transformation of iowa - college of human · pdf fileethanol production - some trends. ......

The ImpendingTransformation of Iowa:

Is Bio-energy Really anEntrepreneurial Solution?

Michael Morris, Ph.D.Helen LeBaron Hilton Visiting Chair, ISU and

Witting Chair in EntrepreneurshipDept. of Entrepreneurship

Whitman School of ManagementSyracuse University

Presented by Dr. Michael Morris, 4/5/2007

Overview: Five Tough Questions

The Ethanol ‘Explosion’: Speculative Bandwagon orPath to the Future?

The Global Entrepreneurial Revolution:Should Iowa Learn from Germany or France---or fromIsrael, Uganda, China?

Is Iowa Prepared---Can It Compete?

Is Ethanol the Entrepreneurial Solution?

Can We Create an Entrepreneurial Iowa?


• Approximately 5 billion gallons of ethanol made in 2006 by 112 ethanolplants in U.S.

• One-fifth of corn crop consumed by ethanol plants, up from 8% in 2000

• Ethanol now second-leading use of corn, after livestock feed

• Ethanol is the most environmentally-friendly, renewable fuel available foruse in fuel cells.

• Ethanol does not require extensive infrastructure investments

• Ethanol is a domestic product and renewable

• Ethanol has proven easier to reform in a fuel cell--- it has demonstratedfewer emissions, higher efficiencies, & better performance in fuel reformers,which convert ethanol & other hydrocarbons to hydrogen.

Ethanol production - Some trends


Ethanol production in Iowa

• Leading production capacity of ethanol in USA

• More than 20 state-of-the art-facilities, with a samenumber in the production and planning phase

• 2,550 jobs directly related to ethanol production

• More than 12,200 ancillary jobs

• Boosts Iowa's tax receipts by $16 million -- the biggestincrease of the top 10 corn-growing states


More than 30% of ethanol produced nationally is from Iowa

More than 30% of total corn produced in Iowa is used as ethanol feedstock

Iowa United States

United StatesIowa

Year

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Year

Year

Mill

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of g

allo

nsM

illio

ns o

f bus

hels

Mill

ions

of b

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Source: http://www.iowacorn.org/ethanol/ethanol_6.html

Iowa’s Share is Growing…

An Increased Emphasis: Is this Growth Rate Sustainable?

Source: http://www.iowacorn.org/ethanol/ethanol_8.html


The Global EntrepreneurialRevolution

From the agricultural age to themanufacturing age to the services age tothe information age to…

… the innovation age


21st Century: all aboutenvironmental turbulence

Dynamism, threat, complexity in the:-technology environment-customer/market environment-social environment-labor environment-competitive environment-ecological environment-supplier environment-regulatory environment-economic environment


The ‘E’ Revolution

Rate of start ups at all time high

Rate of new product and service introduction isat all time high

Rate of new industry creation at all time high

Rate of technology development at all time high

Rate of new patent issuance at all time high


The ‘E’ Revolution

Entrepreneurial firms are creating over 80% ofthe new jobs in society

Large firms are eliminating jobs Government does not create jobs It is a global revolution It is a democratic revolution---women, minorities,

the handicapped---no segment is excluded


More than small businessstart-up

The pursuit of opportunity regardless ofresources controlled

A mindset, a way of thinking, a way ofapproaching life, work and community


Entrepreneurship matters…

Levels of entrepreneurship are positively associatedwith GDP growth

Levels of entrepreneurship are positively associatedwith community economic conditions

Levels of entrepreneurship are associated with lifequality

Levels of entrepreneurship are associated withhappiness

And for companies, levels of entrepreneurship areassociated with organizational performance


The Entrepreneurial Imperative

There is an entrepreneurial dynamic Entries and exits, not the stable set Innovate or decline Innovating more reduces risks Not about perfecting---about experimenting

and adapting Not about mom and pop, but scalability and

growth


Is Iowa Prepared---Can ItCompete?

Population trends Economic trends Investment trends Culture trends


Iowa Demographics

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

1990 2000 2006 2010

Population

YEAR

Num

bers

in M

illion

s

Stagnant Population Growth --- Is it tied to ‘creative class’ andinsufficient development of an entrepreneurial environment?


• Iowa was ranked at #38 out of 50 by the Kauffman Foundation for itsability to compete in the global, entrepreneurial, high-tech economy;

• The Small Business & Entrepreneurship Council ranked Iowa # 41out of 50 in terms of entrepreneurial friendliness;

• A 2007 study by the U.S. Small Business Administration ranked Iowa# 45 in an analysis of states’ relative efficiencies in promoting thebirth of small firms;

• Relatively low rate of adults per 100,000 population starting newbusinesses.

Entrepreneurship Trends in Iowa


Entrepreneurial Indicators…

IOWA ranked…

• # 43 out of 50 for the ‘Number of Employer Firms’ in any state, withjust a 0.2% annual increase

• # 45 out of 50 for number of employer firm births, with a negative3% annual change for the 1990-2000 decade

• # 49 out of 50 for the number of self-employed with a negativechange every year for the period 1996-2000

• # 49 out of 50 for rate of firm formation and #43 for firm terminationsin the year 2000Source: U.S. Small Business Administration – Report on Small Business Economic Indicators, 2000


Venture Capital Money in IowaTotal VC deals in Iowa

VC deals for Industrial/EnergySector in Iowa

Almost $300 billion came in as VCinvestments throughout USA over the lastdecade (1995-2006)

$140 million came in as VC money over thelast decade in Iowa (1995-2006)

Iowa accounted for only 0.04% of all VCmoney in the USA

Excluding deals for the Industrial/EnergySector, Iowa received $115 million

Getting better but still lagging

Source: http://www.pwcmoneytree.com/moneytree/index.jsp


And yet some positive signs… A relatively low ‘Cost of Doing Business’ according to Milken

Institute, 2005

Eight of Iowa’s largest communities ranked ‘Best Places forBusiness’ Forbes Magazine, 2004

Rate of business closings is falling

Public policy makers have worked to increase the venture capitalpool

Various corporate income tax and property tax incentives


Is Ethanol the EntrepreneurialSolution?

Benefits Costs How innovative? How sustainable?


Benefits to the Iowa Economy

• Forward integration by corn farmers and backward integration by the many endusers of ethanol

• More acreage put into production, more income for farmers

• Creation of thousands of jobs in newly constructed plants

• Appreciation in farm and other real estate values

• Creation of ancillary industries and services in various sectors

• Local population may get access to cheaper fuel

• Higher number of local plant owners will yield a higher economic impact throughtax receipts to local government


Inflation

• Higher corn prices rippling though the economy

• Increase in prices for soybeans and other crops, and final food products (e.g. tortillas)

• Prices for meat, poultry, and soft drinks increases (chicken producers estimate thatthe industry's feed costs are already up $1.5 billion per year)

• Increases passed on to consumers, and we could have a fairly dramatic inflationscenario for food costs (William Lapp, President, Advanced Economic Solutions).

Effect on regional farmers

• Reach a point where capacity exceeds demand, leading to a fall in ethanol prices, taking shareholder value and employment down with them

• As demand exceeds supply, it will make upkeep and reinvestment unaffordable for ethanol plants

• Ethanol plants will shut down driving down prices drastically

Some potential concerns…


Ethanol and the EnvironmentBENEFITS

• Reduces smog forming pollutants by 25% and greenhouse gas emissions by 35% to 40%

• Ethanol is highly biodegradable, making it safer for the environment

• Ethanol contains 35% oxygen, making it burn more cleanly and completely than gasoline

DRAWBACKS

• Does not mix well with gasoline, increases its vapor pressure, and can be highly corrosive

• The amount of grain used to fill a 25-gallon SUV gas tank with ethanol could feed a person for anentire year (Lester Brown of the Earth Policy Institute)

• Over-planting and its impact on soil quality, which can be exacerbated by use of corn stalks andother leftover for bio-fuels

• Crop-farming for ethanol production using corn could be harmful for the eco-system if scaledunsustainably

AND ACCORDING TO SOME CRITICS …

• Corn ethanol burns the same amount of fuel twice to drive a car once, bringing fuel efficiency ofthose cars down, with a higher rate of pollution in the environment

• Does ethanol really provide the benefits as stated by experts, or are the gains more short term?


Scenarios to think about…

Will continued movement to corn-based ethanol ultimately increasethe inflation scenario for food costs in the United States?

If it gets to a stage where Iowa has a lot less corn for other parts ofthe country, other parts will still demand Iowa corn, potentiallyoffering higher prices, which may undermine the attractiveness,returns or even sustainability of in-state ethanol plants?

Due to supply limitations, Iowa’s ethanol industry is moving pastcorn to use cellulose-based ethanol. What happens to corn farmersafter this transition?


An entrepreneurial perspective…A number of parallel industries will spring up in Iowa to support ethanol

production facilities. Some opportunities:

• Technical expertise to assist on compliance with the environmental regulations

• Industries with ethanol as a major input. Example: paint, varnish, vodka

• Engineering firms to provide support to the increasing number of ethanol plants

• Supply chain and logistical companies to meet requirements by corn and ethanolproducers

• Training and development firms to support managers and employees of ethanol plantsand for related industry players

• R&D firms to advance the technology and discover new technologies

Potential to bring in venture capital to provide these start-ups with capital required


Is it really entrepreneurial? Is the growth sustainable, and can it produce an

attractive rate of return over time?

The ethanol value chain: who will really make the moneyas power in the channel shifts over time (growers,refiners, big energy companies, wholesale distributors,retail sellers)?

The need to create an R&D and innovation culture, not aproduction culture

How much investment in intellectual property, patents,science leadership (e.g. is it about who makes computerchips or who invents and designs them?)


Conclusion:

Bio-fuels may be anentrepreneurial solution, but theyare not the entrepreneurialsolution


Creating an Entrepreneurial Iowa

Culture Pick the Winners or Create the Environment? A Portfolio Perspective It’s Not One Thing: The Need to Connect the

Dots The Need for Entrepreneurial Universities


A culture of entrepreneurship…

A history of entrepreneurship: the settling of Iowa andcreation of one of the most productive agriculturalregions in the country

Who are our contemporary role models in Iowa? Arethey the private sector, nonprofit sector and public sectorentrepreneurs?


A culture of entrepreneurship inIowa...reinforcing core values Spirit of individualism Opportunity-driven, not resource constrained Calculated risk taking Healthy dissatisfaction Innovativeness Can do, proactive way of thinking Growth orientation Change is good Tolerance of failure Sense of urgency Leveraging rather than owning Creative problem solving, guerrilla mindset


Create the environment and theywill emerge

Tomorrow’s entrepreneurs are not people who arenecessarily going to move here---they already live hereor will be born here

The need for a total environment perspective: schools,infrastructure, financial community, IP protection, valuesand cultural reinforcement, etc. etc. etc.


A portfolio perspective

Alternative energy Agriculture Food processing Bio-technology Environmental quality Pharmaceuticals Etc.


Connect the Dots: Key Elements ofan ‘Entrepreneurial Community’

Research anddiscussionforums

Incubatorsand accelerators

Research parksTechnologycommercializationfacilitators

Entrepreneurialnon-profits andsupport agencies(sbdc’s, women’sgroups, EDA’s,SCORE)

Social networksfor nascent &early stageentrepreneurs

Entrepreneurialrole models andyouth programs

Specializedservice providers(legal, financial)

Banks and creditunions sensitiveto staged ventureneeds

Micro credit/Peer-lendinggroups

Angels and angelnetworks

VC firms

Entrepreneurialuniversities &colleges-engaged& focused

Entrepreneurialdivisions of largefirms

Growth-orientedSME’s, includingentrepreneurialfarms

Innovative start-ups


The Changing Role of the UniversityThe Changing Role of the Universityin Societyin Society The university as ivory tower versus the university as active agent for

economic and social development and enhanced life quality

“Scholarship in Action” is not an anti-research philosophy

The entrepreneurial university: cross-campus entrepreneurship shouldtranslate into cross-sector entrepreneurial engagement

Fostering the entrepreneurial family, school, local government operation,farm, architectural or engineering firm, manufacturing facility, etc.

The need to change faculty evaluations and promotion and tenurestandards

The need for new measures and metrics regarding the impact of academicresearch


“Be the change you wish to see inthe world.”

-M. Gandhi

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