Outward-looking start-ups could be NNY's champions

Northern New York is connected to the world, whether we like it or not, and we need to think about how we want that connection to work. We can learn something from the German model that could help us create jobs and economic growth in New York.

I am writing this in the airport in Vienna, torturously making my way across Europe and into Ukraine, to try to get a handle on what is happening in the world of economic crisis, collapsing currencies and insolvent governments. Northern New York actually looks pretty good from that perspective. Our state government isn't quite insolvent, our economy is down but not out, and a weaker U.S. dollar has the advantage of attracting more Canadian tourists.

In the longer run, however, we need to think about the terms of our international trade. According to U.S. Commerce Department figures, New York state exported more than $57 billion in merchandise in 2009. Most of that went to Canada, Mexico, China, Japan and the United Kingdom. Unfortunately, we imported more from those countries than we exported — a common situation in U.S. trade for many years.

I just left Germany a few hours ago. Judging by the activity in Frankfurt and the angry but confident German business press, things there aren't so bad. Germany is an exporting nation, with a trade surplus of more than $200 billon. That means Germany sold $200 billion more to other countries last year than it bought in return.

While many of Germany's largest banks and manufacturers are facing the kinds of losses we have seen in the U.S. (and getting the kind of bailouts we have given our companies), there is a host of smaller businesses with 50 to 100 employees that have found successful export niches and are the real engines of that surplus. The Germans call these companies "hidden champions" and they see them as the real strength of the German economy.

These hidden champions have some aspects in common. They tend to be specialists in very narrow niches where quality and innovation are more important than low costs. They take advantage of a high-cost but very productive and skilled German work force. Most important, however, they decided from the beginning that they would be exporters, as the German market is just too small by itself to support much growth.

New York state actually has plenty of similar exporting companies. According to the Bureau of Economic Analysis, 94 percent of the exporting companies in the state are small- to medium-sized businesses with fewer than 500 employees.

So why doesn't the north country have a few hidden champions of its own? We have companies that produce high-quality products. We have a moderately skilled work force that is pretty productive by world standards and the educational programs at our colleges, universities and BOCES to train workers in any skills we need.

What we lack, I think, is a management group that really understands how to market and compete overseas. With a few notable exceptions, our local companies tend to focus on a safe domestic market. That might have worked in the 20th century, but I respectfully suggest that it will not in the 21st.

At least one regional economic developer has called for training programs to teach local businesses how to do business overseas. Good thinking, I say. Let's do it. But let's think bigger than just training. How else can we help local businesses make connections overseas? Where can we find the entrepreneurs who want to start the hidden champions of tomorrow? And how do we convince them to launch their businesses in Northern New York?

Financing is a good place to start, but not the typical loan programs offered by every economic development agency in the country.

The Jefferson County Job Development Corp. has talked about starting a regional equity fund. Unless they have a plan to attract high-growth start-ups, that fund will never get off the ground. I watched previous efforts to start such a fund fail because "We couldn't find the investors."

We couldn't find investors because we couldn't offer the kind of high-growth deal flow that savvy venture capital investors look for. If I want to invest in a start-up business, it should be one with a plan to grow big, fast — not a plan to launch a new restaurant or retail outlet that serves the local community. That's what the loans are for.

I suggest that our economic development community put together a program to help finance high-growth start-ups with a clear plan to develop international markets early in their life. We should look for growth through marketing acumen and strategy. The other source of high growth tends to be advanced technology — and beyond a few well-subscribed opportunities at Clarkson, we don't have a dog in that fight.

Along with financing comes a need for consulting and marketing assistance. This includes help in making contacts overseas, assistance with languages and sales approaches, and the ability to assess potential partners and customers abroad. We have five colleges and universities in the region with programs to train international business managers and internationalists in general. We have a substantial population at Fort Drum who speak a variety of languages. I suggest we put together a consulting database of people with contacts, skills and languages that could help our budding hidden champions get started in international markets.

Finally, we need to go hunting for those entrepreneurs who want to start the next niche exporter. Some of them already live here. Others are in school at one of our universities. Some may work for local companies that haven't realized the potential they have on their payroll. Many, however, have never heard of us. We need to reach out and explain why we want to talk with them and what we have to offer.

I suggest we abandon the generic ads we like to run in site selection magazines talking about what a great place this is to do business, and replace them with an ad campaign aimed squarely at our new target audience. If I am wrong, the ads won't be any less effective than the ones we have right now, which look exactly like every other "great place" advertisement in every site selection magazine in the country. If I am right, we could find some new entrepreneurs to create one or more hidden champions.

Most research into entrepreneurship suggests that the biggest difference between mom and pops that stay small and small start-ups that grow rapidly is the plans of the founder. We need to find people who have a plan to grow and internationalize early and aggressively.

I want to launch an international business conference at SUNY Potsdam this summer and I am looking for allies. It will try to plant the seeds for more exports and international marketing. If you are interested in helping, let me know. The rest of the world is having similar conferences on how to penetrate our markets, and we either need to rage against that or go quietly into that good night (with apologies to Dylan Thomas). I say we rage away.

Greg Gardner is an associate professor of business at SUNY Potsdam. His column on business issues in the north country is published monthly in Money Matters. E-mail him at ggardner@wdt.net.