30 Years Of Inc-500

The Kauffman Foundation sponsored a study of the companies in the Inc. 500 over the last thirty years.

State and local government have had way too much unwarranted belief in physical clusters, especially of high tech industries.  In the next thirty years, these trends presumably will get stronger as Internet collaboration and video tools become more widespread.  

In part, this study is significant because it has been widely distributed among American governors (see their summary at the end):

“Analysis of the Inc. 500 geographic and industrial information led to the following major findings:

  • So-called high-tech sectors constitute only about a quarter of fast-growing Inc. firms: IT (19.4 percent) and Health and Drugs (6.5 percent). Other major sectors include Business Services (10.2 percent), Advertising and Marketing (8.5 percent), and Government Services (7.3 percent). Thus, innovations and growth of firms come from a wide range of industries.
  • Among large metropolitan areas, Washington, D.C., has the highest concentration of Inc. firms in terms of the number and normalized score, with more than 46 percent of them in Government Services. This rise of D.C. high-growth companies is persistent in the last two decades, regardless of party administration, and demonstrates that, ironically, outsourcing federal government services plays a large role in the growth of private firms.
  • There are innovative, high-growth companies outside of the usual suspects of technology places, like Silicon Valley. Such surprise regions include Salt Lake City (second), Indianapolis (sixth), Buffalo, N.Y. (eleventh), Baltimore (fifteenth), Nashville (eighteenth), Philadelphia (nineteenth), and Louisville, Ky (twentieth). These clusters of Inc. firms, including those in the area’s so-called Rust Belt Region, suggest that population growth in the region is not necessarily a factor for growth of firms.
  • While regional development literature suggests the presence of venture capital investment, high quality research universities, federal R&D funding (such as SBIR), and patents are good sources for growth, Inc. firms had no correlations with these factors. In contrast, we find that the presence of a highly skilled labor force is important for concentration of Inc. firms.
  • We do not find a uniform trend of increasing or decreasing concentrations of Inc. firms across regions in the last thirty years. This geographic inequality comes in a cycle of twelve to thirteen years. Most states remained at their relatively similar Inc. score throughout the last thirty years, while a handful of states experienced radical moves: D.C. and Utah became the rising stars, New Hampshire declined steadily, and Delaware had ups and downs.”

From the National Association of Governors’ newsletter:

Fastest Growing Companies Not Always Part of Tech Industry

The Ewing Marion Kauffman Foundation released an analysis of the Inc. 500 list, an annual list of the 500 fastest growing companies in the United States, between 1982 and 2010. The report includes data visualization tools allowing readers to examine specific counties and states. The report’s authors found there was no correlation between the factors traditionally cited as drivers of growth (such as venture capital investment, high quality research universities, federal R&D funding, or patents) and the existence of Inc. 500 firms. The concentration of firms in states largely remained constant across regions and states in the last thirty years despite varied economic development programs. Only a handful of states made radical moves in concentrations of firms, with Washington D.C. representing the largest jump. Among large metropolitan areas, Washington D.C. has the highest concentration of Inc. 500 firms, with half of firms providing government services.

The authors also found that the fastest growing companies were located in a variety of regions and industries, rather than in the high-tech industries often targeted by state economic development programs. Although cities like Austin, TX that are traditionally associated with the high-tech industry were in the top 20 metropolitan areas according to number of Inc. 500 companies, rust belt cities like Buffalo, NY and Baltimore, MD also made the list. Outside of Washington D.C., the Inc. 500 firms were found in IT (19.4 percent), health and drugs (6.5 percent), business services (10.2 percent), advertising and marketing (8.5 percent), and government services (7.3 percent).

© 2012 Norman Jacknis


Video: How To Get Fit For The Future Economy

A few weeks ago, in a post “How Intelligent Communities Get Fit For The Future Innovation Economy”, I summarized my keynote presentation at the Annual Summit of the Intelligent Community Forum.

If you’d like to see a video of the keynote presentation that ICF recorded, go to http://vimeo.com/45415273

Unfortunately, the ICF staff also cut out all of the brief video clips that engaged the audience, including holographic-like telepresence, laser projections on city walls, virtual/physical interactions on Times Square and the like.  (I suspect they were worried about copyright issues, although they needn’t have worried.)

If you’re interested in seeing those videos, in their full length, you can find them as follows:

As always, please send me your comments and observations (njacknis@cisco.com).

© 2012 Norman Jacknis


The Three Legs Of Traditional Economic Development Strategy Are Breaking

I was asked to lead a panel on economic development at the Annual Meeting of the National Association of Counties last Friday.  My task was to provide some background on economic trends for the panelists who were to speak on what their communities are doing.

I presented what have been the three main legs of the traditional economic development strategy of state and local governments:

1. Provide incentives for big companies to bring lots of jobs to your community

2. Encourage the creation and development of physical clusters of the same kind of businesses

3. Subsidize the building of places that concentrate a large number of jobs, like office buildings, factories, etc.

Then I pointed out that these three parts of the traditional strategy are being undermined by the consequences of:

  • a shift in employment from making things and food to intangible services and digital goods and 
  • increasingly available communications

As a result, incentives to big companies don’t work well because those companies can no longer deliver or move lots of jobs.  In addition to explaining why this is, I gave examples of the failure of incentives.  

In a sense, there is a movement away from the world of Coase to the world of Shirky.  Ronald Coase, an economics Nobel Prize winner, developed the theory of the firm – why large enterprises emerged in the industrial era and were more efficient in many ways than the marketplace itself.  Clay Shirky of NYU has written about how the Internet can provide the means of collaboration today that only the large industrial corporation used to provide.

As a result, in their thinking about economic growth, governments should focus on small companies and fluid teams as the individual increasingly becomes the key unit of economic activity.

The second part of the traditional strategy has been to create clusters.  However, as some major economic studies have made clear, the value of physical clusters of the same industry is waning. Moreover, the more recent talk of “innovation clusters” would seem to fly in the face of what we have learned about how innovation happens.  Innovation is more likely to occur from people in diverse fields exchanging ideas than people who are all narrowly focused on the same domain of knowledge.

Then finally there has been the practical equation of real estate development with economic development. As noted in an earlier blog, companies require less commercial real estate space per employee.  Work at home and flexible co-working spaces are the substitutes and these don’t look like traditional office towers.  Physical real estate itself is changing and become more a blending of virtual/physical.  So perpetuating more traditional office or other industrial real estate projects would not seem to be a good future-proof investment of public funds.

I suggested that public officials needed to shift their thinking about what is economic success.  Is it the total revenues of companies that might happen to have an address in your county OR is it the amount of income and wealth of its residents?

To put it another way: if you had to choose, which is the better economic picture for your community – corporate skyscrapers or headquarters in downtown, but a median household income of $40,000 per year OR no skyscrapers, but a median household income of $100,000 per year?  To me the answer is clear – the latter option to both questions.

My talk was followed by presentations from the two coasts of the US.  First, Ira Levy of Howard County, MD described that county’s approach with its emphasis on entrepreneurs, education, etc.  We didn’t do any coordination ahead of time, but his presentation was very much in line with the ideas I presented in the opening talk.  And, of course, he had to point out that Howard County has a median household income of $105,000.

A similar story came from Robert Ross of the San Mateo (CA) Council, who referred to the trends that I had outlined.  These required a change in strategy even in the heart of Silicon Valley. 

Please feel free to contact me at njacknis@cisco.com if you want a copy of the details of the presentation.

© 2012 Norman Jacknis


Does Innovation Cluster?

Last week, the BBC had a report on New York City’s award to a consortium of universities, led by Cornell, for the building of a new applied science university that would focus on a couple of key industry clusters.  The goal of the city is to encourage innovation and businesses that could be spun off of the university research.

The article (http://www.bbc.co.uk/news/business-18497565) went on to say that other city governments around the world, including London, are hoping to imitate New York City.  London even has an online map showing its “technology ecosystem” at http://www.techcitymap.com/index.html#/

The dots on this map and others like it from other cities don’t necessarily imply the ecosystem functions the way people think nor is the real ecosystem limited to the dots that are on the map.   These maps sometimes are like Rorschach tests that reflect the mental model applied to them.

The mental model at work here is that government can build an innovation cluster around a narrow domain of knowledge, whether it’s biotech or information technology or whatever.  The city leaders hope to have their own version of Stanford University, which has had the reputation as the ideal of 20th century innovation.  Of course, it is an open question as to whether that 20th Century model is the best approach for the 21st Century. 

This open question will be answered, in part, by knowing whether innovation clusters.  

So consider this news story from Europe: 

“Business clusters could be less relevant as drivers of innovation than has been commonly assumed. The Stavanger Centre for Innovation Research analysed 1,600 companies with more than 10 employees located in the five largest Norwegian city-regions. Rather than national clusters, international cooperation or global pipelines were identified as the main drivers of innovation.”

(The full article is at http://www.proinno-europe.eu/inno-grips-ii/newsroom/study-norwegian-companies-finds-business-clusters-are-irrelevant-innovation the research page http://ideas.repec.org/p/imd/wpaper/wp2011-05.html and the research report http://repec.imdea.org/pdf/imdea-wp2011-05.pdf )

Also, in what could be described as the de-clustering of the financial industry, the New York Times this week reported (http://www.nytimes.com/2012/07/02/business/finance-jobs-leave-wall-street-as-firms-cut-costs.html) that many “Wall Street” firms were moving substantial number of employees far away from Wall Street or even Manhattan.  Clearly they don’t necessarily think that physical clusters are required for business success or innovation. 

Indeed what we know about how innovation occurs would lead us to believe that a narrow focus is the wrong approach.  Instead, innovation is most often the result of cross-pollination across disciplines.

With that in mind, perhaps these cities would be better off providing their residents with connections to the flow of new, diverse and cross-cutting ideas that are already occurring around the world – and the business services that will help turn those ideas into successful businesses.  I doubt this 21st Century model would take the parochial form of a large, institutional building project.

©2012 Norman Jacknis


21st Century Spaces and Experiences In The New American City

A few days ago at the 80th Annual Meeting of the @USMayors, I was asked to elaborate, for its Council for A New American City, on one part of the future-oriented economic growth strategy I have developed for them – the blending of physical and virtual space to create new destinations and experiences that will attract and retain people in this century.

These ideas are intended to help a city remain vital in a future world where people can live anywhere. (See earlier posts if you want more background on the technology and socio-economic trends that are creating this future world.)

I described blended spaces for working, shopping and, in general, living in an urban area.  First, cities need to enable new, more informal workspaces in which most people will earn a living in the future.  These can be in formal co-working spaces or in homes.  But they might also be in hotel lobbies or in parks (like Bryant Park in New York City that is equipped not only with Wi-Fi, but also electrical outlets along the edge of the grass for when your laptop needs recharging).

Second, cities should enable new virtual shopping options, which might be part of transportation systems, on the street, or in any public space where many people go by (and could buy).  The deployment of virtual shopping has direct economic benefit to the city government because it can increase sales tax revenues, increase revenues from advertising in public spaces (like bus stops) and even allow the city to get a piece of the sales transaction that occurs in its facilities.

And, at least until it becomes more common, virtual shopping can provide people an exhilarating “experience” that adds to the quality of life in a city.

Beyond shopping, I gave several examples of how blended virtual/physical space can improve quality of life – how it can provide a “wow” factor for a city.  For example, the mayors were intrigued by 3D projections on buildings.  I referred, for example, to how Chattanooga could project on downtown walls or streets what was going on in its large freshwater aquarium at night when the aquarium is closed.

I also reminded the mayors that quality of life includes the experience of being a citizen in a city.  That experience goes beyond merely getting city services on the web, but includes active citizen engagement in the co-creation of public policy and co-production of public services.

Finally, I noted that any city can implement at least one of the ideas I presented, without a big capital project.  Compared to lots of other projects, these had little cost – and sometimes no cost at all to the city government.  So the final guidance was: go ahead & experiment!

If you’re interested in getting a copy of the whole presentation, please feel free to contact me (njacknis@cisco.com).

© 2012 Norman Jacknis


How Intelligent Communities Get Fit For The Future Innovation Economy

I had the honor of making the keynote speech at the Intelligent Community Forum’s Annual Summit, where the Top 7 most advanced cities/regions in the world competed to be designated the world’s best.  For the first time in ten years, an American city won – Riverside, California.  Congratulations to Mayor Ron Loveridge and CIO Steve Reneker!

So what can you tell people who already are ahead of the competition?  You tell them how they can step up their game even more and get fit for the future innovation economy.

The key points were:

  • Plan for the future way that most people will earn a living.  This means recognizing the shift to tangible services, work from home and other informal work spaces, etc.
  • Offer a video/collaboration platform for innovation, which means building both physical/communications and human infrastructure.  Innovation is a result of collaboration and the free flow of ideas, not the work of some isolated genius.  Today’s Internet enables creative people to engage with each other despite great distances and each community should ensure that its residents have the tools to do so.  I pointed out that the best university research all of the world is available through the Internet and that their communities may already have entrepreneurs with the skills to commercialize research, so before they try to recreate a Stanford or Princeton University, they should make sure that that local entrepreneurs have access to academic research elsewhere.
  • Link to a global ecosystem for dependable economic growth.  I suggested they establish an entrepreneurial extension service, modeled on the US Agriculture Extension Service which greatly enhanced American agricultural productivity.  Similarly, I recommended that the public libraries should be tasked to organize the vast amount of free training and courses online in a range of subjects from business knowledge for entrepreneurs to technical skills – and become the corporate reference library for those without big corporate resources.  
  • Provide people a quality “experience” so they stay.  I noted first that quality of life includes the citizen experience, so residents need to be engaged in community decision making and even the delivery of public services.  As the physical and virtual worlds will become intertwined, make new destinations in a city that blend the virtual and physical.  I gave several examples of how this is already being done around the world.  
  • Shift some investments from the old approach to this new world.  Take some of the money spent on incentives for large companies and shift it to strategies that help entrepreneurs and individual residents flourish in a global economy.

The full presentation and video will be on the ICF website in a few days and I’ll let you know the exact web address as soon as its there.

© 2012 Norman Jacknis


The Shrinking Office

Last week, as part of its regular reporting on the real estate market, the New York Times had an interesting article, entitled “More Room For Ideas In A Smaller Office”.See http://www.nytimes.com/2012/05/30/realestate/commercial/gaining-savings-and-productivity-from-smaller-offices.html

The article highlights the greater collaboration and innovation that have resulted from the use of smaller, less traditional office space.

I do have the sense, though, that these newly discovered desirable features amount, in part, to making a virtue of necessity.

The Great Recession of 2008 made people think that the vacancy rates of commercial office space was a reflection of the poor condition of the economy.  But the reduction in the need for traditional office space has been a trend for a while.

Not mentioned in the Times was a recent survey by Jones Lang LaSalle, a major real estate firm. A report about that had these findings, as well:

  • 40% of IBM employees work from a location other than an office at IBM.  [The same is true for Cisco and many other organizations, not only IT companies, but those in any kind of intangible service.  Indeed the TImes article featured 22squared, an Atlanta advertising agency.]
  • The current rule of thumb concerning office space per employee – 200 square feet per employee – is shrinking to just 50 square feet by 2015.
  • As early evidence of the trend, office tenants renewing their lease nowadays often cut their total space by around 10%-30%.

In past blogs, I’ve pointed out how, traditionally, city plans and taxes have heavily depended upon office space.  Commercial real estate has been the goose that has laid the golden eggs for local governments around the US.

The trend of reduced space per employee will clearly have consequences for those cities that do not start shifting their assumptions about the way the economy will increasingly work.  

Those cities will also find their own financial success increasingly misaligned with the financial success of their residents, who are quickly adapting to the new work environment in the home and other places that don’t look like offices.  That is not a good situations for mayors and other elected officials.

© 2012 Norman Jacknis


The Misalignment Between The Economic Success of Local Government and Their Residents

As you can see from some of the other posts here, at the request of the US Conference of Mayors, I’ve been focusing on an economic development strategy that will work in the future.  As a result of that work, I’ve been presenting my ideas in many places and before many audiences, generally including mayors or other senior officials of local government.

Without going into the whole line of reasoning, I discuss the combined effects of (1) a future with ubiquitous high quality communications and (2) the shift of the labor force to providing ideas and other intangible services.  One implication of these trends is the disaggregation of the monolithic big company that would concentrate jobs in a city and, as an alternative, the empowerment of fluid teams of individuals.

To drive the point home, I argue that the true measure of the economic success of a city is the sum (or the median?) of the income and wealth of its residents – and not the total sales of companies that might have a local postal address there.  

In what sometimes comes across as a provocative statement, but isn’t, I put up an equation: economic growth does not equal real estate development.   I say that because a large part of the economic development expenditures of local governments have been about real estate development.

A few times in recent weeks, I’ve met with mayors or economic development directors who understand exactly what I’m talking about and see the future as I present it.  Then comes the response: “We should be thinking about the amount of money in the pockets of our residents, but you’re missing something here.  Our business – the city government – is mostly dependent upon property taxes and commercial real estate is the golden goose that lays most of those tax eggs.  We focus on real estate development because that’s where we get the return in the form of taxes later.”

That’s a fair argument for the year 2011, as far as it goes.  Of course, often what is a key part of the incentive package is a reduced property tax bill.  More important, commercial real estate will have a hard time maintaining itself in the face of the trends that I discuss.  Indeed, over the last ten years, many big companies have found that they need half the square footage per employee that they used to.  Even now, many employees telecommute or operate remotely somewhere out of the office.  So in the long run, this equation between real estate development and economic growth will break down.

This raises a more serious public policy question, though.  How did we get into such a situation where a smart mayor realizes that the economic success of the city government is misaligned with the success of the city’s residents?  And, for the viability of our democracy, how do we align these?

Or, if you want to ask a related and more pragmatic question: if the goose that laid the golden eggs – commercial real estate – is getting ready to retire, what replaces it?  

Either way you look at it, local governments in the United States need to shift away from their dependence on commercial property taxes.  There are various alternatives that cities have been forced to pursue and may have to depend on more.  Some examples: income taxes, property taxes on residences (which the Internet has now also made places of work and shopping) or even sales taxes on the goods/services that are sold directly into residences.  I’m not suggesting that any of these is perfect or even good, but they all share one characteristic – the revenue base grows as the city’s residents have more money in their pockets.

Whichever of these or other possibilities is selected, cities and counties will be forced to align their financial success with the economic success of their residents.  This is a good thing for their residents because their local government will then emphasize the development of each resident’s income potential.  Even from the narrow interest of the government as a business, this is a good thing because government will have a more assured revenue stream that is appropriate for a 21st century economy.

© 2011 Norman Jacknis 


Virtual vs. Physical Interactions

In response to my post of the Chattanooga editorial, someone wrote to me that he thought that virtual communications would make physical interaction even more important.  I won’t go into the whole argument here, but note that this is more sophisticated than the simple comparison of virtual vs. physical interactions that many people have made.

Nevertheless, I did think that it deserved a response and here it is:

I think the Internet in its current form (texting, email, social media, etc.) is still an immature form of communications.  So the crux of the matter is not so much whether the current Internet will change how people interact, but how the ubiquitous video communications of the future will affect behavior.

Our physical selves will not disappear, so there will still be physical interaction.  But I suspect that these interactions – and the cities in which these interactions takes place – will be of a different nature than what we’ve been accustomed to.  I’ve been working with the mayors, in part, on what that future city should look like and what will be its functions.  Most under threat is the urban model that primarily views the city as the dominant, centralized location of economic production.  Indeed, the traditional physical business cluster has already dissipated in many places – Detroit and Wall Street, to name just two famous clusters which are no longer as dominant in their industries as they used to be. 

Economic relationships will perhaps be more affected by ubiquitous video communications than other human relationships because video communications increases the likelihood that trust will develop between potential business partners.

Of course, how this all plays out will be a cultural question.  I remember that my grandmother believed that the telephone was only to be used for very minor or extremely urgent conversations – nothing in the wide swath of human conversation in the middle, especially not business.  If you wanted to converse with her, you saw her personally, probably preceded by a letter.  My parents thought this quaint and had no problem at all conducting important business matters on the telephone.  My bet is that the next generation will take video chat for granted as a perfectly acceptable way of doing business.

Time will tell – so let’s make a date in 20 years to see which of these opposing views gets closer to the future reality. 

© 2011 Norman Jacknis

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Chattanooga’s Gigabit Network As The Base For Future Economic Growth

I’ve been working on a future-oriented economic growth program with the US Conference of Mayors and we have identified Chattanooga as a location to demonstrate some of these ideas because it has, by far, the largest and fastest deployment of fiber in any metro area in the US — enabling every home and other building to have a gigabit connection.  

I’ve described to them how and why this kind of network changes a city’s economy and should change its economic growth strategy.  I’m also helping them think of innovative uses of their network that will set up their future economic growth for a couple of decades — with particular emphasis on those that are only feasible at these higher bandwidths.  Among other aspects, this includes virtual collaboration among entrepreneurs in the global marketplace, virtual lifelong learning and blended virtual/physical spaces that become destinations for both residents and tourists.  

Last week, I made a presentation about this to the civic and business community in Chattanooga.  

That presentation led to a significant editorial by the Chattanooga Times Free-Press (http://www.timesfreepress.com/news/2011/jul/21/the-other-economic-vision/?opiniontimes) as well as a news story (http://timesfreepress.com/news/2011/jul/21/epb-grid-attracts-cisco-systems/).

© 2011 Norman Jacknis

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