional bankers are only two such options for entrepreneurs to consider.

Venture capital is the most glamorous type of financing available because companies or entrepreneurs that obtain it often are on the cutting edge of technology and often achieve spectacular success: companies like Digital Equipment (DEC), Lotus Development (Gumpert, 1988), and Apple Computers (Wetzel, 1983). Although a growing body of research documents the contribution of small, technology-based firms to job creation, technological innovation, and other economic benefits, there is a continuing perception that "gaps" exist in the capital market for smaller firms and entrepreneurs for start-up financing and product development financing.

Created by Congress in 1958, the Small Business Investment Company (SBIC) program was an attempt to fill such gaps and today, entrepreneurs are beginning to look to "business angels" for risk capital investment. Not only do these angels exist, they represent the largest pool of risk capital in the country, and they tend to invest in the area cited as gaps in the capital market (Wetzel, 1983). Wetzel's message to entrepreneurs is clear: If less than $500,000 is needed to launch a new venture, look for one or more "business angels." In addition to business angels, venture capital clubs and conferences also provide a forum for entrepreneurs. These clubs meet on a regular basis for entrepreneurs to present their "ideas" before venture capitalists; conferences are similar to the clubs meeting on an annual basis. venture capital investors are having a significant impact on entrepreneurs throughout America with investments of $10 million in 1975, $3.4 billion in 1983, and $6 billion in 1988 (Deloitte, Haskins, & Sells, 1985).

Although these investors capitalize on new ideas and new ventures, there is substantial risk to making loans because the monetary amount is sizable, the company is new or young and often without a proven track record, and investment recovery usually requires several years. These risks challenge every venture capital investor to fund an entrepreneur who will succeed. Identifying a potential "success story" is a serious and scientific business. The venture capitalists has one of the world's toughest jobs: evaluating the potential of a business that, in reality, is little more than an entrepreneur's dream and pro forma cash flow. Conversely, the entrepreneur knows that the venture capitalist will reap great financial rewards, thus, he or she believes that much of the deliberation prior to commitment is unnecessary (Mancuso, 1978).

Since the depression and until the 1980s, the banking industry was a fairly simple and predictable system of saving and borrowing and banks conducted their business in locally defined communities. However, after Congress passed legislation in 1980 and 1982 lifting interest rate caps and most states lifted restrictions against interstate banking, the banking industry has become a highly technical, competitive, and tumultuous industry (Carras, 1988). Although competition is a new dimension in the banking industry, entrepreneurs should be preprared to think like a banker: prepare a business plan, have a certified financial report, have specific reason to borrow and a plan to repay, present an organized and attractive financial package, have evidence of collateral, and negotiate the interest rate (Cauchon, 1989). The competitive and changing climate among small business owners has created a new type of partnership between local banks and local economic developers. Economic developers recognize that banks are the primary source of private investment and that an active banking community can provide the impetus for economic revitalization. As a result of this realization, the two groups have developed a dynamic partnership that promotes local economic growth and stability, particularly for distressed communities focusing on residents, small businesses, non-profit developers, and government programs requiring bank participation and investment (National Council for Urban Economic Development, 1987).

Some banks are recognizing the benefits of exerting community leadeship roles in economic development through loan pools. Banks participate in loan pools to finance projects and small businesses which seem viable but lack some credit rating making them ineligible for conventional financing. When several banks participate in a pool, the risk to any one bank is reduced; however, the potential economic benefits of investment from the loan are not lost (National Council for Urban Economic Development, 1987). As the regulatory structure continues to change during the next few years, restucturing will impact directly on local economic development activities. Entrepreneurs who are aware of these changes, who know their local lenders, and who have their business plans in order will have access to capital. These programs, when interfaced with the existing infrastructure, can be a powerful support for a small business (Fosler, 1987). The entrepreneur should avoid opening his or her business "doors" without substantial capital to maintain the business during its non-profit tenure. "The most hazardous period for a new business is the first 2 years due to insufficient working capital" (Schnitzer, 1988, p. 10). The entrepreneur should take advantage of the number and variety of resources that are tailored specifically for small businesses.

In addition to knowledge gleaned from educational technical assistance available, small business incubators, and financing options, specific programs and data are available to assist entrepreneurs to access the international market. When the Export Trading Company Act was passed in October 1982, exporting for entrepreneurs assumed a new meaning. However, the strength of the American dollar during the past 5 years made American products unaffordable for many foreign buyers. Now that the dollar is stabilizing again relative to other currencies, many small businesses are turning their attention again to overseas buyers (Small Business Source, 1988). A number of programs have been developed to help overcome obstacles encountered when trading abroad. The Small Business Adminitration, in cooperation with the Export-Import Bank of the United States, has recently formed an interagency task force to help small businesses compete internationally. The task force published the Exporter's Guide to Federal Resources for Small Businesses that overviews all federal assistance to small exporters in a single publication.

International export centers are another valuable resource. These centers emerged because governmental agencies, private business, and educational institutions wanted to foster economic relationships with foreign countries. The primary beneficiary of these relationships are small and medium-sized companies who lack technical expertise, marketing strategies, and knowledge of the mechanics involved in exporting their products.

The various export centers operating throughout the United States develop plans based on the needs of a particular area, usually a section of a state. The centers analyze that particular sector's economic growth potential and its importance to the larger geographical area which encompasses it. To integrate the businesses in the targeted section with foreign firms, extensive research and sales contracts are generated and a network of international bankers, freight forwarders, lawyers, and state agencies (Miranda & Davis, 1988) is initiated for support purposes.

To compete internationally in the new economic environment, all segments of our society must understand how to access the infrastructure: particularly those with physical disabilities. Human resources must not be wasted; to squander this vital resource negates our potential to compete in the world's economic market. Thus, the following steps are recommended:

* Contact universities and colleges and ask what programs, centers, or institutes are available that offer seminars and technical assistance at no cost to cost ranges.

* Contact the State Development Office and ask for the person in charge of small business programs, international trade programs, community development programs, technical assistance programs or small business incubator programs. Schedule a teleconference or meeting with this person(s) and ask for specific help to identify or solve a particular problem,

* Call the state level Small Business Development center (SBDC) to identify the SBDC located in your area and ask the same types of questions. There should be no costs involved since SBDC's are sponsored by the Small Business Administration (SBA) for technical assistance and counseling,

* If these efforts do not result in the help needed, call the Auburn University Economic Development Institute and the staff will direct you to a viable source and send you one package of information with all these data at no cost. The Institute is making every attempt to bring greater congruency between existing resources and faculty expertise and the opportunity for entrepreneurs to be self-employed. Although the Institute works with all people, entrepreneurs with all types of disabilities are encouraged to take advantage of these resources and opportunities.

A Word of Caution and Encouragement

Starting any business is a challenge replete with unique obstacles. Overcoming these obstacles requires good management skills, long-range commitment, and financial stability. These programs and others are revversing traditional statistics that state that four of five small businesses fail (Blankenhorn, 1987). If individuals with physical disabilities want to be independent, productive, and an integral part of the new economy, self-employment offers a viable option. However, each entrepreneur must make the commitment required to succeed, must understand why failure strikes a large percentage of all small businesses, and must manage to avoid the pitfalls. The four programs and processes described herein reduce the possibility of failure. Success in a business today has infinitely more probabilities than ever before. To bring significant numbers of workers with physical disabilities into higher-skilled and higher-paying employment presents a challenge to everyone involved. However, with states offering a wide variety of programs to assist entrepreneurs, it will not be as difficult today to meet this challenge and succeed in self-employment as it has been in the past to convince many of the large traditional firms to hire applicants with disabilities. The new economic infrastructure provides an exciting, challenging, and diverse knowledge-based economy which offers creative people with disabilities in America an opportunity and a challenge to become a permanent part of this new economy.


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BETTYE B. BURKHALTER, Director and Professor, Auburn University Economic Development Institute, College of Education, Auburn University, Alabama 236849-5112.
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Author:Curtis, James P.
Publication:The Journal of Rehabilitation
Date:Oct 1, 1990
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