Can Economic Gardening Really Work in Rural Areas?

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

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.