The Rural Entrepreneurship Initiative (REI) is a project sponsored by the Ewing Marion Kauffman Foundation's Kauffman Center for Entrepreneurial Leadership (Kauffman Center). Other partners in the project include the National Rural Development Partnership, Partners for Rural America and the Nebraska Community Foundation.
In 1999, the Kauffman Center evaluated the available information on entrepreneurship and identified a shortage of research and knowledge about entrepreneurship in rural areas. REI's goal is to increase understanding about the challenges rural entrepreneurs face and how entrepreneurship can help build rural economies.
To collect information, REI selected four Discovery States—Maine, Minnesota, Missouri and West Virginia. Throughout the year 2000, the states brought rural leaders and policymakers together to discuss entrepreneurship in their communities. The discussions resulted in policy papers from each of the four states that outlined the challenges to and opportunities for increasing entrepreneurship in rural areas. Community Dividend met with Jay Kayne, vice president of community and policy at the Kauffman Center, and Don Macke, REI project coordinator, to discuss their findings to date.
Community Dividend: Let's begin with a general question. How do you define entrepreneurship? For REI's purposes, do you distinguish between entrepreneurship and small business development?
Jay Kayne: I'm not sure that there is a clear definition, but one way to think about it is that traditionally, small business development is about enterprises, while entrepreneurship deals with the human side of things. Entrepreneurship is about the individual—not the attraction of an enterprise to a community. Entrepreneurs are creating something and taking calculated risks. We are really looking at a community's entrepreneurial culture—entrepreneurship flourishes when there is a culture of entrepreneurship in the community.
Don Macke: Most entrepreneurial businesses fit the small-business definition, but the opposite isn't necessarily true—all small businesses are not entrepreneurial. The difference is the approach to doing business. Particularly in the rural setting, there are motivational and behavioral differences between developing a small business and encouraging entrepreneurship.
JK: And we don't mean to suggest that small business development in rural communities isn't important. But traditionally, small businesses in rural areas—like Main Street grocery stores—have been related to the retail and service industries, which are dependent on some other export. Entrepreneurs create businesses that attract revenues from outside the community, so they are less dependent on the ups and downs of the local economy.
CD: Why is looking specifically at entrepreneurship in rural communities important?
JK: It's important because entrepreneurship increases the size of the economic pie. Entrepreneurship creates wealth instead of simply redistributing it.
DM: It's also important because of rural America's historic dependence on industries that are now either stagnant or in decline and aren't producing a lot of community wealth. Rural America needs to look at new opportunities, such as entrepreneurship, that are not tied to declining industries.
CD: How does a strong entrepreneurship base benefit rural communities?
JK: We don't have any statistics yet, but I would speculate that the return on an investment in entrepreneurship is much higher than the return on an industrial-attraction strategy. Again, entrepreneurship creates wealth. And entrepreneurship benefits communities by keeping wealth in the communities.
DM: And it goes beyond the wealth-building component. In rural communities, if you have a strong cadre of entrepreneurship, it has some profound impacts on the community's quality of life. That community will have qualities that are attractive to outsiders and it will retain people who already live there. The simple fact that there are strong entrepreneurial businesses may attract outsiders who are in search of a job or are interested in becoming entrepreneurs themselves.
CD: What do REI's findings reveal about the challenges that rural entrepreneurs face?
JK: We've identified a number of key barriers to entrepreneurship in rural communities, including a culture that doesn't support entrepreneurship, geographical distance to markets and services like product-marketing resources and gaps in capital availability. Also, there's often an absence of other entrepreneurs and industry clusters, and meeting the threshold of demand to justify location of support services can be a problem.
CD: On the positive side, do rural entrepreneurs have any advantages over their urban counterparts?
JK: Rural communities still have benefits such as lower labor and land costs. One newer benefit is technology. The Internet has broadened the opportunities for rural entrepreneurship. Provided they can overcome the barrier of broadband capacity, people don't need to be in Silicon Valley to grow businesses anymore. The playing field has changed. Now rural entrepreneurs can be connected anywhere in the world within microseconds.
CD: Have you seen local actions resulting from REI's findings?
DM: We're only in the beginning stages of this project, so that's difficult to evaluate at this point. What we have seen is that the organizations that participated in the project found the learning and discussion part of the initiative very empowering. One thing that has emerged is the formation of coalitions that are interested in this topic. It's difficult to determine if that effort will sustain itself, but the whole process was very energizing for most participants.
CD: How can local rural leaders like community bankers and development representatives get involved in supporting and increasing entrepreneurship in rural areas?
JK: A rural leader really has to play all the roles that specialized professionals play in urban areas. It's not uncommon to find that everybody does a little bit of everything in rural communities. Adding support of entrepreneurship to that would be a big step.
DM: Leaders can also help by contributing their skills and knowledge to these communities. They can facilitate information about entrepreneurship through Web sites and networks.
CD: How can the flow of capital to rural entrepreneurs be increased?
DM: One strategy is to identify who your entrepreneurs are and what they're doing. Once you know who the entrepreneurs in your community are, visit with them and inquire about what challenges they are facing with accessing capital.
We've also found that places with strong microenterprise activity have sophisticated capital systems, so assistance in maneuvering through these systems would be helpful. One last strategy is to help entrepreneurs polish their deals. Local banks and investors can partner with entrepreneurs on these types of things.
JK: Another thought on this is that the potential for rural angel investors has not been tapped. To some wealthy people, angel investing is a recreational sport. They do it for fun and excitement. Angels have been used in urban settings, but they haven't invested as much in rural communities. We need to communicate to them why it is just as good of an opportunity. Investing in entrepreneurship is just as important as investing in schools. (Editor's note: for more information on angel investing, see the sidebar to our cover story.)
DM: That's a good point. Setting up angel networks and conducting training on how to be a good angel would be a possibility. We've had very positive results from those kinds of activities.
CD: What are the future plans and goals of REI?
JK: Our initial goal was to understand the issues. Now we have to ask ourselves, "So what? How do we overcome the barriers that we identified?"
DM: We also need to educate communities about how they can support entrepreneurship and how it benefits the entire community. We have a lot more work to do, but the future looks bright. In all four states where we did field work, a significant number of individuals had entrepreneurial hopes. The large pool of potential entrepreneurs in rural settings is a positive sign that opportunities to build rural entrepreneurship are present.
