Beth Plutchak Consulting LLC

…or will it take a huge influx of cash to fund the program?

cross-posted to Reimagine Rural

Mike Knutson of Reimagine Rural recently asked my partner Sue Gleason of SyzyGy50  and me about our experiences with the Sauk County Development Corporation Economic Gardening Pilot Project. Thanks Mike for the opportunity.

In 2008 Alliant Energy Company brought Chris Gibbons, the guru of Economic Gardening to Madison, WI as part of an ongoing series on local Economic Development. At the time I had just left a career in banking to start consulting for businesses and Economic Development Organizations. My partner Sue Gleason, was still working for Thrive, an eight county Economic Development Region located in overwhelmingly rural South Central Wisconsin.

There were a number of things that really rang true for me in that eight hour session:

• the importance of growing local businesses rather than traditional retention and recruitment
• the availability of tools for businesses that had been unavailable in the recent past
• the data showing that even though we all knew jobs were created by small businesses, we now know that net jobs are created by small businesses with certain characteristics
• the importance of supporting local entrepreneurs.

Sue and I were both pretty sold on the approach early on in the session. In the afternoon the inevitable question came up, “Well, this all sounds very good, but how much does it cost?” Gibbons program in Littleton, CO cost approximately $600,000 per year, which puts it well out of the range of rural communities. The major expenses of the program are salaries for trained staff and the cost of databases and tools. The funding mechanism for the Colorado program is unavailable in Wisconsin, except at the state level. Businesses in Littleton pay income taxes to the City. As their revenues grow the city’s tax receipts grow, a nice direct feedback mechanism. Much of the new activity in Economic Gardening has taken place at the state level in Florida and Washington State, for example, where state income tax revenues fund the program.

Fast forward to 2010

Sue was also working as an independent consultant by this time. We continued our conversations on how to bring an Economic Gardening Program into Wisconsin. Agencies were interested, but the issue always came back to the budget. Fond du Lac County and the City of Mauston were able to obtain grants to put programs in place, but the nature of grant funding is to go away once the program has been in existence for a period of time. The then Executive Director of the Sauk County Development Corporation, Karna Hanna, had also attended the Alliant Energy session in 2008. She was interested in putting together a program, but her budget would not support one.

We started taking a harder look at the budget elements. The main costs are staff and databases. Sue and I were already trained in the tools and had some experience using them. We had each attended the Economic Gardening training sessions at the Edward Lowe Foundation. We could contract the work and SCDC would not have to fund additional staff. The costs of databases continued to come down, largely with the help of Chris Gibbons who has been working to convince some of the large providers that there is a market for lower priced tools. Some of the databases were already available to us through the South Central Wisconsin Library System and the University of Wisconsin Business School Library.

We thought, why don’t we do what rural people always do, and make the best use of what we have available, rather than waiting until we can afford more?

What about the costs?

The missing piece was how to pay for Sue and my consulting time, since we would be performing the role of paid staff. One of the issues that Gibbons emphasizes in the Economic Gardening Training is the disastrous consequences for local communities of the so-called race to the bottom. Whenever companies focus on cutting costs in order to lower their prices, they are setting themselves up to be put out of business by someone with the capital to cut price even deeper. Economic Gardening gives companies the tools they need to protect their margins, and to innovate in ways that create barriers to entry for their competition. We didn’t need to provide services for free. We needed to show Return on Investment.

We began our program with a pilot that ran until the end of 2010. The pilot was funded by grants from Alliant Energy, the W. R. and Floy A. Sauey Family Foundation, and in-kind donations of time. The participant companies paid $100 per company to take part. The pilot funding covered services to the companies of $100 per hour in consulting fees, plus extra costs of database passes and tools. These costs will be borne fully by participating companies going forward. The total budget for the pilot program was just under $20,000. We went into the pilot with the following assumptions:

• There is a need and desire for this program in Rural Communities
• Companies will pay for services that directly impact their bottom line
• Consultants who have been through the Lowe Foundation Economic Gardening training are well equipped to provide the technical services the program requires
• The cost of ongoing professional development, both formal (Lowe Training) and informal (learning the new tools) can be borne by the consultants and factored into the costs of services
• Program overhead costs could also be borne by the consultants as the day-to-day costs of running their businesses
• It is important to have SCDC sponsor the program
• SCDC and the consultants would be able to build awareness of the program through press releases and direct contact with companies which could potentially benefit from the program, as well as word of mouth referrals

During the pilot stage we worked with nine separate companies, providing a variety of services. After the pilot we asked the companies to take part in a survey, and the new SCDC Director Gene Dalhoff conducted interviews with the company owners. The companies overwhelmingly wanted SCDC to continue with the project.

What did we learn?

We have a couple of challenges going forward. One is building word of mouth about the program. This is harder than we thought it would be. There were also costs associated with the start-up which we didn’t accurately estimate. Sue and I spent more time on program development, materials development, marketing and training than we expected we would. We are currently in talks with the family foundation that funded the pilot, concerning funding for program start-up costs as we transition to a self-funded program. We are also looking at spreading the costs among EDOs, by inviting other agencies and municipalities to take part in our model. There will likely be some kind of membership cost to establish and maintain a program, but we still expect the majority of the funding to come from fees to the businesses that take part. We intend to keep EDO costs as low as possible. The results of the SCDC pilot study can be found here.

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Economic Gardening Key Concepts

Innovation is one of the key concepts behind the technical assistance associated with Economic Gardening Programs. Here’s a neat little picture to explain why innovation is so important to small businesses.  

Let’s look at Volume Versus Price one quadrant at a time

• High Volume High Prices – Wouldn’t we all just love to be here? Nobody stays here long because every competitor goes here and drives prices down.
• Low Prices Low Volume – No one can survive here for long.
• High Volume Low Prices – Small businesses can’t survive here for long, either. At some point their prices will be undercut by someone who is better capitalized and can take losses as they convert sales.
• Lower Volume with Higher Prices is the only quadrant that offers long-term stability to small business.

Conventional wisdom is that companies need to cut prices when their competitors do to maintain their sales. The more difficult strategy is to add value that you can charge a premium for.

My local grocery store did an expansion a couple of years ago, when the Super Walmart opened down the highway in Baraboo. Instead of dropping grocery prices they expanded their specialty selections and carried more higher margin items. The area is known for meats and cheeses. They carry a number of local specialty cheeses which have been branded as Opahle’s. They’ve expanded their authentic Mexican foods (we have a growing Mexican population) and their organic foods. They offer items in sizes that appeal to empty nesters that make up a large portion of their demographic, and best of all if there is something they carry you want more of or something you wish they would carry, they will get it in for you. Corporate chain stores just can’t do that.

What does your company do that differentiates you from your competition? Are you able to get the demographic information you need to make these kinds of business decisions?

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The Sauk County Development Corporation Economic Gardening Pilot study results are now available here.

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For the past two months I have been working with Sauk County Economic Development Corporation and Sue Gleason at SyzyGy50 on an Economic Gardening Pilot Program for businesses in Sauk County. I’ve said it before and I’ll say it again, businesses are in business to make money, not to cut costs. It’s all about the margins. Traditional Economic Gardening Programs have offered free services to member businesses. The cost for these programs has been prohibitive for small agencies and rural communities. Ever since attending a workshop with Chris Gibbons three years ago I’ve been trying to figure out a way to bring an Economic Gardening Program to the communities I work in.

Last summer I had a flash of inspiration. This program could be offered to local EDs, Chambers and Municipalities as a self-funded program, at no cost to the agency. Once we are able to show the benefit of the program to local businesses they would be willing to pay for the services. We actually did find funding to support the pilot stage of the program. Alliant Energy gave us an Economic Development grant. The W. R. and Floy A. Sauey Family Foundation also provided start-up funds. My partner Sue and I have provided the services.

So far, we have met with 7 companies and provided services to 5. Early feedback has been amazing. A small start, for sure, but we are a small, rural Wisconsin county with some great entrepreneurs. Businesses out here tend to manufacturing and construction. Both of these industries have been heavily hit by the current recession. Manufacturing is a mature industry. The entrepreneurs who will survive are the ones who are being innovative and watching out for the margins. One of the managers we met with told a story of being brought in to run a local company with absentee owners. He was told that the owners did not want to spend any money. He replied what they wanted was to make money and he proceeded to take the innovative approach to the business and except for a hiccup in 2007 the business has been growing ever since. Yes. Growing in this economy.

I am in the process of updating my website and will be adding more information about the successes of this program to the sidebars.

And for my skiffy geek followers – It’s Minas Tirith

In Matchsticks!!!

The Matchstick Marvels Museum was awarded the Iowa Tourism Attraction of the year in 2007. It took the artist Patrick Acton from April 7, 2007 to February 15, 2010 to complete the model using 420,000 matchsticks.

You can actually see this in person through the end of November 30th, 2010.

Today seems to be the day for the science fiction writers I follow to talk about Economic Development.The writer Tobias Buckell has discovered the walkscore tool. He talks about it in reference to his community here. Read the comments, as well. Commenters are also talking about walkability in their communities.

I love it when my SF and writing world collides with my Economic Development world.

For those new to the idea – the first place is where you live, the second where you work, the third where you choose to spend your time. The writer Deborah Ross does an exceptionally nice job of explaining why third place matters in writing about her small town Boulder Creek, CA at Bookview Cafe.

This is the kind of information that is most meaningful to me in understanding how real people use their communities. No economic development theory here, a working writer describes Boulder Creek, CA as the place she has chosen to make her first, second and third places.

I have become increasingly convinced that the old strategies for economic revitalization simply do not work. Everytime I read a story about how much money is spent per job to lure large companies to a community the practical side of my nature has me wondering if it wouldn’t be a lot more efficient to just give the cash to the same number of unemployed or underemployed people.

The Kaufmann Foundation has just released a new study on job creation. They start out by saying:

“The oft-quoted American sports slogan, “Winning isn’t everything. It’s the only thing!” could well be attributed to the economic importance of firm formation in creating jobs. A relatively new dataset from the U.S. government called Business Dynamics Statistics (BDS) confirms that startups aren’t everything when it comes to job growth. They’re the only thing.”

 M. C. Escher in LEGOs

By Queuebot in Arts & Crafts, Lego, Neatorama Only, Pictures, Toy & Video Games on Jul 2, 2010 at 1:17 pm

Next up is Belvedere, which require the use of tricky half-brick spacing, diagonal beams and photography from just the right viewpoint. Andrew’s webpage has the construction details and more awesome photos.

Ascending and Descending is Andrew and Daniel’s third Escher art rendered in LEGO:

The secret is that the staircase spirals up and in: if you look at it from exactly the right position, the edge of the top step looks as though it’s just lined up with the edge of the bottom step. The picture shows what’s going on – I took it from a slightly different position and the edges no longer meet. Actually, because the lower edge is further from the camera than the top one, it looks smaller; we had to build it 

wider to compensate.
Escher’s Relativity in LEGO by Andrew Lipson and Daniel Shiu, inspired by M.C. Escher’s Relativity (1953)

The pair’s fourth creation is M.C. Escher’s Relativity. There’s no optical trick involved here, but the multiple directionality of the piece requires a nifty LEGO trick:

Unlike many of Escher’s other “impossible” pictures (like “Ascending and Descending“), there is actually no optical illusion involved here. Gravity seems to be working in three different directions simultaneously, but the picture shows a perfectly self-consistent physical scene. So modelling it should certainly be feasible. But while Escher’s picture has three different “up”s, LEGO isn’t quite so flexible…

For LEGO afficionados, the most significant thing about our version is the widespread use of SNOT (“Studs not on top”) techniques – in plain English, having the LEGO studs pointing in lots of different directions. There are various tricks for making this work in general, and we probably used all of them here.

More here.