Preparing to Tackle Risk

I got a call yesterday from Anne, the mayor of New Hope. She had been thinking about my previous post. (Fictional mayors are the most devoted readers.)

In that post, I compared two strategic approaches for promoting investment in a community: offering financial incentives versus reducing the perception of risk. Anne wanted to know what a risk-oriented strategy might consist of and whether such a strategy would be appropriate for a cash-strapped town like hers.

To understand risk-oriented strategies, it helps to understand who we're targeting (our potential investors) and what jobs they have to accomplish in order to make good on their investment. If we understand the jobs they have to accomplish, we can compile a list of the associated risks and consider ways to mitigate them to make the investment more attractive.

Take a small manufacturing concern, for instance. They need to establish facilities, hire workers, find suppliers, establish sales and distribution channels, and balance their costs with their revenues in such a way as to turn a profit. (Among other tasks.) When evaluating a community's suitability for investment, the manufacturer might count these concerns on her worry list:

• How easy will it be to establish facilities? How costly?
• Will I find the right hires?
• Are the sales and distribution channels between this community and external markets sufficiently wide for my needs?
• How permeable is the local business network? How collaborative? How strong?
• Is civic leadership obstructive or helpful?
• Will local policy promote or impede my success? How about local regulations?
• Generally speaking, are the community's economic fortunes on their way up, or will they weigh us down?

Those concerns translate into “to do” items:

• Assess the time and effort it would take to establish facilities, as well as the cost.
• Assess the strength of the labor pool. Check training and education, depth of talent, and prevailing wages.
• Assess how wide the sales and distribution channels are between this community and external markets.
• Assess the local business network. Is it permeable? Sizable? Collaborative?
• Determine whether civic leadership is likely to be helpful or obstructive.
• Determine whether local policy and regulations will promote or impede my success.
• Judge whether the community is generally growing stronger or weaker. Check trends in population, crime, education, infrastructure investment, fiscal health.

Notice that the number one requirement for completing this “to do” list is information. If the investor can't find it, she has to make assumptions. A wise investor's assumptions will be conservative ones, to protect herself from downside risk. In other words, assumptions force the potential investor to curb her enthusiasm for investing in your community.

Therefore, the first task in a risk-oriented economic development strategy should be to collect the information that potential investors might need and make it easy for them to find that information, so that no assumptions will be necessary. Some of that information might reflect poorly on your community, but there's an advantage to being open about it. Having that information introduces greater certainty into the investor's decision making, which reduces the risk associated with the potential investment, thereby making the investment more attractive. Facing facts is also good for a community's soul.

“Now, wait a minute.” I can already hear Mayor Anne protesting. After all, this is a hefty list of information to compile for an administration that's short on both cash and time. And this is just a sample of what the general range of investors might want to know.

I would counter with this:

You might not have cash, and you might not have time, but you do have social capital. Put it to work. Break down the project into sub-tasks and find community partners whose interests are aligned with each project; or failing that, find anyone who's capable and motivated to help. Business associations, realties, fraternal orders, and local colleges can all be a good source of volunteers for the research, compilation, and publication of a community assessment. Don't try to do it all yourself; raise an army of collaborators to do it.

Think of it as the economic development equivalent of a quilting bee. Turn the work into a work party. Really — have fun. You're building your future, after all. What could be more exciting than that?

* * *

There is more to a risk-oriented economic development strategy than the step I outlined here, but this is a good chapter break, if ever I saw one. Stay tuned for further posts, in which I'll:

• Help Anne develop a community score card as part of the first step in her risk-reduction strategy.
• Discuss five disciplines that enable a community to mitigate risk.
• Outline additional steps that New Hope might want to consider for inclusion in its risk-reduction strategy.
• Convince you of the power of the Small Step.

Jennifer Krouse is the founder of Steepletown Studios, Krouse and Company, and Imagining North Adams, a local festival of ideas with a placemaking mission. She is a longtime student of good placecraft and a 2008 graduate of The Stockholm School of Economics.

A complete list of Jen's posts for Strong Towns can be found here.