Capital, Data, and the Demographics of New Business in the Region
These are the questions that often arise when Ryan Miller and I discuss who is looking to start a new business either at the ThINCubator or within my entrepreneurship courses at Utica College.
The first few questions — are they serious about starting a business, and as an extension, is the individual or team willing to put in the time and understand the challenges?
The natural follow? Do they have the capital?
The answers are consistently binary — either “yes” or “no” on the first batch and often a “no” on the last. In other regions across New York State, you will find more “maybes” simply because they’ve been deemed innovation hotbeds with strong technological infrastructure or have closer access to wealth. Maybe a higher education support system is in place based on volume or a closer relationship between institutions in both proximity and collaboration. For the funding piece, New York State is ahead of others across the country because of the infusion of state-based funding programs or the gravitational pull of New York City but it’s concentrated in pockets.
What we see walking through our doors here in the Mohawk Valley, though, is truly unique. We do have the students or early- or mid-career professionals looking to start an innovative, technologically based company but just not at the same scale of Albany, Syracuse, or Buffalo, which has grown exponentially in the tech startup space. We mostly have community-minded, traditional small business startups that can truly fill a void left by either decades of globalization, the usual ebb and flows of small business, or, unfortunately, the recent pandemic. It’s a smaller region in terms of population. We have food- and agriculture-based concepts. We are seeing more social enterprise with human-centered design.
When having an open and honest dialogue with the individual who’s in the early stages of starting a business, we often ask why they haven’t started or simply registered with the state. The top reason focuses on capital — or lack thereof. There’s this middle ground between devoting the type of savings, which most Americans don’t have, or working with the many fantastic banking institutions we have regionally. Entrepreneurs hedge at taking on debt, even a small business loan of $25,000 at a small interest rate. They hesitate even more when devoting any savings to a concept still in its formative stage.
That middle ground, though, is the difference between getting a first run of a product off the ground or just the first step in having someone believe in their idea and work hard to get to the next stage via a network effect.
We estimate that this middle ground is worth about $10,000 in working capital to complement a small group of committed community-minded investors. This is one of the beliefs of the Mohawk Valley MicroSeed Fund.
The network effect, both digital and offline, is nothing new. However, we’re seeing more reliance on the power of connection. There are communities built around social media and online enclaves based on shared experiences and interests. There are also shared marketplaces, which, again, are nothing new. The funding apparatus for fiscal-specific concepts, though, is changing and social impact investing is rising.
This is worth noting because as of this writing, New York State does not have a crowdfunding law similar to California’s or 34 other states, where a larger group of individuals are governed by a different tax or legal structure that doesn’t penalize the investor above or below a certain threshold. Yes, there are venture capital and angel groups in the state that even support some of us, but nothing on the deeper community level, or in this writing going forward, in a “micro” sense. This isn’t GoFundMe or other crowdfunding platforms like Kickstarter. A stronger example can be found in California-based StartEngine, which pools investor resources to back early-stage businesses. There are the required SEC filings and such, but it’s also distributed in shares, similar to common stock.
This is seed investing for small businesses beyond the $10 or $100 level in exchange for SWAG. There will be an equity stake but a group of folks willing to help beyond the initial $1,000 contribution.
This is also an equity stake in a business for an early-stage entrepreneur looking to add value to the Mohawk Valley.
Who — and Small Business
You may have noticed that when we describe the “who” above, this isn’t focused on demographics. The first step is identifying passion and the willingness to see an idea through. Capital isn’t the only way to support an entrepreneur, but it also highlights the need in the region and perhaps the most crucial step in connecting desire and a good idea with reality. As mentioned, $10,000 isn’t a lot, but much more has happened for small businesses with much less.
The second piece to this is also recognizing the characteristics that are essential and around which a funding group coalesces. Some funding groups focus on highly scalable tech endeavors (see: Silicon Valley). Others may focus on restaurants. We’re interested in funding ideas that are focused on improving the quality of life in the Mohawk Valley in addition to entrepreneurs of color, women, first-generation entrepreneurs, and immigrants/refugees. Essentially, it’s a mix of the people who fit the description of those walking through ThINC and our programs on the undergraduate and MBA level at Utica College.
It’s also the right mix of the community.
In addition to entrepreneurs who we’re interested in supporting, there are those residents that embrace the new business culture either by excitement or necessity. The current pandemic and economic downturn has stunted this a bit, but the shift happened before 2020.
The U.S. Census issues its Annual Survey of Entrepreneurs (ASE) every year in the spring, but the focus is mainly on national trends with an additional emphasis on the larger Metropolitan Statistical Areas (MSAs). The Utica-Rome MSA, which is analyzed by the Census Bureau and the Bureau of Labor Statistics, falls below the top 50 so granular data is an added task and costs to gather. The data in the ASE also has a longer lag in release as it focuses on five-year cohorts, meaning the analysis focuses on the last available year, which is 2017.
The survey is deployed in 2018. The data are gathered and analyzed in 2019. The results are released in 2020.
The good news? Entrepreneurship — and its growth — is diverse.
Gravitational Pull to New Business
As an additional step, it’s worth analyzing the public data that is a little more recent and more accessible, which will be shared and helpful to put the region into context.
The U.S. Census produces the Quarterly Workforce Indicators (QWI) Explorer, a web-based analysis tool that enables comprehensive access to the full depth and breadth QWI datasets. Through charts, maps, and interactive tables, users can compare, rank and aggregate QWIs across time, geography, and/or firm and worker characteristics on the fly.
The QWI Explorer makes the entire QWI dataset available for visualization in line charts, bar charts, and thematic maps. The application’s intuitive dashboard allows for the construction of pivot tables to compare and rank labor-force indicators such as employment, job creation and destruction, wages, and hires across a wide range of firm and worker characteristics. Potential analyses include a longitudinal look at wages by worker gender and age across counties, ranking job creation rates of young firms across the North American Industry Classification System (NAICS), and comparing hiring levels by worker race and education levels across a selection of MSAs.
With that, a four-year analysis was pulled to look at four key demographic variables in QWIs in Oneida County (age, race, gender and ethnicity). Please note that “Hispanic” is categorized as ethnicity as the term “Hispanic” is very much a government or U.S. Census construct, not ours. It’s problematic history can be found here, starting in 1970. We will also examine race, gender and ethnicity in another post.
The first overview focuses on age with a quarter-by-quarter analysis of the Oneida County-based workforce attracted to new businesses — labeled as “firms” by the Census or simply startups across a number of sectors. It’s worth noting that these data can also be divided by age of the new business (0-1, 2-3, and 4-5 years, respectively). The data are more conclusive as the company ages for reporting purposes, but it’s also of particular interest because the likelihood of a new business maturing beyond its fifth anniversary decreases, according to the Small Business Administration.
A noticeable gap exists between the 10-year cohorts of 25-34 year olds and the 35-44 group, before it cascades to older cohorts. Depending on the quarter, this difference is between 22.4-32.16%. To many, this isn’t gradual. It’s considerable. What is also striking, at least regionally, are the two college-age cohorts (19-21 and 22-24). The groups are defined by three-year clusters rather than the 10 in other segments. For a region that welcomes thousands of students to campuses every fall, this shifts the thinking that other regions have embraced, that college-aged students are more inclined to join a startup.
In other words, the older, perhaps more experienced, Mohawk Valley professional gravitates toward a new business or startup culture.
Even combined over the years 2015-18 and compared to the next largest age group working for companies five years or younger, the college-aged cohort falls short:
The region is a bit older than others across New York State, and with Oneida County pushing for more residents embracing remote work, this may shift. Conversely, for data reporting purposes, this may be problematic as the nature of work has changed if it’s not a geographically specific or brick-and-mortar business.
Ultimately, though, the startup culture may not be tied to youth in the Mohawk Valley. The missing variable may be just enough experience to make a difference — or take a chance.Brett Orzechowski is an associate professor of management and business analytics at Utica College and is the founder of Seven Point Labs.