Rural Entrepreneurship Post #2

I submitted a Entrepreneurship Support Grant request for this rural entrepreneurship project with the Clinic. In the grant application, I used a lot of the information from Post #1 as support for the need. I asked for the money to support a few things that we think that we can do to support entrepreneurship in rural communities:

1. Make a more explicit outreach to provide Clinic legal services in rural communities. While our Clinic is right at state averages in terms of our clients with respect to the state population in rural communities, that number can (and should be higher) to reflect the need that is clearly there. Second, rural communities don't just need the support to entrepreneurship, but rural law firms (especially in Wisconsin) are being decimated. By bringing law students out to the communities where they can see these communities first hand and meet the entrepreneurs and business owners there, they can see that there is need. Moreover, while we are in the community, we will arrange for students to meet with local attorneys and local community leaders.

2. Provide education around issues that are critical to supporting rural entrepreneurship, namely: (a) implementation and regulations around rural broadband; (b) information and infrastructure to support access to capital for rural entrepreneurs; and (c) more information about business structures that are critical to supporting agricultural businesses such as business transition issues and cooperatives.

Rural communities are being left behind in the "digital divide" (god, it pains me to even write that cringe-y sentence; it is loaded with cliche) - but the short of it, that there is a dearth of access to "broadband" (defined as at least 20mbps down) internet which hampers the capability to do business. Just one example that came up in the Clinic is a farmer that had a piece of machinery that had an electronic control system that took 3 days to update because the internet connection was so slow - three days that the equipment was unavailable. Not to mention, without internet, the people that want to live in rural communities, but hold modern, well-paying jobs that rely on always-on connectivity (eg. programmers) have to leave which draws people and resources out of the community.

The whole point of this post is actually the Access to Capital problem. Namely, how can rural entrepreneurs even succeed without access to the kinds of modern capital structures that power modern entrepreneurship. Not to mention the closing of numerous community banks. But even just looking at entrepreneurial ecosystem funding from accelerators to bridge financing to angel investors and friends and family to seed money to venture capital. It's all hard enough in a large city, but made even more difficult in the rural community. Below are just some of the questions that have come to me as I contemplate how we even begin to solve this problem:

• What kinds of things are rural entrepreneurs doing? How does "rural entrepreneurship" look differently from "city entrepreneurship"?
• Are "city technologists" that create things for the rural context (e.g., agricultural drones being developed on-campus) "rural entrepreneurs"?
• Does the presence of a nearby University or College change? How near does the University or College need to be to make an impact?
• How does the rural context change investment decisions and opportunities?
• Do investors need to change their expectations with respect to rural entrepreneurs? If so, is it in the returns they should expect? The "sophistication" of the founders? The types of technology they should be investing in?
• Does the rural context matter in terms of the kinds of money that needs to be deployed? In other words, do outside investors need to get involved earlier? Is it pre-seed money that is super-important (are ideas falling off the vine before they're ripe?) Is seed stage money more important (they can get the idea developed in a workshop, but initial commercial prototyping and sales need support)? Is early-stage money for scalability and access to markets the bigger problem? Are all of these problems, and if so, what is the priority for these issues?
• Can a typical entrepreneurial ecosystem be fully executed in a non-metropolitan place?
• In other words, assuming that a proper ecosystem involves incubators, accelerators, coworking, maker spaces, pre/early/seed stage capital, business support services (like L&E), etc. Can these things all exist in a non-metropolitan place, let alone a rural town or small (sub-100k) city?
• Are some support services/ecosystem services less important in rural communities? E.g., while 3D printing may not be prevalent, the typical kinds of "shop tools" found in maker spaces may be more readily available.

Rural Entrepreneurship Post #1

A new article on Quartz says "The US Startup is Disappearing." The article quotes freely from a report from the Brookings Institute about "The state of competition and dynamism: Facts about concentration, start-ups, and related policies." The basic gist is that there are, objectively, fewer startups (companies between 0 and 2 years old) in the economy than there ever have been and that fewer people work for startups than ever. Consolidation is rampant across all industries, and the government is not as active in preventing mergers where it would result in high industry concentration (i.e., fewer than 5 firms). Entrepreneurship is down across the board, especially amongst those with college degrees. According to Brookings, the three policy factors most likely playing a part:

1. State subsidies to private businesses have tripled since 1990
2. Occupational licensing decreases worker mobility
3. Licensure is especially impacting the health care industry

In other words, not only have states been enacting barriers to entry, principally in the form of licensure requirements, they have been financially supporting entrenched firms at the expense of new entrants. As a result, consolidation across virtually every industry has created competitive barriers for new market entrants.

The good news is that we are currently in a market with low unemployment. Indeed, as of August 2019, the state-wide unemployment rate is a mere 3.1%. But, the story isn't as clear cut as all that. Sure, Dane County has unemployment at 2.5% (indeed most of South-Central and South-Western Wisconsin are doing pretty well), but Northern Wisconsin particularly, and South-Eastern Wisconsin aren't exactly doing as well. Menominee County's (largely a Native American reservation) unemployment rate is over 13%, indeed, the counties doing the worst are all in Northern Wisconsin. Below are all of the counties in Wisconsin with Unemployment at or above 4%:

County	Unemployment Rate
Menominee	13.4%
Iron	5.9%
Bayfield	4.9%
Marinette	4.8%
Ashland	4.8%
Forest	4.6%
Burnett	4.6%
Adams	4.5%
Milwaukee	4.4%
Rusk	4.3%
Racine	4.3%
Sawyer	4.2%
Kenosha	4.2%
Florence	4.0%
Douglas	4.0%

These unemployment numbers account for approximately 33,000 people. Of course, about 29,000 of that is the Milwaukee area (including Racine and Kenosha). Removing the Milwaukee market, leaves almost 4,700 people unemployed where the workforce is still about 100,000 people. And, we're currently in a very good economy. If you look at the same counties in the depth of a recession, you'll find that Dane County continues to hold up well and Milwaukee retains approximately the same level of joblessness (implying that Milwaukee area unemployment may be more systemic and related to factors other than the health of the economy.

But, rural Wisconsin does not fare well at all. The counties listed above all had unemployment rates above 10% in April of 2010. And that was before Wisconsin had a record number of farm closures. Over the past 10 years the number of dairy herds in Wisconsin has dropped from more than 13,000 to less than 7,600; a drop of over 40%. Since 2015 more than 2,500 Wisconsin dairy farms have gone out of business. In 2019, Wisconsin leads the nation in farm bankruptcies (pdf) by a fairly significant margin.

All of which is to say that even if the dairy industry somehow bounces back, Wisconsin's dairy industry is unlikely to come back with it. Wisconsin's farming industry was largely comprised of small family farms, not the large concentrated animal feeding operations ("CAFO") that predominate in other agricultural areas. So even if some of the bankruptcies and "closures" were absorbed into consolidated farming operations, it's unlikely that these larger farms will actually grow proportionately with the industry - CAFOs employ fewer people than family farms, up to 80% fewer people for equivalent output in small dairy operations. Even when they do hire, CAFOs rely on low-skill, largely immigrant workers.

Startup rates are declining, largely due to policies that encourage entrenched companies and encourage consolidation. Wisconsin's rural economy is hard-hit by this trend, particularly in the dairy industry. While we are currently in a fairly decent economy, predictions of a downturn are starting to manifest as the yield curve inverts and the trade war continues to drag on. While the good news is that we are not currently behind the 8 ball, now might be a pretty good opportunity to start looking at policy options for preventing bigger problems in rural Wisconsin if and when the downturn comes. One hypothesis that we will be testing at the L&E Clinic is that support for entrepreneurship in the non-farm economies of rural Wisconsin can and will have a particularly large impact in mitigating unemployment.