Study looks at ‘what works’ for businesses in rural Alaska

KYLE VONBOSE

March 13, 2008 at 1:25PM AKST

Starting a business in rural Alaska is difficult but not impossible. That’s according to a study by University of Alaska Anchorage’s Institute of Social and Economic Research.

Ginny Fay, one of the authors of the Viable Business Enterprises for Rural Alaska research, said they were looking at what drives or prevents people from successfully running businesses in smaller towns not connected to the road system throughout Alaska.

Besides the typical logistical challenges, rural business owners are often tasked with learning business basics and management skills training, all on their own.

The study produced a substantial list of what works for rural business and what doesn’t.

Attracting dollars

In places with small populations, Fay said new businesses must learn grow their markets by figuring out ways to bring in outside dollars.

One way to do this is by attracting new residents and visitors. Some rural communities have obvious advantages in attracting people, such as places close to national parks, places with strong commercial fisheries, or places with lower travel costs from Anchorage.

Beyond simply attracting tourists, research shows that new residents change the skill sets within a community and create new opportunities. Communities near national parks and scenic lands better attract these skilled outsiders.

However, Fay is not advocating that rural communities must bring visitors in. She said she understands there are a lot of villages that have no interest in having more people.

Another way to bring in outside dollars, without flooding a village with new faces, is through adding value to local resources, which can then be sent out of the village.

Villages do this by selling arts and crafts or by manufacturing and packaging food products, like smoked salmon.

Fay said the majority of Alaska resources are sent out in raw form, whether as fish, timber, ore or oil. However, villages willing to take the step from exporting raw goods to manufacturing value-added products will create jobs and money for their communities.

From berries to products

"If you pick berries and just send the berries raw to Anchorage to sell, you are missing a huge opportunity," Fay said. "If you can turn it into blueberry syrup or turn it into another product that is ready to be sold at the market, with value added, then you are capturing another 50 percent if not more of the value of the product."

Local residents in Seldovia used to pick berries to be sold to Homer-based Alaska Wild Berry Products. But, in 1995 the Seldovia Tribal Council decided to go into the jam and jelly business.

Calling themselves Alaska Tribal Cache, the council hired a berry cook and opened a small kitchen. They paid $2-3 per pound to more than 30 people. Today they employ 10 people full time, around 200 part time and their product sales gross about $200,000 a year.

Fay said the skills of rural Alaskans could be marketed to create high-demand products. Native Alaskans are the experts when it comes to subsistence harvesting and smoking fish, she said. While developing the infrastructure to produce value-added products is not easy, it could create a wealth of opportunity for struggling rural villages, she said.

Learning from mistakes

Fay said that one problem that became clear throughout the case studies was that many new business owners may be hard workers but don’t always have the knowledge or training to manage a company that grows beyond small-scale operation.

She said people who tend to be successful in growing businesses have either prior hands-on experience or professional training in their industry.

An example Fay points to is 3D Logging, a timber-harvesting company that operated out of Thorne Bay in Prince of Wales.

Its five self-invested owners operated the business by contracting short-term, small jobs, operating contract to contract, and for its first six years the company was successful.

In 2004 3D Logging, to its surprise, won a large sub-contract. It hired 30 employees and had to build a remote logging camp.

To collect on the contract, a certain amount of the logging had to be completed; however employee-related costs, such as insurance and wages, dried up all the money the firm could get its hands on before the project was completed.

After nine years, 3D-Logging went out of business, because of a lack of planning and a lack of business management experience.

Jane Angvik prepared many of the case studies for the research. She told members attending a presentation of the research at the Institute of Social and Economic Research in Anchorage on March 6 that businesses in rural Alaska must carefully consider whether or not to expand.

Unlike in larger cities, where businesses can grow to as large as they want as long as they can get customers in the door, rural businesses can unexpectedly expand beyond their customer base.

Free counseling

One way Fay hopes the study will help Alaskans is by offering advice to economic development groups.

Rural business owners said government and private organizations could best help them by offering classes on how to manage finances and create business plans.

The lack of business experience in rural Alaska could be overcome through mentorship programs or teaching business management basics.

There is help for struggling rural businesses. Free counseling is available through the Alaska Small Business Development Center.

Matt Tullar, director of the center in Fairbanks, said people can sign up for free counseling online at "http://www.aksbdc.org" www.aksbdc.org or by calling (800) 478-7232.

He said the center can evaluate business plans and help answer three important questions: Are there customers or are there enough customers? Is the business profitable or do the sales cover all the costs? And is this business right for you?

People interested in starting nonprofit businesses can receive help through the University of Alaska’s Center for Economic Development. The CED offers non-profit business counseling for negotiable fees, depending on the client’s circumstances.

"What we usually do is a lot of listening, said Christi Bell, executive director of CED. "We try and hear what their definition of success is and what the goals and objectives are of the business."

The center will then walk the nonprofit though the proper steps to help them achieve those goals.

A final, but important consideration for rural business startup is community-wide cooperation. Angvik said the research showed that in communities where tribal governments clashed with municipal entities, the result was a very poor economic climate for growth.

Kyle von Bose can be reached at (907) 348-2438 or toll free at (800) 770-9830, ext. 438.

To read the ViBEs research study on the Web, visit:

ced.uaa.alaska.edu/vibes/VIBESsummary.pdf.