glenn kinstler auecdi 7 17 09

The Impor tance o f Smal l Bus inesses and Ent repreneursh ip

A u b u r n U n i v e r s i t y E c o n o m i c & C o m m u n i t y D e v e l o p m e n t I n s t i t u t e

J u l y 1 6 t h , 2 0 0 9

Glenn Kinstler, Director

Today’s agenda

1. Quick introduction of Alabama Launchpad

2. Ideas of Entrepreneurship and the Role of

Small Businesses in Job Creation

3. Three High-Growth Examples from Alabama

4. The Case for Alabama Launchpad

5. Closing Thoughts

What is ALABAMA Launchpad? Alabama Launchpad is a not-for-profit organization

dedicated to the support and promotion of “high-growth” and technology entrepreneurship in Alabama.

Alabama Launchpad was formed in 2006 by the state’s public, research universities and the business community. Unique collaboration between business and academia

Effort to advance “The New Economy” in Alabama

“Building an innovation economy through

collaboration and entrepreneurship”

Alabama Launchpad Partners

Alabama A&M University

Alabama Launchpad Partners

Alabama A&M UniversityAlabama State University

Alabama Launchpad Partners

Alabama A&M UniversityAlabama State UniversityAuburn University

Alabama Launchpad Partners

Alabama A&M UniversityAlabama State UniversityAuburn UniversityUniversity of Alabama

Alabama Launchpad Partners

Alabama A&M UniversityAlabama State UniversityAuburn UniversityUniversity of AlabamaUniversity of Alabama at Birmingham

Alabama Launchpad Partners

Alabama A&M UniversityAlabama State UniversityAuburn UniversityUniversity of AlabamaUniversity of Alabama at BirminghamUniversity of Alabama in Huntsville

Alabama Launchpad Partners

Alabama A&M UniversityAlabama State UniversityAuburn UniversityUniversity of AlabamaUniversity of Alabama at BirminghamUniversity of Alabama in HuntsvilleUniversity of South Alabama

Alabama Launchpad Partners

Alabama A&M UniversityAlabama State UniversityAuburn UniversityUniversity of AlabamaUniversity of Alabama at BirminghamUniversity of Alabama in HuntsvilleUniversity of South Alabama

The Economic Development Partnership of Alabama (EDPA)

Role of EDPA

Privately funded, not-for-profit organization Private side of economic development

Created in the early 90’s to help attract business to Alabama

Assists the state, local and corporate economic development/recruiting agencies

Extensive Existing Industry Program Entrepreneurship is Economic Development

“Entrepreneurs are society’s rejects, instead of becoming hobos, criminals or professors, they start their own business.” – Henry D. Thoreau

Entrepreneurship & Small Businesses

Form of Social Responsibility Entrepreneurship makes the world better

Entrepreneurs see what can be, not what is Idea of Creative Destruction Two types of Innovation

Incremental: Small improvement to pre-existing products or services that make them cheaper, faster, better

Disruptive: Completely new products or services that transform entire industries

Inventors are not always entrepreneurs

Interesting Statistics

US Small Business Administration defines a “small business” as one with fewer than 500 employees.

Represent 99.7% of all employer firms Employ about half of all private sector,

non-farm employees Pay nearly 45% of total US private payroll Generated 60 to 80% of net new jobs

annually over the last decade Produce 13 times more patents per

employee than large firms

Who creates more jobs? Small vs. Large “The Role of Small & Large

Businesses in E.D.” Kelly Edmiston, Senior Economist at the Federal

Reserve of K.C. From 1990 to 2003, 23 million net new jobs

were created 239 million gross new jobs – 219 million gross

jobs lost Small Business (< 20 employees) created 79.5% of net

new jobs Midsize Business (20 – 500 employees) created 13.2% Large Business (> 500 employees) created 7.3%

Large firms lose more jobs than they create, but…

Statistics are deceiving, more study needed Small firms become large ones, so the statistics are

skewed

Size-Wage Effect

< 100 100-499 500-999 1000-2500

2500+0

5

10

15

20

25

30

15.6917.72

19.94 21.07

27.05

Average Hourly Wages

Source: US Dept. of Labor

Another Study

“Employment Dynamics: small and large firms over the business cycle” US Dept. of Labor Statistics Study attempts to address the skew in past data by

dividing firms into many more categories From 1990 to 2005, small firms (1 to 499) create 64%

of net new jobs Expansions account for 83% of all gross job gains vs.

17% for startups Small firms had more net job losses in the recession of

the early 90s, while large firms had more net job losses in the 2001 recession

“In today’s economy…”

From April to May: 532,000 jobs lost Large firms (500+) shed 100,000 jobs – 19%

Medium firms (50 to 500) shed 223,000 jobs – 41%

Small firms (>50) shed 209,000 jobs – 40%

From Jan to May: 2,494,000 jobs lost Large = 313,000 – 12.5%

Medium = 1,098,000 – 44%

Small = 962,000 – 38.5% Source: ADP National Employment Report, May 2009

Rates of Success

Two-thirds of new employer firms survive at least two years

44% survive at least four years, 31% survive 7 years.

Results were consistent from different industries

Research found that after four years, the rate of firm closing declines considerably.

Source: US SBA

Not all small businesses are equal !! Lumping all of these small businesses

together is misleading Just think about the variety of small

businesses you see every day! All businesses are important, but

special attention should be given to “High-Growth”, innovative companies Often technology related More efficient than larger firms, more

patents too Higher wages Create real wealth in the community

Three High-Growth Alabama Examples

Digium

Digium is the original creator and primary developer of Asterisk, the industry's first open source VOIP platform.

Digium also offers a full range of professional services, including consulting, technical support, and custom software development.

Currently employee over 80 people Long list of awards and recognitions from

VOIP and entrepreneurial publications Headquartered in Huntsville

The New Digium

DAXKO Software

Leading provider of operations and financial management solutions for member-based nonprofits, with a particular focus on the $5.2 billion YMCA market

Customers in 48 states Products help customers operate more

efficiently and serve their communities more effectively

80 employees; plans to add 20 to 30 more in next two years

Average salary more than $60,000 Headquartered in Birmingham

“DAXKO Culture”

ProEthic Pharmaceuticals

ProEthic is a specialty pharmaceutical company specializing in the areas of cardiology, pain and migraine. Started in 2001 focusing on generic drugs

Company focuses its efforts on the acquisition, development, licensing, and marketing of pharmaceutical products. Became anchor tenant in Montgomery

Industrial Park Created two spin-off companies that also

located in the park Recently acquired by Kowa

Pharmaceuticals of Japan Headquartered in Montgomery

Other Alabama Examples

AdTran HealthSouth QMS Banks

Regions, Colonial, Compass Bates Enterprises

Idea of Entrepreneurial Churn

Idea

Grow

SurviveMature

Sell

What can be done to support start-ups? Look at programs in other states:

Georgia Research Alliance Ben Franklin Technology Partners - Pennsylvania Maryland Technology Development Corporation

Spotlight and reward entrepreneurs Mentoring programs Networking opportunities for entrepreneurs Recruiting success creates opportunities for

small businesses More entrepreneurship education at every level

Common Theme: Public-Private Partnerships

Business Incubators

Incubators provide: Shared space and

overhead Expert advice and

guidance Connections/

Networking Access to capital Intangibles

“Writing a business plan is the first step to creating a successful venture. Everything starts with the plan.” – Dr. Bob Kolodney, Harvard Business School

Governor’s Business Plan Competition

Business Plan Competition

Competition is for technology and high-growth ideas

Eligible teams must be affiliated with a partner university Current Student Current Faculty Other University Employee Alumni of no more than five years Former Faculty of no more than three years

Must establish and maintain HQ and the majority of business operations in Alabama for 5 years

Universities are “Centers of Innovation”

Goals of the Competition

Provide a structured approach to writing a business plan

To showcase Alabama’s best start-up ideas and promote the opportunities for entrepreneurship and innovation in Alabama

To educate and nurture entrepreneurs To create a statewide network of individuals

interested in high-growth entrepreneurship

To provide seed financing to three high-growth businesses on an annual basis

Nuts & Bolts

Competition occurs over four phases; Follows academic calendar

Judges come from business and venture communities

Final event where teams “pitch” their ideas 2009 Finale: April 18th at UAB Opportunity to bring together government

officials, entrepreneurs, university officials, business leaders, economic developers, investors

2008-2009 Registration Figures

36 team registrations Industry Categories:

IT – 6 Materials Eng – 5 Biotech – 5 Medical Devices – 3 Consumer Products – 3 Pharma/Drug Delivery – 3 Auto/Aero Eng – 3 Green Tech – 2 Ag/Vet – 2 Other - 4

What do the winners win?

Grand Prize: $100,000

2nd Place: $50,000

3rd Place: $25,000

While cash is king, the real prize is the opportunity to connect with members of the venture and angel communities and other

business leaders.

A few past winners…

2007 2nd Place: Halo Monitoring

Led by two UAH MSEE alumni Wearable health monitoring system

that uses wireless technology to monitor health and lifestyle of the elderly. Caregivers can monitor vitals of subject in

real time

Fall detection and automatic notification of 911

Currently incubated at BizTech Since competition, Halo has received

$1.7 million of investment from the Huntsville Angel Network, Greer Capital Advisors and Jemison Investments

More on Halo Monitoring

First sales in early 2009

Halo Research goes to Consumer Electronics Show ►

Company now has 10 full-time employees

2007 Grand Prize Winner: OcuMedic

Team led by Dr. Mark Byrne, Professor of Chemical Engineering at Auburn Univ.

Drug delivery company with a patented technology that creates therapeutic contact lenses for the treatment of ocular diseases

Time release Used much of prize money to file

international patent applications and new “field-of-use” patents

Currently in animal testing at the Auburn College of Veterinary Medicine (FDA process)

2008 2nd Place: SEA Desalination

Led by Ph.D. candidate from The University of Alabama

Sun-powered system that removes salt from seawater or pollutants from contaminated ground water

Made from recycled soda bottles

Initial sales are targeted to third world markets and coastal homeowners

10 full and part-time employees Currently incubated at UA AIME

Center

2009 1st Place: Innovative Composite Solutions

Company led by 3 professors from UAB School of Engineering

Design and manufacture of high-end thermoplastic composites

Military, aerospace and mass transit market opportunities

Company uses a proprietary manufacturing process

Lighter, cheaper, more energy efficient and recyclable

Many opportunities for ICS

Competition going forward

Alabama Launchpad winners have gone on to attract over $3.0 million in follow-on money from the Alabama venture and angel communities. More coming Other participants have raised capital, established

joint ventures, hired employees, etc. We have directly helped create 9 companies in

3 years Educational Programs

Seminars, website, etc.

Financial Support

Expenses – a lean organization

Prize Money62%

Ad-minis-trative

Ex-pense

s34%

Finale Event3%

Marketing & Media1%

Current Sponsors – 2008/2009

Platinum Level

($25,000 and up)

Alabama Power Company

Foundation

Alabama Research Alliance*(ADECA)

Economic Development Partnership of

Alabama

Current Sponsors – 2008/2009

Gold Level ($10,000):Vulcan Materials Company*

Silver Level ($5,000):

Alagasco AT&T

Blue Cross & Blue Shield of Alabama

Bradley, Arant, Boult, Cummings, LLP*

Burr & Forman LLP EBSCO Industries, Inc.

Greer Capital Advisors, LLC

Harbert Management Corporation*

Hudson-Alpha Institute for Biotechnology

Metropolitan Development Board*

Current Sponsors – 2008/2009

Bronze Level ($2,500):

City of Auburn Innovation Depot

Kinetic Communications*

Maynard, Cooper & Gale, P.C.

Southern Research Institute

Thomas, Kayden, Horstemeyer & Risley,

LLP

The UA Office for Technology Transfer*

Warren, Averitt, Kimbrough & Marino,

LLC*

Closing Thoughts

Small businesses come in all shapes and sizes Data varies on economic impact High-growth companies have the greater impact

Economic diversity is incredibly important Alabama must be a leader in The New Economy

Mentoring programs are very helpful Recessions are great times to start new

businesses Entrepreneurship and Innovation are hot topics

Alabama Launchpad is the only statewide initiative to support high- growth entrepreneurship in the state

For more information…

Glenn Kinstler, Directorgkinstler@edpa.org

(205) 943-4709

www.alabamalaunchpad.com