How will it happen here?

I am interested in the idea of how entrepreneurial ecosystems gain momentum and reach self-sustaining rates or “escape velocity”. I know New Mexico and Albuquerque have much of the raw material required for successful ventures, the state has several decent exits a year from innovative private firms. I have had a hand in at least one. However, few ventures currently reach a magnitude that registers on the scale of critical economic impact on our state.

What is that impact I am seeking? — Significant sustained generation of good jobs — vital, high-skill private sector positions that give people in NM a reason to stay here (or move here, if need be). And all the positive knock-on effects from job-generation: rising spending, smart investments, and an expanding pie that everyone will benefit from.

I was with several friends recently and we took stock of the current climate for entrepreneurial activity. I think that a fair summary of the group’s assessment is that while we have made important strides over the past decade, these gains are still difficult to see in the context of a state economy that continues to be overly-reliant on government-based employment — particularly since we are working from a small base. Let’s be clear: no one wants to ‘solve’ the issue by pruning our governmental sector, what we are looking for is a large relative increase in private sector activity. Small innovative private firms are the ticket to quality growth and  positive outcomes.

All of which leads me to the question posed in the title: How will it happen here? I believe that its time for focused, results-based programs that can pull together the broad collection of human and technologically-based assets we have here (in good supply) into accessible, investible business opportunities. Without a focused effort, I think we risk losing the hard-won gains we’ve made to other regions that are making considerable competitive investments.

Comments

  1. You might need to look back 50+ years to identify those elements that enabled the Silicon Valley we know today to emerge from what was a world largely dominated by government-funded research in the Stanford-Berkeley academic research axis. If you can find parallels then perhaps we can find lessons that might be applied here. It took almost a generation of post-war investment to see the Varian–>Fairchild–>Intel connections become the foundation for the entrepreneurship that developed there in the 1970s and 1980s. It created a culture of success where risk-aversion was sublimated. Indeed, taking risks was rewarded.

    New Mexico suffers from two thing that make our transition difficult. First, our dependency on direct government job creates huge risk-aversion. I can't tell you the number "wannabes" from the Labs and UNM I have spoken with who think being an entrepreneur would be very cool but refuse to leave their cushy sinecures. Why would an investor put money into an idea where the entrepreneur lacks the commitment to prove their idea by taking an equivalent risk?

    Second, we have an economic development policy that so short-term focused that we can only seem to measure success by counting the jobs that are created in the very near term. We buy jobs by subsidizing manufacturing (Eclipse) or giving huge tax credits to the film industry to create catering jobs.

    We have lots of smart people but a culture of risk-aversion and value systems that don't reward success. And maybe it's OK since much of the current Silicon Valley mania is not creating the more substantial, truly innovative "hard-tech" (not high tech) that defined the first Silicon Valley wave.

    Maybe we need to start thinking of sustainable entrepreneurship that doesn't demand outsized payoffs to be considered successful. Maybe it's in the world of the "maker" movement or small-scale ventures that survive (and thrive) without having the magnitude of impact David suggests is required. Maybe, just maybe, it's a ten, even twenty, year process. And maybe you simply can't plan and manage the economy and it will just happen like it did in Silicon Valley, Boston, New York and Austin.

  2. Gary, thanks for the comment – your firsthand experiences are notable!

    I did not intend to exclude any entrepreneurs with my original post — all kinds of innovative ventures (large, small, tech, web, hardware, services, cultural, rural, sustainable, etc, etc,) are the topic here in my mind. How policy might target or promote some or all of these different kinds of ventures is a good topic for discussion. My criteria of success was "significant generation of good jobs", which I still believe is a worthy goal that can be accomplished through all different kinds of entrepreneurial (private) activity.

    In tune with your comment, I agree that promoting a culture that understands and embraces risk is a critical point. Whatever challenges that may exist in getting full participation from folks at our educational institutions and national labs, I don't think its productive nor entirely accurate to single them out as The Example of risk aversion. It could be true as you assert that our economy's dependency on those sectors is what's driving attitudes about risk, I am not sure, and that would also be an interesting topic to dive into.

    Finally, to your point about "managing and planning the economy" — I would counter that we do that all the time with tax policies, local attitudes and ordinances, private investments and other efforts. I would hesitate to label venture acceleration as "managing and planning the economy" — that phrase to me sounds much more intrusive and controlled than the kinds of support efforts being discussed on these pages. My original point is that other areas like Boulder, Austin and others are actively developing their entrepreneurial sectors and clearly those efforts are creating network effects (young entrepreneurs are moving there). So, I do continue to feel that its entirely appropriate to design and implement programs in New Mexico that answer that challenge.

    Thanks again for your thoughtful comments and let's keep the conversation going!

  3. I agree, it is time for "focused, results-based programs", people taking action more than people attending meetings, conferences, and get-togethers.

    As a former Sandia Lab scientist I saw the risk aversion. I got my start-up funded, $16M+ in VC money, and wanted a few guys to come join me. I offered very attractive salaries, and offered them equal equity stakes. NOT ONE took me up on the offer, ALL lead with "I have X years until retirement" (with X sometimes being more than 10!!). While the start-up would have been easier with their knowledge and technical experience, in hindsight they were the WRONG people to join a fast-paced start-up. I'm sad but also comfortable with the idea that hiring out of the labs is not going to work. The mindsets between an engineer/scientist who takes a lab/academic job and what is needed to be a true entrepreneur have very little overlap.

    The company was funded, and moved to the east coast because my only leverage to keep it here was the people I wanted to hire lived here. The investors thus insisted I move. I kept my ABQ apartment and commuted, knowing I'd return to ABQ after it was done. I spent 2 days a month here, and the rest of my time on the east coast. The lab guys afterwards said "I wish I had gone with you" but of course that was only because they wanted a piece of the success, without taking any of the risk.

    My 4th start-up was with three scientists/engineers who left Los Alamos for "greener pastures". They were the right guys technically, but their reasons for leaving the lab involved "we are smarter than those managers, they are just stupid, we can do it better". So they jumped, and hired me with my start-up/business/technical experience. Most of that time was them trying to convince each other "I'm in charge, I know better than you" and taking meetings with each other. All day meetings TALKING and not doing. ONE guy from LANL had it right, and another non-lab hire had it right. I'd bring those two into a start-up again anytime. But the lab mindset of taking meetings, trying to show-off in the room (intellect, or connections) rather than tackling the problem at hand, was the downfall. So a slightly different example, we got lab scientists to leave the lab (progress!?) but they left for the wrong reasons. Making a difference, changing the world, bringing a disruptive technology into the marketplace are the right reasons. Thinking you want to be your own boss, and everyone at your old place of employment is an idiot for not understanding you is the wrong reason.

    Rewarding success: a great topic and worthy of further discussion. First we have very few public examples. No one sees their friends get an exit, and everyone buying new cars with cash (BMWs, Lamborghinis, whatever). Or those people saying "that was fun, we should do it again" and recruiting a few others to join the newly founded start-ups. (1 exit becomes 3 new companies, those 3 become 7, and so on) We've had a few exits, very quiet exists, and those who were part of it tend to stay very quiet. Those founders don't need to "live large" with fancy cars or houses, nor do they need to "project an image" but should show up to more events and be mentors, talk about how it worked, and what didn't work, and show that it CAN HAPPEN. Most people here think it only happens in Silicon Valley, or Austin, or….. The people who have had success, and we're talking companies that have leverage and get an exit (not lifestyle, service, and similar companies who do not have a leveraged exit), SHOULD be the ones asked to be keynote speakers, or sit on a "C-panel" at a conference.

    Why aren't they? Probably because they focus on their current company, and not on hiring a PR firm to get their name out there. Probably because when we do speak up, people don't listen as much as they gather eggs and tomatoes to throw because what we say disagrees with one of their long held beliefs, and cognitive dissonance is alive and strong. Options for my employees?? NEVER this is MY COMPANY. Fair salaries? I deserve $600,000 I’m the CEO, MY COMPANY, but no one else deserves more than $55,000, I don’t care if you have a PhD/MBA/engineering degree or years of relevant experience. Doesn't scale? Nonsense, I deserve $10,000,000 in my bank account.

    Why do people think it can only happen elsewhere? Because we celebrate/reward bad behavior. Not only are we consistently picking the wrong people to sit on panels, to represent the entrepreneurial community (it seems we pick people based on how good their PR firm is in getting their name out there rather than on results) and the world is watching, but we have a culture of lifestyle companies, founders who think "mine, all mine", and people who think their service company is enteprenurial and the next Apple or Google, when in reality it is just a small business that does not scale and would die if the founder disappeared. A few "Exits" where the founder/CEO owned 99% of the equity are some of the celebrated "success stories". A large check to that one person, a pizza party and pink slips to the employees. In this environment where is the incentive to take the necessary risk required when the rewards are not only small, but often negative (company gets sold, you lose your job with no shared equity/liquidity)?

    Equity must be generously shared among the founders, and among the employees through stock options. Everyone participates in the risk, everyone participates in the reward.

    We grow a community by being a community, from the first issuance of founders stock, to stock options, to having people realize "this is the life I want to lead and after this company I might start my own", to investors who are not only reasonable in their valuations, and make decisions quickly (weeks not months) but who are also able to do more than just write checks. We need angels, and investors, who are experienced entrepreneurs themselves, "been there, done that", and thus can provide advice, contacts, and mentorship. Money exists everywhere. But we leave because the advice, contacts, mentorship, and fast decision makers live elsewhere, and they demand we come to them.

    So what can be done:

    1. reward good behavior, and quietly correct bad behavior

    2. put a more professional face on our public events. New interns at PR firms setting up conferences just to cut their teeth? Not a great idea. “Angels” who spout nothing but negativity, demand 100X returns, write medieval term sheets, and think entrepreneurs are foolish and crooks? I'm not taking a meeting with that guy, ever, I don't care how big a check he can write. CEOs who talk about the weather when sitting on a public panel? Not the image we need to project. People want to hear IDEAS, want to hear about EXECUTION, we want to hear about deals, market trends… not about the weather or your kids, or that all entrepreneurs suck but maybe I can make money off of your ideas.

    3. be realistic and properly determine what companies fall into what categories: sole proprietor, service, lifestyle, equity/venture/enteprenurial. All are necessary but they are all different. Mixing them up only shows the rest of the country we really are a "B-level" community (my friends in Palo Alto aren't even that generous). Are you really a CEO if you are also a sole proprietor? Would you consider your dentist an entrepreneur?

    4. mentor one another. Stand up, say the unpopular but necessary things, and then lend a helping hand. Always finish with "and here are some ideas that we can put into action and get moving in the right direction". Then roll up your sleeves and do them!

    5. ACT. Investors and entrepreneurs alike. Invest in it (time for the founders, money from the investors) while it is still fresh and viable. Run, run faster, be hungry, never stop.

    6. LISTEN. CEO after CEO replies with "that's not right" (even when it is a factual thing that can be verified with a quick google search) or "I know how to do it better". Sometimes that is true, but being humble and listening to those with experience, who are offering advice, would be wise. We can all learn something.

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