Imagine yourself running a non-profit in one of the hardest hit economic areas of the country and feeling like you're making progress with your mission of advancing economic development through a focus in innovation and entrepreneurship. Then, imagine the White House calling and saying that they were so excited by what they were observing in terms of the state of change in the region that they wanted to come look and learn for themselves. Well that's exactly what happened here.
On February 22, President Obama visited Cleveland with an impressive team of five cabinet members and two senior administration officials for the first in a series of Winning the Future Forum on Small Business gatherings across the country. He met with an invited group of philanthropic and corporate community leaders and high growth and main street entrepreneurs to talk about everything from clean technology to exports. I was lucky enough to be part of that intimate and engaged crowd, both as a representative of JumpStart, a nonprofit working to increase the impact of entrepreneurial ventures and the ecosystems supporting their growth, and as a volunteer note-taker for one of the five breakout sessions.
In my roundtable discussion on entrepreneurship, I was very surprised to find that getting money wasn't the top topic for all participants, as one might guess. For instance, Jodi Marchewitz, an IT entrepreneur whose company iGuiders develops solutions to improve online search and lead generation, commented that her problem was connecting to many more people like Steve Case who had "been there, done that." Jodi voiced that, more than anything, she was facing issues of scalability and wanted to connect with others across the country who could offer business development opportunities and help with key challenges. Although she had resources regionally, she hoped to find assistance from successful entrepreneurs from other parts of the country, like Silicon Valley.
And whether the discussion among entrepreneurs is around connecting to consumers, mentoring or workforce development, clearly there are many obstacles emerging companies face. It's all about threats to success. And from all indications, the same is true nationally.
The global economy is a threat to our way life. Let's admit it. Challenged on all sides, America is struggling. The United States ranked fifth in venture capital investment (Sweden was first), fifth in corporate research and development spending (Japan led), and fourth in science and technology researchers (again, Sweden was first) according to the Information Technology & Innovation Foundation. And, although China isn't more technologically advanced than the U.S., its economy has been growing a rate of about ten percent for the last decade, far surpassing that of the U.S.
Getting back ahead of the pack isn't as clear of a proposition as it was during the Cold War. When the Soviet Union launched Sputnik 1, the first Earth-orbiting artificial satellite, in the fall of 1957, Uncle Sam wasn't going to take second place behind the USSR. Almost immediately, the federal government took action, sinking billions of dollars into R&D, the Department of Defense, science and math education and the creation of NASA to rectify the situation. In fact, the "space race" was conceived, financed, and led almost solely by the national government. If only the solution to getting ahead in today's competitive global economy could be as top down and direct.
In his State of the Union address and during his recent visit to Cleveland, President Obama asserted that America needed to "out-build, out-innovate and out-educate the rest of the world" to win the future. Doing so certainly would strengthen the American economy and create much-needed jobs. Currently, 14 million Americans are unemployed, and nearly half of those individuals have been out of work for 27 weeks or more.
With its Startup America Initiative, the White House is focused on entrepreneurship since two out of every three new jobs are created by small businesses, and a lack of job creation is a leading factor in our nation's 9 percent unemployment rate. Innovative small businesse -- those built on transformative technologies with high-growth potential -- are that much more impactful. In fact, all net new jobs have been created by firms under five years old. Young, high growth entrepreneurial companies make higher relative investments in innovation than their larger counterparts and are responsible for 95 percent of transformative inventions.
But, while fostering entrepreneurship and accelerating high growth startups are sound tactics, the task is daunting, at best. A new Kauffman Foundation report states that we need to stimulate the creation of 60 new billion-dollar companies to produce 1 percent growth. How can a cash-strapped federal government working with a nation of deficit-ridden states solve such a significant and multifaceted problem in a compressed period of time?
One possibility that would not cost taxpayers a dime and that is being debated in the Senate is to direct a greater portion of government agency funds to support small business research and development activities. Agencies with more than $100 million in extramural R&D are required to allocate a percentage of their budgets exclusively for small businesses. The current 2.5 percent set-aside resulted in the availability of approximately $2.5 billion in fiscal year 2009. If that could be increased by even a percent, the impact would be enormous.
Roughly another billion dollars seems like a lot of money, but with so much transformative innovation occurring within the startup realm, seed stage money directed towards innovation can be the lifeblood a young company needs to achieve commercialization of their ideas. Ultimately, it should make America more innovative, employ engineers and scientists and create significant numbers of new jobs.
But this alone does not solve our country's problems and while the Administration already has redirected some resources and created programs at the federal level, including directing $2 billion over the next five years to match private sector investments by way of the Small Business Administration (SBA), perhaps one of the most vital things the administration can achieve through its initiative is the uniting of private sector resources. The Startup America Partnership, the private sector's response to the White House's "call to action," is an alliance of the country's most innovative entrepreneurs, investors, corporations, and foundations devoted to the issue.
If successfully mobilized, this public, private and philanthropic partnership (4P) should result in greater access to capital, spur the development of regional accelerators and aid in the development and sharing of best practice, economic development models. In other words, what has already happened in the microcosm of the 21 counties of Northeast Ohio could in part, or in whole, be used as an example for other economically challenged areas across the country. These "4P" efforts are what will generate the type of entrepreneurial activity that can begin to create successful companies, globally competitive innovations and significant jobs in the next decade.
And the White House knows this. When President Obama visited Cleveland last month, he made it abundantly clear that he was well-versed in the creative, cooperative work done in Greater Cleveland by JumpStart, NorTech, BioEnterprise, Magnet, GLIDE and others to expand the impact of entrepreneurial ventures and transform our "rust belt" into a "tech-belt."
By bringing the President, five cabinet and two senior administration members to a Midwest city whose venture capital investment growth managed to outpace much of the country in 2010, the White House has shone a spotlight on the potential of entrepreneurship for economic recovery.
Merely hosting this forum on small business tells me that the White House is serious about championing a national movement to create jobs. And kicking off these forums in a city working to pull itself up by its bootstraps -- led by private and philanthropic sectors -- tells me the administration knows this needs to be a bottoms-up movement.
President Obama and his administration are doing what they need to do: shining the brightest spotlight possible on entrepreneurship as a solution to our nation's job crisis. Now it's up to private and philanthropic entities working across cities, regions, states, and the country to come together and leverage this unique moment in time.
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