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Rural Renewal

Can entrepreneurs help boost small-town economies?
Magazine Contributor
3 min read

This story appears in the July 2005 issue of Entrepreneur. Subscribe »

While the national labor force grew nearly 10 percent from 1994 to 2001, the work force in Hastings, Nebraska, (population 24,000) shrank by 3 percent. That's a situation common in many small towns and rural areas, especially in the Upper Midwest, where populations are falling, jobs are evaporating and new businesses are weary about starting.

Allen Harpham founded Computer Consultants of Hastings Inc. in 1992 and has watched smaller towns in his area depopulate as residents move to cities or even out of state to find greater opportunity. "The communities with a thousand people or less are struggling," says the employer of three.

Harpham, 42, lays some blame on state and local government policies, which have closed small-town schools to cut costs while failing to give meaningful assistance to small businesses. But access to broader markets via the internet has helped local entrepreneurs start and stay in business, says Harpham. "I'd say we're holding our own."

That long-playing scenario may be changing, however, as interest in rural entrepreneurship grips Main Street America. Applying new approaches ranging from publicly funded startup consulting services to angel investor introduction networks, small towns, states and the federal government are turning rural economic development away from attempts to lure big employers and toward cultivating homegrown businesses.

About 30 towns including Littleton, Colorado, and Chico, California-have engaged in "economic gardening." States are also jumping onboard. "Five years ago, there wasn't a single state where this was a policy direction," says Don Macke, co-director of the Center for Rural Entrepreneurship in Lincoln, Nebraska. "Now there are probably a dozen."

Washington is also taking note, expanding an SBA program called HUBZone which helps small firms compete for federal contracts to rural counties with high unemployment rates.

Rural entrepreneurship itself began increasing long before the policies started appearing, according to Jason Henderson, senior economist at the Center for the Study of Rural America in Kansas City, Missouri. "In the 1990s, the number of nonfarm proprietors in rural, nonmetro areas rose 2.7 percent a year," compared to 2.2 percent a year in the '80s, Henderson says.

A new approach to encouraging rural entrepreneurs may further increase that rate. Historically, small towns have leaned on an "if you build it, they will come" strategy. Economic development agencies have created industrial and business parks and tried to lure businesses by touting low labor costs. That doesn't work anymore, Henderson says, because globalization means labor costs are always lower overseas.

Recent initiatives offer free land and tax breaks to encourage people to relocate to rural states. Iowa is mulling a tax break for residents under 30. But similar economic incentives haven't lured big companies, largely because other communities can easily match them. Critics doubt they'll work for small firms or individuals.

Economic gardening is more sophisticated. It includes publicly funded services that train entrepreneurs to start, run and grow businesses, as well as provide advice on applying for SBA backed loans, financial management and marketing.

Networking is another component. The University of Northern Iowa in Cedar Falls has set up an online portal called MyEntreNet to help entrepreneurs tap each other's knowledge. Some communities work to introduce local angel investors to entrepreneurs. A few fund low-interest small-business loan programs with local taxes.

All told, economic gardening is a more comprehensive approach to helping entrepreneurs than any economic development efforts to date. "This isn't about programs," stresses Macke. "It's about helping communities and regions create systems that support small businesses."

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