Industry Clusters Present an Opportunity

Karen Mills has some thoughts on growing regional economies. For the past several years, she’s advocated for the economic benefit of regional industry and innovation clusters.

Mills helped get a $15 million U.S. Department of Labor WIRED grant for the Maine boat-building industry and worked with Maine’s Gov. John Baldacci to implement recommendations from an economic-development study (“Charting Maine’s Future”) related to industry clusters — geographically concentrated groups of interconnected companies, universities, and related institutions that arise out of linkages or externalities across industries.

While in Maine, she co-authored in April 2008 a Brookings report titled “Clusters and Competitiveness: A New Federal Role for Stimulating Regional Economies.” Mills also worked with an SBA-sponsored fund I manage (CEI Community Ventures) to develop a cluster event designed to catalyze a specialty food industry in Maine.

In December, President Obama nominated Mills as director of the U.S. Small Business Administration, a position some (including Maine’s U.S. Sen. Olympia Snowe) would like added to the cabinet. So, given Mills’s background and what she’s been up to in Maine, what might have we to look forward to in a Mills SBA should her nomination be confirmed?

New Strategy

As backdrop, the stimulus package and the government’s economic policy involve a renewed focus on urban markets, industry, and innovation clusters — and underserved people like women and minorities. And with the Obama administration clearly listening to the folks at Washington D.C.’s Brooking Institute, we may see a federal economic-development plan like that outlined by Brookings’s Metropolitan Policy Director Bruce Katz and Harvard Business School’s Michael Porter, who has written extensively on competitive strategy and cluster development.

That strategy would likely be implemented across agencies and would stress financing and resources that support growth in select urban and rural regions and in select sectors. Katz and Porter assert that, as urban economies go, so goes the nation. They say, in fact, that 75% of our GDP comes from urban city markets, or “the engine of our prosperity,” as Katz calls it.

Mills seems likely to focus on urban markets and industry clusters, too. Urban markets — which would include cities like Springfield — enable the administration to meet its stated objectives with respect to underserved people located in underserved regions. Through SBA (and other agencies), urban markets might see greater access to capital (whether loans, equity, or grants) and business resources like education and consulting. According to Mills’s own research, clusters should be funded by grants and supported by information centers. These activities ought to be coordinated across agencies, according to Mills and others, so government can implement policy in a unified manner.

Prior to Mills’s arrival, SBA’s toolkit has been a mix of financing (loans and equity) and business resources (such as its Small Business Development Centers and Service Core of Retired Executives. During the past eight years, SBA’s budget has been dramatically reduced. Given the challenges of creating new programs during the recession, it seems Mills should look to simply reinstate SBA’s program funding with a strategic urban and cluster emphasis. SBA-sponsored equity funds might be reinstituted with a focus on urban-market funds and growth clusters.

Indeed, the SBA has a rich history supporting specialty funds such as the New Markets Venture Capital program I’ve been managing for the past five years. SBA grant funds might support industry associations, cluster events, and educational endeavors. Cluster information centers would be the repository of all things cluster — i.e. research and reports, company databases, cluster maps, and economic development research.

Why It’s Important

Why should this matter to those interested in venture capital and small business growth issues? Here are a few reasons:

Equity: The early-stage venture ‘capital gap’ has not gotten any better over the past two quarters. If Mills can revive SBA’s equity programs, new liquidity can support growth ventures. For my part, I’m game to pursue — as part of Clear Venture Partners, my new fund-in-formation — such funds if the SBA is game to provide the capital and program. That could mean additional capital and resources for growth companies located in underserved regions like Western Mass.

Grants: Technical and operational assistance funds are low-cost or free services to small-growth business and to the entities (for-profit, non-profit, and government) that serve them. In short, if you’re in a target cluster or region, you’re likely to see resources headed your way if Mills is confirmed.

Cluster and sector support: If you’re starting a business or are in a business that is one of a given region’s target clusters, you’ll not only find local but likely federal resources (equity, grants, and tax credits) to help you on your way.

Focus on growth sectors, and you’re likely to maximize your success in the current and future economy.

Michael Gurau is managing general partner of Clear Venture Partners in Portland, Maine;[email protected]