A candidate’s proposal for a state business plan competition

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I don’t know much about Lincoln Chafee, the former Republic Senator for Rhode Island now running for governor in that state. But I do know this: his proposal to launch a state-sponsored business plan competition, and integrate it with the state’s Job Creation Guaranty Fund, seems to make a lot of sense.

Too often, the decisions made by state or local agencies in offering loan guarantees to companies are the result of closed-door negotiations. Who really knows how certain companies are being selected to receive state incentives, and whether there has been appropriate due-diligence? Is the process fair to companies who are left out? And who shoulders the blame when recipients default on their loans or fail to live up to their promises, with taxpayers left holding the bag?

The Rhode Island State Assembly authorized its $125 million loan guaranty fund only a few months ago. And now the R. I. Economic Development Corporation is close to making a decision that would allocate 60 percent of it ($75 million) to a single start-up: a video game development company founded by former Red Sox pitcher Curt Schilling.

Talk about putting most of your eggs in one basket …

Candidate Chafee wants to create a state-sponsored business-plan competition that would encourage small businesses to locate, relocate, or expand within Rhode Island. In doing so, new jobs will be created. Presumably, the prize pool will consist of loan guarantees, with no single company receiving more than $6.25 million.

Such a competition would surely attract a lot of attention and be seen as exciting and innovative. Recently, we’ve seen big-bucks competitions launched in Massachusetts and Michigan. A few other states have operated successful competitions for several years.

As opposed to the more traditional state economic development programs, business-plan competitions are 100% transparent. Everyone has the opportunity to view the competitors and learn about their companies and their proposals. And typically, winners are selected by an independent panel of judges, usually with a breadth of expertise and proven job-creation skills that can supplement the resources of a quasi-public government agency.

Great idea, Mr. Chafee.

For more about the proposal, here is a story in the The Providence Journal at Projo.com.

Photo credit: stgermh

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Joe Hurley is a CPA, author of "The Best Way to Save for College - A Complete Guide to 529 Plans", founder of Savingforcollege.com, and co-founder of Bizplancompetitions.com. He has also recently started making maple syrup.
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