Economic development organizations are missing a growth opportunity. We need to move beyond the traditional mantra of business attraction and business startups to increase growth and value in our communities. Growing value from existing businesses has been a traditional challenge for even the savviest economic developer, because the necessary tools were unavailable. Now, more sophisticated data and analytical tools are available to accelerate our ability to identify, target and accelerate economic development of existing businesses.
A typical company is missing one-fourth of its potential value. This means an average company with $12 million in annual revenue has a ”value gap” of about $3 million between what it is currently worth and what it could be worth. Economic development strategies designed to close this gap—to help local businesses prosper to the fullest extent, benefitting the community as well as the owners– often include a combination of technical assistance, financing, taxation, land or facility programs, and other initiatives.
Weak companies can’t fully benefit from traditional economic development efforts. Strengthening those companies by knowing and targeting specific value gaps makes development strategies more effective. Improving a company’s operational effectiveness, even without immediately increasing its revenue or employment numbers, increases a company’s economic value. Efficient companies are better able to take advantage of market focused economic development strategies, positioning them for growth in revenue and jobs…and leading to an increase in tax revenues for the community.
In economic development, as in medicine, prescription without diagnosis is malpractice. Without knowing specifically the size and nature of these gaps across local businesses, a generic economic development strategy is unlikely to generate growth. The ongoing challenge for traditional approaches to economic development is proving empirically which strategies will actually work.
The challenge in accelerating economic development is being able to identify value gaps across a regional economy. Each company differs by industry, location, size and stage of growth, but research has identified the key drivers of enterprise value. If the owner of a typical private small business only knew which operational or market functions were working well and which were not, he or she could strengthen company value and quickly contribute to rising economic power in the region.