Do Cluster Initiatives Work? Evidence from SBA's Pilot Initiative

Small businesses often are surrounded by a myriad resources and potential partners that could help leverage their products and services to innovate and grow, but they are not always aware of how to access them. In order to remedy this lack of strong regional networks, the Obama administration has attempted to connect existing businesses, institutions of higher education, economic development organizations, investors, small businesses, and startups to create regional clusters that stimulate economic growth through the Small Business Administration (SBA) and the Economic Development Administration (EDA) regional cluster initiatives. The EDA and SBA have led a total of 50 pilot programs around the nation thus far. A commissioned study of the first two years of the SBA's 10 pilot cluster initiatives in which the agency invested $1 million toward regional industries and advanced defense technologies found a significant correlation between these initiatives and economic growth.

The 10 SBA cluster programs include three Advanced Defense Technology (ADT) clusters focused on defense-related technologies and seven Regional Innovation Clusters (RIC) focused on a variety of other advanced technology industries. For a full list of the clusters in the report, see the table below. The report authors found that the clusters were geographically dispersed across the nation and operated with a variety of governance structures and business models; however, half of the clusters reported working with participants outside of their stated geographical scope, many of which were small businesses, indicating some clusters are opting for a hybrid approach to their scope and resource utilization. For example, the Advanced Power Cluster of the Midwest — previously known as the Defense Alliance — contains four states in its delineated geographical scope (MN, WI, SD, and ND), but reported having 28 states with participants. Every cluster reported that they provided some level of in-house services and nearly all had relationships with SBA resource partnerships such as the Small Business Development Centers (SBDCs) or the Women's Business Centers (WBC).

The report includes a number of impressive metrics pointing to the success of cluster initiatives in increasing stakeholder participation, fostering industry connections, and providing valuable resources. In the past two years since the creation of the 10 SBA cluster initiative pilot projects, the clusters have produced the following impacts:

• Small business participation grew from 179 to 859, a 380% growth rate;
• The number of foundations, nonprofit organizations, and public-sector agencies more than tripled;
• 84 percent of federal money was used for services, rather than administrative costs;
• 111 patent applications were filed and 76 patents were granted;
• Total employment grew by 18 percent and full-time employment grew an average 13 percent;
• Nine out of 10 clusters increased the average revenue of small business participants;
• Participants obtained more than $66 million in capital and $14 million in early stage investment (SBIR/STTR funding) with cluster assistance; and,
• 74 percent of participants were satisfied or highly satisfied with the services they received.

Although there may be other external factors that could contribute to this growth, the data suggests that there is a significant correlation between the regional cluster initiative activity and higher than expected levels of economic growth, innovation, and new business formation. Aside from providing detailed profiles of the 10 clusters, this study creates a systemic evaluation of these programs, and has found that the initiatives have proven to be very successful in their earliest stages. Further study might help determine the success of cluster initiatives across various industries. Since the creation of these 10 clusters, the administration has invested in 30 other clusters through the Jobs and Innovation Accelerator Challenge that uses a multi-agency collaborative structure and includes a heavier emphasis on workforce training in underserved businesses and communities than the SBA cluster initiatives. Click here for access to the full report...