2015 President’s Report

Over the past two years, GNC has guided a conversation, indeed a debate, about the future of economic development in Norfolk and the surrounding region. We brought an impressive array of advisors into the conversation, including (via his research and writings) Bruce Katz of the Brookings Institution, the author of The Metropolitan Revolution.

We concluded that we still needed to compete for Stone Brewery and other out-of-town companies potentially interested in coming to our City and region. But when a majority of new jobs in the U.S. economy are created by local start-up companies, followed next by expanding local businesses and with businesses relocations a distant and statistically insignificant third, we concluded that Norfolk and this region can no longer rely on an economic development strategy consisting entirely of whale hunting, i.e., harpooning businesses from out of town.

From Bruce Katz and others, we learned that a remarkable shift is occurring in the geography of innovation and economic growth. A new urban model is now emerging, the “innovation district,” a compact geographic area where leading-edge anchor institutions and growing companies cluster and connect with each other. Those metropolitan areas that have embraced this new model are performing better than regions such as ours which have drifted out to sea, searching for Moby Dick.

Innovation districts are emerging in dozens of cities and metropolitan areas in the U.S. near anchor institutions in the downtowns, midtowns and historic industrial areas of cities like Boston, Nashville, Chattanooga, Durham, Seattle, Pittsburgh, and St. Louis. They are wired for digital technology. They feature public and private spaces in which smart, creative people collide. They host companies – start-ups, early-stage growth companies and large companies alike — that share labs, offices, building lobbies and other facilities. They draw millennials who enjoy the infrastructure of late-marrying, tech-oriented, urban lifestyles — coffeehouses, music joints, bike paths, light-rail, co-working spaces, mixed-use districts and the like. They also retain baby boomers who want to live near their doctors and hospitals, but also close to the arts scene, restaurants and, in surprisingly many cases, a pool of qualified workers for their post-midlife-crises start-up venture.

The bottom line is that Innovation Districts are all about aggregating and concentrating 21st century talent. Developing that talent. Recruiting that talent. Retaining that talent. Talent that innovates. Talent that takes risks. Well-educated talent that can work productively in an increasingly high-tech economy.

Some skeptics might question whether a nonprofit organization, even one blessed by the high-caliber membership of GNC, can really act to “move the needle” of economic outcomes in a metropolitan area such as Norfolk. If history is a guide, however, civic leadership can make a difference.

For a moment, let’s assume we are Austin, Texas 35 years ago. Our population is barely that of Norfolk, Virginia. We are coming out of a severe recession caused by an oil bust and savings and loan scandal. We have the fourth highest commercial vacancy rate in the USA.br>
So we civic and business leaders go to work on Austin’s entrepreneurial ecosystem, first by building out our entrepreneurial infrastructure. For example, the Austin Technology Incubator is opened, resulting in several major success stories among the start-ups it spawns.

In our next phase, we intensify our efforts to diversify the Austin economy into new industry verticals, including life sciences. We persuade the Austin city government to establish a $200 million fund to seed emerging companies in these industry verticals.

And in the third phase of our strategy, we focus on “scaling” the businesses established during phases one and two. Eventually, large corporations such as Google and Facebook move large operations to Austin, building on the base of Dell Corporation and the University of Texas.

Throughout all three phases, we zealously promote the “Austin” brand — “South by Southwest”, “Keep Austin Weird”, Mecca for “Hipsters”. Moreover, we create a culture that drives successful business owners to reinvest in local start-ups – and to mentor them.

After implementing these initiatives, Austin goes from brain drain to brain gain: 50% of the computer science majors who graduate from UT-Austin and 25% of the UT-Austin engineering grads now stay to work and live in Austin. Our population has doubled that of Norfolk before we need to annex surrounding lands to accommodate our growth. Our population one generation after we started is triple Norfolk’s.

We found that Austin and other metropolitan regions that have fostered a successful entrepreneurial ecosystem have no less than 10 common elements.

They all involve drawing entrepreneurs into the ecosystem. Without them, the ecosystem is stillborn. So what do entrepreneurs want and need?

1. The culture of a community is pivotal in fostering development of an entrepreneurial ecosystem. The local culture needs to affirm the value of innovation, risk taking, second/third chances, etc.

2. A sense of “place” is a key part of an entrepreneurial culture: i.e., it is increasingly found in environments that are authentic, urban, mixed-use, walkable, socially vibrant, entertainment-rich, diverse, welcoming, affordable, youthful, differentiating, creative and risk-taking. The living/work environment must take into account today’s demographic conditions: i.e., as young folks marry later and the baby-boomer generation retires, married couples with school age children now represent just 20% of American households, down from 40% in 1970.

3. A deep talent pool of skilled workers, without which entrepreneurs will go elsewhere.

4. Universities and medical schools can feed entrepreneurs by producing talented graduates; by creating and spinning-off leading-edge technology and other research discoveries (e.g., bio-medical or pharmaceutical advances); by providing faculty to serve as technical advisors to start-up firms; and by using their purchasing power and employment power to support local companies and residential communities.

5. Mentors are needed to guide and support entrepreneurs.

6. Investors: the availability of patient equity capital to support the early-stage development of an entrepreneur’s firm is paramount. Firms that receive such investment hire more workers and generate more sales than comparable firms which do not attract such investment. Communities such as Nashville, Austin, Charlotte and Richmond with these resources grow faster than those areas (like us) lacking them.

7. Government can either promote or retard the climate for entrepreneurs.Incentives can make a positive impact for them on the margin. On the other hand, red tape can stymie them. Crime and poor public schools eventually scare them away.

8. Successes need to be celebrated, as they stimulate activity and reinforce the value of entrepreneurs in the ecosystem. Use of both traditional and social media to achieve this effect must be intentional. A communication strategy is essential. The City and its innovation district must be branded.

9. The ecosystem needs an iconic or magnetic physical space, serving as the “hub” where entrepreneurs and their support system can come together, facilitating the establishment of a dense social network among the participants, resulting in the “knowledge spillover” attributable to so-called the “proximity effect”.

* For example, the Entrepreneurial Center in Nashville serves as a threshold between start-ups and the angel community. It is also where entrepreneurs, mentors, investors and other stakeholders come face to face. It is the “front door” for aspiring entrepreneurs in the community, a meeting place for all members of the ecosystem.

**In order to convert an old trolley barn into the Entrepreneurial Center, Nashville raised $5 million in funds from the State of Tennessee ($700k), the City of Nashville ($300k), the private sector ($1.5 million) and the U.S. Economic Development Administration ($2.5 million).

**The Entrepreneurial Center in Nashville has a mentor network close to 250,replete with professional service providers, investors, fellow entrepreneurs and Vanderbilt professors.

10. Networking Assets Must be Generated

* By utilizing anchor meeting places and sponsoring frequent gatherings of entrepreneurs, a dense network of entrepreneurial allies can come into being. Successes and failures are shared (both of which are educational).

*Networking assets include “innovation cultivators” such as incubators, accelerators, “proof-of-concept” centers, tech transfer offices, shared working spaces, and the like. Millennials, especially, want to share these experiences.

WHAT IS THE PAY-OFF WE WANT?1. Scalable Businesses and Exportable Products: We should focus our financial, mentoring and other resources (e.g., incubators and accelerators) to favor early-stage and existing businesses that are scalable, with a market for its products/services outside the region, bringing new money into the local economy from customers located outside the region. Indeed, suchcustomers are more important than a business plan.

2. Industry Clusters that will diversify our economy away from dependence upon federal military spending. Although we should not attempt to over-engineer this process, we need to recognize that these industry clusters will grow out of existing areas of strength, opportunity, need and investment, not out of thin air.

* They can be helped along by customized training programs, targeted funders and industry support/collaboration organizations.

Now it is time to implement. A 20-member Coordinating Committee met in April. It includes senior representatives from the City, ODU, EVMS and the business community as well as a sprinkling of young entrepreneurs. It will meet three more times to provide counsel to those of us responsible for implementing the initiatives. A 7-member Steering Committee will have responsibility to keep the process rolling between meetings, and small work groups have been recruited to address each individual initiative.

Daylight is burning and we must more with a sense of urgency. As a City and a region, we cannot afford to dawdle as military spending continues to nosedive and other regions out-compete us for talented entrepreneurs, talented workers and their high-growth companies.

So in closing, here are the five specific initiatives we seek to implement:

First: Establish the Norfolk Innovation Corridor to connect our existing clusters of innovation: ODU, EVMS/Sentara/Fort Norfolk and Granby Street, with an ambition and plan to expand by bringing new employment opportunities to a redeveloped, mixed-use St. Paul’s Quadrant. We are working on a package of proposed incentives and services that will encourage business to start up or locate in the Norfolk Innovation Corridor. Within the Norfolk Innovation Corridor, we must open an iconic central gathering place — the working title is the Granby Innovation Center — to host an array of networking assets: e.g., an incubator operated by the ODU Center for Enterprise Innovation; TCC Workforce Curriculum Specialists; co-working spaces for entrepreneurs such as found in Richmond and other fast-growing markets; meeting spaces for mentors and entrepreneurs; special project suites to which large and middle size companies can dispatch teams working on special innovation projects for their companies; marketing and public relations functions to celebrate success; space for funders such as CIT Gap Funding, 757 Angels and the Norfolk Innovation Fund; and ground level retail.

Second: For the sake of developing, attracting and retaining talent: continue to push for the establishment of the Governor’s School for Innovation and Entrepreneurship and the Career Technical High School. Expand the higher education summer intern program we began in 2014; take it City-wide and, with the help of HREDA or the Chamber, take it region-wide as soon as possible; and explore the possibility of creating an internship program such as the ORR Fellowship Program in Indiana.

Third: Help our anchor institutions help us. Launch a concerted regional advocacy effort on behalf of equitable funding for Old Dominion and EVMS (and Norfolk State) and access available federal monies for community health care (as identified by Dr. Rick Homan) in order to enable those anchor institutions to have the impact in our community that universities and medical schools are having in other regions (VCU, Penn, UT-Austin, etc.).

Fourth: Improve the availability of early stage capital in the Norfolk Innovation Corridor and beyond by strongly supporting 757 Angels. Recruit state-owned CIT (headquartered in Herndon) to establish a local presence for funding early stage technology companies in Norfolk and the region. Support the Norfolk Innovation Fund being launched by the City.

Finally, push for the preservation and enhancement of HREDA as a critical regional asset to market our region. But going forward it should market our region not just to corporations, but to talent. Talent graduating from UVA, Va Tech, W&M and ODU. Well-trained talent exiting the military. Enterprising baby boomer talent bored with the suburbs or retiring from the big-city rat race. Let’s strive for a market share of such talent that rivals what Austin has achieved one generation after they started doing what we need to start doing right now.