#507. Economic Gardening – Stage 2

Economic Gardening – Stage 2

Christian “Chris” Gibbons is the CEO of the National Center for Economic Gardening. We’ve been following his work for the past decade, attended one of his Economic Gardening Gatherings, and been  big fans of how “growing your own” is transformative for towns. In the 1980’s, when Chris served as the Director of Business/Industry Affairs for the City of Littleton, Colorado, he helped developed the concept of “Economic Gardening”, the entrepreneurial approach to economic development. Economic Gardening is a “grow from within” strategy targeting existing growth companies and offering them critical strategic information that is customized to their needs.  Below is a recent post from Chris that looks at “Stage 2” companies.

One of the questions that comes up in Economic Gardening is why the focus on stage 2 companies.  There are several reasons:

*  We have known for more than 25 years that about 90% of all companies will never exceed 10 employees (varies by year and region but bear with me).
*   Further, we have known that there is a strong power law associated with company growth (80/20 rule) that results from complex adaptive systems living at the edge of chaos.
*   The total number of jobs created by stage 1 companies is big because there are so many stage one companies, but the number per company is typically in the 1-2 range.
*   Further, these are typically low paying/no benefit jobs that come and go pretty quickly.  Many retail and local service companies have this pattern.
*   Stage 2 companies typically are 8-10% of any local mix but often produce 30-40% of the jobs in an area.
*   Stage 2 companies (especially those selling innovation to external markets) often pay better and have better benefits.
*   Stage 3 and 4 companies have even better ratios but they don’t exist in many communities.  New York, Dallas, the Bay Area and Seattle do well with this strategy but you don’t find these companies scattered across the landscape.

Here’s a different way to think about it.  If you lined up all the start-up companies at a starting line of a 100 meter race and had to bet on the top 10% , could you do it?  What about if you could freeze frame the race at 40 meters and then bet on the companies?

By requiring that companies in Economic Gardening have a million dollars in sales, we have some proof of market.  By requiring that they have 10 employees, we have some proof of management skills.  Two of the big question marks about their growth potential have been answered to some degree and 90% of the field weeded out.  The odds for success have increased tremendously.  Add to that small group two other elements — sophisticated corporate level tools (that they typically can’t afford) and frameworks for working with five strategic classes of business problems – then you have increased the odds for success even more.

It is this disciplined process that results in the great outcomes we get with job growth and revenue increases.  It is why we have focused all of our recent efforts on ensuring high fidelity projects. If you use the approach that we developed over 25 years (including not making all of those mistakes we made in the learning process),  you are going to have a pretty airtight program for growing your local economy.

If I had to sum up a career in economic development, it would be this:  export innovation. Everything else feeds into that.

To learn more about the National Center for Economic Development, visit here.