The Risk Aversion Problem in Economic Development
Many economic developers or ecosystem builders will gladly deliver advice to founders that they themselves rarely take to heart. I’ve been in rooms where founders are told to simplify their value propositions, narrow their market, and concentrate on doing a couple of things really well. This is sound advice. But when delivered by economic developers with target industries that list everything except astrology and programs that require a lawyer to understand the reporting requirements, the irony is palpable.
When an economic developer sits across a table from a founder, the real difference is the appetite for risk: the founder has it, and the economic developer is on a GLP-1. Risk and uncertainty are familiar, even comfortable territory for a founder, especially one who has started companies in the past (a serial entrepreneur, some may say). But for economic developers, risk is the worst four-letter word in the world. They don’t want to take it, see it, hear it, or be anywhere near it. Every fiber of their being is repulsed by it. Just like the old-timers used to say: “no one ever got fired for choosing IBM,” the economic developers say “no one ever ended up on the wrong side of an op-ed by continuing with a BR&E program.”
This isn't just a hunch; it’s a documented phenomenon in research and innovation. A 2022 study published in the journal Nature titled Papers and patents are becoming less disruptive over time explores why scientific discovery is mysteriously slowing down. The authors write: “...papers and patents are increasingly less likely to break with the past in ways that push science and technology in new directions.” In the book Abundance, the authors expand on this, suggesting that scientists feel pressured to “herd around the same few safe ideas that will keep them in good standing with their peers.”
Sound familiar? Those involved in economic development are operating in the same herding pattern. To innovate is to be vulnerable. To experiment with policy and programming is to step out from the herd. If you stay the course and do exactly what everyone expects, you find safety in numbers.
We recently decided to test this theory by analyzing over 4,000 regional growth strategies from the State and Local Economic Development Strategies (SLEDS) national database. What we found was a staggering phenomenon we call the Cluster Delusion. Out of thousands of possible localized economic engines, the vast majority of the United States is converging on the exact same handful of "safe" buzzwords: Tech/IT/Cyber, Advanced Manufacturing, and Aerospace.
In this environment, the best practices taught at IEDC and other institutions are not actually helping to expand the industry’s understanding. Instead, they serve to insulate practitioners from fault and blame. Best practices have become a defensive shield. If an EDO follows the standard playbook and the community’s economy still stagnates, the practitioner can shrug and say, “We did everything right.”
We tell founders to find a niche, yet we market our communities as everything for everyone because saying no to a bad-fit industry creates the risk of looking inactive. Or worse, not expending resources on an industry target that all of the neighboring towns are courting can look lazy or misguided. The data proves this geographic disconnect is real. In a healthy national economic development ecosystem, regions would lean into their unique physical or cultural assets. Instead, our analysis revealed that an absurd 87% of all strategies targeting "Tech, IT, and Cyber" clusters are coming from Rural and Mixed-Rural districts. Purely urban areas, the places with the actual venture capital density and research universities required to realistically sustain these clusters, produced only a fraction of these strategies. We have rural planners overlaying Silicon Valley models onto agricultural landscapes because nobody gets fired for proposing a tech hub. There are rare exceptions. Hawaii is heavily targeting Agriculture and Food, an authentic response to their geographic isolation and supply chain vulnerabilities. Kentucky is doubling down on Manufacturing, leaning into its historical industrial base. But they are the outliers.
Economic developers tell founders that business models must be tested and validated by an impartial market, yet they spend two years drafting 150-page strategic plans designed to check boxes rather than achieve outcomes. For a founder, a model is a launchpad into the unknown. For an economic developer, a plan is often just a bunker to hide from risk. If we want to build thriving economies and vibrant places, economic development must fundamentally change its posture. An entrepreneurial EDO wouldn't write a five-year manifesto of universally accepted buzzwords just to manufacture consensus. It would embrace a "Minimum Viable Plan" - fiercely localized, highly opinionated, and designed to find a new path to prosperity and success. A thesis designed to be tested, broken, and rebuilt in the real world. Until that concept is embraced by economic development as a profession the winners will continue to be the inherently resource rich and capitalized communities while everyone else just sings along to the same tune.
