At a recent InBIA conference, I found an overwhelming response to our session on the topic of programming for second stage companies. Why? Second stage companies can have a strong growth trajectory, generating sales and creating new jobs in communities. So, how can we assist second stage companies?
Second stage companies are defined as past the startup stage, but not yet mature. The Edward Lowe Foundation reported that, between 2005 and 2015, second stage businesses only represented 17% of all U.S. businesses, but they generated more than 37% of jobs and 35% of sales. Directing economic development efforts at second stage companies can have a tremendous impact on the growth of these companies and the economic benefits to a community.
Second stage businesses must expand their market and their teams, and of course, obtain capital to support their growth. They must improve their competitive position, which may mean increasing the number of customers and sales in their current markets in addition to identifying and exploiting new markets. Their teams must expand beyond management and foster leadership within the company. They must add dedicated teams in functional areas such as human resources.
In response, common components of second stage programs often assist with market research and advice to support market expansion, leadership guidance and resources, and creating and facilitating peer-to-peer relationships. Business advisors conduct research on market opportunities and advise the CEO about market strategies to leverage these opportunities. Invited speakers participate in forums about leadership skills. Connecting CEOs with other CEOs at second stage companies—often through peer-to-peer roundtables–to help to forge peer relationships. These are just a few examples of the types of support provided.
One of the more comprehensive and successful programs is called economic gardening. Designed by Chris Gibbons in Littleton, CO in 1987 in response to a significant reduction in workforce at Martin Marietta (now Lockheed Martin), economic gardening focused on working with local industry to create jobs, instead of attracting new businesses. Over two decades, Littleton doubled jobs and tripled sales revenue. Economic gardening programs can be found all over the U.S. Mention GrowFL, which is one of the most successful economic gardening programs, created 10,942 new net jobs between 2009 and 2015, and increased state and local tax revenues by more than $81 million. (You can find more success stories at the National Center for Economic Gardening website: economicgardening.org.)
Other ways to support second stage companies include graduate programs for companies that have completed business incubation programs, and other programs that address either all or part of the needs described earlier. Graduate programs, which have been in existence for a number of years but are becoming more common, continue the trusted relationships that incubators build with their client companies. They often provide mentoring (which can now be charged at a higher rate due to the success of the businesses), peer-to-peer events, and sometimes facilities if the community lacks the sizes and configurations of space needed at the post-startup stage.
While not all communities can afford to gain access to the databases for market research as provided through economic gardening programs, they can still provide valuable advice and research that will benefit second stage companies. Reference librarians in local libraries are a tremendous resource that can be utilized.
Supporting second stage companies is the next logical step for communities that are already supporting startups. Retaining the successful startups that have emerged out of incubators and other entrepreneurial support programs should be the goal for every community, and establishing programs that help these companies to increase sales and jobs is a great investment.