Talk Story
Nurturing business upstarts
can rekindle Hawaii’s
spirit of entrepreneurshipEVERYBODY wants to diversify the economy these days.
Hawaii is further from Ground Zero than any other state but that didn't protect our economy when air travel stopped last Sept. 11. Because of our over-dependence on tourism, it may have suffered the most.
"Economic vitality has to be our highest priority," says gubernatorial candidate Rep. Ed Case. "Without it we will not be able to produce sufficient jobs, nor sufficient government revenues for core programs like education, public safety and environmental protection."
Hawaii has one essential new-business component. Our university is a hotbed of research, bringing in $115 million a year in federal grants and contracts.
What's missing has been the entrepreneurial climate to turn research discoveries and ideas into viable businesses that provide jobs, attract investment and spin off dollars to bolster the rest of the economy.
Entrepreneurs turn good ideas into businesses. Henry Ford was one. He didn't invent the automobile in 1903, but he started a company that turned building cars into an industry.
"An entrepreneurial firm is one that isn't profitable yet," says Professor Robert Robinson, who heads the Pacific-Asian center for Entrepreneurship and E-Business at the University of Hawaii. "It's one that is still taking in money and trying to execute its basic business strategy."
So, does Hawaii really need a bunch of new, unprofitable companies?
Short answer: Yes.
Between 1979 and 1995, according to Robinson, the companies that make up the Fortune 500 lost four million jobs through consolidation, cost cutting, automation and other efficiencies.
At the same time, entrepreneurs created 24 million new jobs.
"We've really tried to rekindle the spirit of entrepreneurship in the islands," says David McClain, dean of the UH College of Business Administration. It's a fire that almost went out in recent years.
What makes a place entrepreneurial? UH Professor Shirley Daniel ticks off the factors:
First is opportunity. Ideally, there should be more new-business opportunities than there are people to take advantage of them.
Second is capacity. Entrepreneurs need advice, experience and education to react quickly and take advantage of opportunities.
Third is social legitimacy. We need a positive social climate, one that places a high value on self-sufficiency and personal initiative and a low reliance on government. Young people should expect to change jobs often in their careers rather than stick with one company forever. There should be a good Social Security and welfare safety net and a high value placed on success.
Finally, there is financing. New ventures require private individuals and venture capital companies willing to invest.
LAST August, Daniel asked 100 entrepreneurs who participated in a UH-sponsored business-plan competition to rank Hawaii in these four areas. The 42 who responded to her survey gave the state a passing -- C-plus -- grade for opportunity.
Capacity scored lower. Availability of good advice and college education earned C grades, but kindergarten through 12th grade education got a D.
Social legitimacy also was graded D. "This is one of the most difficult grades for us to bring up," Daniel said. Entrepreneurs don't flourish in communities that prefer jobs at established firms and sharing a uniform standard of living or that resent those who succeed, she said.
As Hawaii-raised Bette Midler once said, "The worst part of success is trying to find someone who is happy for you."
The entrepreneurs also gave Hawaii a D in availability of financing for start-up companies.
SEED money to get a company off the ground usually comes from the "Four Fs," Robinson jokes: "Founder, Friends, Family and Fools."
While successful new companies can eventually attract the attention of venture capital companies, banks, financial institutions and, finally, the stock markets, there's a gap between raising the initial seed money and qualifying for venture capital.
"It's sometimes easier to raise $4 million from a venture capital firm than the first $400,000 a company needs to get off the ground," Robinson says.
"Business Angels" plug the gap, individuals who have the wherewithal and knowledge to commit early-stage capital for start-up companies.
Robinson is organizing a forum to bring together entrepreneurs and investors, whom he calls "UH Angels."
An initial meeting turned out 30 would-be angels and Robinson says a Web site will appear shortly.
The spark of diversification has been lit. We'll need fuel and luck to keep it alive.
John Flanagan is the Star-Bulletin's contributing editor.
He can be reached at: jflanagan@starbulletin.com.