The Care and Feeding of Growth Companies

Recognized as one of economic gardening’s early champions, Steve Quello, CEO of CEO Nexus, explains that when it comes to economic development, the edicts of entrepreneurial enterprise extend far beyond start-ups.

MME: When do you know that a community is ready to embrace economic gardening?

Quello: First, there needs to be an acknowledgment that unique stages in business are materially different and that when companies get beyond the start-up stage, their needs change — their resource requirements change. What we have found is that at a certain stage
— when the business model has been established and the market is in place — the question of how you scale the operation causes companies to focus on other challenges: building a management team, finding new customers, innovating products to expand into new markets. These are different challenges than those that first-stage companies must address, and therefore, if a community doesn’t have anything to offer these companies, they are often left in isolation. What we find is that there is often a just-in-time quality to their activity, and if the community doesn’t respect this, then any program that requires a CEO to get out of their chair and come to a place for a fixed amount of time will likely fail. This is hard for commonly bureaucratic institutions to digest, and what we found is that when it comes to the gardening model, it’s often best to partner with private sector resources that are used to this just-in-time sensibility and are willing to partner at their speed and instead of saying, “Here’s what we do … do you want it?” The discussion becomes, “What do you need … let’s go get it.”

MME: It appears that many smaller communities are pursuing economic gardening efforts. Is there a reason that smaller communities are attracted to this alternative?

Quello: When you think about having to compete on the stage of company recruitment and think about smaller communities not having the tax base or incentives to compete with larger communities, it’s clear why gardening is an attractive alternative. Communities may put together a great package, but eventually a company will pick the best deal because they will choose what works best for their own self-interest. Gardening with local companies is different, in that these companies are already in place, their needs are more modest, and it’s not like you are handing over hundreds of thousands or millions of dollars in incentives to attract big players. In the absence of one option, communities gravitate to another, and that’s what we’re seeing.

MME: Are middle-market companies becoming more adept at identifying and pursuing new end markets?

Quello: I don’t know that there has been a change here. I think that this remains inherent in a truly entrepreneurial enterprise. The identification of opportunity and the ability to take advantage of opportunity is inherent in entrepreneurs and especially in second-stage growth entrepreneurs, as opposed to lifestyle businesses. So I don’t know if it’s changed. I think that the speed at which it has to happen has changed, so those companies that have remained truly entrepreneurial will be better equipped or better able, but the fundamentals are the same. Finding an opportunity. Figuring out how to serve that opportunity despite the lack of typically necessary resources, and then having a laser focus on satisfying the needs of customers.

MME: Where does finding talent rank among middle-market growth challenges?

Quello: There may be sector differences, but the fundamentals of talent are critical — the pain point is probably the disconnect between location and sector. Here in Florida, we have what is probably one of the premier sectors for Modeling & Simulation in the U.S., let alone the world. The ability to connect with universities and develop talent and intellectual property is in place, but oftentimes the rate at which talent is needed creates a pain point because businesses win big contracts and the demand for certain talent jumps. We find that pain points often exist on the sales side, where there is a black box nature to finding, measuring, and rewarding sales talent that is often elusive to entrepreneurial efforts.

MME: Why does it appear as though economic gardening has reached a certain threshold? It seems to be gaining traction in many communities.

Quello: In the past 5 years, the argument in favor of Economic Gardening has become more compelling because of two things. One is the data set accessible on www.youreconomy.org. This resource brought empirical evidence to the argument that growth companies, particular established, second stage businesses, generate a disproportionate number of net new, sustainable jobs. This new data set allowed policy makers, rightfully skeptical about an alternative strategy like economic gardening, to better identify and assess opportunities for resource allocation.. The second force is the pain of a dramatic downturn in our economy, which helped to expose the unfortunate reality that the old models of economic development were not working and the ROI for those programs had deteriorated. This led communities to say: “Well, we can’t just quit … what else might work?” So the complementary economic development strategy of economic gardening became more appealing — communities no longer had the resources to invest in those opportunities, so absent that, the gardening model based on the empirical data became an attractive alternative.