Nolan Klouda

STARTUP WEEK 2020: Could the pandemic lead to more entrepreneurship?

The economic news these days is mostly terrible. The pain caused by the pandemic is real and visible, and the numbers we can put to it are staggering: the highest unemployment since the Great Depression, hundreds of thousands dead, and $16 trillion in economic damage in the US alone. Yet there glimmers of good news if you pour over the data. New businesses are being formed at a higher rate than last year, both nationally and in Alaska. Over the last five years, the state has fit a particular pattern of growth and decline, according to the Census Bureau’s Business Formation Statistics. When the economy was in recession from 2015-18, business starts were up. When employment growth resumed in 2019, they fell. In 2020, business formation started off slowly and shot up by the middle of the year. Nationally, the spike in 2020 is even more dramatic. Clearly, some people are responding to a dismal economy by taking matters into their own hands. In fact, some of the largest firms in the U.S. started during past recessions. Uber kicked off during the Great Recession; Microsoft during the oil embargo in the 1970s. In Alaska, Northrim Bank formed during the deep recession of the mid-1980s. In fact, a majority of the companies in the Fortune 500 started either during a recession or during a bear market. So the importance of today’s garage tinkerers and guest-room-to-office converters shouldn’t be overlooked. It seems entrepreneurship during recessions is fairly normal. But why? The headwinds to entrepreneurship during a downturn seem obvious: consumers spend less and investment dries up. In the aftermath of the Great Recession that lasted from 2007 to 2009, economist Robert Fairlie studied this phenomenon in detail. Fairlie examined several different variables to see which were most closely related to rates of entrepreneurship in localities around the U.S. He looked at home ownership, home prices, local unemployment rates, and whether the entrepreneur themselves was employed prior to starting a business. Of these, the local unemployment rate showed the strongest effect on entrepreneurship. The worse the local job market, the more likely you were to start a business. Home ownership also mattered — after all, drawing home equity is an important means of obtaining capital — but less so than a lousy job market. Why would high unemployment cause individuals to turn to entrepreneurship? The simplest and most likely explanation is that some people respond to a poor economy by creating their own job by starting a business. The security of a stable job might cause a would-be entrepreneur to postpone their dream of starting a business if it means giving up a paycheck to start a venture that might just fail. Entrepreneurship during COVID-19 has important implications for our eventual recovery. New businesses are the major job creators of the economy. In a report two years ago, the Center for Economic Development found that a staggering 89 percent of all private employment growth in Alaska between 2005 and 2014 was the result of young firms in existence for five years or less. As a group, mature firms tend to plateau in terms of job creation. Some may add jobs in a given year, but others contract, and the net effect is a wash. Without new firms, private sector employment is doomed to be flat, even in relatively good years. Despite that, I think we would have been ecstatically happy with flat employment in 2020, a year that has numbed us to sharply declining indicators of all sorts. One of the most worrisome trends has been failure rates of small businesses. We don’t know exactly how many businesses have permanently closed, but the signs aren’t good. The data tracker website Opportunity Insights indicates that the number of open businesses in Alaska has declined by a third or more since the pandemic began. We don’t know how many of those closures are permanent, but we do know that a shuttered business can’t hire anyone. That puts more pressure on our entrepreneurs to fill the gap when the economy recovers. That’s a tall order. The hole left behind by the loss of nearly 40,000 lost jobs won’t be filled in during the next few months by today’s brave entrepreneurs. But neither can we rebuild a healthy economy without them. Entrepreneurs are the people who make things happen even when the conventional wisdom seems to be against them. It takes courage, and lots of it, to start a business in 2020. Let’s cheer for those who do it. Nolan Klouda is the Executive Director of the Center for Economic Development at the University of Alaska Anchorage Business Enterprise Institute. He is an expert in Alaska’s economy and deeply involved in COVID-19 economic recovery efforts in the state.

The surprising facts about age and entrepreneurship

If I asked you to describe a stereotypical entrepreneur, chances are you would fall back on a familiar image: a tech-savvy twenty-something donning a hoodie, revolutionizing the world with a piece of software or new technology. This prototypical tech founder boldly disrupts established industries from the outside, outmaneuvering older and more conservative business executives at rival firms. This is the story of Bill Gates at Microsoft, Larry Page and Sergey Brin at Google and Mark Zuckerberg at Facebook among several others. But this story misleads. It turns out that very few business founders fit this description.  Business owners under age 35 are actually somewhat rare, accounting for only about 6 percent of Alaska’s businesses with employees, according to US Census data. Grey-haired entrepreneurs dwarf the younger sort — just over half of the state’s business owners are 55 or older. Even those over 65 vastly outnumber the under-35 set by three to one. Though these are Alaska numbers, they closely mirror national figures. So how does starting a business fit into the lifecycle of an individual? Kauffman Foundation research reports that the average age for starting a business is around 40. Another study focusing on the fastest growing venture-backed firms — exactly where you’d expect to find the young Silicon Valley entrepreneur — found the average founder age was even older, 45 years old.  There are good reasons for entrepreneurs to be a little older. By their early 40’s, a person is more likely to have acquired personal savings, which is by far the most common form of startup capital. They have also gained the valuable experience that comes from working for someone else and seeing how organizations function. Rates of business failure tend to fall as the age of the founder rises, so it seems that experience makes for better entrepreneurs. Another perspective comes from rates of new entrepreneurship by age, which is unfortunately not available at the state level. The national figures show that the share of individuals aged 20-34 starting a business each year is lower than for other age groups from 35-64 and has actually fallen in the last two decades. Given that half of Alaska’s business owners are at or approaching retirement age, the low rates of entrepreneurship among the young are worrying. Who will replace them as job creators? At the Center for Economic Development, we think part of the solution is introducing students to entrepreneurship as a potential career pathway. Our Upstart Internship gives UAA students the opportunity to experience the excitement of working for an innovative startup company here in Alaska. This gives entrepreneurs access to talent, and students a chance to test the waters of entrepreneurship. Our Upstart Alpha student accelerator is a signature effort to guide students through the process of launching a business and will strive to compress years of experience into months. Like accelerators nationwide, Upstart Alpha will accept a cohort of entrepreneurs into a structured boot camp to validate their business models with the help of mentors, instructors, and hard work. These initiatives join others that introduce young people to entrepreneurship. They include the King Career Center’s Entrepreneurship and Enterprise class that gives high schoolers the experience of starting a real business. The Alaska Small Business Development Center’s Lemonade Day is another example, focusing on that ubiquitous symbol of youthful enterprise, the lemonade stand. Entrepreneurship is never an easy pursuit, but Alaska’s economic future will depend on vibrant businesses that make the most of our human capital. Let’s do our best to make sure smart people with entrepreneurial talent discover their pathway, regardless of age. As Executive Director, Nolan provides overall leadership for the University of Alaska Center for Economic Development, as well as support for other programs of the UAA Business Enterprise Institute. He is a Certified Economic Developer (CEcD) through the International Economic Development Council, and serves as chair for the Municipality of Anchorage Budget Advisory Commission. Nolan was named to Alaska’s “Top 40 Under 40” in 2015. He holds a Master of Public Administration from the University of Kansas and a Bachelor of Arts, History and Political Science from Gustavus Adolphus College.

Entrepreneurs inventing Alaska’s future

Like so many kids, Ben Kellie wanted to be an astronaut. He may not be going to outer space himself anytime soon, but Kellie knows more than a few things about launching rockets into orbit. As co-founder of The Launch Company, an Anchorage-based startup, he thinks Alaska could become a leader in the commercial space industry. Working for Elon Musk’s SpaceX after college, Kellie was part of the engineering team for several commercial launches. He noted that each launch pad had to be built almost from scratch for each company sending a rocket into space. “Imagine if every airline had to build its own airport, the cost to fly anywhere would be astronomical,” he says. Much of this young industry focuses on creating newer and better rockets but overlooks the inefficiency and complexity of the launch itself. That’s where The Launch Company comes in. Kellie and team use a standard set of operating principles gained from past experience helping design and build multiple sites to simplify the process. As an example, the company designed fueling fittings (now built in Palmer) that can be used across many different sizes and types of rocket. They are robust, reliable, and prevent the companies from having to design their own custom hardware, saving time and money. He likens these to USB chargers for phones as an improvement over the first generation of cell phones that had a bewildering array of different cord types. As I write these words, entrepreneurs like Kellie are working on the next Alaska economy. In addition to commercial space, Alaskans are developing marine and aviation technologies, renewable energy systems, virtual reality and augmented reality startups, innovative food and drink businesses, and products used in outdoor recreation — to name just a few. We have a community of specialized investors who understand the risks and dynamics of putting cash into startup companies. Our ecosystem of support organizations includes an engaged university system, all levels of government, and — most importantly — entrepreneurs who help other entrepreneurs through collaboration and mentorship. Fortunately, Alaskans are a very entrepreneurial group. In 2017, Alaska ranked third among the states for the number of businesses launched per capita, according to the Kauffman Foundation. We also lead the way in closing the gender gap in business ownership, traditionally a male-dominated pursuit: Alaska has the highest percentage of women-owned firms of any state. Altogether, startups in Alaska create 4,000 to 6,000 jobs each year, accounting for the overwhelming majority of net private sector employment growth during most years. There is still work to be done to empower Alaska’s entrepreneurs, however. Workforce shortages in key areas like software development limit the growth potential for high tech startups. The state ranks near the bottom for knowledge jobs, as defined by the New Economy Index. Despite being a national leader in launching companies, Kauffman ranks Alaska fourth from the bottom in scaling up, defined as growing to 50 employees within 10 years. We start plenty of businesses, but they tend to stay small. Yet Kellie sees unrealized potential in the Alaskan spirit of adaptability and ingenuity. His father ran an air cargo business throughout Bush Alaska, and he learned early to adapt and improvise, to patch things together with proverbial duct tape. The same kind of on-the-fly critical thinking helps him resolve some of the complex engineering problems that arise in planning for a rocket launch. “I’d like to catch that in a bottle,” Kellie says of the Alaskan entrepreneurial mentality. We rely on entrepreneurs to glimpse over the horizon and see what’s next. How might self-driving cars change the way we get to work and run our errands? How will virtual reality-based training change the way we learn? What jobs will the new high-tech industries bring? We may not know exactly what that next economy will look like, but we can be reasonably sure that entrepreneurs will be the ones who usher it in. Alaska Startup Week is an opportunity for entrepreneurs to connect across the state and is a collaborative effort by multiple organizations to diversify Alaska’s economy, largely led by entrepreneurs. This year, Alaska Startup Week has grown from three communities to ten, with over 70 events in Anchorage, Fairbanks, Juneau, Sitka, Kenai, Soldotna, Palmer, Bethel, Homer, and Seward. Alaska Startup Week is on Facebook. Nolan Klouda is the Executive Director for the University of Alaska Center for Economic Development. Nolan’s areas of professional interest include feasibility analysis, rural economic development, entrepreneurship and innovation policy, and engagement between the public and private sectors. He is a Certified Economic Developer (CEcD) through the International Economic Development Council, is a board member for the University Economic Development Association, and serves on the Municipality of Anchorage Budget Advisory Commission.

COMMENTARY: When the economy gives you lemons, support Lemonade Day

The childhood experience of setting up a lemonade stand and engaging with customers brings back memories for many of us; perhaps it was your very first business transaction, customer service experience, or the first time you learned the correct lemon-to-water ratio for that perfect batch of lemonade. The lessons gained from an early introduction to business can provide young people with an enthusiasm for entrepreneurship that has the potential to grow with them, developing into a passion for business that could spark a dream. Now, more than ever, we need to help plant these dreams of entrepreneurship within our children. As most Alaskans are aware by now, our state is in an economic downturn, spurred by the plunge in the price of oil. We’re seeing the growing impact of this across industries. But as we move forward, addressing the economic challenges that our state faces, we must continue to advocate for programs that instill financial literacy and business skills that prepare Alaska’s future leaders. By making a long-term investment in Alaska’s future entrepreneurs, we are in turn creating new business opportunities, generating employment and a more diversified economy. Lemonade Day Alaska is an example of one such investment. On Saturday, June 11, more than 3,400 youth in urban and rural communities across the state will participate in Lemonade Day Alaska — a record number for our state. Children from all socio-economic backgrounds are currently learning how to build a stand, operate it and then determine what to do with the money they make. Lemonade Day — a free, experiential program with participants nationwide — encourages students to save a little, spend a little and share a little, giving a portion to the charity of their choice. An average of 80 percent of participants deposit a share of their earnings in a savings account while 60 percent also donate to a nonprofit. This year, the community of Bethel will join more than 30 other participating communities across Alaska, when it holds its Lemonade Day on July 4. I am encouraged and excited to see this program grow, especially among the state’s remote and rural communities. Inspiring entrepreneurship among our youth in rural areas of the state is known to foster economic development and healthy, sustained communities. Entrepreneurship can generate employment and can help encourage residents to remain in Alaska. Lemonade Day also instills community and civic mindedness — characteristics that are crucial for the next generation of business, local and state government leaders, and ultimately, all citizens. A 2007 study of businesses in rural Alaska, conducted by the University of Alaska Anchorage’s Institute of Social and Economic Research, found that many successful entrepreneurs learned about business as children, whether from commercial fishing or stocking shelves at their local store. This reinforces that entrepreneurship is a learned behavior; risk-taking as well as falling and getting back up again, in the business sense, are difficult behaviors to learn as an adult. The University of Alaska Center for Economic Development, which coordinates the statewide effort every year, not only encourages participation in Lemonade Day, but also assists children through all aspects of managing a small business. With the help of Wells Fargo, a Lemonade Day Alaska sponsor, the program offers financial literacy workshops that provide participants with a guide for managing their money—from pricing out raw materials to paying back investors to saving for the future. We all can agree that diversifying Alaska’s economy will require creativity, long-term thinking and action right now. The creation of new businesses, with the potential to grow quickly and create in-state jobs, must be part of our plan for a healthy state economy. And the entrepreneurial efforts of Alaska’s young residents could turn out to be the major employers in our state in the years to come. From small villages to the state’s capital, lemonade stands will pop up for one day, June 11, in most participating communities across Alaska. To see a map of locations in your area or to “Brand your Stand,” visit Not only should we encourage our youth to get involved, but all of us can support the program as Lemonade Day consumers, helping Alaska’s youth gain valuable life skills and experience in entrepreneurship that can set our children up for success and perhaps even spark a dream. And with the fiscal challenges our state faces today, that’s more important now than ever. Nolan Klouda is the executive director for the University of Alaska Center for Economic Development.  
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