Statistics Can't Tell You Where To Do Business

All companies have different needs. That's why studies of the so-called business climate don't mean much.

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Deaver Brown owns an infants' clothing manufacturer. It is in Sylvester, Ga., because that's the right place to be.

Deaver Brown is general partner of General Sound, a company that makes acoustical devices. It is in Boston, Mass., because that's the place to be.

Deaver Brown, founder and former chief executive officer of Cross River Products, known for its collapsible baby stroller -- the Umbroller stroller -- employed 300 people in Rochester, N.Y., because it was the place to be.

And Brown, 37-year-old entrepreneur extraordinaire, has interests in other successful manufacturing ventures. They're all where they should be -- but most aren't where conventional business climate reports say they should be.

Brown isn't bothered by climate studies that tell him he's in a lot of the wrong places. He is characteristic of the determined small businessman with well-focused reasons for his location decisions. The fact is, conventional business climate indexes don't tell you much about where people like Brown ought to locate -- or where you ought to locate either, for that matter.

(INC.'s own evaluation of the states -- designed especially for smaller businesses -- begins on page 90.)

Brown will tell you that he doesn't care that Alexander Grant & Co.'s A Study of Manufacturing Business Climates of the Forty-Eight Contiguous States of America lists Georgia as the seventh-ranking state -- thus making it desirable.

The reason he's there, he explains, is that "in infants' cut-and-sewn products, Sylvester, Ga., suits us because -- much as I hate to use the fancy word -- the infrastructure is there.

"You have people who are familiar with textile machinery; who can service the equipment. You have a good labor force, which has to be nonunion and do piecework, in order to compete with goods from Southeast Asia."

The fact that Massachusetts is 38th on Grant's list, or that New York State is ranked 46th, doesn't concern him either.

"General Sound is a high-technology business," Brown says. "Its product is an acoustic coupler that is placed in the ear mold to eliminate annoying background noises. And I need the Massachusetts Institute of Technology because of its research facilities. So Boston is it. It's also a nice place to live."

When he was chief executive officer at Cross River, Rochester was selected, partly, because toolmakers skilled in metalworking were in the area.

He has no plans to relocate to Mississippi -- even though the Grant study ranks Mississippi as the number one business climate state. It ain't necessarily so: Except maybe in the very general sense that the South is one of the places where large manufacturers still seem to be growing in the United States.

To be fair, Grant itself emphasizes that certain factors such as "quality of life" or "proximity to markets" were not incorporated in its study because they were nonquantifiable.

Grant is an accounting firm, and it used 18 traditional factors to determine which states had positive business climates. Some of these factors were state debt per capita; state and local taxes per capita; percentage change in state and local taxes per capita; energy cost per million BTUs; labor union membership; private pollution abatement expenditures as compared to the value of industrial shipments, etc.

The problem is that many of the factors aren't really factors for many entrepreneurs. Or even for large high-tech companies.

United Technologies Corp. in Hartford, Conn., for example, has nearly 200,000 employees. Jack Feeney, UT's corporate director of real estate, says, "Ten years ago, 'quality of life' was number 27 on a list of things you'd consider before selecting a site. Now, it's in the top 5. And depending on the sophistication of the product, it's in the top 3.You have to be able to supply your managers with a lifestyle they are accustomed to.

"Also, you look for the availability of skilled labor. And the availability of training programs. Everything goes down the drain if you can't find people.

"If Oklahoma gives you land out in the wilds for nothing, you still have a much greater risk of failing than if you went into an area with a labor pool."

Before joining UT, Feeney worked for Digital Equipment Corp. in Maynard, Mass. He says, "If you looked at that company's expansion you would see that it was within 50 miles of head-quarters. They felt a great need to have personal and face-to-face communication among the various members of the organization in a rapidly growing environment. Even if you're making a simple product such as pots and pans, and need unskilled labor, you still have to weigh low taxes, no union, and so forth, against where you want to deliver the merchandise."

Dr. David L. Birch of M.I.T., who studies these things, says that while there's no denying large-scale manufacturers like Mississippi, "that isn't saying much. Because although it is generally true that large manufacturers continue to grow in rural areas, particularly in the South, in general, large manufacturers are declining across the United States.

"On the other hand, the smaller manufacturing enterprises, including the high-tech group, are growing quite rapidly. And entrepreneurs are growing in things that are quite different from the things the big boys used to grow in. It's more brain-related: More thoughtware and less hardware.

"And it's happening in the so-called Silicon Valley in California, and in Massachusetts. We have discovered that in the North, as well as in the West and in the South, there are real hotbeds of small business development in manufacturing. Nashua and Manchester, N.H., are just Boomsville.

"Some states could have low rankings for large manufacturers but not for small. You get quite a different picture. Indianapolis; Columbus, Ohio; Rochester, Minn.; Minneapolis-St. Paul, are all areas that are doing very nicely on the small-end of the scale. But they are hurting with the International Harvesters and the Cummins Engines -- the big guys."

The M.I.T. man adds, "I think that the automobile industry has poisoned the aggregate. If you separated the automobile industry, other large manufacturers, and everybody else, you would get a significantly different picture. You would find a large number of small manufacturers all over the North doing well. It's not looking beneath the surface that gets you into trouble."

One entrepreneur who has taken a look beneath the surface is Ken Sherman, general partner of Cambridge Research and Development Group of Westport, Conn. CRDG is a company that helps to create commercial ventures from patentable technology. Deaver Brown's General Sound is one of its offspring.

Sherman says, "Regardless of what the business climate studies say about California (Grant has it 45th), from the venture capital and entrepreneurship point-of-view, the attractions of that state are so strong that I am going to be giving serious consideration over the next year to opening a branch there.

"In the case of entrepreneurship, you have to give heavy weighting to the infrastructure of supply services, ranging from integrated-circuit manufacturers to the ability to be near suppliers from the Far East.

"Technology has its own list of requirements. The company must select an area where the quality-of-life attributes are good.

"For example, when the head of our VSC Co., which makes and markets a series of products that electronically allow the altering of the speed of recorded speech and music without changing tone or pitch, decided on a headquarters location he selected San Francisco because, he wanted to live there; good engineering talent was there; and much of his business is transacted in the Far East.

"When a business climate study shows that California is not the most desirable place to locate, it is talking about that state as a place to make seats for automobiles. And that's a very different thing."

What it all boils down to is this: Business climate studies aren't necessarily the stuff that entrepreneurial dreams are made of.