Lifting Kentucky, one entrepreneur at a time

LONDON — Rex McDonald was born and raised in Corbin, went to Eastern Kentucky University and the University of Tennessee, worked for the U.S. State Department and lived for a time in the former Soviet Union.

But when it was time to settle down, McDonald wanted to come home. He started a company that provided a comfortable living for his family. But Bob Wilson, an entrepreneurship coach for Kentucky Highlands Investment Corp., thought the company could be more than it was.

McDonald and his partner, Hank Gevedon, moved their operation into Kentucky Highlands’ business incubator, took business-development classes and got hands-on coaching from Wilson and others. Kentucky Highlands also provided equity and debt financing to the company, PD3 Inc., which helps inventors bring their products to market.

Rex McDonald of PD3 Inc. shows U.S. Rep. Hal Rogers, R-Somerset, this company's emergency underground mine rescue chamber last Thursday. Photo by Tom Eblen

Rex McDonald of PD3 Inc. shows U.S. Rep. Hal Rogers, R-Somerset, this company's emergency underground mine rescue chamber. At right is his entrepreneur coach, Bob Wilson. Photo by Tom Eblen

Now, 14 months later, PD3 has its own plant in nearby Rockcastle County. It has grown from six employees to 26. Thanks in part to a new product the company has designed and will soon manufacture — a portable emergency shelter for underground miners — McDonald expects to hire an additional 29 workers early next year.

PD3 is performing at a level McDonald never thought possible. It pays employees better-than-average wages and provides insurance benefits and a retirement plan. “We’ve built the foundation for a sustainable company that will survive beyond the founders,” he said.

PD3 is the latest success story to come out of Kentucky Highlands, a non-profit agency set up in 1968 to create badly needed jobs in southern and Eastern Kentucky by training and investing in local entrepreneurs. Over the past 40 years, Kentucky Highlands says it has created more than 10,000 jobs in its 22-county service area.

Business incubation is one of Kentucky Highlands’ many ventures, and the agency announced plans last week to expand that role by building a 9,600-square-foot center next to its London headquarters to mentor start-up companies.

Kentucky Highlands has created for-profit subsidiaries to supplement the private and government grants it receives. It has started two venture capital funds, a tax-credit program, and an agriculture loan fund. It has formed partnerships with a variety of schools and other organizations. It also has worked with local companies to build affordable housing in the region.

“We’re a catalyst,” said Jerry Rickett, a Corbin native who has been president of Kentucky Highlands since 1989. “We’re trying to find ways to facilitate the creation and retention of jobs.”

Economic development has always been a challenge in Appalachia. The region has a history of failed efforts and squandered resources, from empty industrial parks to millions of dollars in tax breaks and incentives given to companies that came to the region for a few years, then left when cheaper labor could be found elsewhere.

Kentucky Highlands has succeeded by doing things differently and by playing to its region’s strengths. The agency invests relatively small amounts of money in local people and businesses that can gradually create sustainable jobs.

Rickett points to census data that show there are 40,000 “micro-enterprises” in the 22-county region, which has a population of about 550,000. Nearly 87 percent of those enterprises have no employees except the owner.

“If over the next few years we could get 10 percent of them to hire only one employee — through training or micro-lending — that would be 4,000 additional jobs,” Rickett said. “And if one of those companies goes out of business, a community loses a job or two, not 200 jobs.”

Kentucky Highlands focuses on home-grown companies that can bring new revenue into the region. One example, Rickett said, is an electrical engineer in Harlan who likes to fly airplanes. His small business installs runway lights at airports around the country.

“His pickup truck is a twin-engine aircraft, and each week he loads up a bunch of Harlan County electricians and they go wherever it is in the United States they’re putting in runway lights,” Rickett said. “Then, on Friday night, they come back to Harlan. It’s not a big employer; maybe 12 people. But that money comes back to Harlan.”

For generations, Appalachia’s best and brightest have often had to leave to find work and opportunity. A theme of Harriette Arnow’s classic novel The Dollmaker was the anguish people felt when they had to leave the mountains after World War II to find work in Northern factories.

Thanks to digital technology and high-speed communication, a lot of work can now come to the workers, wherever they are. Rickett knows a mechanical engineer who designs heating and cooling systems for big retail developments. He lives in Eastern Kentucky, but does work all over the country via the Internet.

“He’s getting to raise his children in a rural community that has the values he wants his family to have,” he said.

“The best thing we have to market here is the creativity of our people,” Rickett said. “Appalachian people have always been resourceful.”

It’s a strength Kentucky could exploit in the 21st-century economy, along with a low cost of living, improving schools and strong vocational training programs.

“If we could just add a little bit of entrepreneurship to that curriculum,” Rickett said. “If you’re going to be an electrician, why not start your own business and hire the three best guys in your class to work for you?”

But success will require some culture change. Generations of Appalachians have grown up with a mind-set that work means working for someone else. “There is a lot of latent entrepreneurial capacity in Eastern Kentucky, but there are not many role models,” Rickett said. “We need to get kids in grade school thinking about being an employer rather than an employee.”