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THE STATE OF SMALL BUSINESS - HAWAI‘I:  2001
©1997-2007 Hawai‘i SBDC Network except where noted otherwise.
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Introduction

Hawai‘i sits at a pivotal point in its economic development.  The nine-year stagnant economy is at an end; yet, future economic growth is not certain.  This report, The State of Small Business Hawai‘i:  2001, celebrates the end of the stagnant economy, but it also analyzes that uncertain future.

This report cites evidence from two types of sources: The first of these is a survey of small business owners and managers conducted by Market Trends Pacific, Inc. on behalf of the Hawai‘i Small Business Development Center Network (SBDC) between January 17, 2001 and February 14, 2001.  A total of 500 telephone interviews was conducted from a list of 2,000 randomly selected companies in Hawai‘i.  Of the 500 company owners and managers interviewed, 300 were located on O‘ahu and 200 on the Neighbor Islands (80 on Maui, 80 on Hawai‘i, and 40 on Kaua‘i).  The margin of error is +/- 4.38% for the statewide results, +/- 5.66 for O‘ahu only results and +/- 6.93% for the Neighbor Islands only results

The second type of source consists of two studies that rank each of the 50 states according to an economic development profile.  The first of these is the Development Report Card for the States developed by the Corporation for Enterprise Development (CFED). [1]   The second is The State New Economy Index: Benchmarking Economic Transformation in the States of the Technology, Innovation, and New Economy Project of the Progressive Policy Institute (PPI). [2]

The premise of the report is that the wealth of a community is determined by the success of that community’s businesses.  The business sector is where jobs are created and where income is produced to pay taxes to support infrastructural needs of the community–whether roads, schools, a judicial system, or any of the other necessary components of an ordered and productive society.

The focus is on small businesses.  In Hawai‘i, business is small business.  Small businesses represent between 96.8% and 97.6% of all businesses, depending upon the definition used. [3]   Out of the approximately 40,000 businesses in Hawai‘i, 39,000 are small businesses.  More than 42% of all businesses in Hawai‘i have annual sales less than $250,000.  Importantly, 80.5% of all businesses in Hawai‘i have fewer than 10 employees and 64.5% have fewer than 5 employees.  The most prevalent business in Hawai‘i, then, is not just a small business, but a micro-business.  The sheer number of micro-businesses and small businesses make them important to the economy of Hawai‘i.

However, the importance of small and micro-businesses to the state of Hawai‘i is far greater than their numbers in the state.  Studies indicate that small businesses, especially micro-businesses with less than five employees, are the primary creators of new jobs in the economy, [4] the leading innovators, and the primary exporters. [5]   These three factors make small and micro-businesses critical to sustaining economic recovery in Hawai‘i.

The Hawai‘i SBDC Network survey was conducted in order to determine better the state of small business in Hawai‘i at the beginning of the year 2001.  Because of the critical role of small business in the economy, this survey and the two studies provide information important to all citizens of Hawai‘i, but above all to those engaged in making policy and those who influence the policy makers.

This report reflects the Hawai‘i SBDC Network’s ongoing commitment to the small businesses of Hawai‘i and to the larger community through our primary tool: education.  Information about the state of small businesses in Hawai‘i is critically important for those who make decisions affecting business owners, their employees and ultimately the state’s economy which affects all residents.  The survey commissioned by the Hawai‘i SBDC Network provides a snapshot of the opinion of Hawai‘i’s small business owners and managers taken earlier this year.  The two nationwide studies help to place the state of Hawai‘i small businesses in a national and global context.  The survey results reviewed from the perspective of the economic development reports lead to a number of conclusions and recommendations for Hawai‘i.

Summary of Hawai‘i SBDC Network Survey Results

The Hawai‘i SBDC Network survey reveals the perceptions of small business people regarding their levels of success and plans for the future.  This is a summary only.  See the section on Data Analysis of Survey for the complete results.  A few of the more important of these survey results are summarized here:

• A majority of Hawai‘i’s small business owners and managers do not believe the economy will improve in 2001.  When asked about the economic changes they anticipated in their county and state economies for 2001, small business owners and managers indicated the following:

Change in the Economy
Statewide
O‘ahu
Neighbor Islands
County
State
County
State
County
State
Improve 44.2% 41.6% 41.7% 42.3% 48.0% 40.5%
Stay the Same 43.4% 43.6% 45.7% 42.7% 40.0% 45.0%
Worsen 7.4% 11.2% 8.0% 11.7% 6.5% 10.5%
No Response 5.0% 3.6% 4.7% 3.3% 5.5% 4.0%

Small business owners indicated that their county economy in 2001 would either stay the same (43.4%) or worsen (7.4%).  A total of 50.8% do not believe their county economy will improve in 2001.  They have an even more pessimistic view of the state economy.  They predict that in 2001 the state economy will stay the same (43.6%) or worsen (11.2%) for a total who do not believe the economy will improve of 54.8%.  Those who indicate that their county economy will improve (44.2%) and the state economy will improve (41.6%) represent a strong minority view.

Interestingly, the Neighbor Island business owners and managers are more optimistic about the economy on their island than the O‘ahu business owners and managers.

The perceptions of small business owners and managers about the economy are important because the state of the economy is one of the factors they weigh when making decisions about expanding their business. 

• A majority of Hawai‘i’s small business owners and managers believe that high technology companies will improve the economy in 2001.  By narrow margins, Hawai‘i small businesses indicate that the following sectors of the economy will have the most positive economic impact in the year 2001:

Industry Cited
Percentage Indicating Will Improve Economy
High technology/computer-related
55.8%
Retail Industry
47.6%
Construction Industry
46.6%
Import/Export Industry
43.6%
Video/Film Industry
43.0%
Tourism Industry
42.8%
Manufacturing Industry
42.0%
Agriculture
40.2%
Health Care Industry
39.4%

The significance of these responses is that small business owners seem to believe that continued economic recovery will occur as the result of expansion in a wide range of industries.  Certainly, high technology and computer related businesses seem to be recognized as having the most potential for expanding the economy, but not overwhelmingly so.  Other industries are seen as playing key roles, as well.

• A majority of Hawai‘i’s small businesses fared less than well in the year 2000.  When asked how well their business did in 2000 in terms of growth, revenues, and profit, a majority of Hawai‘i small business owners and managers (63.8%) indicated that in general business was either Not Poor, Not Well (43.4%), Poor (6.0%) or Extremely Poor (14.4%) for a total of 63.8%.  Only a third said that their business fared Well (24.8%) or Extremely Well (8.6%).

Interestingly, the Neighbor Islands reported more optimistically than did the state as a whole or than O‘ahu.  Note the following table, answering the question how their business did in the year 2000:

How Well Surveyed Businesses Did in 2000
State
O‘ahu
Neighbor Islands
Extremely Well
8.6%
7.3%
10.5%
Well
24.8%
23.7%
26.5%
Not Poor/Not Well
43.4%
41.3%
46.5%
Poor
6.0%
18.3%
8.5%
Extremely Poor
14.4%
6.7%
5.0%
No Response
2.8%
2.7%
3.0%

While the economy rebounded in the year 2000, most small business owners and managers did not yet see that economic growth reflected in improved business performance.

• Less than one-third of small businesses reported they hired more employees in the year 2000.  When asked about new job growth, 28.0% of small business owners and managers reported that they added more employees in 2000.  Fewer employees were reported by 12.4% of businesses.  59.6% reported no change.

The number of businesses adding employees (28.0%) is offset by the number of businesses reducing employees (12.4%) for a net gain of 15.6% of businesses adding employees.  This statistic seems to support the perception by small business owners and managers that their businesses fared less than well in 2000.

• A majority of small businesses hiring new employees reported difficulty in finding employees.  70.3% of small businesses reported either that it was somewhat difficult to find employees (43.4%) or very difficult (27.3%).  29.3% indicated that finding employees was not very difficult (12.1%) or not difficult at all (17.1%).

That 70.3% of small businesses reported either that it was somewhat difficult to find employees (43.4%) or very difficult (27.3%) indicates (a) decreasing unemployment and (b) a poor match between workers’ skills and experience and businesses’ needs.  This statistic supports the continuing need for workforce development.

• A majority of small businesses reported their sales increased in 2000 when compared to 1999.  52.4% of small business owners or managers reported their sales increased in 2000 compared to 1999.  28.4% reported sales were unchanged; 16.0% reported a decline in sales; and 3.2% did not respond. Of those companies reporting a change in sales from 1999 to 2000, the average rate of change statewide was 0.5%.  For O‘ahu the rate of change was 0.0%, for the neighbor islands it was 5.9%.

From the perspective of a desire for an improving economy, an increase in sales, however small, is encouraging information because business owners and managers use improved sales data as a primary justification for expansion, whether that is for new plant, new product lines or additional employees.

• Small business owners and managers cite their own experience as the most positive impact on their business. When asked what were the most positive impacts upon their business, small business owners and managers indicated, by the percentages shown, that the following factors were positive impacts:

Positive Impacts Cited
Percentage Identifying Impact
Experience in operating a business
49.4%
Improving economy
45.6%
Increased customer demand
45.2%
Reductions in operating costs
35.8%
Lack of competition
35.4%
Sales increases due to Internet-based programs
33.8%
Government programs offering consulting
33.4%
Government programs offering loans/grants
30.8%

Business owners and managers believe that their own knowledge and experience in business have the greatest positive impact on their business, with 49.4% of them identifying this particular impact.  This relates to their sense of control over their business.  The next two positive impacts cited–Improving Economy (45.6%) and Increased Customer Demand (45.2%)–are largely outside of their control.  Reductions in Operating Costs (35.8%), they not only control, but the better businesses have had considerable experience in doing so during the long period of the stagnant economy.

Interestingly, 33.8% of small businesses report that Internet-based programs in their company have resulted in sales increases.  This represents a new basis for marketing that is positively affecting the success of businesses.

In order to spur economic development for those businesses that cannot afford consulting or obtain commercial loans, the federal and state governments have programs offering consulting to small businesses and government guaranteed loans from commercial banks.  On rare occasions, governments also make grants available, usually to promote very specific objectives (e.g., Small Business Innovation Research grants).  Small businesses indicate that these programs have positive impacts–Government Programs Offering Consulting (33.4%) and Government Programs Offering Loans/Grants (30.8%).  What this means is that approximately 13,000 small businesses believe government sponsored consulting has a positive impact on their business

• Small business owners and managers strongly cite the flat economy as having a negative impact on their business.  When asked what were the most negative impacts upon their business, small business owners and managers indicated, by the percentages shown, that the following were the most negative factors:

Negative Impacts Cited
Percentage Identifying Impacts
A flat economy
64.8%
Excessive governmental rules and regulations
56.2%
Employer paid payroll taxes and medical insurance
51.8%
Increased competition
50.8%
Inability to obtain capital or loans
36.2%
Lack of knowledge about operating a business
24.4%

The factors cited by small business owners and managers as having a negative impact on their business are, with one exception, largely outside of their control.  A Flat Economy (64.8%), Excessive Governmental Rules and Regulations (56.2%), and Employer Paid Payroll Taxes and Medical Insurance (51.8%) are all factors which the state government can influence and positively improve.  Increased Competition (50.8%) is a factor of the marketplace and one that will most likely increase further as the market becomes ever more global.  The Inability To Obtain Capital or Loans (36.2%) can be and is positively affected through governmental action. 

Perhaps the most interesting of these negative impacts cited is Lack of Knowledge about Operating a Business (24.4%) because it requires self-criticism in order to be cited.  According to this statistic, approximately 9,500 small businesses at the time of the survey believed that their business was being negatively impacted by their own lack of knowledge about doing business.

• A majority of small business owners and managers indicate they expect sales to increase in 2001.  58.0% indicted they expect increased sales in 2001; 27.6% indicated they anticipate their sales would remain the same; 8.8% expect a decline in sales; and 5.6% did not respond.

While sales increases are projected for the state, the Neighbor Island respondents are again more optimistic than their O‘ahu counterparts.

Projected Sales for 2001
State
O‘ahu
Neighbor Islands
Sales Will Increase
58.0%
55.3%
59.0%
Sales Will Remain the Same
27.6%
28.3%
25.5%
Sales Will Decline
8.8%
9.3%
13.0%
Did Not Respond
5.0%
7.0%
2.5%

For the year 2000, 52.4% of small business owners and managers reported that their sales increased and 16.0% reported a decline in sales.  For 2001, a somewhat greater percentage of businesses–58.0%–project increased sales.  The number projecting a decrease in sales–8.8%–is significantly less.  The changes from what occurred in 2000 and what is projected for 2001 are likely a fair indication of the confidence of business owners in the economic recovery.

Of those small business owners and managers projecting a change in sales form the year 2000 to 2001, the median change was for an increase of 7.0%.

• A high percentage (73.2%) of small business owners and managers indicate their definite intention to hire new employees in 2001.  While only a small number of the small business owners and managers in Hawai‘i are projecting sales increases in 2001 beyond those that experienced sales increases in 2000, a far higher number are projecting actions to improve their business, whether through increased income, the creation of new opportunities, or a decrease in costs.  From an economic development standpoint, perhaps the most encouraging of these plans is the one for hiring additional employees.  73.2% project that they definitely will hire new employees and another 22.2% indicate they possibly will hire new employees

• The most frequently mentioned plan by small businesses for 2001 is to move into a new office or building followed closely by developing a new product line.  When asked what actions they planned to take in 2001, small business owners and managers indicated, by the percentages shown, that the following were their intentions:

Change Cited
Percentage Planning
Definitely
Possibly
Move into a new office or building
86.2%
12.0%
Develop a new product line
81.0%
16.8%
Hire Additional employees
73.2%
25.6%
Make a capital investment
68.2%
22.2%

• Small business owners and managers indicate that when balancing short-term economic growth with environmental issues, each should be weighed equally.  The question that was posed: “As a business person, you know that the perceived short-term needs of businesses and economic growth sometimes seem to be in conflict with environmental issues.  If you were balancing business interests and economic growth against environmental concerns, what percentage weight would you give to each of them?  The median response was 50.0% each.

• Few (8.5%) small businesses in Hawai‘i engage in exporting, but a higher number (15.4%) are engaged in internet selling. Small business owners and managers indicate they are engaged in the following activities:

Activity
Percentage Involved
Exporting
8.5%
Internet Marketing
23.5%
Internet Selling
15.4%
Government Procurement
18.2%
Manufacturing
13.7%
Tourism
32.1%

Summary of Two Economic Development Studies

Development Report Card for the States 2000.  The Corporation for Enterprise Development’s (CFED) study, Development Report Card for the States 2000, ranks the 50 states according to more than 70 economic indicators.  The current study is the fourteenth annual study.  It is based on the supposition that a state’s economic performance is the result of the vitality of its businesses, which in turn is based in significant part upon the state’s capacity for development.  Consistent with this argument, the 70 economic indicators are rolled into three primary categories–Economic Performance, Business Vitality, and Development Capacity–which are given grades of F for failing through A for excellence.

Under this study, Hawai‘i has received the following grades for the last three years:

Hawai‘i’s Report Card in 3 CFED Categories
1998
1999
2000
Trend
Economic Performance
F
D
D
Û
Employment
F
F
F
Û
Earnings & Job Quality
D
D
D
Û
Equity
C
C
D
Ý
Business Vitality
F
F
F
Û
Business Competitiveness
F
F
F
Û
Structural Diversity
D
D
D
Û
Entrepreneurial Energy
F
F
D
Ý
Development Capacity
B
C
D
ß
Human Resources
B
C
D
ß
Technology Resources
C
C
B
Ý
Financial Resources
B
B
D
ß
Infrastructure & Other Resources
C
D
C
Ý

For the purposes of this report, Business Vitality is the key category because economic development is a primary result of the business sector.  However, Business Vitality is considerably determined by Development Capacity and is influenced as part of a feedback cycle by Economic Performance. 

Hawai‘i has received a grade of F in the category Business Vitality for seven consecutive years.  As a predictor of sustained economic development, this is seriously troublesome.  The low Business Vitality index of F is due to low ratings in all three of the subcategories that compose this category.  These subcategories are Business Competitiveness (F), which measures the extent to which businesses compete out-of-state, Structural Diversity (D), which refers to breadth of industries within a state, and Entrepreneurial Energy (D this year, up from F for the previous two years), which measures the number of new ventures. 

The subcategory of Business Competitiveness gets a grade of F because of economic indicators that show Hawai‘i businesses do not compete in large numbers with the mainland or internationally.  In fact, Hawai‘i ranks 46th out of the 50 states in this measure.  Furthermore, when one looks at changes in the trend since 1992, Hawai‘i continues to rank 46th among the states.  The other basic economic indicator that strongly influences Hawai‘i receiving a grade of F in Business Competitiveness is the number of business closings.  What this economic indicator shows is that Hawai‘i ranks 12th among the states in business closures, meaning that businesses do not survive for as long in Hawai‘i as in other states.

The Structural Diversity subcategory in which Hawai‘i received a grade of D is composed of two economic indicators, one which measures the diversity of industries in a state (Sectoral Diversity) and the other measures changes in employment over all industries (Dynamic Diversity).  These measures show that Hawai‘i does not have a broad range of industries, ranking 44th out of the 50 states, but employment changes have not spread equally over all of the industries that are in Hawai‘i, ranking 23rd on this indicator.  Hawai‘i received a D for the Structural Diversity category because some industries have been less effected by the stagnant economy than others.

Entrepreneurial Energy, as a subcategory of Business Vitality, received a grade of D, up from F for the previous two years.  The economic indicators in this subcategory measure the number of new companies created, the trend in the formation of new companies, the growth of jobs in those companies, the number of technology companies, and the number of initial public offerings.  What the indicators show is that in Hawai‘i the number of new companies being formed is about average for the states (ranking 27th out of the 50 states), but the trend in new company formations is very low (ranking 47th).  Most disturbing is that the new companies that are being formed are not creating as many jobs as is typical for other states (ranking 48th).  As well, the number of technology companies is low (40th), although the number of initial public offerings is average (26th).

The State New Economy Index.  This study, The State New Economy Index, is an attempt to use a new set of economic indicators to measure the transformation from the traditional manufacturing economy, which lasted from approximately 1938 to 1974, to the new emerging economy that is based on ideas, innovation, and technology.  The index is composed of 17 economic indicators that are summarized under five primary categories–Knowledge Jobs, Globalization, Economic Dynamism and Competition, the Transformation to a Digital Economy, and Technological Innovation Capacity.  The states most often cited as exemplifying the new economy are California and Massachusetts.

In The State New Economy Index, Hawai‘i ranks 26th out of the 50 states.  While this ranking is encouraging, it may also be somewhat misleading.  The high ranking is significantly due to a few subcategories such as Foreign Direct Investments (Hawai‘i ranks 1st among the states), which is primarily due to investments in real estate that distort the “new economy” aspect of this investment; Technology in Schools (Hawai‘i ranks 3rd in the nation), which measures the number of schools wired for the Internet and the number of teachers with technology training and which few would indicate is in Hawai‘i an overall measure of the quality of education; and Job Churning (Hawai‘i ranks10th), which measures the number of start-ups and business failures as a share of all companies.  The assumption is that businesses must fail if a transformation is to occur.  In Hawai‘i, the results are thus distorted due to the long period of economic stagnation.

Other subcategories indicate areas of concern for Hawai‘i and its ability to sustain economic growth.  For instance, in the subcategory of Export Focus of Manufacturing, Hawai‘i ranks 45th; in Gazelle Jobs which are jobs in fast-growth companies, Hawai‘i ranks 50th; in High-Tech Jobs, Hawai‘i ranks 46th; in Industry Investment in Research and Development, Hawai‘i ranks 50th.

Overall, the State New Economy Index, following careful examination, is considerably less favorable to Hawai‘i than it initially appears to be.

Two notes of caution about studies such as these two: (1) All indices rely on measurements that are less than up-to-date, often by as much as one or two years (and this is especially true for The State New Economy Index).  Therefore, conclusions must be tempered by the realization that some measures may have changed.  The economic recovery may not yet be reflected by these statistics.  (2) Indices are difficult to interpret.  They may not mean exactly what they at first seem to indicate.  The more one can fill in a broader context for a particular index, the greater the accuracy of the conclusions that can be drawn.

Conclusions from the Hawai‘i SBDC Network Survey

The Hawai‘i SBDC Network survey of small business owners and managers, the very people who are struggling to build a vital business sector to support the increased well being of Hawai‘i’s citizens, indicate their businesses did not fare well last year (63.8%), in significant part due to a flat economy (64.8%), but also due to what they see as excessive governmental rules and regulations (56.2%) and employer-paid payroll taxes and medical insurance premiums that are too high (51.8%).  Additionally, they believe the economy will not improve in 2001 (50.8%).

Nevertheless, these small business owners and managers are optimistic about the future and have projected sales increases (58.0%) and the creation of new jobs in 2001 (73.2% definitely and 25.6% possibly), and have developed plans to make this happen.  In part, this optimism seems to be based in the confidence that comes from their experience in operating a business (49.4%).  They also cite as positive impacts upon their business an improving economy (45.6%), increased customer demand (45.2%), reductions in operating costs (35.8%), and increases in sales due to internet activity (33.8%).  While increased competition is a negative factor for most small business people (50.8%), for a minority of them lack of competition continues as a positive impact (35.4%).  Those small business owners and managers who hired new employees in 2000 (28.0%) report that finding employees was either somewhat difficult or very difficult (70.3%).

Few small businesses are involved in exporting (8.5%).  However, considerably more are engaged in internet selling (15.4%) and government procurement (18.2%), all of which are opportunities for increasing sales.

Small business owners and managers also cite government programs as having positive impacts upon their businesses–both government programs offering consulting (33.4%) and government programs offering loans and grants (30.8%).  In part, the assessment that attaching value to government consulting and loan programs is a positive impact on businesses acknowledges a negative impact resulting from a perceived lack of knowledge about operating a business (24.4%) and an inability to obtain capital and loans (36.2%).

When confronted by the inherent conflict between economic growth, which is vital to small business people, and environmental concerns, small business people indicate that both should be considered equally in decision-making. That small business people are willing to balance equally their short-term desires for economic growth with long-term concerns for the environment may be may appear to some people as counter-intuitive.

Throughout the responses to this survey, the business people from the neighbor islands, when compared to those from O‘ahu, are somewhat more optimistic.  For instance, business people from the neighbor islands believe the economy of their county will improve by 48.0% compared to O‘ahu’s 41.7%.  They indicate that they fared better in the year 2000 (Extremely Well or Well) by 37.0% compared to O‘ahu’s 31.0%.  More business owners and managers from the neighbor islands project sales increases (59.0%) than those from O‘ahu (55.3%).  However, O‘ahu business people may be somewhat more entrepreneurial by taking greater advantage of marketing opportunities, such as exporting (11.3% on O‘ahu compared to 4.2% on the neighbor islands) and government procurement (23.3% compared to 10.5%).  However, the “new economy” of internet selling is embraced by the neighbor island business owners and managers to a higher extent than on O‘ahu (19.0% compared to 13.1%).

Conclusions from the Two Economic Development Reports

The Corporation for Enterprise Development states that the economic development goals of all states are (1) the increased well-being of its citizens and (2) the acknowledgment in policy decisions that the ability of the state to deliver a more widely shared standard of living depends upon (a) the vitality of its businesses and (b) the strength of its human, technology, and financial resources and of its innovation assets.

These two studies indicate that Hawai‘i lacks a vital business sector.  In the CFED ranking of the 50 states, only four states are ranked lower than Hawai‘i–Arkansas, Louisiana, Mississippi, and West Virginia–while 55 states are ranked higher.  In the category of Business Vitality, only four other states received a grade of F–Arkansas, Nebraska, North Dakota, and South Dakota.  In The State New Economy Index, Hawai‘i seems to rank better, but closer examination finds possible distortions in the data.  In arguably its two most important categories regarding business vitality, Hawai‘i ranks low–Economic Dynamism 45th among the states and Innovation Capacity 41st. 

The CFED index indicates that Hawai‘i has received a grade of F in Business Vitality for seven consecutive years because (1) Hawai‘’s businesses do not trade competitively beyond its borders; (2) those companies that do trade beyond its borders are not from diverse industries; (3) while a high number of new companies are being started each year, they are not creating either (a) a high number of new jobs nor (b) high growth; and (4) venture capital investments are low.

What the Survey and Studies Suggest

From the perspective of public policy, there emerges from the data in the Hawai‘i SBDC Network survey and the two studies a picture of a Hawai‘i as perhaps recovering, but in danger of not being able to sustain that recovery.

A Vision for a Vibrant and Sustainable Economy.  Any vision for sustaining economic recovery needs to be based upon two factors:

   1. A vibrant and sustainable economy, based upon the vitality of its business community, is the foundation for fulfilling nearly all other needs in society appropriate to governmental action, whether those of quality education, crime reduction, creation of infrastructure or environmental protection.

   2. A vibrant and sustainable economy is created when government fosters within the business community the conditions under which small businesses thrive.  These conditions include:

       A. An understanding of small business creation and growth and, especially, entrepreneurship.

       B. Adequate access to capital at reasonable costs.

       C. Adequate access to critical information.

       D. Knowledge of continuous quality improvement concepts.

       E. The elimination of unnecessary governmental burdens to businesses, whether those of taxation, regulation or bureaucratic control.

Policy Recommendations

The Hawai‘i SBDC Network survey and the two studies cited support the following set of recommendations, which are consistent with the vision for a vibrant and sustainable economy:

• The State of Hawai‘i should actively promote a broad range of types of businesses across all industries.  Entrepreneurial businesses that become fast-growth companies have a diversity far greater than just being involved with high technology.  The State New Economy Index in its study of the transformation from the traditional economy to the new economy states that what defines the new economy can occur in all industries.  The new economy is less high technology businesses than a way of doing business that incorporates new technology along with certain attitudes about the centrality of ideas, innovation, and technology.  It is fast-growth companies–wherever they occur and of whatever type–that will grow and sustain Hawai‘i’s economy.

• The State of Hawai‘i should actively promote the availability of capital–both equity and loans–to a diverse group of businesses, growing businesses committed to Hawai‘i.  Programs should include loans to “unbankable” businesses that do not qualify for commercial loans because they are start-up businesses or have less than sterling credit or do not have sufficient collateral or are part of the new economy.  Other programs should include venture capital for promising entrepreneurial companies with the potential for rapid growth and should include seed -capital, especially in the form of grants and/or equity, but also in the form of loans.

• The State of Hawai‘i, in addition to supporting education, should actively promote training activities in the form of consulting and workshops that lead to an increase among business people in the knowledge of entrepreneurship and continuous quality improvement concepts.  The new economy is based upon the concepts of entrepreneurship, and fast-growth companies are dependent upon those concepts. Also, if companies are to survive over time in the global marketplace, they must learn the concepts of continuous quality improvement.  The ways of business are changing faster than the owners and managers of small businesses can learn without these programs.

• The State of Hawai‘i should actively promote the availability of critical information to business people, including the availability of technology information.  Businesses need information–whether it is demographics for market studies, competitive analyses for positioning within a market, new product identification or a myriad of other possibilities.  Small businesses do not have the funds or time or knowledge to do this for themselves.  


[1] Corporation for Enterprise Development.  Development Report Card for the States 2000.  October 17, 2000.  http://209.183.252.135/.
[2] Technology, Innovation, and New Economy Project of The Progressive Policy Institute.  The State New Economy Index: Benchmarking Economic Transformation in the States.  July, 1999.  http://www.neweconomyindex.org/states/.
[3] The definitions for what constitutes a small business are commonly derived from the U.S. Small Business Administration’s extensive industry-by-industry definitions.
[4] Berney, Robert E., and Bruce D. Phillips, 1995.  Small Business and Job Creation: An Update.  Prepared for the Conference on “Dynamics of Employment and Industry Evolution,” University of Mannheim, Germany, January 19-21, 1995.
[5] Approximately 97% of the businesses in the United States that export are, according to the U.S. Small Business Administration, small businesses.