David Kluskiewicz

Stock market indices have been a staple of business news for decades. They summarize countless economic factors into single data points, ones that command almost as much attention as the weather forecast. They generate enough conversation to keep millions of investors engaged, whether they understand the underlying factors or not. Now that generations have renewed interest in the economy from following the big indices (NYSE, AMEX, NASDAQ), I think it’s time that we begin observing small indices (yet to be formed) too. They’re more interesting and they often have a much bigger impact on our lives.

There are two reasons to index small, local markets. First, they would give us a better idea of how our local communities’ economies work. Do we help new businesses grow? Which ones thrive here? Which ones prosper? Second, they would help increase investments in local communities. Typically, only angel investors and venture capitalists can tolerate risks associated with early stage companies. But if that risk is spread out, just as it is with a 401k, those early stage investments become far more accessible, providing more capital and a chance for smaller investors to enjoy a big reward. Local investment is particularly valuable because those companies are likely to become your clients, employers and neighbors. The localization of investment provides an excellent opportunity to become involved with the economy that will have the greatest impact on your wealth and quality of life.

State tech councils fostering innovation and bootstrapping early stage businesses are beginning to collect all the information needed to create small indices - maybe even exchanges. This kind of local investment could open the doors to a real innovation economy.

“What you can never outsource, is responsibility.” These were the sage words of Soren Lund, marketing director at LEGO on the In Business podcast from the BBC. Their exodus from Connecticut wasn’t good for the local economy, but their ability to focus their business strategy on something that customers are willing to pay, even in a flat world, is something we can learn from.

The world described in Carl Schramm’s book, The Entrepreneurial Imperative, will be terrifying to every middle manager you know. Schramm points out how the current cycle of status quo management has gone on too long. Droves of people flocked to investing, operations and professional services to support a waning base of companies and organizations. But, there’s been a corresponding loss in creativity - not creativity as in art, but creativity as in innovation.

Cycles of innovation and management are natural, but right now America seems to be entrenched in a managerial cycle. The danger in this, Schramm suggests, is that managerial cultures lose their appetite for risk and pass that on to their children. One of the most telling signs of this is the precipitous decline in children’s interest in science, technology, engineering and math (STEM).

Fortunately, America still reveres the entrepreneur in the garage. And, as long as he’s genuine and honest, the community supports him, even if his business is one of the 9 out of 10 that don’t make it. This, Schramm says, is a big part of what we should teach in schools - cycles of innovation and failure. Comfort with these may soon become more of an asset than perfect test scores.