Small Business and the Oregon Economy

Transcription

1 Small Business and the Oregon Economy The Biennial Report of the Governor s Small Business Council of Oregon October 2002

2 Table of Contents PART I: INTRODUCTION 3 Goals of the Council 2 Background Information About Small Business 2 PART II: FINDINGS 9 Understanding the Dynamics of Small Businesses 10 Small Business Challenges 11 Recommendations and Program Status 15 A: Establish an Oregon Office of Small Business 16 B: Enhance Access, Marketing and Coordination of Small Business Services 17 C: Increase the Competitiveness of Oregon Small Businesses 20 D: Improve the Business Climate for Oregon Business Development 25 Activity Summary & Estimated Budget 29 Governor's Small Business Council Membership Attachments Governors Small Business Council ii

3 Small Business in Oregon: Part I: Introduction Small business is the base of the Oregon economy. Not only do small businesses provide jobs and bring revenue into the state, they represent a significant part of our culture. For many people, starting their own business is the fulfillment a dream. In doing so, they not only create economic opportunity for themselves and those they employ, they contribute to the livability and sustainability of their community. The Oregon economy, even more than most states, is dependent upon the success of small businesses. In 2001, the U.S. Small Business Administration calculated that Oregon had about 262,000 small businesses (defined as fewer than 500 employees). Of these small businesses, about 170,000 were self-employed persons, a decline of about 10% from 1999 and 99,943 were firms with employees, an increase of 3% from In Oregon 8.9% of workers are self-employed, compared to a national average of only 6.6%, with the highest percentages of self-employment in rural counties. Small businesses accounted for over 97 % of all Oregon firms with employees, and provided 750,000 total jobs (over 57% of all state employment), in addition to the self-employed. Manufacturing was the largest segment of small business employment, and is also a contributor of export dollars to the Oregon economy. Recent SBA research also indicates that small businesses are responsible for the vast majority of net new job growth in the economy. Small businesses are also a major source of innovation and technology development, often resulting in rapid business growth, new traded sector products, and sometimes the development of whole new industry segments. This adds to the diversity, competitiveness, and growth of the State's economy In fact, many of the State's current major employers started as Oregon small businesses, and some of today s small businesses may be the economic leaders of tomorrow. In recessionary periods such as Oregon and the nation are currently experiencing, small businesses also provide jobs and self-employment revenue for individuals who loose their employment at larger businesses. Unfortunately the economic downturn has also had negative impacts on small businesses resulting in reduced earnings, and a 5% increase in business bankruptcies to 1389 filings in The decline in business revenue has also had a negative impact on state tax collections. Governors Small Business Council iii

4 The importance of small business to Oregon's economy is a primary reason why Governor John Kitzhaber established the Governor s Small Business Council in Executive Order directed the Council to: To gather input on issues affecting the climate of small businesses in Oregon. Develop and recommend to the Governor a formal policy supporting the advancement and success of small businesses. Develop a public policy agenda that enables small business to have a voice in policymaking. Identify and evaluate state regulations that unreasonably constrain small business, and recommend changes in state programs, laws, policies and services for more efficient development of small businesses. Goals of the Small Business Council The adopted mission of the Governor s Small Business Council is to improve the development, growth and vitality of Oregon s small businesses. Through the recommendations outlined in this report, and interaction with public and private organizations the Council seeks to achieve specific objectives that include: A Vibrant Business Climate: The environment for small business formation and development will be improved. Effective Services to small businesses: Both public and private services provided to small businesses will be more efficient and effective. Uniform Access to economic opportunity: All segments and geographic locations of small businesses will have equal access to economic opportunities. Enhanced Advocacy: Small businesses can effectively be heard and participate in issues that affect their well-being. The varied roles of small business Like other parts of our economy, small businesses are changing rapidly. The size and types of firms that make up the community of small businesses looks different than it did 20 years ago. Traditional manufacturing firms are being replaced with knowledge-based companies. There are more self-employed individuals and micro-businesses than ever before. Small businesses, especially those in emerging industries, account for the majority of patents and new product development. Small businesses range from globally competitive firms to the traditional corner store each playing a valuable role in our new economy. The health of Oregon s economy is also dependent on transactions between small business and large firms. Strategic alliances and partnerships are becoming more critical to business Governors Small Business Council 2

5 success. Large firms provide opportunities for small businesses to sell a variety of materials, goods and services--everything from janitorial services to subassemblies to professional public relations and advertising. In addition, many of the high technology and knowledgebased firms eventually spin off new small companies that soon attract capital and are able to rapidly grow and create new jobs for the state. Small businesses are not just suppliers to large firms. The fastest job and revenue growth rates in recent years were in small businesses within industry segments directly tied to the knowledge-based economy. These emerging industry companies are developing innovative applications of technologies and reengineering business processes. They sell their services to large and small firms in a variety of sectors including traditional industries such as transportation, natural resources, and manufacturing. The vast majority of Oregon s software, professional and creative services are supplied by firms with fewer than 100 people. These firms not only do business with other Oregon firms, they sell their services nationally, and even internationally, creating new wealth for the state. Finally, there is a segment of small businesses that primarily support their local economy and serve the residents of that community. They can range from construction to retail to professional services. They not only provide a wide range of jobs, they are key contributors to their communities. In summary, it is the mix and diversity of Oregon small businesses that makes the economy healthy. The goal of developing a statewide small business strategy is to maintain and enhance this diversity, and to ensure the strong connection of small business to the other parts of Oregon's economy. National Business Trends Affecting Small Businesses National business and economic trends have a significant impact on small businesses. Recognizing these trends and understanding their effect on local companies will help to enhance the efforts of small business assistance in Oregon. The reduction and restructuring of relationships between large firms and their vendors is forcing a change in business practices for many suppliers. Corporations are continuing to reduce the number of their suppliers, and are also shifting many cost burdens to suppliers, requiring investment in new technologies and business practices that may be hard for small business to finance. Corporate downsizing of full time, permanent workers, which has increased during the recession, is leading to a dramatic rise in the need for temporary and contract labor at all skill levels, creating opportunities for small businesses to fulfill operations that were once completed in-house. The increased use of electronic communications is changing business operations on many levels. E-Commerce is becoming a standard tool for business-to-business and business-to-consumer transactions. The Internet offers new methods of communication, technical assistance, and marketing. Electronic Data Interchange (EDI) is linking networks of businesses allowing ordering, payment and delivery tracking to occur interactively. The migration of EDI standards to XML- based internet communications makes it less expensive for small business to implement EDI. Governors Small Business Council 3

6 Regulatory burdens disproportionately fall on small businesses. A 2001 SBA Report to Congress confirms that companies with fewer employees pay a disproportional cost for regulatory compliance. The majority of this regulatory burden falls in the tax compliance and payroll record keeping areas. Firms with fewer than 10 employees report that more than 80% of their regulatory burden is contained in these two categories. While the number of applicable regulations can increase with a firm's size, the cost per employee for almost all compliance issues decreases with employee expansion. Firms with less than 20 employees were found to have a regulatory compliance cost of $6,975 per employee, almost 60% more per employee than businesses employing more than 500 people. A study by Battelle Northwest similarly found that companies with fewer than 50 employees incurred costs up to 10 times higher in every one of the 21 compliance categories investigated, and on average pays more than twice the total regulatory cost per employee of larger firms. Although many small businesses provide a good return on the investment and labor of the owners, the risks of failure are great. The failure rate of small businesses is high, particularly during the first five years in business. Even well established small businesses often fail due to poor management, changes in the market for their product or service, or general economic weakness. When a small business fails, the consequences are usually more severe than the loss of current income from being employed, since the owners have often invested much of their savings, and may have borrowed against personal assets such as their home. Even small business which do not fail, often provide less economic return to the owners than they might receive by working for others and investing their assets in other ways. Operating experience reports from many industries indicate that the average business owner often does not get a reasonable, risk adjusted, market rate of return for the assets and personal labor they have invested in their business. Small business owners often have poor accounting systems, and frequently fail to fully include a market rate of return for the cash, real estate, or other assets they have invested, or an adequate personal salary for the long hours they spend trying to make the business successful. A Snapshot of Oregon Business While the Small Business Administration uses 500 employees as the cut-off for a small business, Oregon views small businesses as those with less than 200 employees (Oregon Small Business Act of 1983). Even using this smaller number of employees as a focal point, it still represents over 90% of all Oregon firms. Governors Small Business Council 4 Oregon Businesses % Oregon s Small Businesses at a 45% 40% Glance (2001): 35% 30% % of Firms Number of small businesses 1 25% with employees: 99,943 % of employmen 20% 15% 10% 5% 0% 1 Small Business Administration defines small business as a firm with fewer than 500 employees States count employment as persons working for firms with one or more people. It does not count self-employment because 499 individuals do not typically file un-employment Insurance reports. Size of Firm

7 Estimated number of self-employed: 170,000 Percent of firms with less than 500 employees: 97.6% Percent of firms with less than 20 employees: 87% Percent of firms with less than 5 employees: 32% Small business employment as a percent of state employment: 57% 2i Job Growth: From 1992 to 1996, Oregon small businesses created 98% of all net new jobs From 1992 to 1996, job creation occurred in practically all sizes and sectors of the economy. Number of jobs created by industry sector: Industry 1-4 employees All Industries 83,488 33,722 13,844 25,753 2,312 Manufacturing 1,470 3,297 3,423 10,101 5,154 Retail Trade 15,598 6,407 (581) 729 (4808) Services 40,341 12,728 6,725 5,913 (4,939) Other 26,078 11,292 4,277 9,012 6,905 Women-owned Businesses Nationally, women-owned businesses have experienced rapid growth. The latest economic census information indicates that women owned an estimated 27.6% of the state's businesses in 1997 and generated $10.3 billion in revenues. Of the state's total women-owned businesses only 15.9% had employees, whereas 38% of all Oregon businesses have employees. 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 0 Women-Owned Businesses Nationwide Governors Small Business Council 5

8 Nationally, women-owned firms account for 38% of all firms. In 1999, there were an estimated 9.1 million women-owned businesses in the nation, an increase in the number of firms of 103% since The growth was primarily in self-employed and sole proprietor forms of ownerships. The growth of self-employed women grew at 48% over that last decade while the growth for self-employed men was only 1.5% for the same time period. One in eight women-owned firms are owned by women of color. Only 8% of women-owned businesses are regular "C" corporations. Business sales of women owned businesses were up 436% since 1987 at $3.6 trillion (adjusting for inflation). Despite this increase, women-owned business receipts are still less than 50% of men s for the same number of businesses. Women-owned firms employed about 27.5 million workers, an increase of 320% since Yet, only about 14% of womenowned firms have employees. Women-owned businesses are overwhelming service-oriented (53%), with 18% in retail; 10% in finance and insurance, and less than 5% each in the construction, manufacturing, wholesale, transportation or agricultural industries. While women-owned businesses make up between % of all businesses in services and retail, they average less than 30% of the firms with employees. This is important because firms with employees are less likely to fail, and generally provide higher revenues for the owner than self-employed businesses. Women-owned businesses are as financially sound and creditworthy as the typical firm in the U.S. economy, and are more likely to remain in business than the average U.S. firm. While over half of women and men-owned businesses have bank financing, women entrepreneurs have lower levels of available credit than their male counterparts, and women of color are less likely than Caucasian women owners to have bank credit available. (Data source: US Small Business Administration, Office of Advocacy, October 1998 and National Foundation for Women Business Owners ) Minority-owned Businesses Minority owned businesses in Oregon totaled 18,200 in 1997, which is 6.2% of the state's businesses. Of these firms, 24.7% were employer firms. In 1997, there were approximately 3.5 million minority-owned businesses in the nation, an increase of 168% since These businesses generated about $495 billion in revenues, an increase of 343% since Minority-owned firms employed nearly 4 million workers, up 362% from (Source: US Small Business Administration Office of Advocacy, 1999.) Governors Small Business Council 6

9 Minority-Owned Businesses Nationwide Distribution of Minority Businesses in Oregon Asian 32% Hispanic 42% Asian 28% Black 26% Black 16% Hispanic 56% Ownership patterns for minority-owned businesses are similar to women-owned businesses in that there is a high percentage of firms without employees. The exception to this is Asianowned businesses where one in four firms have employees. This compares to one in seven Hispanic-owned businesses having employees, and one in ten for black-owned businesses. For each group, the number of businesses with employees grew less rapidly than the number of minority-owned businesses overall. Yet the survival rate for minority-owned businesses with employees is very high, with three-quarters of business in existence in 1992 still operating in The survival rate and revenues for self-employed was much lower. Minorities reported less use of credit, and of bank credit in particular. While over threequarters of all small businesses used credit, only two-thirds of minority businesses did. Almost 37% of all businesses used bank credit, while only 27% of minority businesses did so. These comparisons do not reveal whether different credit patterns represent problems in securing credit, or whether these differences are related to personal and cultural differences, or the size and type of business. Minorities are increasing their ability to obtain Prime Federal Contracts over $25,000. Over the past decade the total volume for all businesses was basically unchanged, while small businesses, especially minority-owned firms increased their share of federal contracts. Micro-Businesses Micro-businesses are generally defined as businesses with four or fewer participants. In Oregon, it is estimated that there are about 263,000 micro-businesses, including self employed persons, which is about 95% of all small businesses.. While they employ only about 5% of all other workers, when self employment is added, micro-businesses probably provide employment for 15% - 20% of the workforce. Micro- businesses often provide economic opportunities that might not otherwise occur. Many people start their own business because of a desire for more work flexibility than is usually available in employee situations, often to care for dependents, to semi-retire, or to pursue other non job interests. Others are sometimes forced into self employment because of a weak job market or the need to supplement a low paying job with extra income. Most of these new entrepreneurs possess a marketable skill learned from prior employment or a Governors Small Business Council 7

10 hobby, but they often lack the broad range of skills and experience needed to make a business successful. While all businesses can be said to start as micro-businesses, only a small percentage of them significantly expand in terms of employees after initial formation. Micro-enterprises A portion of micro-businesses are owned by individuals who are economically, socially or educationally disadvantaged. These businesses are now usually called "micro-enterprises". Micro-enterprise businesses typically produce a simple product or service using personal artistic or craft skills, and require only minimal amounts of capital Their product is often produced in their home, with the assistance of family or friends, and is frequently sold directly through non-conventional channels, such as festivals, coop marketplaces, or on the Internet. Unfortunately, most economic reporting systems do not capture accurate statistics on microenterprises that do not have covered employees, or which operate in the informal economy 3. The invisibility of this sector makes it difficult to estimate the number of low-income entrepreneurs in Oregon. In the United States, approximately 18% of all micro-businesses are low-income. 4 Using the same ratio would lead to an estimate of 45,000 low-income entrepreneurs in Oregon. While this is only an estimate, it points to the fact that there are a significant number of low-income entrepreneurs in the state and that there may be unmet demand for micro-enterprise support services. A strategy of micro-enterprise development can be an effective way to assist low-income individuals. Research by the Self-Employment Learning Project indicates that programs designed to assist low-income entrepreneurs can increase household income in many cases enough to move a household out of poverty and to significantly reduce their reliance on government assistance. To address the unique needs of these micro-enterprises, programs need to understand and address elements of life quality, sustainability, and poverty alleviation that are not the typical focus of small businesses assistance programs. Micro-enterprise assistance is a community based economic development strategy that works in rural areas as well as distressed urban areas. Over the past decade there has been a rapid growth in the number of micro-enterprise lending and training programs in the United States, including the Oregon Micro Enterprise Network (OMEN) Emerging New Economy Businesses There is also a segment of rapidly-growing small businesses referred to nationally as emerging or "new economy" businesses. These businesses typically create jobs at a rate four times that of an average business. 5 Emerging businesses tend to be in traded sector industries and most are related to high technology, software, 4E-commerce or businesses that find innovative ways to apply technology. They tend to have high economic multiplier effects, spurring the development or expansion of local suppliers and business services. As emerging businesses grow, many also spin-off whole new companies that become the next generation of gazelles. 3 Covered employees are employees for which unemployment insurance is paid. A business may have employees that are not covered in this reporting structure. The majority of self-employed individuals are not reported in covered employment statistics. 4 Estimates derived from studies conducted by the Aspen Institute. 5 Cortright, Oregon s Gazelle: A report for the Oregon Emerging Business Initiative, September Governors Small Business Council 8

11 While emerging industry businesses encounter many of the same needs as other small businesses, they also have unique needs in terms of rapid capital formation, much of which is equity-based. The presence of angel and venture capital, as well as a tax structure and reinvestment policies that promote local investment are critical. Emerging businesses have strong ties to higher education on several levels. First, the workforce tends to be more educated, requiring higher skill levels. Second, fast growing industries rely on developing or applying new technology, therefore the quality of university research and development and technology transfer programs become a valued service. Small Agricultural Businesses An often over-looked area of small business is the many small farming or agricultural products businesses. Although they have some unique needs, and often receive their primary government assistance from specialized agencies such as the Agriculture or Forestry Departments, they are also small businesses and face the same problems as other businesses. In 1999 it was estimated that Oregon had about 1,600 small businesses in the agriculture, forestry, fishing, and mining sector, employing about 15,000 people. In addition, another 6000 self-employed individuals identify themselves in this business sector. In % of Oregon farms had sales of less than $100,000. Although the number of self employed people in agriculture has declined from about 45,000 people in 1940 as a result of changes in farming practices and productivity, all of Oregon's counties exceed the national average in percentage of self-employment and the percentage is highest in rural counties. Many of Oregon's small and micro businesses are also involved in secondary processing of agricultural and forestry products. Part II: Findings Effectively assisting the state's small businesses requires a clear understanding of how small businesses view the world, what they perceive their major problems to be, how they solve those problems, and what role government programs can play in assisting them. Over the last four years the Small Business Council has gathered information about challenges facing small businesses. General findings about Oregon s small businesses include: Small businesses function as part of a network of connections with other businesses: their customers and suppliers, vendors of equipment and services, banks, CPAs, lawyers and business consultants, colleagues and competitors. The people who run these businesses depend on these networks to understand what is happening in their business environment and to implement solutions. Small businesses view themselves primarily as members of particular industries, business segments, or as being located in a particular region, depending of the scale of their market area. Governors Small Business Council 9

12 Many resources already exist in the public and private sectors to assist small businesses. The challenge to businesses is learning about these services and being able to effectively use these resources. Small business needs change over the life cycle of the business, requiring a coordinated system of assistance, rather than a set of discrete programs. Small businesses get information and training from a wide array of trade and business associations, suppliers, vendors, professional advisors, and public agencies. There is no single source that addresses all or most of their needs. Small businesses seek assistance primarily from the private sector. They use the private sector, in part, because they believe private organizations better understand their needs and can provide more timely support than public agencies. Government regulations, marketing, technology changes, workforce, and capital issues are the greatest challenges facing small businesses, regardless of industry sector or company size. The relative importance of each issue lies in how different business segments are impacted by and try to resolve these challenges. Cost is not always the primary factor in seeking assistance. Small businesses are willing to pay for business services that provide direct value, understand their needs, and are focused on quality and performance. Most small business assistance programs are targeted toward a specific segment of the business population, firm size, or issue. However, needs of small businesses are often part of an interrelated set of challenges. Including the relationship to the broader economic system in which the small business operates. Understanding the Dynamics of Small Businesses In identifying the key issues facing Oregon small businesses, the Governor s Small Business Council recognizes that not all small businesses are the same. There can be significant differences between a self-employed individual, a company with two employees, or a company with 200 employees. Or between one that is just starting and one that has been operating for over 20 years. Therefore, the following factors must be considered as part of each of the key issues, and the recommendations contained in Part III of this report: Needs and solutions can vary by size, age, type and location of the enterprise. The size of small business. Research indicates that the size of a business can shape what issues are most critical and how firms address issues. Small businesses in Oregon can be divided into four main categories: self-employed and microbusinesses with 4 or fewer employees; firms with 5-20 employees; firms with employees; and firms with over 100 employees. For instance, the diversity of micro-enterprises indicates a large group of businesses whose capacity, time requirements, educational background and credit needs are significantly different than other business segments. Therefore, strategies for micro-enterprises will likely be different than strategies for companies with more than 100 employees. Governors Small Business Council 10

13 The age or development cycle of a business. In addition to the size of the business, needs and strategies can differ by a company s age or position in the development cycle. Start-ups typically experience larger or different capital needs than mature operations. Keeping up with technology, and workforce related problems, are often listed as the top two concerns for companies that have been in business more than three years. There are different priorities for small businesses who grow very fast, such as many of the new economy businesses, compared to small businesses who experience steady but slower growth. The type of enterprise. The type of service or product delivered by a business can alter their needs. Knowledge-based firms that rely on intellectual capital may need to find equity financing whereas a manufacturing firm with tangible assets may be able to obtain debt financing. Workforce requirements, regulations and market access also differ by the type of enterprise. The types of markets served. Businesses that depend on the local economy may have different development needs than those that sell out of state, or those that do business internationally. Business needs and solutions may vary by location. While many issues that affect rural businesses also affect urban businesses, there is a special set of issues that may be more critical to rural areas. Rural areas have less developed networks for funding business start-ups with angel and venture capital. Telecommunication infrastructure, workforce training opportunities, and ease of market access are also more challenging businesses in rural communities. Resolving these issues in rural parts of the state would be easier if they were better connected to the active business networks in urban areas. Small Business Challenges Despite the number of small businesses and their importance to our state economy, small businesses face a number of unique challenges. Research has indicated that the basic reason for business failure is a lack of knowledge and use of fundamental business principles and procedures. Even a business with a great product or service needs good operational knowhow to succeed. Many small businesses fail, often resulting in a loss of the owner's equity. Many others are only marginally profitable, after subtracting a reasonable market rate of return on the owner's assets and equity used for the business. Much work has been done previously on identifying small businesses issues and developing strategies that will enhance the health of these firms. From the National White House Conference on Small Business, to the Governor s Small Business Council s outreach across the state of Oregon, a similar set of issues was identified as the key issues for small business success. We have divided these issues into three basic categories of challenges facing small businesses. Governors Small Business Council 11

14 Enhance access, marketing and coordination of small business services Increase the competitiveness of small businesses Improve the business climate for small business development Enhance Coordination, Marketing, and Accessibility of Small Business Services Improving awareness and marketing of services that already exist. There are many public and private services that exist today to serve small businesses. However, small business owners often have only limited knowledge of these services. Assuring easy access to information and services. Once a business finds out about a service or information, is it easy to access and use? Are services provided in a manner that meets the needs of a small business schedule? Providing services that are coordinated. Are small business services coordinated such that the company receives timely and effective services with minimum of overlap or gaps? Increase the Competitiveness of Small Businesses Finding and keeping a qualified workforce. Finding, retaining and training good employees can affect the profitability and productivity of small businesses. How can workforce training programs be better designed to meet the unique needs of small businesses? Improve ability to offer competitive benefits. How can small businesses obtain affordable benefit programs, such as medical insurance, for themselves and their employees? Group insurance programs are generally much less expensive per covered individual for large groups, because of vendor competition and lower risk and expense factors. Coverage for micro business employees or the self-employed may cost 2 or 3 times as much as for large business employees. However, a lack of insurance coverage makes it harder to attract good employees, and probably discourages people from leaving large firms and starting new businesses. Health insurance costs have been increasing at a rate of 15% to 25% per year, particularly for smaller groups that have experienced significant claims, making it difficult for many small businesses to offer health insurance. Government many be able to help by providing programs that Governors Small Business Council 12

15 allow individuals and very small businesses to join together into larger, lower cost insurance pools. Congress is currently considering legislation to allow association based health plans, which would allow small businesses to join together into larger risk pools, to help reduce rates. Encouraging effective business networks. How do businesses find suitable partners to provide materials, services or research and development? How do businesses learn about business operations and advancements in their industry? Improving access to capital. How do we increase the ability for start-up companies to find initial capital? Is the lending criteria and paperwork process for small loans out-of-date? How do micro-enterprises find affordable capital? How do we tie capital formation to good business management practices, to reduce the failure rate of small business? Enhancing access to markets and trade. How do we foster the ability for small businesses to identify and access new markets or increase trade locally, regionally, nationally, and internationally? Improve the Business Climate for Small Business Development Increasing the ability of small businesses to contract with government. Can small businesses easily find and effectively compete for government contracts? Does the selection or bid criterion for state and local government purchases make it difficult for small business to effectively compete? Streamlining regulations. Is there an undue amount of regulation on small businesses? Is the true cost of the paperwork and reporting processes commensurate with the size or scope of the potential problems? Developing fair public policy and taxes. Are Oregon tax policies fair to small businesses? Most small businesses are personal businesses, partnerships, LLCs or Sub Chapter S corporations which pay higher personal income tax rates on their business profits. Do current tax policies encourage reinvestment in businesses and the Oregon economy? Are there added incentives that could benefit both the economy and small businesses? Governors Small Business Council 13

16 Part III: Recommendations and Program Status For small business to succeed in Oregon, there needs to be a comprehensive system of wellcoordinated services and resources. While many of these resources will be found in the private sector, state government has a unique role in encouraging connections among public and private programs and creating a business climate that welcomes and fosters the development of small businesses. The goals of this statewide small business system should be to: Increase opportunities for small businesses to start or expand anywhere in Oregon. Strengthen the competitiveness and business practices of Oregon small businesses. Enhance the capacity of small businesses to develop new products and services, or enter new markets. Reduce the disproportional regulatory burden that most small businesses face, and streamline paperwork and reporting processes where possible. Ensure small businesses can find and access cost-effective and appropriate support resources such as health insurance and workforce training. Encourage investment and reinvestment in Oregon small businesses and the infrastructure that supports business development. To achieve these goals, a set of coordinated strategies was developed using input from small businesses, services providers, and national and state research. The Governor s Small Business Council has grouped these recommendations into the three categories of findings. The Council believes that these categories represent the desired outcomes required to have successful small businesses. Furthermore, in developing recommendations to meet a set of desired outcomes, it becomes apparent that many of the existing programs are interrelated. Implementing recommendations will require collaborative partnerships throughout the state and strong delivery channels in each region. Effective implementation of many of these strategies will require a partnership between various public and private agencies. Enhance access, marketing and coordination of small business services Coordination Increase the competitiveness of small businesses Improve the business climate for small business development Governors Small Business Council 14

17 A: Establish an Oregon Office of Small Business to better coordinate the State s many small business related programs Increasing the awareness and effectiveness of services, along with strategic improvements to the business climate in Oregon, will require some dedicated staff and resources. The Governor s Small Business Council believes that a well-managed Office of Small Business is the most logical way to ensure a system of coordinated services and policies with the lowest public cost. An Office of Small Business would add value to, rather than duplicate or replace, the state offices and staff that serve small businesses in a variety of capacities. Specifically, the Office of Small Business would: Be the State s primary contact and advocate for small business development. Represent the state in various forums promoting small businesses. Take an active role in developing partnerships and strategic alliances to address small business needs. Work with other state agencies to communicate the issues and needs of small businesses. Meet with small businesses to understand current problems, and help resolve them. Develop and operate a clearinghouse for small business information, providing specific services that include: Staffing a number for small business information. Producing and distributing a small business directory. Brokering information and providing referrals to other state agencies. Managing the development and operation of a central website for small businesses. Develop and maintain small business statistics and benchmarks for Oregon. Be a catalyst for the awareness and coordination of small business services. Assist service providers in developing the marketing tools and channels to raise awareness of and improve access to services. Manage the budget and funding of state business assistance programs. Foster coordination of small business services. Manage or cooperate in program assessments and policy evaluations relating to small business development. Many of these assessments can be contracted to third party consultants to assure objectivity and reduce the need for additional staffing. Suggested assessments and policy evaluations include: Incentives for small business program coordination. The State s Small Business Health Plan. The impact of tax policies including capital gains taxes and the R& D tax credit. State regulations that excessively burden small businesses. Women and minority business certification program effectiveness. Loan programs for micro-enterprises. Participate in the development and implementation of new or expanded small business services, such as: Capital networks in rural parts of Oregon. Mentoring networks throughout the state. Workforce development and training efforts. Statewide marketing campaigns. Development of equity investment programs. Governors Small Business Council 15

18 Other states such as Pennsylvania, Arizona, North Carolina, and Ohio have small business offices or departments. These offices typically assume roles similar to those outlined in this report, as well as providing a wide range of additional services, which may include direct services to small business, and management of the state s small business development centers. They are staffed with as many as twenty-five people, depending on the size of the state and the scope of their responsibilities. The Governor s Small Business Council recommends that an Oregon Office of Small Business initially have a staff of three to four people. The Council recommends that the Office of Small Business be a distinct entity, not just a collection of staff within various agencies, and be housed in the Oregon Economic and Community Development Department. The Office of Small Business should have a standing Advisory Council of small business owners to keep it current on small business issues and provide program guidance. The Governor s Small Business Council could perform this advisory role Achievements A bill to create an Oregon Office of Small Business was introduced in the 2001 session of the Oregon Legislature, and received approval at the committee level, but the bill did not pass prior to adjournment because of unresolved budget issues. Continuing Priorities The Council has requested introduction of a bill to establish an Office of Small Business in the 2003 legislative session. The Council will work with the incoming Governor to continue and enhance the role of the Small Business Council in advising the Governor's Office, Legislature, and state agencies on small business issues. B: Enhance Access, Marketing and Coordination of Small Business Services Many resources already exist in the public and private sectors to aid small businesses. These resources can present a bewildering array of options, through which small businesses often find it difficult to locate the best program to meet their needs. For public sector service providers, it seems to be equally difficult to appropriately communicate information on the programs with business groups of varying degrees of sophistication. The challenge is to be sure that businesses are able to easily locate and use these resources, and that providers market and deliver services in a way that is easy to access and is well-coordinated. Many of these activities require shared funding and responsibilities between small business providers and the state small business development staff. Governors Small Business Council 16

19 Develop a one-stop information center and clearinghouses for small business information and services. While much of the information needed to do business in Oregon is gathered at the state level, specific services or information are often delivered at a regional level. Therefore, a comprehensive information and clearinghouse system would need to consist of both statewide and regional centers. This is the most requested service by small businesses. Cost to run the program can be low depending on the funding and operating model used. Payback in terms of level of service and public-private partnerships could be very high Achievements Established an Oregon Small Business website as part of "Oregon.Gov" that contains an online directory of all small business services, as well as information about education opportunities, regulations, starting a business, workforce training links and other tools for small businesses. Links are provided to other regional and national small business assistance organizations. Continuing Priorities Update and enhance a statewide comprehensive printed directory of public and private service providers, reprinted biannually, with annual updates. The information would be presented by region with subcategories by type of service. There would also be a section on statewide resources that builds on existing directories such as Doing Business in Oregon. Distribute directory through regional information channels of small business including trade and industry associations, Chambers of Commerce and other business groups, Economic Development Councils, Small Business Development Centers, and directly to small businesses. Update and enhance the information on the Small Business web site and create links to and from the website with all service providers and key business and trade organizations. Provide a number for small business assistance and information. The number would provide callers a choice of connecting directly to a regional clearinghouse or the state s Small Business Office. Enhance the methods by which the state provides information to small businesses. Be user-friendly and proactive in reaching businesses Achievements Prior to requesting proposals for 2002 small business assistance program funding grants, the GSBC and the OECDD Small Business Program staff reviewed the effectiveness of prior years grants and established new requirements for precoordination of programs to achieve greater effectiveness with the limited funds available. Governors Small Business Council 17

20 Continuing Priorities Work with Secretary of State and other Agencies to update business registration forms to include addresses and the option for businesses to request directories updates and other information. Send a small business Directory and other business development information to each new business that registers with the State. Develop an list service that small businesses can subscribe to, and use it to send electronic notification of new regulations, changes in finance programs and other information that may impact or improve their business. Make the service available to other public agencies after review of their content. Foster coordination of services among public and private providers The state should take a role in fostering the connection of services into a comprehensive network. While efforts are currently being made to improve coordination of programs, additional incentives are needed, particularly for programs not funded through OECDD. The OECDD Small Business Advocate working with the Portland office of the SBA collected information on public and private services providers and other assistance programs throughout the state. This information is currently being updated for The Small Business Advocate hosted coordination sessions for service providers to share information on programs and promote joint ventures. OECDD small business assistance grant program requirements were revised to reward service providers for cross-marketing other services including web links and printed material. With the Council's support OECDD revised performance measures for small business providers receiving state funding also now include coordination measures and incentives/disincentives for performance. Continuing Priorities Promote continuing coordination of small business services. Current state and local government funding problems may reduce funding for direct service programs in the next few years, so better coordination and efficiency of remaining programs will be even more important. Increase the ability for small businesses to access services Once a business finds an appropriate service provider, it is equally important to be able to easily access its resources. The Small Business Advocate should work with the various state programs, as well as state-funded services for small businesses to make them more accessible and useful to small businesses in all parts of the state. Governors Small Business Council 18

21 The State's Small Business Development Centers have been the primary provider of small business training and assistance. In the past, the SBDC program has been jointly funded by the Federal SBA, State grants through OECDD, and by the community colleges who host most of the centers. Because of state budget reductions many of the community colleges are now reducing or eliminating the funding of their SBDC programs. New funding mechanisms or other program changes will need to be developed to continue this important program Achievements Work with OECDD, SBA, and the Small Business Development Centers to reestablish stable funding for the program, and help them to develop other partners to enhance program delivery. Worked with service providers to actively promote the statewide clearinghouse/information center. Continuing Priorities Streamline and standardize the paperwork required to apply for public services and resources. Ensure consistency among program requirements or criteria. Work with small businesses to determine the best times and locations for delivering services, and help providers to modify their services accordingly. Encourage, and reward where possible, programs that go directly to businesses or to business groups. C: Increase the Competitiveness of Oregon Small Businesses The competitiveness of small business is critical for their ongoing success. A variety of factors contribute to a firm s competitiveness and an array of players have a role in fostering a competitive environment. Many of the actions listed in this section will be implemented by organizations other than the State of Oregon. The state, however, has a key role in providing direction, seed funding and incentives to ensure activities are developed and implemented. To those issues where the state does have control over service delivery, it will require commitment from leadership, as well as some funding to ensure they happen. Increase the availability of micro-enterprise, women-owned and minorityowned businesses loans. Many micro-enterprises typically require $25,000 or less in start up capital. Barriers preventing access to this level of capital often include the lack of a business plan or experience, the credit worthiness of those applying, and the lack of assets or collateral. Simply providing more financing will not ensure more successful businesses. Financing programs should be connected to a comprehensive network of technical expertise for those applicants requiring business planning assistance. Over the past decade there has been a remarkable increase in the number of micro-enterprise lending and training programs in the United States. These programs which lend small amounts Governors Small Business Council 19