Friday, March 27, 2009

Planning for a future economy

Here's the proposal I've sent to our local Shire people for their consideration. Feel free to use any of this if you can fit it to your local situation.

The Corner Inlet Business Incubator
Introduction
Background
The viability of our local communities is threatened by external pressures, which will mount over the next few years. These include

  • Uncertainty in international trade, which will strike at export-oriented businesses, traditionally the backbone of our local and national economy
  • Developing problems with oil supply and availability which will force drastic changes in business practices and settlement patterns
  • A much more finance-constrained environment with reduced tax revenues which will shrink government’s power and the ability of large-scale enterprises to raise capital

These threats will make large-scale enterprises of the kind which have dominated our political and economic life for the past sixty years much less viable and will force a re-localisation of our economic production. Fortunately improvements in technology have greatly enhanced the viability of smaller scale manufacture and services in the past few decades.

Communities which fail to tackle these future challenges by taking steps to seize the opportunities which these changes present and which fail to provide opportunities for their population, particularly their young people, will shrink and in many cases disappear entirely.

The task then becomes to identify the paths by which we can make our communities as resilient and liveable as possible in the face of these huge changes. Failure to do so will result in most of those in a position to do so leaving the area, with the remainder of the population forming an ageing, shrinking poverty-stricken rump with major social and health disadvantages.

The place of small business
In light of the changes in our economic situation which I’ve already mentioned, the economic vitality of our area will depend to a very large extent on our small businesses. Therefore it is vital that those able to do so should be encouraged and supported in their efforts to learn the necessary skills to succeed in small business and be supported during the vulnerable first few years of their businesses’ life.

The failure rate of small business is high and necessarily so — successful, prosperous small business is dependent on a rich compost of ideas and strategies which have been trailed and the lessons assimilated, and of individuals who have experienced the vagaries, joys and heartbreak of small business in the real world.

The dangers of trying to maintain “Business as Usual”
A great danger for government at all levels as we go forward into these uncertain times is to attempt to “pick winners” and to fail, thus squandering valuable, scarce resources and even more crucially, damaging their own legitimacy. This can be seen in the high-risk strategy currently being pursued all round the world where national governments are not letting major finance institutions fail but instead are bailing them out with public money. In the process they are committing their citizens to a future of high tax and the real risk of poverty while rewarding a very small class of people whose primary loyalty is to themselves and who were largely responsible for the crisis in the first place. If this strategy succeeds it will be at great social and political cost. If it fails the legitimacy of national governments everywhere will be so severely damaged that political collapse and widespread social breakdown will be inevitable, with decades of poverty and suffering following on.

The risks of wooing big business
The past model of courting, subsidising and smoothing the regulatory path for big business to try and encourage local employment has been of limited success. With no loyalty to the local area (no matter what the public statements made at the beginning might be) and generally only lower-level jobs with narrow or low-level skills involved, the benefits to the local society are often temporary and can create longer-term social problems.

If the industry closes or downsizes the resulting unemployment of lower-level workers often creates significant social problems and a legacy of expenses for all levels of government which are often ongoing for decades (privatisation of the SEC, closure of the Toora milk factory, the heavily subsidised wooing of Kodak to build a plant in Melbourne which closed after only a few years due to technological obsolescence). Even if higher level skills are involved, should the business fail, the possessors of these skills are often forced to leave the area in order to find an employer who can use them.

This process can be seen as a form of “Cargo-Cult” where local governments with minimal understanding of the dynamics of the economy and the business they are wooing commit themselves to something they can neither control nor predict. While it is easier to negotiate with one large organisation, it is much more sensible to invest in a multiplicity of different businesses where the owners and workers carry the bulk of the risk and have more connections to the community they live in, making it more likely they will stay and try again if they fail. The more widely the risk is spread, the more predictable it is and the better planning can be to account for it.

Pathways to small business
Traditionally school leavers have gone into apprenticeships or employment where they have picked up some of the necessary skills needed to succeed in small business. For the past decade and a half the NEIS (New Enterprise Incentive Scheme) program has been a very valuable resource to upskill those unemployed who are considering entering small business. As valuable as NEIS has been, it is a pre-business education course and once a participant has finished it they are on their own.
Plenty of small business information is available along with advisors and other useful resources provided by State and local government. But these resources take some effort to seek out, advisors are often under-resourced and unable to provide continuity of contact with small businesses and much of it is city based.

My proposal is to build several business incubators in our local small towns. For a minimal investment these will provide the “missing link” between formal education and functioning successful businesses.

The proposal
Aim:
  • To provide opportunities for newcomers to business in the district by:
  • Providing start-up premises at low cost in a good location
  • Providing training and mentoring to increase business success rate, and to widen the possible scope of businesses
  • Provide capital assetts the use of which could be shared between a number of businesses thus making them viable

Target group:
  • The mid kids: those less likely to go on to tertiary study, and for whom employment opportunities are currently limited
  • People who have been displaced from traditional employment and who have the energy and commitment to attempt to be self employed
  • People from outside the school leaver group who can present a viable business idea to the management committee and who demonstrate a need for the kind of help the incubator could provide

Management:
  • A part time manager with offices on the premises
  • A management committee consisting of local business people, retired people with suitable skills, the Shire’s business facilitator and education representatives
  • A board with representatives from the Shire (the local councillor or councillors), Secondary College Student Representative Council, School Council, local Traders Association and other seconded members or groups.

Income:
  • Shire Council subsidy
  • Deet
  • State/Federal government grants
  • Rental

Costs: Start-up:
  • Planning
  • Premises and capital equipment
  • Renovations
Ongoing:
  • Rates/building maintenance and security
  • Manager’s wages
  • Provision of training
  • Possible subsidies for approved businesses

Necessary conditions for success
  • Good location
  • Good quality premises
  • In-depth supervision, mentoring and training available
  • Ongoing commitment from management bodies
  • A positive attitude from the other traders and the community in the area
  • Good financial management
  • Careful crafting of guidelines to ensure the aims of the project are met and that viability is ongoing

Locations
The two immediate locations which spring to mind in the Corner Inlet area are the retail hub of Foster and the former milk factory at Toora. The former would be the ideal retail and service business incubator and the latter the manufacturing and food processing incubator. Other possibilities may be related to primary industry but I haven’t considered them here.

Retail and service incubator
Here is a sketch of what I have in mind. It is based on a shop which was available in Foster several years ago, but the idea could be adapted to several different locations.

Individual shops should be very small to allow the maximum number of micro-businesses to incubate and to force them to look for larger premises as soon as they begin to succeed.

Industrial incubator
The ideal premises for this would be the former dairy factor at Toora. There are a number of large separate buildings including the administration block, mechanics workshop, maintenance workshop, laboratory, former boiler house and main building with the former processing area plus large insulated warehouse spaces. The general condition of the buildings is quite good although there may be an issue with the asbestos cladding on the older sections.

The manufacturing incubator could be built around a core facility which included some items of capital machinery such as a CNC lathe and large laser cutter whose cost of purchase would be prohibitive for a small or micro business on its own, but which would act as an enabler for a large number of such businesses.

Food processing would also be a natural business in this location.

Operation
The idea is to provide facilities such that there are minimal initial capital requirements and low initial fixed operating costs for start-up businesses, but have their tenancy either time-limited or space limited, or a combination of the two. Successful businesses needing more space would naturally move on, although in the case of the Toora facility this may not be such an issue.

A cluster of such businesses would provide mutual support for each other and also allow monitoring, education, mentoring and the provision of other support services to be delivered in a much more time-and-resource efficient and way.

Small businesses have a high failure rate. Having business incubators would raise the success rate for conventional businesses while allowing an opportunity to try higher risk but high potential benefit businesses as well.

Conclusion
In the face of great economic uncertainties the best strategy is to try a lot of low cost low loss solutions. A resilient, healthy local community is one not dependent on large organisations whose control lies in other places; whose citizens are resourceful, self-reliant and multi-skilled and which provides as many opportunities as possible for these citizens to support themselves and their families.

The cost of setting up these business incubators is not prohibitive and they involve facilities and equipment for which there is a ready market should the venture not succeed. But the benefits of their success would however be very great.

May a hundred (local) flowers bloom!

4 comments:

latefall said...

Hi I just ran into this coming out of the jm greer corner!
I just skimmed over the article but already saw that this is very much something I have been mulling about as well. I'd really like to know how this or similar initiatives panned out and what some of the lessons learned/best practices turned out to be.
I have a couple weird ideas connected with this that I would also love to bounce off someone's experienced head.

I'll go back to reading in more detail now - but just so you know the post is very much appreciated!

Lloyd Morcom said...

Thanks latefall! The proposal didn't get off the ground — yet! I talked to the Shire and the Department of Planning & Community Development. But it appeared the time wasn't right. In order to get backing for these sort of things you need to convince other people with resources to help that this is a good thing to do. It didn't fit with either the Shire or the Department of Planning & Community Developments plans.

As far as the retail hub in Foster went, there was no easily available space. I looked at one which was just about useable but the owners, while appreciating what I was trying to do, needed to sell, which they have since done to a neighboring business which needed room to expand. The Toora factory, which I envisaged as the manufacturing/processing hub, got sold to a Chinese milk products company. They are still trying to get their operation up and running.

So I've sat back since 2009 and concentrated on other projects. Now some people might say I'm a slacker, and I'd agree up to a point. But experience has shown me that if something's time has come, there's a certain inevitability to it. If you have to fight to make something happen, likely as not you'll have to keep fighting, and as soon as you run out of energy/money/friends it will collapse. I've had that experience with two businesses which I've been involved with.

That said, I still think the time will come when my vision will fit the needs of the moment.

Anyway, I'd like to hear your weird ideas. And where do you come from?

latefall said...

Hi, thanks for your detailed answer!
Yeah, I do agree on the importance of the right timing. However i guess it is a bit like surfing in the dark - if you can feel it surge it already too late.
But if you just keep pushing you may bump into rocks without ever going down the wave.

My impression is that things may be running too smoothly in Australia at the moment to risk blowing money on such experiments. Especially when you can expect to watch and learn for a little while longer.
Of course there's the significant risk that the public misses unique opportunities in the meatime. But as long as we have enough birds on hand we rarely go for the one on the tree. Especially if there's a risk we chase it into someone else's hand.

I am freshly arrived in Marseille after a bit over a year in Boston.
Before that I was doing a engineering phd (very much hitec industry focused) in Germany.
Marseille is of course really, really run down and faces problems on several socio/economic fronts.
However I think I really wouldn't want stay in (higher ed) Boston for much longer. It seemed far more precarious to me. Much of what I saw was very unsustainable without lots of money, which will be difficult to get in the future. As I saw it, it was already stretched thin and running on fumes/prestige in several places.

Also, I think Boston is highly unrepresentative and fixing it will not cure Detroit or Marseille. Also there's already so many smart(er) and hard working people there, that I don't think I'll make a dent anywhere.

The actual weird stuff will follow...

latefall said...

Dang my comments keep getting eaten it seems...

I'll try again later...