Startup Communities Are More Than Just Scalable Startups

Yesterday I had the good fortune to speak to SCORE.  SCORE works with small business people to help their business grow.  They are affiliated with the Small Business Administration.

We talked about scalable startups and the startup community brewing in Chicago.  There is a lot going on here.  But, startup communities are more than just people doing tech.

As I mentioned to them, it’s the small businessperson that makes the community sticky.  One nice feature of working in Chicago’s River North is the proliferation of cool restaurants and places to go.  The area has three competing donut shops that are all excellent; Donut Vault, Firecakes, and Glazed and Infused.

As hard as we try to build a startup community, it won’t matter if the state of Illinois doesn’t get its act together.  Illinois politicians (Democrats mostly) are worried about slicing pie rather than creating more of it.

One thing startup communities need is density.  Density of people.  Not just techs, but all kinds of people with all kinds of skills.  Additionally, having a large diverse set of potential customers that you can physically touch is good too.

Illinois, and the Chicago area, are leaking people like a sieve.  The Illinois Policy Institute has done a lot of research on demographics and who is leaving.  It started as a trickle, but now there is rising momentum in business and people leaving.

Factory owners dominate the ranks of those leaving. Some simply cross the state line in search of lower costs. Kenall, Hanna Cylinders, Emco Chemical and Noark Electric are among Illinois companies recently exiting to Wisconsin.

Indiana says at least 31 Illinois-based employers have recently moved 2,700 jobs to the Hoosier State; virtually all manufacturers, including Blue Island-based Modern Drop Forge in the South Suburbs. It’s still owned by the Heim family who founded it.

The tax increases, the fees, the regulation are all causing business owners to leave.  The state (and city) curries favor with headline type companies.  Caterpillar($CAT), $CME, Google ($GOOG), Boeing ($BA) and other big names can use muscle to get some tax and regulatory relief from the state.  But smaller names like Modern Drop Forge can take a hike.

“What I understand is that, when they move to Indiana, they’re going to save $300,000 to $400,000 a year just on their premium for workers comp,” Donald Peloquin, the former mayor of Blue Island explains.

Business groups who worked with Modern Drop Forge claimed one non-financial factor played a big role in the company’s eventual decision to leave Illinois.

“They were reaching out to State Senator Emil Jones, who was President of the Illinois State Senate at the time. And their state senator. And they felt that they were totally turned out,” says Douglas Whitley, CEO of the Illinois State Chamber of Commerce. “No responsiveness whatsoever, no contact, no return phone calls. And I think that might have been the proverbial straw that broke the camel’s back. Next thing you know, Modern Drop Forge is announcing that they’re going to invest $35 million in Indiana and they’re going to move their jobs to Indiana.”

Illinois needs to drop taxes and fees for all businesspeople, not just the big guys. But the politicians only listen to the people that send them checks and are targets for patronage.

Chicago’s Mayor Emanuel has been a gigantic booster of the local tech community.  He has done some good things.  However, he cannot accomplish what he needs to accomplish without the state.

The community will not grow as fast as it could, or even suffer with a state and city crippled by finances.  As the Chicago Tribune reported, the city faces a gigantic budget crisis.  The city needs state help to solve it.  Springfield Democrats have an iron grip on what gets done.  They are see no evil, hear no evil, speak no evil.

Cook County isn’t in much better shape than either the city or the state by the way.

The politicians need to stop putting their hands out, and put their hands in their pockets. Pass business friendly legislation to supercharge the state/city economy.  Ironically, if they would have done that thirteen years ago, we wouldn’t be in the mess we are now.

But there’s no disputing the state’s long-term decline. The Illinois Policy Institute found that, 13 years ago, Illinois had 640,000 more jobs than it has now. Between 1995 and 2009, Illinois lost a net 366,616 taxpaying households and a staggering $26 billion in taxable revenue.

Illinois has run it’s economy like a gunfighter that continuously shoots himself in the foot. When the last business person leaves, all the state will be left with is big government workers it can’t afford to pay.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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