Thoughts about business and economic development in rural areas.

 

October 2007
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Archive for October, 2007

Land as an Incentive.

One topic that every community struggles with is how to price land in their industrial or business park. If there’s enough competition for space that you can charge market rates that cover your costs and provide a profit that’s great. In fact, if that’s the case your community probably should just step aside and let private developers handle land development. There’s no real need for you to be involved. But for most communities, especially in rural areas, that’s not the case. In fact, communities usually develop land for business use because no private developer is willing to take the risk.

So how do you charge for the land and does it even matter if you intend to provide the land as part of an incentive package that encourages development? Some communities will set their land price at a level that covers all of their investment costs and not negotiate at all. They feel that the fact that the land is fully developed and ‘ready to go’ is incentive enough. Other communities will go to the other extreme and say the land is free to any ‘good’ employer that wants to build a business here. (I once asked a Mississippi utiltiy rep at a national conference what the going rate was for industrial land in his state and he just laughed and said, “I don’t really know, we’ve never charged anyone for land.”)

Both approaches have merit so what do you do? My answer lies somewhere in between the two. I suggest developing a “Land Price Formula” that discounts the cost to the business based on three factors: the number of jobs created, the quality of the jobs (pay & benefits) and the taxable investment being made by the business (the building and other improvements).

So how do you figure out the discounts? Well, first set your end points. What is a reasonable cost for the business park land. Look at your investment costs and look around at your competition, both nearby parks and the cost of green site development in other areas of your community. Pick a number in that range. Then determine what you consider to be a ‘great’ prospect. How many jobs would they have to create and at what quality level and how much of a building would they have to build to get us to say, “Omigosh, we really want to find a way to ‘give’ them five acres to make this project happen!”

Now do the math. What discounts do you have to give to get to ZERO for your ‘great’ client? Run several scenarios and the numbers will start to fall in place.

Once you have your “Land Price Formula” you can now say ‘yes’ to those warehouse distribution requests that eat up land but don’t create big job numbers or to those small businesses that need a couple of acres and only have one or two jobs. They end up paying a fair price for the land and receive a minimal discount while someone who creates more jobs and makes a bigger facility investment will receive a more substantial discount. The community provides more substantial incentives to projects that provide more substantial return while still being fair to other projects.

Everyone knows where they stand and you avoid listening to ‘the community bends over backwards for an outside company and doesn’t do anything for the ones who are already here’ complaint. The same rules apply whether it’s someone local or a business from outside your area. Fair to everyone involved and you can figure the price in 5 seconds using the formula that the community has agreed to in advance. No need for silly delays as you go back to the City Council or Economic Development Committee to discuss this part of the incentive package because it’s all cut and dried.

Plus the business knows the exact value of the incentive they are receiving. If community ‘A’ gives five acres to a prospect for free because they never charge for land, then that incentive has no real cash value. If community ‘B’ has a base price of $10,000/acre and provides five acres discounted to $1 then the cash value of that incentive is $49,999.

Two critical points. First: Always take your discounts against the total cost of the acreage involved and not against the per acre cost. Doing the latter just encourages the prospect to take more land than they need. Second: Always include a performance guarantee in your contract for the sale of the land. If the prospect does not meet the agreed upon levels of employment or investment in a set time period then the community should retain a legal right to a reimbursement for a portion of the incentive not earned. A ‘clawback’ provision is essential and any legitimate client will understand that this is just a good business practice on the part of the community.

And a final point about the amount of acres to provide for a project. Every business will want more land than they are likely to use. From their point it makes sense for them to plan for future expansion. But your community shouldn’t be tying up valuable developed land that may never be used by that business. You also don’t want to encourage any land speculators to take advantage of your community’s investment. What to do? Your proposal involving incentives should include just the land essential for the initial project and then include a ‘right of first refusal’ offer on any additional land that the client might have an interest in. It protects their future and doesn’t needlessly tie your hands when it comes to working with future development prospects.

Land can be free…..if the incentive is fair to all involved.

TRAINING AS PUNISHMENT?

Just did two customer service training sessions co-hosted by a chamber of commerce and a university. Great group of people in attendance and I really enjoyed working with them. Enjoyable day, no problems. Right?

Not quite. On the way home one item started to bother me more and more. During discussion in one of the sessions a participant indicated that she had been ‘sent’ to the session. It was obvious from her tone that she felt that this was a signal from her employer that her customer service skills were considered sub-par and she was being sent to this session to be ‘fixed’. To make matters worse, another of her co-workers in attendance said she felt the same way. It was obvious the two hadn’t talked about it as the second person seemed almost relieved that she wasn’t the only one who felt that way.

Unfortunately we didn’t have time at that point to pursue the matter but this really concerns me. As a participant I’ve always looked at training sessions and workshops as an opportunity. And with that attitude I’ve always felt that if I walk away with just one idea that I can use it’s been well worth my time. But folks who feel they are being punished or see training as an unpleasant task, what do they get out of it? This is scary. I took some consolation in that both participants seemed to be having a good time and after a little while had warmed up to the group and the information being discussed. We’d overcome the initial obstacle of attitude but how much time did we lose before getting there?

Could this have been avoided? I went back and looked at the promotional material that had been sent to businesses. It was well done and seemed very positive in nature. But could we have done a better job in helping managers ‘sell’ this to the people they were asking to attend?

I think in terms like, “Reward your best staff with…..” or “Give this gift to….” etc.

If training is viewed as a punishment we all lose.

Rural Boundaries

With the proliferation of rural subdivisions and the seemingly neverending growth of urban centers it has become much more difficult to define what constitutes a true rural area. Most definitions rely on political distinctions (is it incorporated or is it a city vs being a village?) and some try to use numbers like population density.

Here’s another one for your consideration. Walk out of your house on a cloudless night. If your eyes are irresistably drawn up by a blanket of stars then your location is definitely ‘rural’. If you remain focussed on buildings and areas lighted by artificial light then you are ‘urban’. For those of you who don’t know there is something above the horizon and not just beyond it, my sympathies.

To learn more about keeping our night-time skys ‘rural’ check out the International Dark-Sky Association. To do your part, put a switch on your outside lighting and then set it in the “off” position. It’s a green idea that is beautiful in many ways and truly ‘rural’ in its simplicity.

And then get out there and enjoy those rural star-filled nights while you can.

Rediscovering Community

Visited a good friend, Alan Anderson, last night and listened to his story about a person who moved from the city into a rural area. I was expecting a tale of how he tried to ‘ejakate’ the locals. Well this story was just the opposite. This guy got involved all right but he did it in what I consider to be the ‘smart way’. He took time to really learn the area and to become a part of the existing community. He didn’t immediately try to change things. But over time, he certainly added to what was there and helped the area evolve in ways that were acceptable, significant and sustainable. He was wise enough to understand that he needed to have an understanding of the existing ‘community’ if he was going to be able to contribute something meaningful.

As I listened to Al, two thoughts came to the fore. The first was the reminder of how powerful a well crafted story is to making a point. Al is an absolute master of this. I’m always amazed by those who have honed that skill.

Second, the words “Rediscovering Community” evolved in my head. I’ve been doing a presentation I call, “Skating to Where the Puck Will Be”. It’s intended for rural audiences. My objective is to encourage rural leaders to open up to different perspectives on what the future of their area can be and to let them know that they are actually in charge of their destiny and not just victims of it. While I am comfortable with the constantly evolving content of the presentation, I’ve struggled with the title. I’ve found that most people have heard Gretzky’s quote but I’m not sure everyone can closely relate to a hockey analogy. Put me on skates and I would have a tough time standing up and gliding to where the puck will be is a fantasy at best. (Besides, sports references are done to death.)

So based on what I learned last night I’ve renamed my presentation, “Rediscovering Community: A Vision for Rural America“.

Now that feels right. Thanks, Al.

Leading by Driving Around

Managing by Walking Around (MBWA) is certainly not a new idea and at its core it is pretty basic. But it never ceases to amaze me how few people do this well and how complicated some people try to make this. I once saw a 26 page instuction manual for managers of a certain business……complete with cute little graphics on how the flow of information was supposed to happen. (I am not making this up.)

Well, an effective leader would boil that manual down to one sentence, “Get the hell out of your office every day and listen to somebody.”

And this is absolutely essential for people in the rural world. It’s way too easy for anyone to get caught in the office ‘trap’. Believe me I know. I’ve always struggled with this and I don’t think I’m alone. That pile of paperwork on the upper left hand corner of the desk is screaming for attention and we try to make ourselves feel better by saying that making a couple of phone calls will be a practical substitute for actually visiting with someone face-to-face.

This can be even more daunting to folks in rural areas. After all, we’re not talking about a five minute trip down the hall or a quick visit to the shop floor. We’re talking about getting in the car and travelling somewhere. We’re talking time. But in a rural area this investment of time may be the most important investment you can make.

Couple of thoughts on how the make this investment pay off.

1.) Make it a habit….Put it on the schedule or it won’t happen on a regular basis. And once a month doesn’t cut it. Once a week should be your minimum.

2.) Talk to someone…..don’t just do a drive by of the business park or downtown. Park the car and talk with someone. If the person you decide to see is too busy to talk with you, respect that and go on to someone else.

3.) Introduce yourself to someone new…..Don’t just visit with your regular contacts. Yes, you need to visit the mayor or village president but don’t forget about that new council or board member. Or how about the owner of that new business that opened up since you last were in town. Every one of those folks has a unique and likely ‘fresh’ perspective on what is happening and what needs to happen in that community.

You’re going to learn a lot and it will all be current information. Beats the heck out of the statistics you will get from the state 18 months from now.

Hey, a better title for this post might have been, “LEARNING by driving around.”