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1024 Capital Center Drive, Suite 310, Frankfort, Kentucky 40601-8204

Telephone: 502-573-2851 or 800-853-2851 Fax: 502-573-1412 or 800-383-1412

http://www.lrc.state.ky.us/ltprc/home.htm

E-mail: mchildress@mail.lrc.state.ky.us

CONTACT: Michael T. Childress, Michal Smith-Mello, or Peter Schirmer

FRANKFORT, KY (June 9, 1998) -- The state’s economic development efforts must place a far stronger emphasis on building from within by bringing attention to entrepreneurship and small business development equal to that being brought to industrial recruitment strategies, according to a new report from the Kentucky Long-Term Policy Research Center. When the Center asked small business owners to assess the responsiveness of government agencies to the needs of entrepreneurs, 10.6 percent rated them as "good," 47.6 percent said "fair," and 41.8 percent said "poor."

This report brings new information to an expanding dialogue about entrepreneurship. It includes the results of surveys of the general population, small business owners, bankers, venture capitalists in surrounding states and businesses with a presence on the World Wide Web. Some of the major findings of the report include:

• Evidence of Considerable Latent Entrepreneurial Energy -- The research suggests that Kentucky may be home to significant latent entrepreneurial potential: 21 percent of Kentuckians report having actually started businesses and 27 percent of Kentuckians have considered starting a business. The Center’s report also finds that most small business owners in Kentucky find the Commonwealth a good place to launch a new enterprise. When asked if Kentucky offers a friendly environment to entrepreneurs, 59 percent of small business owners responded affirmatively while 41 percent responded negatively. These findings suggest many Kentuckians are risk-takers who value business ownership and that Kentucky is generally a good place to launch a business.

   

• Evidence of Abundant Small Business Capital -- Contrary to widely held assumptions, qualified Kentucky entrepreneurs and small business owners have access to abundant capital. However, the “deal flow,” the sheer volume of entrepreneurial ventures, is in short supply in Kentucky, say traditional and nontraditional lenders. Entrepreneurs and small business owners need more information about available capital and more support, training and guidance rather than new sources of capital. Indeed, small business owners give the state fairly high marks for capital availability and find the lending process appropriately rigorous. When asked to evaluate access to financing in Kentucky, 29 percent of small business owners rated it as “good,” 45 percent rated it as “fair,” and only 25 percent rated it as “poor.” When asked to evaluate the process of securing financing to start their business, 69 percent of small business owners said it was “appropriately demanding” while only 31 percent said it was “overly difficult.” Also, the Center’s analysis shows that bank consolidation is unlikely to have a negative impact on capital availability for Kentucky’s small businesses.

   

• Few Kentucky Businesses Have a Site on the World Wide Web, but Those That Do Say It’s Worth It -- Kentucky’s Web businesses say having a Web site allows them to share information with customers, improves their market image, and, most important, increases sales, according to a survey conducted by the Center. Only a tiny percentage of Kentucky’s businesses have hung a shingle in cyberspace so far. The Center estimates that of the state’s approximately 193,000 businesses, at best 1 percent have a Web site. Kentucky’s Web businesses are also disproportionately located in metropolitan areas, especially Louisville, Lexington, and Northern Kentucky. The central counties in those three areas are home to nearly two thirds of Kentucky’s businesses on the Web. A handful of rural counties also have a relatively high number of Web businesses. Web businesses are sparse in eastern and south central Kentucky, suggesting that rural enterprises are missing some big opportunities as the Web can alleviate distance barriers.

   

• Entrepreneurs Do Not Know About All the Programs Designed to Support and Help Them -- The Center asked small business owners to indicate their level of familiarity with a variety of programs and services designed to support them. "Very unfamiliar" received the highest percentage of responses for each of these programs and services listed, and in most cases, the second highest rate of response was in the "somewhat unfamiliar" category. For example, 84.6 percent of these entrepreneurs indicated that they were either very unfamiliar or somewhat unfamiliar with the Kentucky Cabinet for Economic Development. When asked if state government had made the process of starting a business more difficult, an alarming 32.7 percent said, "Yes." Of the nearly one third who said state government made it more difficult for them to start their businesses, 42.9 percent mentioned "unnecessary regulations," 29.3 percent said taxes are too high, 22.4 percent cited "lack of information," or "not enough assistance," and 5.4 percent said "other." By comparison, when asked if state government had done anything to make the process easier, only 8.5 percent said, "Yes."

The Center offers a number of suggestions, or Strategies for Change, to help infuse the state with entrepreneurial energy. However, government alone cannot accomplish the daunting task of development. According to Michal Smith-Mello, a senior policy analyst at the Center and co-author of the report, "Rather than being the work of a state government agency, cultivating entrepreneurship and support for small business will require the contributions of governments, institutions and citizens across the Commonwealth. Through these efforts, we can increase wealth and give our brightest young people a reason to stay in—or perhaps return to—Kentucky." Some policy options include:

• Nurture and Cultivate an Entrepreneurial Culture. Vigorous efforts are needed to teach entrepreneurial thinking and to change public perceptions.
• Strengthen Support for Entrepreneurs and Small Business. A comprehensive assessment to identify service delivery gaps and assess the performance of existent services is necessary, especially before we invest in new services. Clearly, effective marketing of services to entrepreneurs and small business is key to success and it should be a strong component of any budget.
• Focus Efforts at the Local Level. All services and any new resources allocated to finance gaps in our provider network should be localized.
• Exploit the Vast Potential of the Internet. Public entities can help encourage web site development by tracking its impact on commerce in the state, creating a grants program that will enable local organizations to establish a presence on the World Wide Web, training more entrepreneurs to develop web sites, and loosening the reins on such public resources as coal severance dollars.
• Build Assets. A strong programmatic response at the local level is needed to address the need for access to credit among the poor and to help low-income Kentuckians increase assets through such vehicles as Individual Development Accounts.
• Address Inequities. In spite of phenomenal national growth in women- and minority-owned firms, our data suggest that equal opportunities are not available in Kentucky. Careful study of obstacles such as those identified in national studies and more prescriptive responses are in order to unleash the full potential of those individuals who do not figure prominently in our demographic profile of entrepreneurs.

Interested citizens who wish to obtain a copy of Entrepreneurs and Small Business -- Kentucky's Neglected Natural Resource are encouraged to write, phone, fax, or e-mail the Center.