A Factory without Walls: Microbusinesses in Appalachia

by Fred D. Baldwin

Howard Kepple's workshop is crammed with welding equipment, handmade jigs for shaping metal, and iron twisted into firewood grates and Victorian-style fence gates. The owner of Appalachian Iron, located in Oakland (Garrett County, Maryland), Kepple is also his firm's only employee, and he's eager for his business to grow.

Where would he like to be five years from now?

"With a hundred people working for me."

And where does he expect to be?

"Five or six people working for me. All I've got to do is keep from starving to death until it takes off. But it will go."

It's a realistic goal. Kepple is a fine craftsman and an aggressive marketer. He sells his work locally and on the Internet, competing successfully for customers from as far away as California. And he's one of a handful of microentrepreneurs whose productivity is growing with the help of a loan from MicroWorks, administered by the Garrett County Community Action Committee, Inc. (GCCAC). MicroWorks is one of a number of programs in Appalachia that offer a combination of small loans and extensive technical assistance to stimulate the growth of new and existing "microbusinesses."

The Appalachian Regional Commission (ARC) supports MicroWorks and similar programs through its Entrepreneurship Initiative, a systematic attempt to foster the growth of businesses that are both profitable and committed to the communities in which they grow.

"Entrepreneurship is critical for Appalachia,"says Ray Daffner, ARC's manager for the initiative. "You've seen an economy built on people coming in and extracting resources or building plants, where the ownership is located elsewhere. The wealth and profit don't stay in the Region. The question is how we can keep that wealth here."

A Chance to Succeed

The official definition of a microbusiness is one with no more than five employees, including its owner. The owners of these businesses rarely qualify for conventional bank loans, and even if they do, the small loans they need are not profitable enough for banks to handle.

Why do these tiny ventures merit serious attention as part of an economic development strategy?

Mark Pinsky is the executive director of the National Community Capital Association, which provides technical and financial support to a number of community development financial institutions, about a third of which aid microenterprise programs. "Microenterprise,"Pinsky says, "gives people an opportunity to pursue a dream. In this country and many others, that has always been the first step on the ladder to economic opportunity. In Appalachia there's enormous talent that sometimes has not been given the opportunity to succeed. If you can use a capital-led strategy to tell these people, 'We're willing to take a chance with you,' you find out how much desire and skill and ambition there really is."

Ellen Lazar, director of the U.S. Department of the Treasury's Community Development Financial Institutions Fund, and co-chair of the Interagency Work Group on Microenterprise Development, calls microenterprise "another tool in the toolbox of welfare-to-work strategies.""Not everyone is cut out to be an entrepreneur,"she adds, "but many people are."

Kent Marcoux, senior program manager for enterprise development at the Corporation for Enterprise Development in Washington, D.C., makes the same point: "It isn't the silver bullet for rural areas, but it can complement other programs. There's a subset of people for whom microenterprise is an absolutely terrific strategy."

The Center for Economic Options, a Charleston, West Virginia, organization that works to create alternative approaches to economic development, considers microenterprises an important part of its mission. Center communications coordinator Beth A. White says the center sponsored a two-day training session and exhibit showcase for microenterprises this October that drew an overflow crowd of exhibitors and buyers. Contracts made on the spot could total thousands of dollars. The center is working on a video about microenterprise, featuring five successful West Virginia firms.

Stimulating microenterprises isn't just a strategy for helping individuals, however. Pinsky says that encouraging small businesses "creates a whole new spirit in a community. People who are engaged economically feel they have more control over their lives and are more inclined to be part of the dialogue that's necessary to a healthy civic community."

Community development was very much on the minds of the creators of the Garrett County program. In 1997 the county was reeling from the closure of its largest private-sector employer, Bausch and Lomb, which then employed 600 people (and had once employed about 1,100). The county leadership's response, says Mikal McCartney, the GCCAC's vice president for community and economic development, was to adopt an economic development plan emphasizing diversification.

MicroWorks became one part of that strategy. It's supported by a number of partners, including the Maryland Department of Housing and Community Development Neighborhood Business Development Program; the Maryland Small Cities Community Development Block Grant; the Western Maryland Small Business Development Center (SBDC); the Garrett County Office for Children, Youth, and Families; the Maryland Office of Planning; and ARC.

"Microenterprises,"says McCartney, "can be viewed as a factory without walls. And these small businesses are likely to stay and be around."

That's another way of saying that jobs created one at a time add up, and can have the same cumulative effect as bringing in a new plant. So far, MicroWorks has made loans to 13 small enterprises, of which 11 were start-ups and 2 were existing businesses. The loans range in size from $3,600 to $15,000 and average $10,000. Loans are at the prime interest rate plus 2 percent (which currently means around 10 percent) for up to seven years, with payments deferred for six months.

Meg Ellis, an economic development specialist with the Garrett County Office of Economic Development, concurs that creating 13 jobsÑand a handful of firms with growth potential is worthwhile. Noting that her office works to attract businesses to Garrett County, she comments, "For a business that would come in here and create 13 jobs, we'd court them very hard."

Business Basics

Microentrepreneurs differ widely with respect to business experience. Some have run a business before; many have not. A few have never had a credit card or a personal checking account. For those lacking basic business skills, microenterprise programs offer training opportunities.

"Without a doubt,"Pinsky says, "the big obstacle is knowledge about how to start and run a business. There are many good ideas that don't get pursued because no one has ever explained to [potential entrepreneurs] how easy it is or how hard it is to start a business. So people are scared to step in, even when they know they have a good idea."

The Garrett County program provides extensive technical assistance. Sandy Major, a counselor at the Western Maryland SBDC office at Garrett Community College who advises MicroWorks clients, scrutinizes applicants' ideas and personal histories to spot potential strengths and weak points. She helps applicants design business plans but requires them to do their own research on issues such as licensing requirements, markets, prices, and competition. This weeds out applicants who aren't serious. Those who are serious get business counseling or referral to courses as needed.

"We see businesses come into this area on a shoestring and a prayer,"Major says, "and within a few months they're gone. We're trying to spare people that. We believe that people can learn, grow, develop, and get past some of the problems in their lives. We're not running a soup kitchen, but we are running an opportunity to change."

In addition to reviewing individual loan applications, McCartney emphasizes the development of what she calls a "microbusiness environment.""You can't just make these loans,"she explains. "If you're working with artisans, you have to pay attention to marketing."

That's the logic behind Garrett County's Mountain Arts Cooperative, a loose-knit consortium of about 20 artisans, only one of whom so far is a MicroWorks loan recipient, though almost all are receiving technical assistance from the program. Much of their marketing will be aimed toward tourists and summer residents, who come in substantial numbers to Garrett County but not necessarily to downtown Oakland, the county seat.

The cooperative fits into a strategy to make Oakland a destination spot in its own right. The cooperative has held three shows in downtown Oakland storefronts. The GCCAC and the town are working to buy a former car dealership showroom to display artisans' work; coordinators also envision the facility as a microenterprise center equipped with fax machines, copiers, and computers—the kind of support found in many business incubators.

Glenn Tolbert is manager of the Oakland Main Street program, which is affiliated with a National Trust for Historic Preservation program to revitalize downtown communities and is funded in part by an ARC grant administered by the Maryland Office of Planning. He's enthusiastic about microbusinesses in general, and especially enthusiastic about those that are producing crafts that can draw people into Oakland.

"There's a spectacular synergy here,"Tolbert says. "If there's something going to happen, our first thought is, 'How do we tie everyone else in?' There should be a pretty spectacular result in two years at the most."

Potential for Growth

Recipients of MicroWorks loans represent a wide spectrum of enterprises and agendas. A few microentrepreneurs are simply trying to supplement or replace other income. These include a retired farmer who makes wooden toys, a woman who knits woolen hats and scarves, and a man with a physical disability who used his loan to learn taxidermy. The owners of these cottage enterprises may hire assistants at some point, but except for increasing the owners' own independence, the businesses will contribute only slightly to the area economy.

Some businesses have more growth potential:

None of these small businesses are likely to ever leave Garrett County. All have at least modest growth prospects and are themselves a market for other local goods and services. Moreover, their chances of survival seem good.

Observers in Garrett County and in Maryland state government are convinced of the value of microenterprise. This past summer, the Garrett County loan fund received a strong local private-sector endorsement in the form of a low-interest loan from Keystone Financial in Oakland. Because it's repayable at a rate well under MicroWorks' own rate (which is itself low for high-risk commercial loans), this loan adds resources that are, in concept at least, self-renewing.

In addition, Maryland Lieutenant Governor Kathleen Kennedy Townsend followed a visit to Garrett County with a strong expression of interest in microenterprise. She's asked the Maryland Microenterprise Council, a loose coalition of about 30 individuals affiliated with economic and community development organizations, to propose legislation to promote the concept.

"Growing and developing small businesses and small business employment is a critical component of our economic expansion efforts in western Maryland,"says Governor Parris N. Glendening. "Our ARC Entrepreneurship Initiative and state Smart Growth incentives are helping entrepreneurs, employees, and their families make a good living and be good neighbors. Encouraging these small enterprises helps sustain the high quality and viability of rural life and communities. It helps us preserve what is best about these areas, while moving into the future with confidence and enthusiasm."

"We look at activities like this in a sort of risk/return model,"says Mark Pinsky, "and we look at return in two ways. First, there's financial return. Are these businesses succeeding financially and contributing to the local economy? And, socially, are they helping to build a better community?

Economic change in this country is multigenerational. People who succeed as entrepreneurs, and some who don't, develop a different perspective on the world. They see hope where before they saw only danger. American civil culture is founded on a sense of hope and optimism. When you lend someone money, you're expressing hope in that person's future. What it boils down to is, you're saying, 'I believe in you.' "

Rodney Carr speaks to that point when he describes how hard it was for him to get working capital. "With the majority of banks,"he says, "when they hear 'self-employed,' that's all they want to hear. But that's how businesses get started. Every major corporation in this country started with one person."

Fred D. Baldwin is a freelance writer based in Carlisle, Pennsylvania.