Putting the Business Back in Business Retention

by Laith Wardi, CEcD, President, ExecutivePulse, Inc.

Globalization. The impact of the Internet. Rapidly changing technologies. The emergence of new, fastgrowth overseas economies. These factors are forcing wholesale economic change in communities across the United States and Canada – all valid reasons why business retention and expansion activities in 2007 are more important than ever.

The stakes are high.When a company leaves a town, the loss is measured in cold, hard data: lost jobs, capital investment and tax revenues. The pain, however, is measured in human terms: lives upended, families disrupted, foreclosures on homes. The ripple effect of the loss of a major employer spreads throughout a community – with economic, social and psychological impact.

So it’s surprising how many communities throughout the U.S. and Canada still take a cavalier attitude when it comes to the business of business retention. Our opinion is backed by research from the International Economic Development Council: Economic development organizations in every section of the U.S. report that they engage in business retention activities, yet informal surveys show that private-sector employers characterize the efforts of local agencies as focused on recruitment, not retention.¹

Obviously, there is a disconnect between economic development organizations and the businesses that these agencies are supposed to serve. It’s time to make businesses the focus of every business retention program.

The case for business retention

A quick review of the mass media and even economic development publications shows a clear bias toward business recruitment and entrepreneurship. Yet the facts are clear: mitigating risk or seizing opportunity is largely a function of how well we understand and anticipate changes in our business environment. This is true for successful private-sector firms as well as successful nonprofit or public-sector organizations.

In economic development, this understanding can only come from business retention and expansion activities. After all, it is the only time that we are routinely interacting with our existing customer base. Listening to and learning from our existing employers provides us with clear directives that impact all facets of our economic portfolio, including recruitment and entrepreneurship opportunities.

The need to regularly interact with resident companies is underscored by a well-known statistic: up to 80 percent of new jobs and capital investment in any community is generated by existing businesses, not attraction prospects.² As every successful private-sector company knows, it makes sense to stretch limited resources by focusing on existing customers – in fact, experts estimate that it is ten times cheaper to retain customers than it is to attract, recruit or market to potential new customers.³ Business recruitment, in contrast, is time, labor and money intensive.

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¹ “Business Retention and Expansion” course manual. The International Economic Development Council.

² “The Job Generation Process.” Dr. David Birch.

³ The Gartner Group.