Page 269 - 1-Entrepreneurship and Local Economic Development by Norman Walzer (z-lib.org)

258 Scott Loveridge

start-up firms. Second, there is interdependency among small and large
firms. Small firms benefit from the existence of large firms for a customer
base and as role models.
Third, to become large, businesses must first be midsized, but to become
midsized, they must start operations. Firms of all sizes go through a life cy-
cle and, ultimately, most die. Those that do not die may change form dra-
matically and may leave the area of their birth. For example, Nokia, the suc-
cessful cell phone company, started as a pulp mill, then became a boot
manufacturer before moving into electronics. Along the way, Nokia moved
from its rural hometown to a suburb of the Finnish capital, Helsinki (Hu-
uhtanen 2006).
Similarly, Gerber started with baby food in rural Fremont, Michigan, but
now makes a wide array of products and is headquartered in New Jersey. 2
Rural communities are especially vulnerable to losing entrepreneurial firms
to relocation as the growing firm develops and its needs change.
These “life cycle” issues mean that within a community there is a need for
what the Lichtenstein and Lyons (2006) call a “pipeline” of entrepreneurs,
and start-ups are critical to keeping the pipeline filled. A specific commu-
nity may experience gaps in its pipeline at other levels, however; in these
cases, a focus on recruitment or expansion may be most appropriate. The
model proposed by Lichtenstein and Lyons is mainly conceptual; they did
not present empirical evidence to help determine appropriate levels of en-
trepreneurs at each stage.
Loveridge and Nizalov (2005) used the Lichtenstein and Lyons concep-
tual model to conduct an empirical test of the optimal distribution of firm
sizes within a local (county) economy in Michigan. Their findings show
that the optimal distribution of firms’ growth should be skewed toward the
smaller end of the scale. While the Loveridge and Nizalov results involve
only one state, and so must be interpreted with caution, a rough rule of
thumb from the study is that if a local economy has less than 20 percent of
its employment in the one to four employee size firm, it may benefit from
increased support for entrepreneurs at the start-up stage.
A logical step in assessing the need for increased emphasis on community-
based entrepreneurship is to examine available data for the county. In most
communities, data about geographic areas smaller than counties is ex-
tremely limited. Labor markets and economic linkages in today’s world ex-
tend well beyond township or city lines, so functional economic areas are
based on counties or larger. Finally, county government provides many im-
portant local institutions, and it is important to include these in increasing
support for entrepreneurship.
The U.S. Census Bureau publishes County Business Patterns annually
(www.census.gov/epcd/cbp/view/cbpview.html). To determine whether a
county has enough small businesses to support an entrepreneurship pro-