Here are steps your economic development organization can take to increase your community’s confidence in your incentive and financing negotiations with companies of all types.
It’s a horror story that you hear all too often: An economic development group inadvertently, or under pressure, provides incentives to a firm with problems. Maybe it has a criminal record, a history of tax problems, other legal troubles, or no meaningful business experience.
Regardless of the specific issue, it is terribly frustrating to read about these experiences because they cast a pall on the entire economic development profession. They also embarrass individual economic developers and undermine all the other good work they do. Poor decisions, of course, also cause real financial pain to communities that make commitments to unworthy firms.
Fortunately, there are steps your organization can take to avoid this scenario.
A Google search is not sufficient
Any economic development incentive provided to a company represents an important decision about how to spend precious community resources. Similarly, for the company, financial assistance or incentives can be a significant factor in their growth potential and their cost structure. Companies, therefore, are likely to engage specialized real estate, finance and, for larger projects, site selection consultants in this process because it is important. They commit substantial resources up front to understand every detail of the programs and locations under consideration.
Economic development groups are often under-manned and under-resourced in this encounter. They do not have similar insight into the company, its leadership team, and its market potential – the very factors that will determine whether a community is likely to recoup its “investment” in the firm. What they have, all too often, is a quick Google search prior to the meeting.
There are better options.
Learning about a company
If you are considering offering funds or other incentives to a company, here is what you should know about that firm:
- A description of their products or services
- Location of existing operations
- Major customers
- Growth projections and strategies
- Recent restructuring and management changes
- Executive background
- Ownership details
- Company credit rating
- Financial structure
- History of past incentives negotiations
With some effort, most of this information can be obtained from a few core resources:
- Company website
- Business directories (mostly available by subscription or fee per use)
- News resources, especially press releases and business press
- Social media
Choosing research resources
Unfortunately, no single resource provides all the information an economic developer needs in one place. Further, basic company information – even on simple factors like revenue and employment – can vary significantly from one source to another, so it is best to access multiple data sources to acquire a true picture of the company.
Business directories, which are a core resource for many organizations, also vary widely in terms of breadth and depth of information. For example, Hoover’s Company records can be quite detailed, but include only about 40,000 companies. Reference USA covers approximately 14 million U.S. businesses and 1.5 million Canadian firms and has links to credit ratings and some historical data. LexisNexis includes about 43 million companies and has useful links to news articles. Because of these and other methodological differences, it is difficult to rely on just one of these resources to get a full picture of any particular company.
The same holds true for news resources. There are many news aggregator and search sites, but it is not effective to rely on just one source to obtain insight into a company, its background, recent activity and its prospects.
Intelligence makes a better deal
A community’s decision to grant incentives to a new firm must be made on a foundation of reliable data and solid analysis. Specifically, better background information on companies allows economic development organizations to be a more equal partner in negotiations with applicant firms and to identify red flags that might indicate a potential problem deal.
Economic developers are also increasingly expected to offer greater accountability and transparency for their incentive decisions. Quality background research enables EDOs to document and explain their decisions to media and elected officials.
Corporate intelligence and due diligence can help economic development organizations on all of these counts, better positioning the community for a successful outcome from the incentive process.
Next week we will describe specific research resources you can use to obtain intelligence on public, private, start-up and international companies.
This post is adapted from an article written for Economic Development Now, which is available to IEDC members here.