TECH STARTUPS | Does Location Matter?

Zach Robbins (L) and CEO Stephen
Gill, in Philly.

An article in Forbes by a startup entrepreneur, Zach Robbins, argues that it is not crucial to locate in Silicon Valley or New York City to be successful. (His company is in Philadelphia.)

Correct, although in another article the company expresses  concern that it doesn't have enough "good" applicants for the jobs it needs to fill.

But being in the right place improves your odds. In his case, the company he has co-founded, Leadnomics, describes itself as seeking to improve the market for insurance. "Lead" not as in the heavy metal but as in someone for an insurance agent to try to reach.

Philly is not known as an insurance headquarters (try Hartford, Conn. or Newark, N.J. if you want to avoid Manhattan but stay close to NYC).

But Philadelphia has something else going for it - it is the home of the Wharton School of the University of Pennsylvania, ranked one of the top three business schools in the country (along with Harvard and Stanford).

Robbins refers in general at the end of his article to the value of having a university nearby. But he doesn't just have a university nearby with a top business school. He has a university with a business school program preeminent in the field he is trying to sell to - the Wharton Risk Management and Decision Processes Center. Prof. Howard Kunreuther, for example, is widely known for his studies of imperfections in markets for insurance, such as flood insurance for homeowners.

This program could give his startup some traction. The focus of many economists has shifted to psychology because people don't actually make decisions, for example about insurance, as if they are rational.

A startup that improves the functioning of the insurance marketplace - to begin with, by suggesting the right buyers to the right sellers - would be a great social contribution as well as offering the potential for a good ROI.

NYC Tech Industry - How Big Is "It"? Why Is It Important?

Roosevelt Island Campus, NYC, under construction.

A recent study estimates that the New York City workplace includes 291,000 jobs in the city's tech "ecosystem", with 150,000 of the jobs being tech positions in non-tech industries.

Within the tech industries, 58,000 jobs are tech jobs and 83,000 are non-tech jobs, a total of 141,000 jobs.

The study, The NYC Tech Ecosystem by HR&A Advisors, also concludes that 44 percent of the tech jobs do not require a bachelor's degree.

The study takes the correct position that to estimate the number of jobs in the "tech industry", we should include not just companies like Google and Facebook. It also believes that the count should go beyond occupational titles like entrepreneurs, coders, and engineers.

We took an inclusive stance toward the definition of software and IT jobs in the estimates we did for the NYC Comptroller's 1999 report on NYC's Software and IT industry, but it was not as broad as that of the HR&A report. I was the chief economist for the Comptroller at the time of the report, and Henry Etzkowitz was a consultant to the report.

Adding together the NYC and suburban job figures, the Greater NYC total was 47,000 in the software and IT NAICS codes, for the year 1997. This is one-third of the number of payroll jobs in tech firms in the HR&A estimates.

NYC is second only to Silicon Valley in number of
private tech companies acquired in 2012.

As a benchmark for assessing these estimates, Con Edison's 1999 staff for information resources was more than twice the number of software staff (293 vs. 140).

For software firms servicing Con Ed, the ratio of software staff to other information resources was slightly more than five to one (108 vs. 19).

My interview with Etzkowitz a year ago got into the question of technology as an economic development engine. It prompted some private comments to me from David Hochman that I have obtained his permission to share.

He wonders about the use of the term "tech" and "technology" in connection with the driving of economic development. Using the widest possible definition of tech jobs may not necessarily be helpful. See his blog post on this topic. The implications of his line of thinking include the following:

• The broadest definition of technology may be less useful for economic development purposes than a narrower one. Counting too many non-tech jobs in tech industries may make it hard to focus economic-development support. 
• Including too many non-tech jobs doesn't help the NY Tech Council, for example,  define itself as a "technology" council. Lacking a clearer boundary, it is tied down to software, web site and mobile communications functions.
• NYCEDC could fall into a trap of competing with Silicon Valley or Route 128 on the size of the tech work force rather than the quality of its tech initiatives. The challenge should be to get all the wealth creation, job creation and distribution we can out of the assets NYC brings to the global economy.
• NYC's universities could similarly get lost in congratulating themselves on the number of their graduates in tech industries rather than on the extent of their entrepreneurial skills and the next-generation readiness of their graduates. NYC's universities are still not obviously in the front rank in the tech field. The Roosevelt Island experiment is exciting but has as yet borne limited fruit.

The best news is that in Bloomberg's third term the startup innovation providers moved closer to the big, primary driving sectors. Hochman wrote to me:

You are right - this was resisted at first. What changed is that NYCEDC embraced the synergy/symbiosis, whatever you want to call it, and decided to make that the heart of the marketing/promotional campaign. Bloomberg asked NYCEDC to deliver marketing sizzle, and they did so brilliantly, joined by the Partnership for NYC and the NYC Investment Fund. I get at some of this here.

Hochman wasn't aware of the innovation group that met regularly at the NYC Comptroller's Office in the 1990s. However, he did know about the "New York Academic Consortium" of tech transfer officers that Etzkowitz mentioned in my interview with him. It was for many years bogged down in discussions of techniques of deal maximization, rather than on the more basic question of maximizing economic development. As Hochman says:

That's why I separately convened a group with some tech transfer officers but also many other university office directors with different titles and duties such as director of economic development or director of incubation initiatives. For a time we were the only group in the city - that I was aware of - discussing the cultural barriers to success. Only in the last few years have our institutional tech transfer offices become interested in spinoff formation at all, and it's still not the primary driver in offices that bring in so much money from drug royalties.

While I am a fan of the Cornell/Technion initiative on Roosevelt Island, Hochman has a warning about the way in which it was put together:

I am a skeptic... and I certainly disagree with your (tongue-in-cheek) conclusion that you should have tied your policy initiative to a real-estate program. I think that was a very bad outcome. Some of this I hinted at at my initial comments on the applied sciences initiative, but I haven't done the serious commentary I've been planning since Cornell was announced, though I certainly agree with you on the importance of Manhattanville and the role of engineering generally. 

These economic-development issues are not new. Stuart Leslie and Robert Kargon, professors in the History of Science program at Johns Hopkins University, wrote a paper, “Selling Silicon Valley: Frederick Terman’s Model for Regional Advantage”, Business History Review, Volume 70 (Winter 1996), 435-472. Long before Bloomberg launched his program, the paper explores the origins of the Silicon Valley model for regional economic development, and some problems with its replicability. We covered many of these issues  in Chapters IX, X and XI of the 1999 Comptroller's Report.

Leslie and Kargon show how the Silicon Valley model worked. Frederick Terman, Stanford's provost, envisioned a partnership of academia and industry, and trained students to put it into effect. He cultivated an aggressive entrepreneurial culture.

Beginning in the 1960s, business groups set out to move the model to other places, building their own versions of Silicon Valley, in some cases enlisting the help of Terman and his disciples. The authors discuss several examples, including the New Jersey Institute of Science and Technology, led by Bell Labs; the Graduate Research Center of the Southwest and the SMU Foundaton for Science and Engineering in Dallas, Texas; and the Korea Advanced Institute of Science and Technology - of which the Korean example is rated the most successful. The paper shows both the importance of the contributions of local universities and the limits to their ability to generate startups in the absence of a local tech industry that is available to nurture the environment within which startups can thrive.

More recently, in Invented Edens, Robert Kargon has moved on to write, with Arthur Molella, about models of the techno-city, i.e., a planned city developed in conjunction with large industrial or technological enterprises. The authors map the concept as applied in Norris, Tenn., home of the Tennessee Valley Authority and Disney’s Celebration, Fla.

In the early 1990s, the Disney Development Company set out to spend $2.5 billion to develop 4,900 acres in the Reedy Creek Improvement District. The plan -  prepared by Cooper, Robertson & Partners and Robert A. M. Stern - combines advanced energy and communications concepts with extensive parks and trails. Celebration is designed to be the ultimate techno-city and was named the "New Community of the Year" in 2001 by the Urban Land Institute.

The Terman model has served Silicon Valley well. We need to learn all we can from it. But it is not the only path to innovation in technology. New York City and Celebration and other communities need to explore other avenues.

NYC as a Potential #1 Global Tech Leader

L to R: John Tepper Marlin, Helen Keller, Henry Etzkowitz.

Last month I met with my friend Henry Etzkowitz for breakfast. There he is with the hat in the photo at left. I am taking the picture (a "selfie") with my right hand. Behind us is a portrait of Helen Keller that reminds me of the thought, “None so blind as cannot see,” an idea dating back before Oedipus to Jeremiah 5:21.

On the appropriate policies for encouraging technology, Etzkowitz is my guru. He travels around the country and the world picking up honors for his documentation of policy successes, and I update him on recent developments in NY State and NY City, the most interesting of which is the Cornell-Technion Center on Roosevelt Island.

Over the last two decades we have often shaken our heads together at the failures of NYC policy-making to encourage technology as an engine of local economic development.

Tech Policy, NYC, 1995-1999 

Our shared interest in tech policy goes back to the 1990s when I was serving as chief economist for the second of the three NY City Comptrollers, between 1992 and 2006. The chief economist function was created by new responsibilities conferred by the 1990 NYC Charter Revision on the Office of the NY City Comptroller.

(The Comptroller, an elected official, is currently John Liu. Eliot Spitzer has just thrown his hat in the ring to succeed Liu. Outgoing Borough President Scott Stringer has for months been considered the most likely to be elected.)

The City Comptroller's office has been included in economic-development planning - for example, in a 1995 conference organized by the President of the Federal Reserve Bank of New York, Bill McDonough. The NY Fed called together leading institutions in the region to explore New York’s potential for transition to a knowledge economy, imitating the initiative taken before and after World War II by the Federal Reserve Bank of Boston, and leading to the expansion of tech startups along Route 128. The Lower Manhattan Association provided administrative support for the NY Fed’s conference, and a young science-policy graduate, Michael Salvato, worked on the program. Etzkowitz was a key participant, as the then-director of SUNY’s Science Policy Institute.

Magnificent it was, but not sustained. Few participating institutions signed up for the follow-up phase. Contrast this with the New England Council, a decades-long effort from the 1920s that sought to follow the model that led to Silicon Valley, by systematizing the high-tech spinning-off fostered at Harvard and MIT.

The New England Council sustained its effort first in scientific instruments at the turn of the 20th century, then in radio in the 1920s. Their work helped create Small Business Investment Companies and the entire venture capital industry after World War II. When I was at the Small Business Administration in the 1960s, I was able to study at close quarters the successes of the SBIC program. The American Research and Development Corporation was founded in 1946 as a pro bono regional development effort. A decade later it founded the Digital Equipment Projects, which was intended to create better aircraft training simulators but engineered the mini-computer along the way.

Why Did the NYC Regional Effort Fail? 

So why was the effort not sustained in New York City, in contrast to the Bay Area and Route 128?

Maybe

• Silicon Alley was considered to be doing okay by itself and the involvement of government and universities wasn't seen as necessary. 
• NYC software firms that were competing with the Bay Area and Route 128 by supporting Wall Street's highly proprietary electronification projects did not see any value in regional cooperation. 
• Their growth was resisted by traditional parts of the advertising industry, which felt that it was being cannibalized. (The AOL merger with Time Warner did not seem to be good for the traditional information and communication businesses.)
• Some knowledgable tech people felt that NYC was too far behind Stanford and MIT both on the entrepreneurial front and in the sophistication of its programming to begin to compete. 
• Others decided that nothing more was needed than a professional association - first the NY New Media Association, then the NY Software Industry Association (which evolved into an incubator that depended too much on its real estate viability) and the putatively broader-based Tech Council.)

The NYC Software/IT Industry Report, 1999 

In this environment, the NYC Comptroller’s Office published a report, under my direction, on the “NYC Software/IT Industry” in April 1999 (summary and links to pdf files here). The NY Times covered it well, including with its summary of the report a photo of the Comptroller. The Chancellor of CUNY, Professor Harry Markowitz, told the Comptroller he loved the report. The Comptroller was pleased and generously said so. Etzkowitz played a key role in helping us define the history of tech policy and an appropriate path forward for NYC, as reflected in the last few chapters of the report.

The Report showed that New York had most of the elements required for a world-class technology center:

• A public-school system that provides a steady supply of well-trained high school graduates who are ready to grapple with technology issues at the university level.
• Close cooperation among regional universities, private and state-run (and definitely including community colleges), to ensure strong support for entrepreneurs seeking high-quality technical staff.
• Centers of technology excellence among the universities, especially schools of engineering, and supportive faculty at business and law schools.
• Training for technology experts in tech transfer and entrepreneurship.
• University-based incubator labs and university support for policies that reward labs and centers and individuals within them for innovation. 
• Business interest in, and support for, bringing university-based ideas to market in a collaborative environment.
• Government support for technology to encourage university-business cooperation.

The big missing tooth in this dazzling smile was the entrepreneurial skills created by the open communication between universities and business in Silicon Valley and Cambridge, Mass.  NYU and Columbia around that time announced they were going to work more closely together on research and technology initiatives.

The Dot-Com Bust and Mayor Bloomberg’s First Two Terms 

However, in fact technology took a back seat after the sharp drop in dot-com share values in spring and fall 2000. The NY Academy of Sciences won a million-dollar grant from the STARR foundation, but the large universities were not impressed and most of the funds went to support publications drawing attention to the tech assets of the region. A seminar series drew second-tier administrators and junior faculty, with the notable exception of the President of New York Poly in Brooklyn.

One practical result was the creation of a network of area university technology officers who spun off their own support network. After 9/11, and the election of a mayor who had made his fortune by selling technology services in the form of Bloomberg machines, Etzkowitz and I expected the new mayor to lead a major tech initiative that would make the City of New York into a tech center that might eclipse both Silicon Valley and Route 128.

We were disappointed. The new mayor made clear he was a businessman first and techie second, and he did not undertake any major tech initiatives in his first two terms. He made up for that in his third term with the competition that led to the Cornell-Technion project, but if he had stuck to the term limits in City Charter he would not have left much of a tech legacy.

For the ten years after the Comptroller's Software Report, Etzkowitz and did what we could to keep the recommendations of the software report in front of people who might implement them. Etzkowitz organized the NY Inter-University Seminar on Innovation, bringing researchers and practitioners together from across the region. We had monthly meetings with guest speakers who discussed the recommendations for inter-university cooperation for technology development. We deliberately did not meet at universities, but mostly in the Comptroller’s Office and sometimes the conference rooms of law and business offices.

In 2001 I wrote to the Mayor about creating a technology-transfer office comparable to the Mayor’s film and broadcasting office. In 2002 I met with Deputy Mayor Dan Doctoroff on the subject.  Etzkowitz also tried to get some interest from the new Mayor.

While the NYC Economic Development Corporation did some good things to assist firms involved in the knowledge economy, their focus was largely on matching up available real estate with business needs. They took action when real estate opportunities meshed with tech promotion.

The Cornell-Technion Initiative and NYC’s Potential 

In 2012, as the Cornell-Technion Roosevelt Island initiative took shape, Etzkowitz and I felt that our thesis of the missing link in NYC’s innovation ecosystem — a Stanford-MIT-like institution focusing on commercializing knowledge, tech transfer and incubation, as well as basic research and education - had found a place on NYC’s policy agenda.

In retrospect, it looks as though to get the interest of Deputy Mayor Dan Doctoroff we should have translated the Software Report recommendations into a real estate-driven project. When I met with Doctoroff I should have come in with a plan not just for policy but for leveraging $100 million in vacant city land and municipal bonding to attract 20 times that in university and business investment.

A lot of cities are trying to emulate the success of the Bay Area and Route 128. The typical competitors are state capitals with a local university like Albany, N.Y. or Austin, Tex. or Raleigh, N.C. On the Cornell-Technion plan, Etzkowitz comments:

Mayor Bloomberg’s Roosevelt Island project is now focusing on master’s-level students. But research groups require a variety of skills and levels of involvement, including Ph.D. students, post-doctoral fellows, teaching faculty, research associates and undergraduates, supported by large-scale research funding, typically from the federal government, with state government and industry support at the margin.

I remember attending a meeting of MIT alumni in NYC, when Mayor Bloomberg had just published his book and was contemplating a run for Mayor to succeed Giuliani. He emphasized how competition keeps everyone on their toes. Afterwards I spoke with an MIT professor who said that NYC would never catch up to Route 128 because it didn't have the entrepreneurial spirit. Etzkowitz thinks this is still a problem: "NYC still needs an MIT-type institution, along with a system of mentoring research groups to generate spinoffs. Entrepreneurship is a group activity."

One of the hopes of Mayor Bloomberg's economic development team is that Technion - which has a strong record of generating spinoffs - will stimulate Cornell and together they will light a fire under NYU, Columbia, CUNY and SUNY. Etzkowitz sees some potential in some "home team" NYC projects:

NYU has a big data analysis center focused on urban issues, building upon its mathematical strengths and industry links. Columbia is breaking its geographical boundaries, expanding its technology projects above 120th street and linking with City College, in a joint biomedical/engineering research center, building on the strengths of these two schools. NYC also has special assets. The SUNY Fashion Institute of Technology spins out boutique fashion firms, continuing the Institute’s role of bringing together industry and labor to helped the garment industry grow into the fashion industry. Similarly, the SUNY at Purchase theater and dance schools operate on an implicit incubator model, graduating theater and dance troupes into NYC’s thriving cultural economy.

A key to the future is how state governments are responding to their revenue challenges. Etzkowitz  thinks that underfunding of schools in California since Proposition 13 and cutbacks in support of the University of California may damage the Bay Area franchise. Massachusetts, meanwhile, is going in the other direction, funding its public schools and universities.

Henry, thank you for our conversations. And for you, the reader who has read this far - there is more to this story, so stay tuned! (Follow tweets on Twitter - @cityeconomist.) (August 14, 2014: See followup post here.)

HARVARD | Glomming onto Stanford-MIT Model–Splendor in the Glass

Professor Kit Parker and Dean Youngme Moon
Engage NYC Alumni on Innovation

In New York City last week to celebrate Harvard's 375th year and reconnect with alumni was Drew Gilpin Faust, Harvard’s 28th President and its first woman president.

Alumni came to the Allen Room at Jazz at Lincoln Center, on the 5th and 6th floors of the Time-Warner building at Columbus Circle.

The huge room is surreal, with the backdrop of New York City arrayed through two full floors of walls of glass squares–an exterior flat wall and an interior curved one.  As the evening rolled on like a play in a Greek amphitheater, the lighting darkened and added to the entertainment value of the event.

Walter Isaacson was President Faust’s interviewer. He served up a few appropriate puffball questions and then fielded sharper questions from alumni, who wrote on 4x6 cards at each seat with a little golf pencil. A flock of serious people patrolled the stepped aisles of the room and carried the questions to Mr. Isaacson. The same people later carried radio microphones up and down the steps for the second part of the program, on innovation, which was the meat of the evening.

President Faust announced an "80 percent yield" for the entering freshman class of the fall of 2012, i.e., the number of applicants who accepted a place at Harvard College divided by the number invited to attend. This 80 percent figure is the highest Harvard figure since 1971, and my recollection is that Harvard's yield is the highest of any university. Huzzah!

President Faust explained Harvard's high yield rate by giving examples of the current emphasis on teaching at Harvard. The University is attempting to reward good teachers with the same kinds of recognition that accompany significant research.  Good idea!

Isaacson then read out the first alumni question, asking about the status of the Science Center at Allston, and the cognoscenti leaned forward to hear her response. President Faust answered by referring to the impact of the global financial meltdown on the size of the University's endowment.

My Comment: The scaling back of the Science Center is a reflection of the decline of the Harvard Endowment by 30 percent or $11 billion in fiscal 2009, as predicted earlier in Vanity Fair.  In the prior 18 years, the Endowment grew more than sevenfold. Jack Meyer, former First Deputy Comptroller and investment manager for the New York City Comptroller, quintupled the Endowment during his tenure. Key Harvard officials were apparently unhappy in 2004 that Meyer and key staff earned eight-figure compensation for their good performance. President Larry Summers, with support from Robert Rubin on the Harvard Corporation, argued that Meyer was unnecessarily aggressive. Meyer and some key staff quit in early 2005 and set up a private hedge fund that did extremely well during the next five years, outperforming its benchmarks by 8 percentage points a year. President Summers did less well, resigning in mid-2006 following a well-publicized dispute with women faculty; the next president of Harvard was its first woman. To maintain its budget in light of the Endowment's 30 percent slide in 2009, the University took on $6 billion new debt, with a reported annual service cost of more than $500 million. Some ambitious plans, notably for the Allston Science Center, were shelved.  The endowment recovered 21.2 percent of its value in the last two years, but is still $5 billion below where it was in 2008.

A new plan for the Center is being refined, reports President Faust. It will encourage both a greater concentration of scientific talent in the science center and will establish designated locations for nearby private businesses to create spaces for commercializing new ideas–more like Stanford and MIT.

To underscore the message, the rest of the formal program was devoted to a discussion of innovation. The Dean of the Harvard Business School in charge of the MBA program, Youngme Moon, began the discussion. She is a short and slender (see photo at top) graduate of Yale (a few gasps were heard) and Stanford, and previously taught at MIT. She was counter-balanced physically by a beefy engineering professor with a background in the U.S. Army, Kit Parker. They engaged aggressively with the audience on where good ideas come from and the culture of competition. Having contrasted innovative companies like Apple and Nike with not-very-innovative enterprises like the US Postal Service, the two took pains to establish that Harvard was in the former category.

Their underlying thesis is that a university has the job of being a fountainhead of innovation. Individuals put out ideas and then through debate they see how their ideas compete with others in a marketplace of ideas. The discussion then circled back to what kind of students Harvard wants to admit and develop. Answer: It wants students ready to try new things, and it wants to encourage them to do so, which means making it okay to fail. No more looking the other way as students stay in their comfort zone to be sure of keeping all their grades at the A level. Harvard wants students to graduate having tried new things. Harvard wants to be a place where one can "put out ideas and let them compete and it is okay to have ideas fail and start over, letting the bad ideas go."

My Comment: The idea of a marketplace for ideas is ancient, at least as old as the Socratic Method. It was explicitly promoted by John Milton, John Stuart Mill and Thomas Jefferson, whose writings are resurrected when universities want to defend academic freedom and tenure. But Harvard is saying more than that professors should be  free to speak their minds–it wants students and faculty to develop ideas that will be marketable. The marketplace is not just a testing of ideas for soundness, but for actual dollarization of thinking. So Harvard becomes a kind of factory for new ideas, with venture capitalists lurking nearby to pump money into the best ideas. The venture-capital industry happens to have been pioneered by a government agency, the Small Business Administration, through its Small Business Investment Company program. It also works in the nonprofit field as the heart of social entrepreneurship initiatives. But rewards for risk-taking depend on timing and universities are not always the best place to commercialize ideas. Neither Bill Gates nor Mark Zuckerberg continued to hang around Harvard after they decided they had a good idea they could build into a fortune.

After all that we repaired to a post-discussion cocktail party with a parade of servers with small hors-d'oeuvres artistically arranged on elegant glass plates. The biggest risks seem to have been taken by the servers, who had to walk up and down stairs and then face hungry Harvard alumni competing to nab and wolf down the small delicacies. A good innovation for the Allen Room would be a dumb-waiter.

Postscript: After I wrote this I belatedly picked up my April 30, 2012 issue of The New Yorker and read the story by Ken Auletta on Stanford's close ties to business - "Get Rich U." The subtitle is: "There are no walls between Stanford and Silicon Valley. Should there be?" Auletta looks at the other side of the Stanford coin. Stanford faculty not in engineering or computer science told him they felt the humanities are neglected. They wonder about the harnessing of Stanford to student and faculty greed. What happened to the contemplative tradition? When the proposal to open up a New York City campus of Stanford came along, the dissidents questioned excessive focus on applied science. Auletta's story does not note a key fact in the competition among Stanford, Cornell and NYU. Along the way a Cornell alumnus pledged a $250 million gift to the Roosevelt Island campus if Cornell won the bidding. That must have skewed the decision-making, since the campus will be hugely expensive and New York City's contribution is limited to the land and some infrastructure. One person who has seen all three proposals believes that NYU's was the best of all. Once Stanford had withdrawn, the Mayor provided NYU with a substantial consolation prize in the form of space and resources in Brooklyn to help NYU realize its proposal in conjunction with NYU Poly (formerly known as Brooklyn Poly). Although Auletta criticizes the Mayor for giving Stanford a hard time in the final weeks of the competition, the Cornell gift was a game-changer. The Mayor's support of both the Cornell and NYU proposals may turn out to be brilliant. Business Week just came out with a riposte to Auletta, arguing that in the face of competition from China and India, we need more Stanfords. But what is properly a top economic priority for New York City and a valid focus for Cornell and NYU may not necessarily be totally compelling for Harvard. The trade of birthright for soup was a good deal for Isaac's father Jacob, but a bad one for Esau. It's at least worth a little more discussion, which is what alumni reunions are good for besides increasing alumni giving.

BLOOMBERG | Cloning Himself

Nearly 30 years ago, Mayor Michael Bloomberg left Salomon Brothers (it was the recession of 1981-82), and he transformed his $10 million severance check and his Salomon shares into a giant company with more than 9,000 employees concentrated in the New York City area.

He had a hunch he could compete with the Reuters terminals and he was right.

Now he wants to clone himself so that in 30 years other people can look back and say: "My giant company got started in New York during the Decession (Repression?) of 2008-2010."

His new idea is one I hoped the Mayor would come round to. I said so last October in an Op Ed in City Hall News:

Today, the city has a once-in-a-generation opportunity to harness the energy of Wall Street entrepreneurs bursting with ideas as grand as Bloomberg's was in 1981, but who need partners to make their ideas a reality. Layoffs from the downsizing of Wall Street create a unique opportunity for talented displaced workers to start or partner in new businesses or social ventures. The displacement could help advance the Mayor's PlaNYC 2030 agenda by encouraging green entrepreneurs--profit-oriented or nonprofit, like Solar One and GreenEdge NYC--to make the Big Apple into the Green Apple.

When I wrote this less than five months ago, the latest estimate from Albany of the likely loss of New York's financial services jobs was 40,000. The estimate now is 65,000.

Mayor Bloomberg doesn’t pretend his plan will restore all 65,000 jobs. But his “guess” is that the small businesses could create 25,000 jobs. Last week a NY Times story by Patrick McGeehan describes the Mayor’s new plan, which is to

invest $45 million in government money to retrain investment bankers, traders and others who have lost jobs on Wall Street, as well as provide seed capital and office space for new businesses those laid-off bankers might create. The plan is intended to stem a potential exodus of banking professionals from the city during the restructuring of the financial services industry, which has been the city’s economic engine for decades, and to speed the industry’s recovery, which will take at least several years, officials said. Mr. Bloomberg recounted how he created his company in a rented 10-foot-by-10-foot room. He received no help from the city, but he said that was no reason not to help other entrepreneurs now.

The most tangible aspect of the plan is the creation of new incubators, one of them at 160 Varick Street, where he announced his new plan. The Varick Street building

will house an incubator for start-up companies that might employ laid-off professionals. Trinity Real Estate donated the space for three years and the Polytechnic Institute of New York University will select the entrepreneurs who will occupy the space, beginning in April. A second business incubator is scheduled to open in Lower Manhattan later in the year, said Seth W. Pinsky, the president of the city’s Economic Development Corporation. The agency plans to put $3 million into funds to make small investments in start-up companies, Mr. Pinsky said. He said that he hoped to attract twice as much money from private investors and that $9 million would be enough to help start hundreds of new businesses.

I spent the first half year after retiring from the Comptroller's Office in a business incubator in Manhattan and I have recently written about another one, Green Spaces in Brooklyn, as “Green Edge 14”. A report I worked on for the NYC Comptroller on the software industry in 1999 concluded that NYC needed more well-conceived incubators.

Successful incubators such as those that spawned the successes of Route 128 and Silicon Valley require energy from several sources. The MIT-Stanford model is based on a three-way fusion of energy from business entrepreneurs, government money and leadership, and university knowledge. Incubators in New York City that have petered out have usually lacked strong enough government support or university involvement.

My friend Professor Henry Etzkowitz calls the fusion of energy from the three sources in a well-functioning incubator the "Triple Helix" of innovation. If we are looking to clone financial entrepreneurs, it’s hard to think of a better DNA to work with than the Mayor’s.

TECH | NYS Underperforms

How should one monitor the progress of a state's competitiveness in the stakes for future tech jobs?

One way is to look at the data for federal grants for Small Business Innovation Research (SBIR), which is a way to bring research dollars to a state at the same time as one is building a stable of ponies for future venture-capital bets.

New York City’s Silicon Alley (in conjunction with its more hardware-oriented cousin techspots up the Hudson Valley from Poughkeepsie to Albany and elsewhere in the state) likes to think of itself as #3 after Silicon Valley and Route 128, and a recent ITAC report seeks to make something out of the fact that in the total number of tech jobs, the NYC metro area ranks ahead even of Silicon Valley and Greater Boston. The sheer size of the NYC metro area is what seems to put NYC ahead on the ITAC count. It is certainly true that having a lot of tech jobs in the NYC area is important in creating critical mass for future innovation. But density of tech jobs is surely more important for creating an environment conducive to serendipity, and the other important ingredient is effective leadership from the governor's office.

These factors go a long way to explain why NY State performs so poorly on the number of SBIR awards in FY 2006. New York was in eighth place in FY 2005 as well, so the rank is not an accident of the year 2006. As expected by the conventional wisdom, California ranks #1 with 725 grants and Massachusetts is #2 with 466 grants. But between these two front-runners and NY State (with only 163 grants) are five interlopers: Virginia (221), Texas (176), Colorado (173), Maryland (169) and Ohio (167). The strength of Virginia and Maryland on this list could reflect the proximity of their Beltway components both to agency grant-makers and to the Army and Navy research labs. Texas may also have benefited from its having a former governor in the White House for nearly six years.

But Colorado and Ohio ranking higher than the Empire State? I was mystified and am grateful to my friend David Hochman for helping me understand why they are doing better than NY State. Colorado doesn't have aggressive tech programs at the state level but it has several large Commerce Department (NIST and NOAA) and DOE labs, and in addition, for a range of historic reasons a really vibrant (high-density) tech community around Boulder and Longmont. Ohio has not only the Air Force labs and a significant NASA Center but also an unusual state program called the "Third Frontier" Project, a.k.a. the Ohio Research Commercialization Grant Program (felicitously acronymed ORCGP). This program, which has no direct parallel in NY State, provides aggressive support for institutions attempting to obtain federal grants.

Between 2005 and 2006, Michigan (with Detroit in a near-depression status because of the decline of the U.S. auto industry) dropped off the top ten list and was replaced by Washington (home of Microsoft, 91 grants). In ninth place is Pennsylvania with 133 grants.

Since Governor Eliot Spitzer was not in charge in FY2006, these numbers do not reflect on his current administration. We can hope that New York moves up in the rankings in future.