Growing Strong Local Economies, How Cities Can Support Second Stage Companies

December 7, 2009

by Katie McConnell

Slowly building momentum over the past twenty years, economic development policies in cities are shifting from the primary goal of attracting new companies to also focusing on growing local assets.   This economic development concept, commonly referred to as economic gardening,  strives to create an entrepreneurial culture where local businesses can begin, grow, and prosper.   An important part of an  economic gardening strategy is supporting second-stage companies.   

Second stage companies are commonly defined as companies with 10 – 99 employees and/or $750 ,000 to $50 million in receipts and are in the revenue generating phase.  These businesses are no longer in need of the traditional small business services offered by cities, like business plan writing, but instead need opportunities like networking with other second stage companies that share similar issues and challenges.

For cities, supporting these companies can be very important to their local economies.  As these businesses grow, they can create more jobs and add to a culture of entrepreneurship.  Establishing strong local ties also increases the likelihood that a company will not relocate to another city.

Penny Lewandowski, Director of Entrepreneurship Development at the Edward Lowe Foundation – which is dedicated to supporting economic and community growth through entrepreneurship – explained that there are efforts local elected leaders can take to encourage and support second-stage companies.  “Think of the resources and efforts your city invests to attract outside businesses, and then ask what efforts you are doing to support the needs of businesses that are already in your area.  Cities need to make sure they are focusing on both sides of the equation. ”   

According to Ms. Lewandowski, local leaders have the unique ability to help create a culture of entrepreneurship by championing second-stage companies and sharing success stories.  In most cities, ribbon cutting happens when a new business opens, what is your city doing to celebrate the successes of locally grown businesses that are prospering?  

In addition, Ms. Lewandowski stressed that cities need to make sure city policies support their local businesses and do not hinder growth.  For example, a city could form a task force with the local chamber of commerce and other stakeholders like regional technology councils to better understand the needs of local businesses and make sure policies are supportive of an entrepreneurial culture.

As cities strive to support local businesses, it is important to first have an understanding of your local industry make-up. To help, The Edward Lowe Foundation has created a tool to help communities access in-depth information about their business communities.  The free tool allows users to access data about businesses and jobs at the state, metropolitan statistical area (MSA) and county levels.  To learn more visit www.YourEconomy.org.  To learn more about the Edward Lowe Foundation and second-stage companies, visit www.edwardlowefoundation.com.

This article is the fourth in a series about small business development produced by NLC’s Center for Research and Innovation (CRI).  To learn more about CRI’s work on finance and economic development issues, contact Christiana McFarland at mcfarland@nlc.org or Katie McConnell at mcconnell@nlc.org.