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Weekly UpdatesEntrepreneurs need capital, of course, but maybe greater needs are expertise in running companies and partnerships with larger businesses. That's what a group of Triangle region leaders said during a recent round table hosted by RBC Bank (USA) in Raleigh. Participants were Jim Brown, managing director of public & institutional banking at the bank, a subsidiary of Toronto-based Royal Bank of Canada; Bob Heuts, executive director of the Lee County Economic Development Commission; Kim Korando, a partner at Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan LLC law firm in Raleigh; John Lewis, chief financial officer of UNC Heath Care System in Chapel Hill; Brooks Raiford, CEO of the North Carolina Technology Association; and Steve Scott, president of Wake Technical Community College in Raleigh. Arthur O. Murray, BUSINESS NORTH CAROLINA managing editor for special projects, moderated. Following is a transcript, edited for brevity and clarity.
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A recent N.C. State University study found that lack of capital isn't a death sentence for startups. Do you agree, and how can companies overcome a lack of capital?
Brown: It depends on what type of startup company it is. The failure rate for restaurants is 80%. You have to have a good balance in a small startup. My wife and daughter have one. My wife has an MBA in accounting, and my daughter is very creative and sales-oriented. But you must have working capital, and for a lot of people, that's hard to come by.
Raiford: For technology startups, there's a good infrastructure in place, including the Council for Entrepreneurial Development, law firms, banks and others. They provide tech startups with assistance, whether it's information about running a business or getting access to the people they need to get in front of. With cash harder to get, that may become even more important.
Korando: What the N.C. State study measured is whether a startup is better off to have the A-plus management team or the A-plus product or service to sell. It found that having the A-plus product was actually a better indicator of long-term success than spending money on the A-plus management team.
Lewis: That's counterintuitive.
Korando: CED did a membership survey earlier this year. One of the primary findings concerned the interest in capital from entrepreneurs and how the need for it was impacting them. Something they asked the council and other organizations to do is to provide workshops on how to succeed if venture capital isn't available. CED is very focused on this issue. Some of the things that we talked about were partnering with larger corporations, seeking government contracts or grants and developing techniques for stretching the dollars that they have.
Raiford: NCTA was involved a few years ago in creating the Defense & Security Technology Accelerator, a business incubator in Fayetteville. It provides physical space for small startups that have innovations under way but may not be fully capitalized and partners them with larger contractors that would benefit from the innovations and therefore might provide the capital needed to develop their products or services. Both partners benefit. It's a unique incubator approach--a small example of a way partnerships can be forged.
Scott: Community colleges deal with entrepreneurs all the time. There are 58 small-business centers around the state. At Wake Tech, our center sees about 4,000 people a year who want information about how to start or grow a business. About 99% of these have fewer than 10 employees.
What about larger startups?
Scott: In this community, what we found was that the Small Business Administration needed to be here, so we invited the SBA to open a branch office at our western Wake campus in Cary. It now has a heavy loan volume. Of course, now the SBA is insuring loans, right, Jim?
Brown: Right.
Scott: We just had a regional meeting with about 60 different bankers there to learn the new SBA levels of support, so there's some money out there. The other thing becomes, if you put every penny you've got into this startup, how do you support your family for the one, two, three years before this thing ever gets to profitability or even to a positive cash flow?
Heuts: CED, community-college small-business centers and others are teaching folks how to start companies. But there is still that lack of capital. Very few people are willing to take the risk to provide funds, and it's gotten worse. There needs to be more help from the federal level--hopefully the SBA--to soften that risk a little bit.
Brown: Dr. Scott, are you seeing more people trying to start businesses now with all of the layoffs?
Scott: Yes, especially with people who have gotten any kind of severance package. Some of them have some fantastic ideas. One that comes to mind is open-source software applied to medical records.
Heuts: There are all kinds of examples. Former Nortel Networks and IBM employees that are going through the layoffs that have taken place at those companies have just gone out and found a niche and have been very successful.
Why hasn't the Triangle suffered as much from the recession as some other regions?
Scott: The number of government employees in the area is one reason. Second is the number of high-tech jobs. Those sectors weren't hit as hard. Our hardest hit was probably in the housing sector.
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Korando: Not only do we have government as a significant employer, we have health care and life sciences, which also were not particularly hard hit. We're not a financial center, and we're really not an old-money economy with manufacturing. We've been very blessed by having the diversity in areas that have not been hit. In a more intangible way, we didn't get caught up in some of the excesses of the real-estate boom, so as the economy scaled back, folks here had more tolerance to the fluctuations.
Heuts: We had improving values out there but not to the extent that they occurred in other parts of the country.
Scott: Our diversity is not by accident. Recruiters have been out trying to get a cross-section of industries into our economy so that we would not be so tied into one particular sector.
Brown: We are different from most other large cities because of education and health care.
Lewis: Those have yet to see some of the major impacts of the recession. That's not to say that they aren't vulnerable, but to this point, there haven't been major structural changes.
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Raiford: Technology is a key element in part because average wages in the tech sector tend to be higher. You have a concentration of tech workers here, so some of the statistics end up being skewed by that. It's not just tech companies. It's banks and educational institutions and law firms--everybody has technology workers now. The tech sector sometimes is the leading responder to economic upturns, and we're starting to see some of that.
What can the region expect from the president's proposed health-care reforms?
Lewis: It's probably a little bit too early to say with any specificity, but the health-care information-technology provisions that are in there have specific benefits. We have a lot of major software IT providers that potentially are positioned to participate in that. And both UNC Health Care and Duke University Medical Center have very well-developed electronic medical records and are well-positioned to play a role in how this initiative is shaped nationally.
Korando: Whatever the plan is going to be, we've just got to find a way to get our folks healthier. We've just got to have more healthy folks supporting whatever system is adopted than we have sick folks.
Heuts: Individually and for employers, it's going to cost more, whatever health plan ends up being put on the table. There are a lot of people out there who do not have insurance.
Lewis: Historically, at UNC Health Care, every 1% change in the unemployment rate increases the number of uninsured patients we see by 6%. Independent of that, we've been seeing a 10% increase in uninsured patients every year, so we're looking at a 46% increase in uninsured patients this year. That may be mitigated somewhat by efforts to help the unemployed retain their health coverage, but the rate is increasing rapidly.
How important was it for the region to host the first conference of the International Association of Science Parks?
Raiford: It's another validation of what we probably already feel about our place in higher education. The Centennial Campus at N.C. State received the award for top university research park in the country a year or two ago.
Scott: A couple of years ago, I went with an economic-development group to China. When they heard we were from North Carolina, science parks were the first things they wanted to know about. Then they told us about their science parks and we visited a couple, including their version of RTP, which employed more than 400,000. Hosting the conference gets us recognition that puts us on everybody's short list.
Korando: In reading about the conference, it seemed like there was really an emphasis on what the rest of the world is doing with their science parks. They've gone away from the RTP model of being in the nice wooded area away from the city. The rest of the world is looking at a model, particularly in Asia, where the parks are in urban settings--you live here, you work here, you socialize here. How are we going to respond?
Raiford: That's different than what we have in place, but there are still projects in the works. One is a big development near where I live in Apex. It's just what you described: a place where there's corporate offices, residential development, quality-of-life features and institutions all blended together in a way that isn't really the case in the current RTP model.
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