Tom Hayes Stimulus Package

Our old friend Tom Hayes is at it again.  In an op-ed piece in yesterday's Wall Street Journal, he and Michael S. Malone critique the new administration's stimulus strategy, and offer suggestions for an innovation-based approach that certainly sounds more promising than propping up failed industries.

Readers of this page know that we have long argued that the best and most valuable jobs are created by entrepreneurs and the private investors who fund them.  And we've certainly celebrated the occasions when the public sector has recognized and supported entrepreneurial efforts, even while noting our disappointment in how little of that is evident.

Hayes and Malone rehearse the same catechism of entrepreneurship, innovation, private investment, and economic vitality, and go one to make some specific recommendations for policy makers to give serious attention.  Some highlights:

- First, kill Sarbanes-Oxley or make it voluntary. Right now.

- Allow entrepreneurs to more easily tap tax-free retirement accounts -- or better yet, let them create tax-free accounts specifically to fund themselves.

- Eliminate payroll taxes, which unnecessarily burden young companies. 

- Make the tax system more forgiving for Angel investors -- or allow the creation of tax-free investment vehicles similar to what we now see with nonprofit foundations or 529 college savings funds.

- Lower capital gains taxes on investments in early stage companies and higher taxes on later stage deals. 

- Help big business think small. 

- Convene a presidential summit on entrepreneurship and small business. The last president to do so was Ronald Reagan in 1982.

Hayes and Malone elaborate on these points, and we highly recommend their article as "required reading".  

In the "Q"

As long-time subscribers to McKinsey Quarterly's email newsletter, we enjoy the in-depth analyses featured on their website.  We'll continue to alert readers to useful and relevant content we encounter through this channel (links back to the Quarterly site require free registration for access to the entire article.)  We cited a report from the "Q" earlier this month, and now we are delighted that today's inbox brings credible third-party validation of one of our central theses: invention is science, innovation is economics.  

Excerpted from his recent book, Amar Bhidé makes a compelling case that despite falling behind rapidly emerging BRIC economies in secondary and higher education in STEM competencies and pure research generally, the United States enjoys a competitive advantage in applying discoveries from the laboratory to real-world uses.

Technological innovations, especially high-level ones, usually have limited economic or commercial importance unless complemented by lower-level innovations. Breakthroughs in solid-state physics, for example, have value for the semiconductor industry only if accompanied by new microprocessor designs, which themselves may be largely useless without plant-level tweaks that make it possible to produce these components in large quantities. A new microprocessor’s value may be impossible to realize without new motherboards and computers, as well.

New know-how and products also require interconnected, nontechnological innovations on a number of levels. A new diskless (thin-client) computer, for instance, generates revenue for its producer and value for its users only if it is marketed effectively and deployed properly. Marketing and organizational innovations are usually needed; for example, such a computer may force its manufacturer to develop a new sales pitch and materials and its users to reorganize their IT departments.

Bhidé makes these observations in the context of anxieties in the policy and media communities about America losing it's "edge", and his concerns about resorting to protectionism or diverting scarce resources to pure research activities, or "what the economists Sylvia Ostry and Richard Nelson call techno-nationalism and techno-fetishism".

Techno-nationalists and techno-fetishists oversimplify innovation by equating it with discoveries announced in scientific journals and with patents for cutting-edge technologies developed in university or commercial research labs. Since they rarely distinguish between the different levels and kinds of know-how, they ignore the contributions of the other players—contributions that don’t generate publications or patents.

They oversimplify globalization as well—for example, by assuming that high-level ideas and know-how rarely if ever cross national borders and that only the final products made with it are traded. Actually, ideas and technologies move from country to country quite easily, but much final output, especially in the service sector, does not. The findings of science are available—for the price of learned books and journals—to any country that can use them. Advanced technology, by contrast, does have commercial value because it can be patented, but patent owners generally don’t charge higher fees to foreigners. In the early 1950s, what was then a tiny Japanese company called Sony was among the first licensors of Bell Labs’ transistor patent, for $50,000.

In the current economic climate, it is critical that resources and regulations be more closely aligned with the successful commercialization of new science, rather than deep, long-range investments in adding to the store of human knowledge.  As we have seen, the economies that benefit most from commercial application of new technology are not necessarily the ones in which it was patented.  License revenue and royalties create few new jobs.

Since innovation is not a zero-sum game among nations, and high-level science and engineering are no more important than the ability to use them in mid- and ground-level innovations, the United States should reverse policies that favor the one over the other, and it should cease to worry that the forward march of the rest of the human race will reduce it to ruin.

Immigration policies that favor high-level research by preferring highly trained engineers and scientists to people who hold only bachelor’s degrees are misguided too. By working in, say, the IT departments of retailers and banks, immigrants who don’t have advanced degrees probably make as great a contribution to the US economy as those who do. Likewise, the US patent system is excessively attuned to the needs of R&D labs and not enough to those of innovators developing mid- and ground-level products, which often don’t generate patentable intellectual property under current rules and are often threatened by easily obtained high-level patents.

Even factoring in outsourced manufacturing and back-office services, the most (and best) net new jobs are created by innovators who find a crying need and fill it with creative solutions fashioned from new discoveries and existing technologies alike.  As we've pointed out elsewhere, an innovative company isn't necessarily introducing widgets, but is also applying novel thinking and imagination to improving established business processes for greater effectiveness or efficiency.  Cloud computing, for example, offers familiar software capabilities, but in a new form factor and delivery model.  That's not the sort of thing you invent in a lab.

Silver Lining Dept.

We wrote last week about the ComputerWorld item discussing big corporations acquiring smaller companies.  Cesar Rojas with ANTs Software commented on that item, pointing out that smaller companies aren't always looking to get bought out.

I think there are exceptions to the rule when it comes to small tech companies. In this down economy there are real needed innovations that are very critical to significantly reduce IT costs. That empowers smaller companies to negotiate with the big guys because the technologies they develop can really jeopardize critical revenue streams of these firms while providing huge OPEX reductions for customers.

We thought this was an interesting perspective, and when we inquired with Mr. Rojas, we got a call back from Ken Ruotolo, ANTs' CFO, who explained a little more about why ANTs is sanguine about remaining independent.

For one thing, the company is publicly traded (OTC:ANTS), and has gone through several episodes of repurposing.  They sold their high-performance database line of business in 2005, and are now delivering a middleware solution for migrating databases to new platforms without having to modify applications.

Having some experience in data migration (we worked on the team at SynOptics that migrated from Oracle Financials to SAP R3 in 9 months, and led the team at Bay Networks that implemented a Scopus-based call center database on top of Informix in 11 weeks), we were particularly interested in this solution.  As Mr. Rojas continued in his comment:

We recently moved a 3,000 user call center app for Wyndham Hotels from Sybase to Oracle where the customer didn’t need to change a single line of application code. The whole migration lasted one week compared to the multi-month/multi-year application migration process that Wyhdham might have embarked without deploying our product.

Very cool stuff, indeed.  So why wouldn't ANTs want to be acquired by a giant like Oracle, say?  Because they have the potential to become a big player in their own right.  Mr. Rojas again:

I truly believe that smaller/innovative companies that can significantly reduce IT costs in this economy are the exception to the rule and we will be in the driver seat when negotiating alliances with big IT vendors.

As Mr. Ruotolo explained to me, ANTs Compatibility Server product enables a company to migrate large enterprise-wide databases from costly proprietary platforms such as Oracle or Sybase to an open source platform like MySQL, reducing cost of ownership to a fraction of current operating expense.

As data center managers increasingly try to squeeze more efficiencies from operations through consolidation of hardware and software solutions, ANTs Compatibility Server bids fair to be enormously disruptive.  By employing platform companies as channel partners, they have every reason to expect that the potential for growth to be substantial.

California Business Ascent Announced

MEDIA CONTACTS:

Josh Morgan for Golden Capital

(916) 941-0901

josh@morgandorado.com

FOR IMMEDIATE RELEASE

Golden Capital Network, California Business, Transportation and Housing Agency, California’s Small Business Advocate, and California Association for Local Economic Development Announce Statewide Initiative to Help Growth Oriented Businesses Climb Out of Economic Doldrums

Private and State Groups Coming Together for California Business Ascent Statewide Business Mentoring and Competition

Sacramento and Chico, California - Feb. 18, 2009— Golden Capital Network (www.goldencapital.net), along with the California Business, Transportation and Housing Agency, California’s Small Business Advocate, and the California Association for Local Economic Development today announced the California Business Ascent (www.businessascent.com), a statewide competition and mentoring program to identify, assist and encourage innovation-based, locally-owned companies throughout California.

“Local-businesses focused on growth are the key for California to lead the way out of this economic downturn,” said Dave Sanders, chairman of Golden Capital Network and managing partner of WorldBridge Partners. “The Business Ascent is all about identifying the companies with the best chance of success and giving them as much help as we can, to try and make them successful, for the benefit of the companies, the employees and the people of California.”

The California Business Ascent will include regional competitions in up to 25 communities throughout California, culminating with the top two companies from each community competing in the California Business Ascent Finals to be held in San Diego at the Catamaran Resort on November 17-18, 2009.

"California has a long history of innovative entrepreneurs creating jobs and unparalleled prosperity driving new industries to global leadership, with entrepreneurs working in collaboration with government," said Secretary Dale E. Bonner, of California's Business, Transportation and Housing Agency. "It's going to take the collective effort of everyone in the state to rise out of our current economic situation and we can do it together by proactively supporting our next wave of innovative entrepreneurs."

The initiative is a unique new type of public/private partnership that includes both State government and local government leaders, and new types of private sector partners including entrepreneurs, angel investors, and venture capitalists. Through this process contestants will make important connections with investors, bankers, professional services providers, executives, policymakers and other entrepreneurs on a statewide basis. In-kind professional expertise and a substantial cash prize (amount TBD) will be provided to the winner of the competition.

“The California Business Ascent provides a new economic development tool for cities, counties and local economic development corporations to add value to their locally-owned growth companies,” said Wayne Schell, president and CEO of the California Association for Local Economic Development, ”These companies represent a critical and growing part of California’s local and regional economies, and until now have been difficult to assist with more traditional types of economic development activities.”

Wavepoint Ventures (www.wavepointventures.com) is participating in the California Business Ascent by helping to engage California's venture capital and angel investment community in the effort to accelerate economic recovery.

Cities and regions throughout the state including the Yolo region, Greater Stockton and San Joaquin County region, Greater Chico and surrounding counties, and Greater Redding and surrounding counties, have already begun scheduling events as part of the California Business Ascent.

Other cities and regions interested in participating should contact the California Business Ascent initiative organizers at Golden Capital Network, 530-893-8828.

For more information about the California Business Ascent, please visit www.businessscent.com.

ABOUT GOLDEN CAPITAL NETWORK

Golden Capital Network is a non-profit networking, training and consulting group that fosters growth entrepreneurship and early-stage investing as an engine for economic growth.

Since 1999, GCN has coached and showcased more than 1,000 companies to more than 500 active angel and venture capital investors. GCN’s venture capital showcases are the largest and most robust events of their type. The GCN event formula has resulted in more than $1.3 billion raised by presenting companies. More information on Golden Capital is available at www.goldencapital.net.

ABOUT THE BUSINESS, TRANSPORTATION AND HOUSING AGENCY

Led by Secretary Dale E. Bonner, the Business, Transportation and Housing Agency includes 13 departments and several economic development programs and commissions consisting of more than 44,000 employees and a budget of $20 billion, a budget larger than that of almost half the states in the nation. The Agency's portfolio is one of the largest and most diverse in the State of California. Its operations address myriad issues that directly impact the state's economic vitality and quality of life including transportation, public safety, affordable housing, international trade, financial services, tourism, and managed health care.

Corporate Liquidity Pools

The conventional wisdom since the dot com meltdown at the turn of the century is that the IPO is effectively a nonstarter as an exit strategy, and that M&A is the most probable means for an early stage company convert equity into yield.  While this is not news, there are some new wrinkles in the current economic climate.

Eric Lundquist, on his ComputerWorld blog, examines the emergence of the large technology companies as an important source of liquidity during the current economic distress.  The most dominant companies in this space are laden with cash, and quietly going on a buying spree as other sources of cash dry up and valuations decline.

When I look at some of the investment areas including digital medical records, energy management, transportation and infrastructure, the big four (Oracle, Cisco,Microsoft, IBM -- MICO), okay big five if you include Hewlett-Packard, are not strong across all those areas and do not have enough time to build that expertise in-house.

This is exciting not only because of the potential for exits in a tough climate, but also becuase these acquisitions are strategic, strenthening the parent company, and creating new opportunities for innovative firms to emerge.

While the returns to investors may be less than hoped for, it does free up capital for investment in other promising companies, and frees up the founders to start new enterprises.

All Your Face Are Belong To Us

Lots of churn on the interwebs about Facebook's new Terms of Service (TOS).  The new user agreement asserts an irrevocable, non-exclusive license for any content users add to the service.

The key change is that there used to be a clause about the user's right to remove content, and that's been removed.

It's probably not as sinister as many bloggers infer.  Because of Facebook Connect, content is being stored outside Facebook's span of control.  This new language absolves the service of liability if a user's content is misused elsewhere.  It's increasingly common on other social networking and search sites, including Google.

As ever, the prime directive of the net -- never post anything (including in email) that you wouldn't want to see on the front page of the New York Times tomorrow -- applies.  Discretion isn't just the better part of valor, it's a requirement in the neworked economy.

State of The Venture Capital Industry

Excellent analysis of the Venture Capital business on the NY Times site.  Alan Patricof of Greycroft Partners makes a compelling case that VCs need to innovate to compete in a dramatically changed investment landscape.  With angels increasingly sitting on the sideline, funds need to invest earlier, in smaller tranches, and with realistic expectations for smaller exits.  The good news is that they can exit sooner.

I believe that most of the companies that venture capitalists are funding today will find an exit through merger or acquisition. And if we expect to achieve a return in a reasonable time frame of three to five years, we are probably looking at a sale price of $20 million to $100 million. This is the valuation range where most young companies are being acquired.

To compensate for these lower gross return expectations, we must establish initial valuations, usually in the single digits, that can provide an adequate multiple return and internal rate of return. Inevitably, this suggests that a true venture capital firm should be reverting to smaller-scale funds and restricting individual investments in early-stage companies to accommodate the realities of the exit opportunity.

This strategy aligns well with both LP expectations and entrepreneurs' best-case scenarios.

Entrepreneurs themselves seem to be catching onto the new risk/reward equation and seem far more willing, at an early stage, to opt for a sale at a lower valuation and lock in their gains, figuring that they are young and can repeat the process later with another start-up.

If the scenario I have described strikes a chord of reality, then until someone solves the cost of going public and increases the liquidity in aftermarket trading, we as an industry have to downsize our expectation for exits as well as downsize the size of our funds.

Patricof's viewpoint is refreshing, even optimistic, in these uncertain economic conditions.  It's certainly a breath of fresh air, and we can only hope that VCs pay attention to his sage counsel.

That Vision Thing

It's five years old, but some things are timeless.

Nowsourcing

The practice of outsourcing is evolving, according to Tom Abate's column in the Sunday San Francisco Chronicle.  Large corporations have long moved entire departments and functions to locations where labor costs were more affordable, especially assembly and customer service processes.  While offshoring has been controversial, wage rate differentials in emerging economies have been irresistible to multinational companies competing for customers, capital, and components on a world-wide scale.

What's changing is that smaller companies are now taking advantage of the global market for talent, by utilizing web-based labor exchanges such as eLance, oDesk, crowdSPRING, and Guru.

This is especially relevant to entrepreneurs, who typically must outsource everything except core business functions, as much to remain focused on strategic imperatives as to manage their burn rate.  And as more Americans are turning to freelance work to cope with the recession, a lot of this casual employment is remaining onshore.

Natasha Levitan, a San Jose filmmaker, is part of what work-site operators say is a new wave of U.S. freelancers who are going online to bid for contract work. Levitan, 31, has worked as a freelancer for most of the past several years, using local contacts and word of mouth to get jobs.

She joined eLance in April to help her build her client base and has gotten a few assignments through the site. She said it isn't easy to continually hustle for work, but at this point in her life, while she is single and can travel between jobs, "the positives outweigh the negatives."

According to Fabio Rosati, eLance's CEO, more than 60% of the service providers in his network are US residents.

This trend is also having an impact on large corporate IT departments, as well, as noted in a recent report in McKinsey Quarterly.  While cost considerations will continue to make contractors in BRIC countries appealing, the expansion of the contract talent pool here in the US will be an attractive alternative for some businesses already feeling competitive pressure in distant labor markets.

A shake-up in the vendor landscape will likely follow the huge capacity increases of recent years, the current downward pressure on aggregate demand, and massive uncertainty in currency markets. Adding to the pressures are the strategic, government-sponsored initiatives launched by China and other nations to grab market share. Major mergers are more likely than not. New entrants will grow rapidly and some players could experience significant reverses. Successful CIOs will manage their vendor relationships as a portfolio so they will be well positioned as new winners evolve.

It's encouraging that American ingenuity and resourcefulness offer a competitive advantage in the evolving market for technology professionals, and for the promising startups who employ them.

Where Angels Fear To Tread

In an article published yesterday in the New York Times, Claire Cain Miller and Brad Stone provide a pretty good snapshot of the state of angel investing in the current economic climate.  Although the headline writer claimed that angels are "fleeing" from tech startups, the article explains that angels are indeed still investing, if less, and more selectively.  

Some angels who are still investing have become pickier, making demands of start-ups that they would not have a year ago. When David Levine started Wireless Environment, which makes motion-sensor light-emitting diode bulbs, in November 2006, he quickly raised $135,000 from family members and business school friends, with few questions asked.

The angel investors he met with this fall, though, were far more demanding. “I could not believe the complexity,” he said. “For small investments compared to their net worth, they brought in financial advisers and a whole list of questions.”

They are also investing more of their time and acumen, getting directly involved in the operation of their portfolio companies.

Some angels are considering only low-cost companies that could become profitable without venture financing. Others are acting less like angels and more like venture capitalists, spending much more time than is typical advising companies, including taking seats on boards.

Aydin Senkut, a former Google employee who has invested in 40 companies, is serving on the board of one of his investments, ImageShack, a media hosting site, and spends two hours a week working at the start-up. “Where I can really help is building the next growth stage,” he said.

Angels are also heeding the wisdom of the adage "safety in numbers", syndicating with other angels to reduce their individual exposure, while still getting the deal done.  While the caution about "too many cooks" has some relevance here, the entrepreneur undoubtedly benefits from the advice and counsel of many partners, and can leverage the "wisdom of crowds".

Some angel investors are putting less of their own money on the line by finding other people to invest with them. Co-investments increased in 2008, according to the Center for Venture Research, and half of those surveyed by the Angel Capital Association said they would increase co-investing with other angels this year.

While some of this restraint and prudence has the benefit of weeding out the knuckleheads and marginal deals, giving the stronger startups a quieter marketplace for seed money, the reduced pipeline is likely to result in fewer Series A opportunities for venture funds to consider.

Angel investors are a critical element to a healthy innovation economy.  It's not for nothing that their money is called "seed capital"; they water the economic garden when it first sprouts.  But they're also a vital source of expertise and experience many early stage entrepreneurs lack, giving their companies more of a chance of survival to the next round.  Indeed, the counsel of angel investors may be more valuable, in the final analysis, than their operational funding.  Fortunately, angels are organized into networks, so that they can not only spread the risk, but alert each other to opportunities they uncover.  In a down market like this, the benefit of having multiple eyes on the horizon is an intelligence asset.

The angels, and angel groups, that have been involved with Golden Capital Network over the past decade have been critical early support for the alumni from our programs that have gone on to lucrative exits.  While many angels are banking their fires and exercising more caution, they're still risk-tolerant by nature.  Why do they go out on a limb? Because that's where the fruit is.

Industry Cluster Engineering

Interesting take today by Sacramento Bee opinion writer Daniel Weintraub about industry clusters leading the charge to bring California back from the brink of total economic meltdown.

As California's economy struggles to rebound from the collapse of the housing bubble, it is difficult to imagine what will lead us out of this hole.  We had the dot-com boom and bust, and then a housing-led recovery that turned out to be a mirage. Is there some industry, some idea that can reignite sustainable growth in this once-golden state?

Maybe not. And maybe that's the wrong way to think about the problem.

It could be that there are six or eight or 10 major industries that together will form the foundation for the new California economy.

He is speaking about regional industry clusters, and he uses the example of Akron, OH, which led an economic revival by rallying around innovation within its faltering rubber industry, and the Central Valley, CA, which is positioning itself to be a leader in clean technologies like solar, wind and water.

Peter Weber, a retired corporate executive and civic activist from Fresno, has studied what makes economies tick and is promoting a regional approach as a long-term strategy for California.  He thinks local governments and the state should make the development of regional economic clusters their top priority.

We completely agree that cluster development within regional economies is at the core of regional economic development. We would add the cautionary note, however, that industry clusters are formed by innovative, entrepreneurial people identifying a competitive advantage and capitalizing on it.

You cannot wish one into place, nor invent one by merely by declaring it as such. Networks of people are the backbone of any industry cluster. If you don’t have the right people with the right knowledge and right access to a strategic business network, you won’t have a cluster form anytime soon. Innovation will sit on the shelf until someone with the knowledge and access identifies the opportunity and brings it forth. Take any notable example, including Silicon Valley, San Diego, Austin, TX, Research Triangle, NC, and you will find that human networks were at the core of the phenomenon.

This precisely why we say that any region wishing to develop any type of industry cluster should focus as much effort on cultivating general networks of innovation and entrepreneurship as deciding which cluster they want to be. Yesterday was biotech. Before that was nanotech. Today it’s clean tech, but yesterday was hydrogen and today is water, wind and solar.

This is an exaggeration, of course. All of these industries are still vibrant and active and provide expansive opportunity for companies and regions to capitalize on. The point is, private industry responds primarily to private market demands and technology flux, and it moves too fast and changes too quickly for government to easily influence it.

Policymakers should be aware of clusters, but understand to build one requires that economic policies help your entrepreneurial people with an affinity for the region find what works best there. Be aggressive to provide them access to things they need most: capital, talent, market intel and strategic relationships. Then let them be entrepreneurial. Let them find the industry that works best for what is available in the region in terms of people, technology, markets, innovation and opportunity.

On Feb. 26 leading technology cluster expert Doug Henton, from Collaborative Economics in Silicon Valley, will present a report on Solano County’s Life Science Cluster, anchored by biomedical giant Genentech. Another story about some smart people with an idea, the right knowledge and the right connections who decided this was a good place to build a company. Is that a cluster? It is now.

New Rules for Policymakers

Rule #1: Don’t Get Bogged Down in the Minutiae - Take Action Now!
By Golden Capital Network CEO Jon Gregory

In President Obama’s inauguration speech, he made a statement that will resonate with many local policymakers and civic leaders in cities and counties across the country seeking to make proactive change in their own communities: “The time for standing pat has passed.”

When it comes to economic development, which is a highly compelling current issue, it is clear the time for standing pat has also passed. Numerous studies and reports issued by credible organizations in the U.S. and abroad point to business innovation as the leading contributor to jobs and wealth creation, community prosperity, and economic competitiveness. Based on these reports, policymakers and civic leaders across the country, in metropolitan areas and small towns alike, are anxious to implement innovation-driven economic development initiatives to accelerate local economic recovery and growth.

The innovation-driven model represents a new approach for many communities and economic development practitioners that have historically focused on industrial attraction campaigns as the stimulus for economic development. While the industrial attraction approach -- and others like tourism development, downtown revitalization and micro-enterprise development -- are important components of an overall strategy, they should not represent the “end all” solution in today’s dynamic global economy where new industries rapidly emerge and grow (and other industries conversely decline). Because of this modern-day reality community efforts to support and add value to promising entrepreneurial companies similarly need to be high on the action agenda for economic development.

You’ve by now read all the compelling reports about innovation. And are enthusiastic and ready to move forward with your strategy to improve the local economy, today!!! Whoa bubba. Wait a minute. Sit down, relax and take a deep breath. I know I don’t have to tell you this, but bureaucracies can be resistant to change and slow to act. Fortunately, I’m here to tell you that you don’t have to play by the old rules. Local policymakers and civic leaders have within the realm of possibility a means to start fostering an innovation-focused economic agenda that doesn’t require a lot of financial resources or council approvals.

Three statements you may hear at the beginning of your efforts to make change should serve as red flags. The first statement is: “Let’s schedule a meeting with all of the nonprofit partner organizations in the community who deal with economic development.” The goal of such a meeting – to the start the process of creating collaboration – is, of course, good. But are the “usual suspects” the right partners to have involved in the collaboration? What resources do they bring to the table? What is their current agenda and is it in alignment with the objective of this effort, or will it really serve as an impediment or roadblock? And, perhaps most importantly, how long will it take them to obtain the necessary approvals from their board to participate? After all, your goal is to move quickly!

The second red flag is: “This sounds like a good idea, let’s hire a consultant and do a feasibility study.” As I’ve already stated, numerous reports, studies and articles have concluded innovation is an integral part of the process for any community or region seeking to enhance its economic condition and competitiveness. If you go down the traditional feasibility study route, the process is likely to take a minimum of 6 months, at best, to cycle through. Can you afford to wait that long?

Venture capitalist and angel investor Roger Akers of Akers Capital suggests a different approach: “To begin this process, I would first call on successful entrepreneurs and CEOs, and all of the regional lawyers, investment professionals, senior University leadership, venture capital companies, angel group leaders, appropriate non-profits and economic development leaders to attend a two-day workshop to be educated in the current and needed capabilities of the region relative to new business formation and development and why it is so important.” A single focus group with 8-12 private sector leaders in the innovation sector can get you the information you need to move forward in 2 weeks (at most). There are many projects requiring extensive feasibility studies. This isn’t one of them. You don’t have the luxury of time on your side.

The third red flag is: “Let’s include your project during the next cycle of potential funding applications the city (or county) could consider submitting for a grant later this year or next year.” Leverage state, federal and foundation grant resources to fund high-impact projects in your community. But putting important community projects put on hold while waiting for the big-ticket funding source is wrong.

An excellent example of a proactive civic leader is Charlie Brown, executive director of NoRTEC, a consortium of workforce investment organizations in rural Northern California. Charlie has been very successful accessing state and federal resources over the past couple of decades. He didn’t wait for significant grant funding to get started; he has been building a coalition of leaders around the notion of innovation as a regional economic differentiator, and supporting incremental, smaller activities along the way. When his organization was able to access State and Federal dollars through the federal WIRED initiative a couple of years ago, he was in a much stronger position to maximize the impact of that effort.

Getting started on an innovation-based economic development initiative doesn’t require a lot of money. Don’t underestimate the ability of local sponsorships, contributions and volunteer services to get great things done! Move forward with the grant proposals that your staff or community organization partners want to prepare. But view that as your lever, rather than as deciding factor of whether to proceed or not.

Below are ten activities you can act on tomorrow that can start fostering innovation-based economic development in your community:

1. Recruit a blue-ribbon committee of innovation leaders to immediately give your effort credibility, generate fresh ideas and identify a private sector champion
2. Secure sponsorships from private sector leaders
3. Engage local media in your efforts to generate visibility
4. Re-direct staff time and energy from lower value activities to your new high priority strategy
5. Use your influence to recruit community-based organizations to go to work in support of your initiative
6. Educate your elected colleagues and other civic leaders about the idea of innovation as an economic driver
7. Launch a series of informal network events that occur onsite at your successful innovation-based businesses or other venues in the community
8. Begin a speaker circuit, making presentations about innovation economic development at service club and civic group meetings and local schools
9. Initiate a brown bag lunch outreach campaign: visit with the CEOs of as many innovation-based businesses in your community as possible and find out how you can help these companies
10. Create a Mentor’s Roundtable from your most successful CEOs

Peter Gardner, a partner in the Venture Capital fund Wavepoint Ventures, offers a few suggestions: (1) identify a low-cost office space in the City to provide incubation and shared services for local early-stage companies; (2) organize a local angel investment group that can provide capital and mentoring to local entrepreneurs; (3) initiate a monthly breakfast meeting with local entrepreneurs, business leaders, select City employees and professional service providers to discuss challenges to growth, and potential solutions, and then incorporate this market feedback directly into City policymaking.

Bill Reichert, Managing Director of Garage Technology Ventures says: “I would initiate the ‘Ourtown Innovation Challenge’ calling on all businesses, organizations, and citizens to contribute their ideas and recommendations regarding ways to stimulate innovation and entrepreneurship, ranging from ways to streamline government to ways to attract more resources to the community.”

He continued, “I would start the planning for an Innovation and Entrepreneurship event to be held in one year to celebrate the individuals and the organizations that have done the most to help innovation and entrepreneurship in the area, and to provide a showcase for entrepreneurs seeking to launch their own innovative companies or non-profit organizations.” Reichert concluded with a statement about the impact these efforts can have. “In combination, these initial efforts will create a string of PR opportunities for the ongoing initiative. By enhancing the visibility of the initiative locally (and getting visibility statewide), I would hope to bring a combination of public and private resources into the community to participate in some way – at a minimum, sponsoring the annual event.”

There’s no time like the present to get things moving. Worst case, you will have dramatically elevated awareness of innovation as the true economic driver in your community that sets the stage for many good things to emerge. Best case you will have a fully functioning, sustainable innovation program in place that fosters business formation and growth from your entrepreneurs that doesn’t require a lot of public money. In either case, don’t let yourself get bogged down in the minutiae!

California Business Ascent Slideshow

A brief (15-slide) deck is available for viewing by anyone who's wondering how California is going to recover from the current economic crisis.

California Business Ascent

(tags: innovation entrepreneurship)

Comments welcomed.