St. Louis must do more to spark startups to thrive after recession
St. Louis Post-Dispatch
May 23, 2010
By Tim Logan
Right now, there is one thing St. Louis needs more than anything: jobs.
The recession destroyed more than 75,000 of them. We weren't creating so many before it started, either.
And where do jobs come from? Small business.
Despite their headline-grabbing nature, big companies have been shedding workers in St. Louis for decades. Since 1993, the region's net job generation has come from firms with fewer than 100 employees. They have generated 114,000 jobs, almost as many as the big companies have cut. And it's not just jobs. Increasingly, small firms generate the ideas and innovations that power our economy.
Yet we're not launching as many small businesses as we ought to be. St. Louis continues to lag behind the nation in the establishment of new companies. During the past decade, the metro area has remained in the bottom quarter of big cities. On its index of entrepreneurial activity over the last three years, the Kauffman Foundation last week ranked Missouri 45th out of the 50 states. People here are half as likely to be self-employed -- a key sign of startup activity -- as in leading states such as Georgia and Arizona.
"We've been low in this regard for a long, long time," said Jerry Katz, a professor of entrepreneurship at St. Louis University.
And there's good reason to believe this is holding St. Louis back. Look at faster-growing regions, such as Denver, say, or Dallas. They grow more companies and more jobs. Research earlier this year from Kauffman found that new firms -- those less than five years old -- have accounted for all new jobs added since 1980.
Growth isn't so much from the big boys' getting bigger, as the little guys' growing up. And the places where they grow up will benefit.
Too often, that's not St. Louis. But it hasn't always been this way.
There was a time when this city was a leader in innovation and entrepreneurship. Jason Hall, director of the Missouri Technology Corp., points out that seven of the state's 10 biggest companies -- such as Emerson Electric Co., Monsanto, Leggett and Platt -- were founded by individual businessmen, most of them more than a hundred years ago.
"We're still living off them today," Hall said.
Indeed, big companies launched a century ago have sustained St. Louis ever since, and spread their wealth around the region. They funded its universities and museums. They founded Civic Progress to help tackle St. Louis' problems. They built this city into a prosperous big-company town, a hub for the Fortune 500, flush with steady jobs.
But some say St. Louis got too comfortable, too reliant on its stable of hometown corporate icons.
"We had solid businesses making solid profits, and everyone was pretty content," said Katz. "St. Louis' culture didn't really support innovation."
And then, as we know, those icons faded.
Our global airline -- TWA -- disappeared. Local stalwarts from Purina to May Department Stores to A.G. Edwards were taken over by bigger competitors with a different hometown. Even Anheuser-Busch is not what it was, as the company has cut jobs under new ownership.
St. Louis does have its next-generation success stories -- such as pharmacy benefit manager Express Scripts and Enterprise Rent-a-Car -- but they have yet to fill the big shoes of their predecessors. And that has local leaders looking for answers. The trouble, some say, is that those answers too often revolve around luring other big companies.
Alan Richter has been beating the drum for entrepreneurship for years, including nearly a decade running the region's Small Business Development Center. Most of that time, he has watched civic leaders in St. Louis and state officials in Jefferson City spend their energies, and their resources, trying to land the big fish from someplace else.
Look at all the big incentive programs, Richter says, the tax breaks for big job generation, the credits for real estate development. Such economic tools are designed to make Missouri attractive to the big employer, not to grow the small.
"It runs through our entire economic development strategy," Richter said. "We're not as committed to growing small businesses as we are to stealing from somewhere else."
That's starting to change, local economic development officials say. They realize that attracting big companies to the region is a tough, expensive, often fruitless game, and they say they're bulking up their small business development efforts to provide more balance.
"It's not an either/or situation. You want a balanced portfolio," said Denny Coleman, president of the St. Louis County Economic Council. "You want diversity of size and kind of companies."
And it's not as if there's a shortage of people with good ideas that could lead to good business.
Coleman's agency recently partnered with Edward Jones to launch a business plan competition, to find the best entrepreneurs with the best ideas and help them grow. And by "help," they mean award $100,000 in prize money and top-flight consulting help to three winners.
They were hoping for maybe 50 applicants, he said. They received 226.
That's a good sign that there are many ideas out there, Coleman said. And a reminder that St. Louis needs to build on them.
"This region is being forced to think more entrepreneurially," he said. "Downsizing and right-sizing has forced out a lot of good people. But there are other opportunities."
Coleman has been watching this shift developing for 20 years. In the early '90s, he chaired the region's efforts to recover from the massive cuts at McDonnell Douglas, by far St. Louis' biggest employer until defense cuts pulverized its work force. Twenty-seven thousand people lost their jobs. Suppliers and subcontractors lost their main client. Everyone had to think differently.
"For decades, some companies' marketing strategy was to wait for McDonnell to call them," Coleman said. "That went away."
The county and others worked with these companies, to help them think anew about what kind of services they could provide and to whom; to become more nimble, more flexible, more entrepreneurial. They also launched retraining and placement programs for the laid-off, about 10 percent of whom decided to start their own businesses.
Indeed, a big chunk of the region's small business infrastructure -- the World Trade Center, its largest tech incubator, a key county loan fund -- came out of the post-McDonnell adjustment period, Coleman notes.
Those resources are perhaps even more important today, as the region endures a transition that is at least as wrenching as those post-Cold War days. So many of St. Louis' remaining big employers -- from carmakers to banks to retailers -- have been battered in the recession. And the big companies that are growing haven't been able to make up for the losses.
That makes entrepreneurship even more important these days, said Dane Stengler, a senior research analyst at Kauffman.
If St. Louis hopes to build back the 75,000 jobs it lost, and give those who would build a new economy the opportunity to do it here, it needs to sharpen its focus on small business.
"It's not a silver bullet," Stengler said. "But a strong and sustained recovery simply won't happen without it."
