Ben Franklin Remains a Trusted Ally and a Smart Investment as Pennsylvania Restarts its Economy
By John Sider, Director of Second Stage Capital
COVID-19 has profoundly altered the economic landscape in which Pennsylvania and the rest of the world operates. Only a few months ago, many businesses were focused on optimistic plans that included expansion, investment and bringing bold new products and services to market. Today, those same businesses are focused on survival, recovery and identifying the best strategies to navigate these uncertain times.
Fortunately, our elected leaders appreciate and value the thousands of Pennsylvania-based businesses who work tirelessly to develop revolutionary technological developments that improve the human condition. This was never more evident than this past May when the General Assembly passed, and Gov. Tom Wolf signed, a short-term spending plan designed to keep essential services and programs running as the commonwealth begins to re-open in the wake of the COVID-19 pandemic.
Further recognizing that many of the same small businesses responding to COVID-19 crisis are vulnerable because they are exempt from accessing support through most existing grant and loan programs that are narrowly focused on larger, established businesses, the state separately designated $4 million to support Ben Franklin clients that are struggling during the COVID-19 pandemic. Each of Ben Franklin’s regionally based centers will further match the $1 million it receives in state funding with another $1 million, thus ensuring that Pennsylvania’s forward-thinking, innovation-based businesses will have continued access to the essential services and expertise they need to prosper and keep residents employed.
The decision by state leaders to include funding for Ben Franklin in the modified budget displays a vision and understanding of the critical role small businesses and startups play in Pennsylvania. It also highlights the state’s confidence in Ben Franklin’s work and demonstrates the trust we’ve earned as stewards of public dollars since our inception more than 35 years ago.
According to an in-depth analysis by two independent nonpartisan research organizations, The Pennsylvania Economy League and KLIOS Consulting, every dollar invested by the state into Ben Franklin generates $3.90 in additional state taxes.
So how does Ben Franklin achieve and maintain its impressive track record for success? We diligently focus on our core, in-demand service areas and always look for emerging opportunities to keep Pennsylvania’s economy ahead of the curve. Our approach to technology-based economic development (TBED) is multi-faceted, and while it’s not always easy to summarize what we do, our work can be broken down into three main activities:
Investing – Ben Franklin’s traditional investment program provides a bridge between the assets of the entrepreneur and the follow-on funding they will likely need to further grow their business. Our investments, which are phased and milestone driven, allow the entrepreneur, as well as Ben Franklin, to make carefully informed decisions regarding further funding and next steps.
Business Mentoring – Ben Franklin provides, at no-cost, the expert services of a team of seasoned business professionals, the Transformation Business Services Network, to assist our funded companies. The mentoring provided by these subject matter experts is often as valuable as the funding. Annually, the collective team spends more than 10,000 hours providing one-on-one support on all topics related to starting and running a business, which includes sales and marketing, financial and human resource management, business and IP protection, accounting practices and strategic planning.
Entrepreneurial Support Programs – Ben Franklin’s BIG IDEA Contests and TechCelerator Business Startup Boot Camps are examples of fun, risk-free programs that allow emerging entrepreneurs to take the first step in starting a business, but with the safety net of professional guidance under them. These activities encourage the growth of an entrepreneurial pipeline and invite the support of other economic development programs in the region.
As you can imagine, there is great demand for Ben Franklin’s services and investment dollars. Across the central and northern parts of Pennsylvania, at any given time, Ben Franklin staff is likely engaged in dozens of conversations with potential tech startups or small manufacturers. Developing those conversations into a competitive pitch to our team usually requires three to six months of engagement with our portfolio managers to validate and create an effective communication of their business opportunity. We appreciate that our operating funds come from the communities we call home, and we take the allocation of those dollars seriously. As such, we’re driven by the goal of providing the best return on investment (time, dollars and services) for our regions.
While many people are familiar with how banks make lending decisions, they are often unfamiliar with the due diligence process associated with investors. Ben Franklin investments are not secured by collateral, nor are they based on cash flow. For this reason, our process, which does not include application fees or personal guarantees, was developed to identify the potential risks early. While the feasibility of the technology is always important, we evaluate several key factors that are crucial to the success of the company.
The Management Team – Just like a sports team will actively recruit or pursue players who fit their systems, we assess a client’s management team and look for key attributes that indicate a higher probability of success. We evaluate our client’s past experiences, their coachability and their bandwidth to constructively process feedback and advice. Delving deeper, we assess the client’s business management skills – their ability to attract talent and work well with others, their sales skills and examples of resourcefulness or creative problem-solving skills. It’s essential we gain an understanding of how clients respond to adversity and determine their capability to pivot their approach as necessary.
Market Conditions – Do we believe there is market interest for the proposed solution being suggested by the entrepreneur? Our market research team analyzes numerous market conditions to determine if consumers are willing to pay for the product or service suggested. Ultimately, they determine whether we’re looking at a solution that is in search of a problem, or whether we’re looking at solution to a problem that the consumers would like to solve. Timing is always a crucial component of this process. Someone can have a great idea to improve an existing problem, but if the idea comes at the end of an era, and the market is moving in a different direction, it severely hampers the likelihood of connecting with consumers.
Competitive Advantage – Is the product unique enough to differentiate itself from other options on the market? Is there intellectual property that protects it? Additionally, is the product’s solution impactful enough that it can compete? There are many factors that can create competitive advantage, including location, access to resources and access to distribution networks. For example, if a product utilizes wood as a chief component of construction, it could be advantageous if is manufactured in a community with access to specific variety of lumber.
Pennsylvania pledged to invest in Ben Franklin before the pandemic began, and DCED came through with funding during these challenging times. With the inclusion of Ben Franklin in the short-term budget, we stand poised to continue efficiently utilizing Pennsylvania’s investments in innovation to the great benefit of the commonwealth and its residents. By utilizing a competitive process to identify the unique needs of our clients, Ben Franklin is able to sustain a supportive environment for startup businesses to grow, thrive and ultimately create the kinds of jobs that keep our best and brightest minds in the commonwealth. Ultimately, a Ben Franklin investment is also an investment in Pennsylvania’s recovery and economic future.