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Innovation and Business
To understand the opportunity in innovation and business development, analysis focused on three dimensions:
- Attraction of businesses from outside the State
- Support available for growing existing small businesses
- Environment for creation of new businesses.
6.1 BUSINESS ATTRACTION
West Virginia receives 0.1% of total Foreign Direct Investments (FDI) to the United States [71] , even though it has roughly 0.5% of the national population. There are several possible explanations for this imbalance, including:
- West Virginia has fewer discretionary funds than other states to use in business
attraction negotiations, with the bulk of its incentives coming through future
tax credits vs. upfront support
- While the Development Office has had success in attracting several landmark projects
to the State in recent years
[72]
, it is currently under-resourced in its ability to act as a full-service investment
promotion agency in comparison to peer states. This has forced the office to
be more reactive to attraction opportunities vs. actively targeting outreach
to priority areas for the State
- Lack of sites pre-certified for development has limited West Virginia’s ability
to offer a competitive product to prospective investors
Three actions that West Virginia could consider to address those challenges, support the capabilities of the office and increase its competitiveness in attracting investments:
- Expand the role of the West Virginia Development Office so it can more actively
create an attraction strategy, develop a competitive product, identify and
actively outreach to target companies and support them through the execution
process
- Consider changing the mix of incentives available for investment attraction towards
more upfront support vs. tax credits, thus allowing for more discretionary
spend vs. statutory
- Launch a site certification program that identifies potential sites, assess their
current status is infrastructure needs, and estimates the investment required
to prepare them. Over the long run, West Virginia can also consider a site
development investment fund or investment approach to help increase the inventory
of ready sites for priority sectors
6.2 SMALL BUSINESS SUPPORT
Small businesses (defined as businesses employing less than 500 employees [73] ) are important economic actors in the State. Over half of the private workforce in West Virginia is employed by small businesses, which account for 98.9% of all businesses in the State [74] . They also are over-indexed in counties with less fortunate economic status, which makes their support an important lever for inclusive growth. However, business exits have been rising, offsetting the gains created from the birth of new businesses (Exhibit 19).
Many of the challenges to small business growth in West Virginia are due to the fact that small businesses are not fully aware of the resources at their disposal to grow and succeed. In addition, there is a lack of business support services across different topics, e.g., financial forecasting and literacy resources, affordable, technical business operations such as accounting, ecommerce and web design, affordable, vetted legal services in general business and intellectual property (IP). Access to resources would help companies plan ahead and adapt to changing business needs.
- Creating a one-stop shop that can map current resources and business needs,
direct businesses to the right entities and identify white space in support
resources
[76]
- Considering partnership between the West Virginia Small Business Development
Center and universities to offer shared services support to small businesses
such as:
- Leveraging law schools to provide advice on legal issues, succession planning and intellectual property rights
- Leveraging business schools to offer technical assistance in topics like accounting, financial forecasting services, and fact gathering and sharing on industry trends and best practices
6.3 FOSTER CREATION OF NEW BUSINESSES
Although the whole region has struggled with attracting investment funds for startups, West Virginia has particularly struggled relative to neighboring states (Exhibit 20). It ranks 49th in the percent of the adult population in an area that became entrepreneurs on a given month [77] , it receives fewer Small Business Innovation Research (SBIR) awards than peer states [78] , and ranks in the bottom five in terms of business birth [79] and patents per capita [80] . West Virginia also receives fewer venture capital (VC) investments, with no funds available for early stage VCs [81] .
| Rank against peer States | WV | MD | OH | PA | VA |
|---|---|---|---|---|---|
|
Overall Growth Entrepreneurship Ranking Score defined as the combined performance across rate of new entrepreneurs, opportunity share of new entrepreneurs and startup density |
36 | 2 | 12 | 16 | 1 |
|
Rate of New Entrepreneurs % of the adult population in an area that became entrepreneurs on a given month |
49 | 17 | 47 | 50 | 43 |
|
Opportunity share of New Entrepreneurs
Proxy of number of new entrepreneurs starting business because they saw market opportunities |
18 | 40 | 29 | 42 | 37 |
|
Startup Density
Number of startup firms per 1000 firms population (firms less than 1 year old employing at least one person besides the owner) |
37 | 18 | 47 | 49 | 13 |
These challenges can be explained by lower research and development (R&D) investments than peers [83] , a smaller startup pipeline offering limited investment opportunities for VC fund and a fragmented startup support ecosystem. In fact, business incubators and accelerators are fragmented and spread across the State, with each offering specific services and competing with the others for a small pool of operational and investment support.
In order to better direct the State’s strategy, increase collaboration between existing organizations and better attract VC funding to the State, the State can consider:
- Create an Innovation Council that sets strategy and coordinates efforts by
convening the existing network of innovation-focused organizations, corporations,
financiers, and policymakers active in West Virginia and located in the
State
- Increase small business operational and grant application support to receive
more SBIR awards
- Create a “Startup Catalyst” initiative to increase VC funds and technical
assistance to support seed and early stage startups, and
- Attract more funding for supporting startups, as West Virginia is particularly
lacks early-stage funding, which contributed to a ranking of 49th out of
50 for the rate of new businesses born in the State
[84]
.
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