Top Ten List
Lessons Learned from Study Missions to the Silicon Valley; the Research Triangle, NC; Boston, MA; and Austin, TX.
By Susannah Malarkey, Executive Director, Technology Alliance 1998
Introduction
The Technology Alliance (TA) is a statewide consortium of technology-based businesses, research institutions and technology trade associations organized in 1996 with a mission to support and nurture technology-based business in Washington state. The TA, with the co-sponsorship of the Greater Seattle Chamber of Commerce, has organized and led four recent study missions for regional leaders to technology centers around the country. In 1995 we visited the Silicon Valley, by far the largest technology economy in the world. In 1996 we went to the Research Triangle in North Carolina, a region with a 40-year commitment to building a technology economy. In the spring of 1997 we visited Boston, the nation's second largest center of technology business activity and a region with our country's highest concentration of institutions of higher education. In the fall of 1997, a group visited Austin, Texas, a region at the cutting edge of the next wave technology economies. We have learned some extremely useful lessons from these trips, ones that we are working hard to see applied to the Puget Sound Region and the state as a whole. What are our "top ten" lessons learned? How does our region compare with other regions with similar aspirations? What do we need to do be a winning region in the years ahead?
Workforce
Lack of appropriately trained workforce is the biggest limiting factor to high tech growth. The information technology sector on a national level currently has an estimated 300,000 unfilled jobs. Technical and top managerial talent is in extremely short supply worldwide. Every technology region knows this. Every region wants their region's sons and daughters to be able to fully participate in the emerging economy, but most realize that their current education systems are just not up to the task of producing both the quality and quantity of skilled graduates technology companies need. Some regions are so short on workforce that they recruit heavily from other markets. Both Texas and North Carolina routinely organize recruiting trips to Boston to encourage skilled workers to leave the snowy north and move to their areas. Our region has always tried to focus on "growing our own" whenever we can, and in fact we are fortunate that over 80% of our state's university graduates stay in Washington. However, we are falling far short in graduating an appropriate number of students with needed technology skills: a recent Washington Software Alliance study shows that over the next three years we will graduate only 4176 students in our state with information technology degrees from all our institutions of higher learning. This supply of 4176 will face a demand of over 60,000 jobs. So, though while it is relatively easy for us to recruit workers from around the globe to move here, this kind of huge mis-match cannot be addressed by recruitment alone, nor should it be.
No area is really "winning" at the workforce game right now, and the smart regions are investing intelligently and generously in K-12 education, community colleges, and their universities. Clearly, a 21st century education is the only way for Washington's sons and daughters to compete for 21st century jobs. In the mean time, we will have to be like everyone else, and compete to recruit the best people we can find from all over the world and pay extremely high wages to attract and keep these in-demand professionals.
K-12 Education
Excellent K-12 education is essential. Our state has taken some major steps in reforming K-12 education with the goal of helping our kids learn how to really achieve academically. We have a long way to go, but our counterparts in California are frankly envious of what we have been able to accomplish already by having agreed-upon standards of achievement. We believe that supporting the implementation of education reform, and continuing to demand excellence from our schools and our kids, is the right way to go. Our state has also managed to create the "backbone" for a statewide K-20 electronic network, eventually linking all schools to the Internet and, at key nodes, to two-way video conferencing. Currently it is basically that--a backbone. The rest of the system—links to many classrooms, up-to-date equipment, teachers trained in the effective uses of technology, appropriate curriculum--are inadequate in many parts of our state. Smart regions know that appropriate uses of technology in schools are key to making their kids competitive in the new economy. On our trips we saw a state-run electronic network in North Carolina and learned about the nationally recognized "Smart Valley" effort in Silicon Valley.
The Technology Alliance, with the cooperation of Governor Locke and State Superintendent of Public Instruction Terry Bergeson, implemented a Technology in Education Initiative to improve the deployment of technology in Washington's public schools. One key outcome has been the Smart Tools Academy, a two year program designed to enhance the effective use of technology in our state’s K-12 schools through intensive training of all of the state’s principals, superintendents and private school leaders. It will be launched in July 1999.
Excellent Research Institutions
Centers of excellence invariably have top flight research institutions. Boston has dozens of institutions of higher education including Harvard and MIT; Silicon Valley has Stanford and UC Berkeley plus others; and the Research Triangle is defined by the three research universities that anchor the area: Duke University, UNC Chapel Hill, and NC State University. It is difficult to over-emphasize the importance of research institutions in the development of a technology-based economy. Led by University of Washington, which garners the highest amount of federal research money of any public institution in the country, our state is also blessed with the Fred Hutchinson Cancer Research Center, Battelle Northwest Laboratories, and Washington State University. We are extremely lucky to have such an excellent mix of institutions geographically dispersed throughout our state. These institutions, with primary missions of research and academic training, are also truly economic engines for our state. They train our next generation of scientists and engineers; they develop new technologies that can be commercialized, thus creating new companies and jobs, and serve as magnets for the best and the brightest. Excellence in research was essential to making this region a competitive force in biotechnology, medical instruments and other technology fields. Enthusiastic public support of these institutions is key to our state's continued success.
Telecommunications Infrastructure
Availability of broad bandwidth telecommunications services is essential to the success of both emerging and established technology companies, and increasingly, to our entire region’s economic competitveness. All kinds of businesses are sending crucial information as bits over wires; and the broader your bandwidth, the faster your bits can move. For the exploding field of internet commerce, bandwidth is everything, and affordable and timely access to bandwidth affects their willingness to locate and grow their companies here. Currently, we are at the forefront of this emerging sector, but limited bandwidth could cause companies to grow elsewhere. The 1996 Telecommunications Act, while opening up telecommunications to competition, has created uncertainty and a litigious atmosphere at a time we can ill afford it. The TA has recently published Policy Initiatives to Increase the Availability of Advanced Telecommunications Services Throughout Washington State. It makes recommendations to improve the climate for new investment with the goal that more parts of the state will get the broadband telecommunications infrastructure they need to compete effectively in a global economy.
Strategic Partnerships
Successful regions have worked out successful partnerships between business, academia and government to achieve their economic development objectives. This strategy is best demonstrated by the Research Triangle in North Carolina where we invariably heard the following: "The real triangle is the partnership between business, government and academia." State government pours millions of dollars a year into technology-based economic development efforts in North Carolina; in Texas the state funds a $60 million dollar research fund for state institutions. The Silicon Valley has taken a similar tack to the Puget Sound Region: compete successfully for federal research dollars, work to maintain positive relations with local governments, but don’t expect much direct help at a state level. While that strategy has worked very well in California, we think Washington State could do more to hold up its end of the partnership. Some new cooperative efforts have emerged, and the legislature is improving its understanding of technology issues. However, there is still a real lack of understanding among lawmakers about how mobile and competitve the technology world is, and how easily our new-found prosperity could be lost if we neglect to make key public investments.
Entrepreneurial Culture
An "entrepreneurial culture" is one that encourages risk taking, is tolerant of mistakes, and supports individuals who are willing to put it all on the line to start new businesses. The head of technology transfer at Stanford noted that one motivator for entrepreneurs can be as simple as one engineering school graduate looking at a peer who started a successful business and saying to himself: "I am as smart as that guy and he's rich." In Seattle we can point to the successes of people like Bill Boeing, John Fluke, and Hunter Simpson in the 50s and 60s; followed by Bill Gates, Paul Allen, and Craig McCaw in the 80’s and 90’s. Now we have new entrepreneurs like Jeremy Jaech of Visio and Jeff Bezos of Amazon.com currently making their marks. The explosion of new electronic commerce companies located in the Seattle area is due to a combination of local expertise, low cost of entry, and this region’s burgeoning culture of entrepreneurism. There are dozens of examples--Washington now has over 60 publicly traded technology companies, up from 17 just ten years ago. If we included companies like Aldus, Edmark, Heart Technology, and McCaw Communications, all of which were sold in the past decade, the number of publicly traded technology companies would number nearly 70. However, our entrepreneurial activity pales in comparison with the Silicon Valley, which had over 100 initial public offerings (IPOs) in 1998 alone. One way we can nurture new entrepreneurs is by providing them with inexpensive space and other key services in multi-tenant facilities. Entrepreneurs get to share ideas, receive pro bono advice from experienced business advisers, and enjoy low overhead as they develop their businesses. Austin, Texas has an internationally recognized "technology incubator" that has inspired us to work on developing a home grown version to support the next generation of risk takers.
Venture Capital & Business Services
Availability of local venture capital and business services is essential for an economy with successful startups. Entrepreneurs need people with money to invest in their ideas. The largest pool of investment dollars for technology-based businesses is in the Silicon Valley--one quarter of all the venture capital in the U.S. is invested there. The next largest center in Boston, followed by a group of mostly eastern cities. We learned a great deal about venture financing in all the regions we visited, and invariably we were told, that all things being equal, venture capitalists really prefer to invest in local companies. Traditionally, there has been a real shortage of locally available venture capital for our emerging companies. The good news for our region is that more venture firms are locating here, and because of the enormous success of Microsoft and other technology companies, there are many individuals with both the capacity and inclination to invest in technology startups. These individuals are dubbed "angels" and often represent the first round of financing a technology company receives. The Technology Alliance has organized a group of 100 of these angels into a network we call the "Alliance of Angels" to share information and meet Washington state technology companies seeking financing. Organized in November 1998, the Alliance of Angels has given over 80 startups access to the angel network, and has facilitated several million in venture financing in its first year.
Our region is fortunate that so many of the business service firms in our region--attorneys, accountants, information services firms--have grown their expertise along with the growth of technology businesses. Although we have a real shortage of qualified senior management talent to run technology companies, we have excellent services available to businesses of all sizes.
Transportation
At this time of extreme frustration over growing congestion, it is important to remind ourselves that probably the only thing worse than too much traffic is too little. No traffic means no people because all the jobs left your area. That said, gridlock on our highways, secondary roads, and at SeaTac, due in great part to the high tech boom, are a significant threat to our region's long term prosperity. Companies must have reliable ways of getting their goods to market and ensuring that their workforce can get to work in a timely manner. Congestion already costs this state billions of dollars a year and it grows worse daily. Telecommuting, new options in public transportation, flex time, and new road construction are only going to slightly slow the rate at which the problem worsens. It affects every area we visited, and no one has found a real solution.
Quality of Life
In technology terms, a high quality of life translates as "being a region where smart people want to live." Assets such as our beautiful natural amenities, cultural institutions, and sophisticated but relaxed urban lifestyle are key factors in recruiting and retaining the best and the brightest. We can no longer assume this will always be true: the high cost of housing, traffic, and other growth-related concerns all affect our region's livability. Addressing these issues is difficult but necessary. We have learned from our trips that there are many wonderful places to live in this country, and every region as its assets. We cannot afford to be smug in our belief that the Northwest is inherently superior--that attitude does motivate us to correct our deficiencies.
Business Climate and Land Availability
This state used to have a tax climate that was a real liability when trying to recruit or retain technology businesses. In the past few years, due to some smart work by the legislature and business associations, this is generally no longer true. Although the B&O tax is as definite hardship for technology businesses with high costs and no income, by-and-large we have a competitive tax structure now. However, we do not have much available land left for industrial development with easy access to both I-5 and SeaTac airport. In a region constricted by water and mountains, the Puget Sound area has less land available for development than Silicon Valley, even though it has a twenty year head start on us. It is difficult to predict how far away from these key transportation nodes companies will be willing to locate, but we must not assume that crowding in the Puget Sound basin is good news for the rest of the state, eager for those high wage jobs to move to their areas. Companies may simply move to a region that can give them what they want--easy access to an international airport and an efficient interstate highway system.
A final note from Ira Jackson of BankBoston who gave us his own top ten list of lessons learned: Economies are cyclical, so fix your roof while the sun is shining. The Boston area was experiencing an incredible economic boom in the late 80's--remember all that talk about the "Massachusetts Miracle" during Michael Dukakis' ill-fated presidential bid? The region was not prepared to deal with simultaneous downturns in the mini-computer, defense, and construction industries, and the resulting credit crunch. Jackson warned us not to be smug and complacent about our success, and to spend resources on our toughest issues and in training our workforce for tomorrow’s jobs, particularly when times are good.