Entrepreneurship in America’s Inner Cities Stephen Adams Director of Research & Strategy NGA Policy Academy November 16, 2000

ICIC: Spark new thinking about the economic potential of inner cities Leverage market forces to increase jobs, income and wealth of inner-city residents. Encourage private sector to think differently about inner cities as economic spaces. Help civic leaders develop strategies for business growth based on the competitive advantages of their inner-city location.

Inner City Competitive Advantages Inner city Strategic location  Located near regional transportation and telecommunications infrastructure nodes Underserved local market Underserved local market  $85 billion of annual spending power Underutilized Workforce Underutilized Workforce  Largest pool of available workers in the US amid a tight labor market Linkage to industrial/ regional clusters  Opportunity to leverage proximity to city and regional clusters

Focus on Entrepreneurs: ICIC/Inc magazine Inner City 100  Project to identify and celebrate fast-growing companies located in America’s inner cities.  Proof of Concept — Inner cities as economic spaces -- successful, legal entrepreneurial activity. — Inner city competitive advantages  Strategic guidance for inner-city business development

Criteria –Companies must be headquartered in the inner city or have 51% or more of physical operations in inner-city areas –Employ 10 or more employees at year-end 1998 –Have a five-year operating sales history that includes sales of at least $1 million in 1998 –Cannot be a holding company, regulated bank, or utility

 12 Inner City 100 companies are on the 1999 Inc 500  26 Inner City 100 companies grew at rates matching or exceeding 1999 Inc. 500 companies.  23% are minority owned compared to 11% nationally.  17% are women-owned, well above average among companies over $1 million. Performance matching and exceeding the nation’s best companies

Inner City 100 represent range of sizes: –19 companies employ 100 or more; –24 employ between 50 and 100; –67 employ less than 50 Broad sector distribution: –Service firms 50% –Manufacturing 31% –Distribution/wholesale14% –Retail 5% Inner City Not Mom & Pop Operations

50% $12M 742% 202% $10.2M 9,330 % $1.2B $30.7M  Average Compound Annual Growth (CAG) rate:  Average revenues in 1998:  Collective sales in 1998:  Average sales growth rate: Collectively, the Inner City 100 created 4,300 jobs between 1994 and 1998 Total IC 100 Top 3 Inner City Fast-growing companies

Average hourly wage for “rank & file” -- $12.82, above national average 96% provide employer-subsidized health insurance 76% provide bonus plan 72% provide retirement plan 66% provide life insurance 53% provide tuition reimbursement Inner City Providing Quality Jobs

Top 3 competitive advantages of inner-city location –Access to highways –Proximity to customers –Access to available and diverse labor force Inner City Succeeding because of location, not despite it

Competing on factors other than costs: –Seldom low-cost provider; –Competing on customer service –Ability to quickly customize and deliver goods & services Inner City Succeeding because of location, not despite it

 #1 Caribbean Shipping & Cold Storage (Jacksonville, FL) Access to ship, rail, and highway infrastructure to serve restaurants and stores in growing Latin American markets.  On-Target Supplies & Logistics (Dallas, #63) uses inner city location to source, distribute, warehouse and manage office products for fast-changing telecommunications and energy firms. Tucker Technologies (Oakland, #3)-- Designs, installs and maintains telecommunications systems for high growth Bay Area telecom cluster. Sites access to inner city labor force as his prime locational advantage. Tapping competitive advantage of inner city location.

 Perception of crime was greatest competitive disadvantage  Actual crime was third among disadvantages  Cost of security systems was second highest ranked competitive disadvantage -- high cost of false information about inner city security. Inner City Some disadvantages are perceptional

Inner City Strategic Guidance  Leverage competitive advantages  Deal directly with disadvantages  Work force sourcing is biggest barrier to growth.  Recognition has economic value

List is making a difference for inner city companies  Tucker Technologies (Oakland)-- “As a result of being on the Inner City 100, my company has experienced meteoric growth including a multi-million dollar contract with Lucent Technologies.”  NuStyle Development (Omaha)-- “Due to the recognition, we have had several financial institutions show interest in our company by offering us their best interest and term rates to benefit them, the community, and NuStyle.”  TCG (El Paso) “Our participation has resulted in the opening of doors that before were only slightly ajar.”

 Shining the national spotlight on 100 entrepreneurs with the vision to see opportunity in places others failed to look, and to find success where others see only risk.  Through their everyday business activities the Inner City 100 companies are propelling a dynamic economic recovery in inner cities. Entrepreneurs: A Beacon of Hope for Inner City Communities