Herb Kleiman

Monday, 22 July 2002 09:43

Priming the engine

This column is the second of two addressing the role of smaller technology-based firms.

Last month, I argued that smaller technology-based firms are critical to a region’s economic well-being. Northeast Ohio performs poorly in creating and supporting the entrepreneurial breed that travels in the high-tech fast lane.

The long-term implications of this shortfall are significant and sobering.

To reverse this deficiency, four areas are worthy of consideration. Admittedly, none on its own is a silver bullet. But, if they are recognized as important issues to be addressed and then actively supported, perhaps the sluggish scenario for smaller technology-based firms here can be improved and kicked into high gear.

State, regional and local governments

For high tech overall, and especially for smaller technology-based firms, governmental administrations have done little. From the governor in Columbus to the mayor in Cleveland, high tech of any stripe has languished as a low-priority agenda item.

This oversight is unacceptable, since singly and in cooperation, governmental agencies can and should do more. At the outset, they must accept the principle that smaller technology-based firms are often the engine for regional economic growth.

Two areas for governmental attention are singled out for these companies, namely low-cost industrial space for start-ups and programs to help obtain financing for ongoing operations as they grow. Start-ups often struggle to locate affordable space for their initial activities, when their credit standing and record of accomplishment are nonexistent and they face a questionable future.

Government assistance can lower entry and operating costs, and thereby shoulder some of the risk.

University involvement

In other regions where smaller technology-based firms have thrived, major universities play pivotal roles.

But not here. Case Western Reserve University, by far the largest local university presence with respect to research activities, should re-examine from the ground up the many ways it facilitates — or obstructs — the creation and subsequent support for aspiring technology-based entrepreneurs.

The university should analyze how it can do a better job to bridge the sizable cultural differences between its academic environment and the entrepreneur’s. Incentives, time horizons for decision-making and project completion, value of research transformed into marketable products and risk tolerance remain divisive issues.

An important first step is the encouragement the university provides to a staff professor with a creative high-tech idea who wishes to leave academia and start his or her own business. This is a difficult transition under the best of circumstances.

The university can encourage the professor-soon-to-be-entrepreneur by viewing this process not as a loss to the university but a gain for the community. It should simplify and accelerate the path by which intellectual property migrates from academic research to innovative industrial products.

The university should also be swift in its actions and willing to incur some risk to expedite the transition.

Local banks

Smaller technology-based firms confront banking institutions with singular challenges. This reality is particularly true for Cleveland-based banks traditionally attuned to heavy industry, such as steel-making and auto assembly. Banks generally are not eager to deal with small operations of any kind.

The discomfort level rises sharply if the borrower makes and markets high-tech products (which lending officers do not understand). The situation is aggravated further when banks deal with Internet or software firms whose assets are often limited to intellectual property.

The banks here, in league with the state, might adopt an approach already in place in more than 20 states. A capital access program can increase the number of smaller companies that obtain working capital. Contributions into a pooled fund are made jointly by the state, the lending bank and the borrowing firm.

If the borrowing company defaults, the fund will reimburse the bank for much of its outstanding loan. The bank’s exposure is minimal.

Local smaller technology-based successes

Although the numbers are relatively low, Northeast Ohio does boast several entrepreneurial technology-based success stories in the past decade. STERIS, Thermagon and Gliatech have established competitive positions in their respective market niches.

I suspect that little effort has been expended to publicize their accomplishments, especially as a group. This omission is a serious oversight on the part of the community. The awareness that high-tech successes have been achieved in this region can serve as a powerful Northeast Ohio magnet for entrepreneurs — from here and elsewhere.

As a minimum, the message should document these accomplishments within a brochure and online communications for target audiences locally and outside Northeast Ohio.

The message should boldly assert that a number of local high-tech entrepreneurs have established profitable, growing firms here.

Herb Kleiman (kleimanassoc@earthlink.net) is president of Kleiman Associates, a Shaker Heights-based firm that provides marketing/communications to medium/smaller technology-based companies.