At Issue: Will Jump-Started Entrepreneurship Float?

By J.F. McKenna

As the sage says, “the hardest ship to float is a partnership.” And what of the good ship Entrepreneur?

Is it reasonable to assume the hardest ship to launch is an entrepreneurship? It appears to be so. And the recent kerfuffle surrounding the economic-development group JumpStart lends credence to this aphorism.

Plain Dealer reporter Michelle Jarboe recently crafted a detailed feature story headlined “JumpStart facing heavy criticism.” The article focused on Cleveland entrepreneurs’ complaint that six-year-old JumpStart “spends more money serving businesses than creating them.”  Jarboe reported that JumpStart had funded 53 companies. “Of those,” she wrote, “one has been acquired by another company; a second repaid JumpStart’s investment. Four have failed. Out of the remaining 47 companies, JumpStart says 66 percent are living up to expectations.”

Now, factor in the “equivalent of” 471 full-time jobs created to date and the non-profit, grant-funded JumpStart’s overall $52.3 million spending. The ROI—even with the most intense squinting through a green eyeshade—is poor when compared against private-industry standards.

Which prompts yet other, even more critical, questions: Does entrepreneurship, by its very nature, really lend itself to extra-market stimuli? However well intentioned, are JumpStart’s efforts akin to altering the very DNA that makes entrepreneurship exactly what it is?

The late Peter Drucker, who retains the undisputed title of “the father of modern management,” would probably argue against entrepreneurial interventions a la JumpStart. “‘Planning’ as the term is commonly understood is actually incompatible with an entrepreneurial society and economy,” he said. “Innovation does indeed need to be purposeful and entrepreneurship has to be managed. But innovation, almost by definition, has to be decentralized, ad hoc, autonomous, specific and microeconomic.”

In short, the good ship Entrepreneur needs to launch itself onto the free-market waters and find out if it will float or sink. Artificial ballast, such as non-market investment, will keep the craft seaworthy only so long.

Back when I was covering business issues for Northern Ohio Live magazine, I talked to a lot of champions of entrepreneurship. Many of them told me that business adventurers need to have lofty dreams matched with hard thinking. And hard thinking must precede seeking out assistance, be it guidance on business plans or non-profit investment dollars.

Phil Bessler, a veteran of industry and a Baldwin-Wallace business professor, shared his thoughts with me six summers ago. Long before an entrepreneur scratches out a business plan, Bessler said, he or she must fashion a feasibility study, “a simple test many entrepreneurs do on the fly.”

”I use this analogy: If you build it, will they come?” Bessler said. “You need to test if there is a viable market for what you want to do. The second test is financial: Is the profitability reasonable? Can you cover your investment? The third question is about resources: about skills, about the individual, about support mechanisms. You go through it quickly, and it’s a go/no-go kind of thing.”

In the marketplace, feasibility is typically weighed against what Warren Buffett calls “skin in the game.” When that skin is not off the entrepreneur’s own back, but rather is a funded transplant, decision-making can get skewed.

Which brings me back to the controversy surrounding JumpStart. Questions about the organization’s executive salaries and brand extensions aside, JumpStart must take a hard look at its own feasibility as a market actor. Do the current returns justify the investments? Is it truly possible to commoditize innovation and entrepreneurship?

Drucker would say no. “Innovative opportunities,” he wrote in Innovation and Entrepreneurship, “do not come with the tempest but with the rustling of the breeze.”

Yet a tempest is what seems to have formed.

Jarboe’s article quoted an e-mail from JumpStart critic Ron Copfer, himself a high-tech entrepreneur, to JumpStart CEO Ray Leach:

“The kind of growth we need to have happen in this region can only be produced organically, Ray, from the ground up, by taking chances, experimenting and risking. Something that JumpStart is clearly not doing!”

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J.F. McKenna is a veteran business journalist and communications specialist. Reach him at jf_mckenna@yahoo.com .

 

 

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Comments

  1. Mike Burkons says:

    JF,

    Great post. I agree that even if you don’t scutinize their claims, 471 jobs isn’t a great ROI. However, one of the things we asked for was a way to verify this claim. We have gotten resistance on every level.

    If Jumpstart really wants to ensure their numbers are accurate like they continually claim, it is very simple and easy to do. Before they release their next economic impact report for 2010, go back and take another survey. Instead of it being returned and administered by Jumpstart, have an independent person send the following survey who it trustworthy and respected enough to keep company by company results confidential but has the power to verify the claims until their satisfaction. Here would be a simple 4 question survey sent to each company that could clear everything up,

    1. What was the total compensation paid to Northeast Ohio employees from your company in 2010?
    2. How many people did your company employ in Northeast Ohio in 2010 and how many were employed on Dec. 31, 2010?
    3. How many local employees did this company have before Jumpstart’s investment?
    4. Please list all of your investors and next to each investor, list what percentage of your results, impact and jobs you would attribute to each of them? At least this way, the company and not Jumpstart decides what percentage each investor should take credit for creating. This also ensures that no more than 100% of the jobs are credited. You can’t have 6 groups claiming responsiblity for 50% of the jobs.

    As there are only 53 companies, and four questions, this wouldn’t be burdensome and if you had to pay for this, it could probably be accomplished for less than the cost of community forum they held.

    This is a simple solution and if I am missing something, please point it out. Anyone????

    Mike Burkons

  2. J.F. McKenna says:

    Mike:

    You make a valid request of JumpStart. As every smart manager knows, what gets measured gets done.

    I am sure Doug Magill, the maven behind CBR, would make space available to the folks at JumpStart to present an abbreviated version of its upcoming economic impact report.

    The ball is in the organization’s court. Maybe we’ll see a jump shot, eh?

    Joe McK

    • Mike Burkons says:

      What I don’t understand is why a group who says their numbers and claims are accurate, wouldn’t be excited to have a survey like the one I suggested happen.

      I understand why they can’t publish the company by company data, but I am sure we could find a unbiased independent 3rd party we could all agree on to gather this 4 question survey from these 53 companies and give this person the ability to verify the accuacies if each companies claims until their satisfaction.

      With all the money and efforts Jumpstart spends to promote these results, you would think they would cover the costs of this survey to ensure the claims are accurate?

      If someone could reach out to Jumpstart or their board, I would like to understand why there would be any resistance to this?

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