I live in Baltimore, in the great state of Maryland. I’ve been studying the economic development process here for many years. While this post contains observations specific to Maryland and Baltimore, the concepts likely apply in other geographies as well. I am curious to hear your perspectives from where you live.

Shh… they don’t know they’re obsolete!

There’s a growing disconnect in economic development. Government sponsored economic development outfits are tasked with 1) growing the tax base, 2) attracting new businesses, 3) helping existing businesses grow, 4) aid in the creation of new businesses, 5) develop and grow the local workforce.

In Maryland, the State Department of Business and Economic Development traces its roots back to the Bureau of Statistics and Information, which was formed in 1884 to compile statistics about agriculture and industry. As industry shifted dramatically in the 1950′s and 1960′s, the focus shifted to providing small business loans and seeding the development of new jobs.

Vast consolidation in manufacturing starting in the 1970′s meant that states were particularly anxious about job losses. The loss of a single plant could deal a staggering blow to the tax base, and could mean a huge loss of jobs — often leading to a demoralized workforce and a downward spiral of negative economic growth. (Think Detroit.)

The Zero-Sum Game

As a result of this process, states began to engage in heated battles to attract and retain manufacturing facilities. The primary tool available to economic development authorities has traditionally been tax credits and other “incentives,” which might include deferred taxes, regulatory considerations, and a “turnkey” permitting process.

As states rushed to use these tools to attract and develop these “big projects,” a kind of zero-sum game emerged between states trying to attract companies and capital. Large corporations were now in a position to effectively “shop” for the sweetest incentives. As you likely know, states have not shown much restraint in their willingness to offer breaks. In fact, it’s all been very embarrassing — a rush to the bottom, where states compete not on their own merits, but on how many baubles they can afford to dole out to their latest suitors.

This disease has so stricken governments, Governors, and their economic development teams that they’ve developed an unhealthy obsession with “big projects” as well. Folks in government, who on average have very little first-hand experience with entrepreneurship or business, tend to think in “causal” terms. If we do X, then Y will happen. And so the logic is that if you want a big result, take a big action.

And so they chase after smokestacks and big iron, trying to attract heavy manufacturing, big developments by big developers, corporate headquarters, sports teams, stadiums, and slot parlors. But here’s the paradox: these projects, while flashy, just don’t pay off. Tax subsidies are never recouped, and the jobs that are created tend to be bottom-of-the-barrel service industry jobs that barely support a living wage.

Baltimore’s subsidized Camden Yards stadium produces $3 Million per year in tax revenue, but costs Maryland taxpayers $14 Million per year in subsidies. The heavily subsidized Ravens stadium produces $1.4 Million per year but costs taxpayers $18 Million. Failure to impose or enforce job quality standards as part of subsidy packages provided to multiple hotel developments in Baltimore has led to many low-wage jobs and nearly none of the higher paying jobs that were promised. (These conclusions were taken from this report by the group Good Jobs First.)

New Approaches

Maryland, in an effort to develop a strategic focus on biotechnology, instituted a $6M program of tax credits (later increased to $8M) for investors in biotechnology companies. The program has proved wildly popular, and to Maryland’s credit, it recognized the importance of investing in an industry that had already taken root here and, thanks to the presence of the National Institutes of Health and Food and Drug Administration, was a natural strategic focus for our area.

The only question is how effective the biotech tax credit is at actually developing these kinds of jobs in the long term. It’s a little early to judge how effective the biotech tax credit program will be, but we can make these qualitative observations about that industry:

1. Developing a new biotech product (whether a drug, device, or process) has a very long lead time.
2. Because of long lead times and the need for highly-skilled workers, development is very expensive.
3. Failure is common and is often stark: big bets on molecules that don’t pass approval processes or are copied by competitors can lead to epic financial losses.
4. The kicker: successful companies are often acquired by firms based elsewhere, leading to job losses or relocations, ultimately undoing the benefit originally intended.

I do not want to overemphasize the potential downsides; there are many tangible benefits of this program both now and in the long term. The only question is whether we can do better.

Betting On Ourselves

What if, instead of trying to offer subsidies to outsiders, we start investing in ourselves? A tax credit for biotech is a step in that direction, but what could we do with a comparable program for Internet and IT startups? What if we made investment capital available to Maryland businesses as part of a strategy to develop new companies that actually stay here for the long term (and are not susceptible to subsidy bribes from other locales)?

A new program called Invest Maryland has been proposed by Governor Martin O’Malley, and is based on similar programs instituted in other states. The program would make $100 Million in venture capital available to Maryland businesses. Funds would come from tax prepayments made by insurance companies in exchange for tax credits. The theory is that the cost of the tax credits would be exceeded by the benefit in business development provided by the venture investments.

Done properly, this is probably a very sound program. But to be maximally successful, I believe we need to start placing strong bets on information technology startups in particular:

1. IT startups are very capital efficient. Thanks to lean startup methodologies, IT startups can get up and running for as little as $50,000 to $150,000 in investment.
2. Maryland already has the highest concentration of information technology workers in the world. It’s a strong strategic fit for exactly the same reasons that biotech investment is a good fit.
3. To achieve strong returns with early stage investments, it’s often necessary to invest in 150 or more companies. The small capital requirements of IT companies allow for many more investments to be made with less capital, thus increasing the odds of success.
4. A large portfolio of seed-stage IT investments can yield internal rates of return of up to 25-30% annually, which is terrifically high. That is in addition to the benefit of building a permanent base of IT businesses in Maryland, and all the job and tax-base benefits that would bring.
5. A large number of ventures would, statistically, also have to produce a large number of failures. This culture of continuous endeavor would de-stigmatize failure and allow for repeated teaming and relationship building. Inenvitable losses are not losses, but in fact fertilize the forest floor — building the ecosystem for the long term.
6. A culture rich in startups will keep us from exporting our best and brightest to other places, which we do routinely right now.

$10M for IT Startups

As Maryland’s leaders and legislators consider the Invest Maryland initiative, I propose that the state set aside $10M of its $100M fund specifically for IT startups. With that $10M, I propose that Maryland invest in up to 200 seed stage IT firms at anywhere from $50K to $150K per company.

Doing this well will be difficult. However, by partnering with existing entities such as Baltimore Angels and members of the business community, we can make that investment maximally productive. We’d need to figure out the details, but we can’t expect government employees to make these investments on their own without domain expertise. By leveraging the people in the community that want to see these investments occur and who do have appropriate domain expertise, we can dramatically increase the effectiveness of this fund.

And if the initial $10M investment proves effective, we should consider enlarging the program to $25M or higher later. This strategy carries very little risk for the state and would create a stunning worldwide buzz about the vibrancy of the startup culture in Maryland, and would highlight the innovative private-public partnership that sparked it.

Thinking Small

The businesses we routinely cite as our biggest successes — Under Armour, Advertising.com, SafeNet, Sourcefire, Bill Me Later, to name a few — all came about as home-grown successes. They are not here because we brought them here from someplace else. They’re here because they were grown here from scratch, by people who love it here.

If we start now, placing a large number of bets on our brilliant citizenry, we will do something remarkable: we’ll launch a virtuous cycle of entrepreneurship — the opposite of the kind of downward spiral associated with the rust belt era.

Instead of the simplistic “causal logic” associated with “big” economic development, we’ll be using the logic of entrepreneurial “effectuation,” of the kind promoted by entrepreneurship researcher Dr. Saras Sarasvathy.

It is the combined effects of many people pursuing entrepreneurship that will lead us someplace extraordinary. Suddenly, Baltimore (and Maryland) will become the cover story on the airline magazine — the “hot” place to be. One (or ten) corporate headquarters relocations will never do that, because it won’t bring about endemic entrepreneurship in the culture.

Making lots of small bets instead of fewer “big” bets makes government nervous. Everyone wants to be seen as someone who accomplishes something big, and with short gubernatorial terms, it’s tough to get ramped up with plans that might take 10 or 12 years to realize. But that’s exactly what’s needed.

We need to resist the temptation to focus solely on big development, and instead bet on the tiny startups. The big wins will come when these firms flower, and the ecosystem that gave them life comes into its own. Yes, that might happen on someone else’s watch — but it’s still the right thing to do.

A recent report from the Kauffman Foundation proclaims, “Job Growth in U.S. Driven Entirely by Startups.” If this is the case, Lord knows we could use a lot more startups. If we want new jobs — and not jobs poached from other states at great expense and flight risk — the only logical choice is to focus on creating new startups.

And if solid returns of 25-30% can be realized on a large portfolio of startups, shouldn’t we drop almost everything else and focus only on that?

The first state that adopts this strategy will be sowing the seeds of an incredible, dynamic culture of entrepreneurship. Is Maryland ready to take the challenge?

The recent discussions of entrepreneurship here prompted several entrepreneurs to contact me, both via email and in person. Here is one kindred-spirit’s story, reproduced (and edited) with permission.

Hey Dave,

I’ve been reading your blog for the last week or so, and I wanted to let you know I appreciate your thoughtful angle on entrepreneurship, design, and intellectual life. Like many of your posts indicate, the challenges of developing personal creativity and starting something new are profound in our current culture. Last June I graduated with an engineering degree from the University of Maryland. Instead of acting on ideas to change the world, I did, as most graduates do these days, took the full time job that paid the most. (Chris Dixon’s post on the topic hits it). Add consulting and government consulting to where all the talent goes in the DMV. To a college kid, the prospects of a $70,000 salary are blinding. And if you consider yourself a self-starter, you realize quickly that you are fighting a powerful majority that would call you crazy for not taking such a lucrative offer.

That said, I have devoted a lot of my free time to developing my startup ideas through mockups and requirements. Yet, despite my engineering background, I just don’t see myself as the technical co-founder that many think is the necessary half of successful startup teams. I can spend hours reworking code, but developing from scratch is beyond me. So the question I have been struggling with is how do I find the real technical partner? As you posted, startups are about the people, but finding that passionate partner is incredibly difficult.

My current idea that I have been toying with revolves around [redacted]. From mobile app, to website … I am at a point where I would consider outsourcing app development, just because I believe in my idea and want to make progress. However, say a couple months into the future, I now have an iPhone App (and a lot less money) but I still don’t have a team to further the idea. In addition, I am not so sure my concept has clear profitability, but at my age (23) what’s wrong with idealism as a starting point?

Sorry for the length, but I wanted to offer some of my thoughts as to what it means to be on the outside of entrepreneurship, wanting in. Any return advice would be great!

Regards,
Lance

My response to Lance:

Lance,

Thanks for writing! Certainly sounds like you have the right spirit about things, and I agree with you re: Chris Dixon’s post. He’s got a very good take on things.

Some things I’d recommend:

1. Subscribe to Startup Digest Baltimore. Go to http://thestartupdigest.com

2. Go to Innovate Baltimore on Wednesday 5/19 and introduce yourself. http://innovatebaltimore.com

3. Come hang out at Beehive Baltimore. It’s where the community is centered. http://beehivebaltimore.org

4. Let’s find a time to talk some more. I am out of town for two weeks starting next Friday but we can find a time in June. Pick something: http://tungle.me/davetroy

Looking forward to meeting you!

Do you mind if I share your note, along with my response, on my blog?

I want to keep reminding people that there are LOTS of people like you out there…

Best,
Dave

Response from Lance:

Sure. No problem. If you could edit out the sentence or two about my current idea, that would be great. Also, I currently live in the Northern Virginia area, so I’ve been on the DC and Baltimore Startup since I was introduced to them at BootstrapMD. I just started looking for resources like InnovateBaltimore and BeehiveBaltimore around DC. Any suggestions?

Thanks,
Lance

My response to Lance:

OK, thanks.

You should consider moving to Baltimore as the startup + coworking scene is now a lot more active. Innovate and Beehive are just the tip of the iceberg.

There are some OK things going on in the DC area (Founders Institute, Launchbox Digital, Social Matchbox, DC Week), they run on weird schedules and are not active all the time. Baltimore’s scene is a lot more persistent and becoming much more interesting. Affinity Lab is like an expensive corporate version of coworking. Beehive is real coworking.

Anyway, I’m biased, but this is something we’re serious about in Baltimore and we’re committed to making it happen, all the way from the Governor to the Mayor to each individual startup.

Hope to see you around the Hive soon.

Best,
Dave

Bill Gates: dropout. Paul Allen: dropout. Steve Ballmer: dropout. Richard Branson: dropout. Warren Buffett: dropout. See a pattern?

Entrepreneurship is the opposite of University culture, which celebrates progressive levels of achievement, with the ultimate goal of becoming a college professor. Entrepreneurs create the circumstances of their own success, by changing the world around them and making their own game.

I’m not suggesting anyone dropout, but we do have to ask: is our educational system creating maximum value for society? Or is it just creating clones, steeped in the idea that there is only one true path to security and achievement, which are then manipulated by true entrepreneurs and leaders who really know how to shape the world around them? And which are you?

This post started out as a reaction to yesterday’s post by Matt Mireles in New York City about the dearth of talent available to startups there. I felt it was relevant to the Baltimore/Washington area and shared it with some of our local leaders. It sparked a deep conversation — which I captured below.

Dave Troy to some area investors, entrepreneurs, and economic development officials:

This blog post out of NYC is a decent analysis of the problems that east-coast tech startups face.

• Drop in “federal sector” in place of “Wall Street” and you have an almost perfect analysis of our situation here in Maryland.
• Scarce technical talent wants to be employees, not co-founders for equity.
• A large well-funded ecosystem that sucks up available talent (Wall St, Feds, etc)
• Universities are barely aware of the startup ecosystem and do not contribute a good supply of talent

As the guy points out, a few good exits and some Stanford-like thinking can quickly change things. Tomorrow he’s writing some about how the NYC community is addressing this problem.

Roger London (investor, director of America’s Security Challenge):

I agree for the most part. I would tweak it as follows (comments embedded below).

1. Scarce technical talent wants to be employees, not co-founders for equity.
Totally agree, however technical talent in this region is not nearly as sophisticated and picky as the Palo Alto engineer sited in the blog. While most technical talent here would not take equity or options in lieu of a paycheck, I believe there are many that could find a suitable combination. This crop of “vested” technologists will anchor our next generation of technology entrepreneurs. They must first get a taste for the long-term value of equity and just as importantly realize a bit of a payoff so that a “paycheck” is no longer their motivation and requirement.

2. A large well-funded ecosystem that sucks up available talent (Wall St, Feds, etc)
I don’t think our technical talent goes to work for the feds, but they are hooked on the federal R&D heroin that so liberally “strings out” our technical talent making them addicted to and dependant on research funding, thereby unwilling to consider leaving the “shooting galleries” of the university and federal labs (got carried away with the drug metaphor). The feds could do a better job leveraging that investment by coordinating private sector collaboration, specifically startup collaboration with these technologists to open their eyes to the possibilities. In the absence of any progress there, we need to make a concerted effort to bring the eventual customers and serial angel entrepreneurs to the fed researchers to identify, shape and license technology that is desired by the market.

We need to find a more efficient way to produce more profitable and more successful startups. While mentoring, incubators and similar programs are valuable, the most effective way to increase the probability of success is to bring the customer to the startup table and have them help shape the requirements and solution. Who are the largest technology consumer enterprises in the state? State of MD government, Hopkins Healthcare Systems, Constellation Energy, T Rowe Price, Legg Mason, Lockheed, Fort Meade, Coventry, Marriott, Host, WR Grace, Catalyst, Discovery, Black and Decker, McCormick immediately come to mind. There are a number of technologies that most of these companies would want to procure because it improves their performance, customer service, security, bottom line, etc….things like high speed computing and distribution, more effective customer interaction tools, more effective customer security re their identify/information and customer logins, network security, building and vehicle fuel efficiency, etc.

Almost every agency and department of the federal government also has requirements for these and by establishing beachhead Maryland customers, we can stand up and provide credibility to young companies and then help springboard them into the federal government. With varying degrees of success, organizations already exist that follow this model but their efforts should be amplified.

3. Universities are barely aware of the startup ecosystem and do not contribute a good supply of talent
See above

As the guy points out, a few good exits and some Stanford-like thinking can quickly change things. Tomorrow he’s writing some about how the NYC community is addressing this problem.

NYC does not have the research funding that we have in the state and their solution might not be replicable here. Our ecosystem of capital, talent and customers is fairly unique which is another reason why we can’t just “copy” the innovation models from NYC, Boston/MIT, Silicon Valley, RTP or other innovation regions. The assets we have in this region that are not found anywhere else is the vast amount of federal R&D (#1) and the largest consumer of technology on the planet, the federal government. Unique programs need to be developed with those two factors deeply embedded that fosters emerging growth tech companies and helps to bridge the gap between research and market adoption. That work needs to be designed and operated by entrepreneurs and early stage investors. While collaboration with academia, federal and government stakeholders is important, their participation in the design and operations should be limited or we will get more of the same.

Bob Bloncheck, investor and serial entrepreneur:

My two cents:

I think we have the opposite problem as NYC. We have a lot of young techies trying to do start-ups in the region, and not enough of the non-technical entrepreneurs.

And when the experienced non-techies do give a start-up a try, they come at it from a professional services business model perspective, which is another side-effect of the government focus (indeed addiction, Roger) in the region.

Everything is driven by a time-and-materials mindset here that permeates not only government, but other big institutions as well, and contributes to the lower risk tolerance.

I just had another conversation with an entrepreneur last week who is considering abandoning a product approach and going to a services model. And it is because a large health care institution keeps telling him that they never would buy a product/technology from a young company. But they would do business with him on a services basis using his technology.

As many of us have learned the hard way, products and services are very different. And to the extent we are trying to foster a start-up ecosystem in the region focused on products, and not just more 3-10 person services spin-offs from other services businesses,
we need (as Roger said) unique programs that would encourage these large organizations to adopt products from local start-ups more readily (and not just technologies implemented using a services approach).

And we need the universities to start teaching more:

• Product management (not just project management or business analysis – they are different)
• Product marketing
• Market focus (in addition to customer or sales focus)
• Entrepreneurship

Business model is king, and it needs to be more than just billability, if we want a vibrant start-up culture in the region.

Mike Subelsky, entrepreneur and community leader:

Thanks for sending this Dave. I can only speak for my sector (consumer Internet), but this guy is DEAD ON. Maryland is awash in entrepreneurs with good (or good enough) business ideas, who are willing to take the big risks, but who just need someone who can build software who’s willing to take on some of that risk as well.

I know this empirically, because (due to my blogging about startups in Baltimore and due to Ignite), a lot of them end up emailing me asking for advice about how to find a decent programmer. I’ve had that conversation at least 10 times in the past 2 years. One of the most promising of these people actually just gave up and started teaching himself Rails so he could get his education software prototype out the door — when that guy starts looking for funding, if he even ends up needing it, look out!

My friend Gabe Weinberg, an entrepreneur in Philadelphia, had an interesting response (link).

I’m encouraged because we’ve been working on the kind of “drawing us out” he suggests for a few years now. But there’s a long way to go. Even just in my one little neighborhood, I’m still meeting very qualified technical people who have zero idea about the startup world in Baltimore. It’s not a matter of “do they prefer cash or equity” — it’s that they’ve never been offered and have no idea such a distinction might even be available.

Brad McDearman, Economic Alliance of Greater Baltimore:

We just took a group of 40 Baltimore business, government, education and non-profit leaders to Austin to see what we could learn from that market. We were hosted by the Greater Austin Chamber and the Lance Armstrong Foundation.

I think most participants from Baltimore would say two things stuck out related to how Austin deals with entrepreneurs…and the Austin people stressed these in their presentations to us:

• Celebrate entrepreneurs and wealthy people. Make rock stars out of them…and make sure wealthy people in the community and the entrepreneurs are hooked up. Get the wealthy people to invest in the start-ups.
• IC2 at the University of Texas – this is an institute at UT that stresses and supports entrepreneurship in the region and is what many point to as being the catalyst for driving the entrepreneurial culture in Austin. They put out white papers, provide support and networking for entrepreneurs…and connect people.

Many of us came away wondering how we make this happen in Baltimore. How can we get Hopkins to take a leadership role in Baltimore’s entrepreneurial and economic development efforts? JHU is a known entity and the folks in Austin kept talking about how lucky we are to have Hopkins given their research and world famous medical center (which Austin does not have). But JHU does not lead an economic development effort the way UT does.

They have created a culture in Austin related to entrepreneurship that even the corporate businesses respect and believe in…and it seems like they did it in a grassroots way (through the entrepreneurs themselves) and through the major institution (UT). But it doesn’t appear to have had much to do with the traditional business organizations (although the Austin Chamber does receive high praise for its broad impact and support).

Scott Paley, Baltimore entrepreneur, former New Yorker, to me:

Just from my own tiny perspective, this has long been a problem in NY. When I lived up there, I’d say I was contacted at least 5 times a year by non-technical startup founders asking me if I’d leave my own company to work with them as a technical founder. Even now I still get calls from non-techs asking if I know smart tech people in NYC.

Scott Paley to Roger London:

Hi Roger,

You wrote:

technical talent in this region is not nearly as sophisticated and picky as the Palo Alto engineer sited in the blog. While most technical talent here would not take equity or options in lieu of a paycheck, I believe there are many that could find a suitable combination.

I’m curious why you think this is the case (I’m not disputing the assertion – I don’t yet know enough about the local technical scene to be able to do that.) But, why should an engineer in Palo Alto be more sophisticated? Is it cultural? The experience of having gone through multiple startups, failures, and eventual successes? As a relatively recent “immigrant” to the Baltimore area (from NY), I’d like to try to understand the region better, so conversations like these are really helpful to me.

It does seem like in SV there is a general culture (or perhaps “badge of honor”) in starting a company, failing, starting another, and eventually hitting it big. In such a culture, people optimize for equity, but I’m not certain that should be characterized necessarily as “sophistication”. Could it be that, in general, technical talent in SV is younger and less established in the typical “traps” that make it hard for people to consider entrepreneurship? Failure is “easier” in a sense?

I can say from my own experience that the idea of failing was easier to contemplate when I was in my 20′s without a mortgage and kids than it would be today.

Of course, this seems line of thinking seems most relevant for first time entrepreneurs, which takes us back to fixing what Dave wrote in the first email:

Universities are barely aware of the startup ecosystem and do not contribute a good supply of talent.

Roger London to Scott Paley:

Scott- the article described the Palo Alto engineers thinking as “sophisticated”, not my words. I do think most of what you describe re multiple startup experience is true.

Experience gained over several startups for several years each likely puts that person around 30 years or older. I don’t think however you can replicate that experience (sophisticated thinking) by working with universities and getting a larger volume of people in their 20’s.

This region also has a lower tolerance for failure. Rather than throw young people to the wolves and try to make them entrepreneurs realizing in this region you cannot erase the black mark of a failed venture, we should make them entrepreneurs-in-training and help place them in a growing company where they can still earn a paycheck, but have some skin in the game while simultaneously experience but not be responsible for the critical elements of successful entrepreneurship…. how to acquire key initial customers, product development, building a team and staff, operational infrastructure, raising capital, etc.

Jared Goralnick, entrepreneur and community leader shared an interesting response by David Fisher:

- Have better ideas and bring more to the table: There are a few non-technical people that I’d follow anywhere and its because they do have consistently great vision and ideas. Show people that you can lead and followthrough. One of my good friends Tim Hwang can’t code at all (AFAIK), but I’ve seen him execute with the Awesome Foundation, ROFLcon and the Web Ecology Project. I know that if he gets a great idea, that he will hold up his end. Do things like this and you’ll have no problem finding developers and technical co-founders.

It’s true that if you’re a “tested entrepreneur” then people will want to be part of your vision, but most people aren’t their first time around. Still, I think this speaks to the value of community involvement in lieu of us having a really technical and available scene.

I don’t think it’s actually particularly easy to find co-founder engineers or engineers in general in the valley. I bet we’re going to feel this way everywhere…

Jared Franklin, product manager at Bill Me Later:

Thanks for posting the responses in “Baltimore Area Leaders Sound Off on Startup Scene.” I completely agree with those who cited the lack of support and production from our Universities in the area. I graduated last year from Loyola as an MIS major and now work for PayPal/Bill Me Later as a product manager. I would never have landed the job if I didn’t intern for Bill Me Later 20+ hours a week for 2.5 years of my time in college. School simply isn’t enough.

Our MIS major consisted of <10 graduates in the 2010 class and I'd consider it to be the most "entrepreneurial" major at the school. Our biggest class in the business school were either general business majors or finance majors. The school did not do enough (or anything) to teach students what other majors existed or what type of jobs they help you develop skills for. Additionally, the MIS majors capstone project consisted of a business plan and a non-functioning prototype of a web product. However, a portion of a semester and lack of coding skills did not help. I wish they paired us with the CS majors to develop a product together. This would have been beneficial for both the MIS majors and CS majors. I find myself in the same predicament now, one year out of college. I generate ideas (for projects outside of work) but need someone who can code. I was exicted to see Bob Blonchecks point of view stating that he thinks we have a lack of non-technical entrepreneurs.

Anyway, thanks for the post. It was great.

Please feel free to post YOUR thoughts and comments!

• Adam Bachman wrote an interesting response, citing a paper by Dr. Saras Sarasvathy I’d also referenced.
• Keith Casey had a couple of interesting tweet responses. [one, two]

What are YOUR thoughts about East Coast startup culture?

There’s been a lot of speculation about Google’s plans to deploy Gigabit fiberoptic Internet. Where will they deploy? What are the criteria? How many homes will they serve? Will they favor cities, or rural areas?

Your guess is as good as mine. But as a part of the global tech community and as someone who has spent a lot of time at Google and with people from Silicon Valley, these are my guesses about what they might do.

Cities Offer Higher Returns

Cities have the kind of density required to deliver a lower cost-per-home deployment. Less cable, a single point of negotiation and contact, and the ability to deploy using lateral construction from fiber conduits means lower overall costs.

Multi-family housing means more customers per square mile. Baltimore has a city-owned conduit system which can serve over 90% of the area of the city — without requiring the use of poles or negotiating with third party utilities.

Rural Areas Cannot Be Served Profitably

Telephone companies receive funds from the Universal Service Fund to subsidize service in areas that otherwise cannot be profitably served. Google is not subject to the regulatory framework (Communications Acts of 1934 and 1996) that would give it access to USF funds; in fact, it has every incentive to fight to avoid falling under such regulation.

Google is not a charity, it’s not being subsidized by the government, and it is not a monopoly. There is no special reason why Google should care about making services available in rural areas, and there is certainly no profit motive. Rural service requires fuel, vehicles, and people on the ground. Every part of this is expensive; it’s why it loses money and why it has to be subsidized by USF funds.

Google simply has no motive at all to serve rural areas. I’ll eat cat meat if Google selects a rural area for this trial. It just won’t happen.

Tech Is Opinionated

Google has opinions. In the tech world, people take a stand: Google and Apple both expressed strong opinions about how a smartphone ought to operate. Opinionated software is an emerging trend in software tools. Software designers bake their opinions into the tools they create. People who use those tools end up adopting those opinions; if they don’t, the tools become counterproductive, and they are better off using different tools.

There is every reason to believe that Google’s opinion is that the suburbs are obsolete, and that that opinion will inform their strategy for building out a fiber network. Here’s why Google likely believes the suburbs are obsolete:

1. Suburbs rely on car culture, which consumes time; that’s time that people can’t spend on the Internet, making money for Google.
2. Suburbs are not energy efficient, requiring lifestyles that generate more CO2 emissions. Google has said it wants to see greater energy efficiency in America.
3. Google CEO Eric Schmidt has said he wants to see America close its innovation deficit. There’s nothing innovative about the design of the suburbs. It’s a tired model.
4. Schmidt has supported Al Gore politically and in his efforts to combat global warming. Regardless of what you might think of Al Gore or global warming, we have a pretty good idea what Google thinks of the issue.
5. Gigabit Fiber in cities could utterly revitalize them. We’ve been looking for ways to fix our cities for the last 50 years. The last renaissance was powered by large-scale economics; a new renaissance can be launched with large-scale communications investment.
6. Google’s employees are young, idealistic, and believe in self-powered transportation. It’s worth pointing out that the Google Fiber project lead, Minnie Ingersoll, is an avid cyclist.

The Suburbs Are Done

I’ve said it before. So have others. But I’m not promoting that they be subject to some kind of post-apocalyptic ghettoization, either, so calm down. No one’s threatening your commute or your backyard barbecue.

But what I am saying is that at some point we need to take a stand about where we’re going to invest in our future. About where we believe we can regain competitive advantage and efficiency.

I believe our only hope to do that is with smart, well-designed urban cores, connected with world-class communications infrastructure and fast, green, and efficient people-powered transportation. And I think Google believes that too. Bet on it.

Over the last few weeks I’ve been working with Baltimore Mayor Stephanie Rawlings-Blake, a diverse group of volunteers, my friend Tom Loveland (the Google Czar), and other city officials to organize a response to Google’s Request for Information regarding a potential investment of high-speed 1Gbps fiber-to-the-home Internet infrastructure.

Along the way, something remarkable happened.

We laid out a case for Baltimore, and it’s compelling. While other cities have been pulling stunts to try to get Google’s attention, we’ve been assembling a data and fact-driven case for why Baltimore in 2010 is uniquely suited to innovate with the addition of high-speed fiber infrastructure. Google’s corporate culture is famously and relentlessly data-driven. We’ve answered the questions completely, and have highlighted Baltimore’s unique strategic qualifications. We didn’t just stress “how badly we want this,” we built a concise, logical, and detailed case for why Google should want us.

While it’s probably been obvious that we have been working hard and generating press, the public is not aware of our overall strategy, and that’s partly because we have not been able to talk about all of it. Here are some of the reasons why Baltimore can and very likely will win this trial.

Baltimore is unique in that it owns and operates its own expansive conduit system; most cities do not, and this means that Baltimore can deploy a new network faster and less expensively than other cities can.

Baltimore is home to the only philanthropic field office of Open Society Institute, and founder George Soros (the world-famous financier) has pledged to support a Google investment in Baltimore with programs to help alleviate the digital divide. He has urged Google to select Baltimore as the site of this trial, citing the same reasons that Soros selected Baltimore for his philanthropic efforts.

We’re also working with Bob Kahn, co-inventor of TCP/IP to talk about new ways to archive and share municipal data. Mr. Kahn’s counterpart is the other “father of the Internet,” Vint Cerf, who is now a senior executive at Google. And we believe that Cerf will be helping to review these submissions.

We worked with the Economic Alliance of Greater Baltimore, the entity responsible for marketing Baltimore to the business world at large, to shape our messaging and ensure that we had factual economic data. The Greater Baltimore Committee collaborated to align its business members with the effort, securing letters and videos of endorsement from dozens of key large employers.

Last week, the FCC released its National Broadband Plan and one of its authors is a Baltimore City resident. We sought his counsel and advice.

We aligned support of our corporate community, including Under Armour, T. Rowe Price, and dozens of other companies. We received the enthusiastic support of Johns Hopkins University, The University of Maryland System, Loyola University, and a long list of other schools. Gilman School suggested that it could share its K-12 curriculum with the world with the addition of gigabit broadband.

The Space Telescope Institute produced a stunning, compelling video with astronaut John Grunsfeld.

We’re highlighting our burgeoning music and film scenes. In 2008 Baltimore was voted Best Music Scene by Rolling Stone, and the MICA-produced documentary “Music for Prudence” was just awarded an Oscar.

Urban development author James Howard Kunstler addressed the Downtown Partnership just yesterday, making the case that Baltimore is poised for a population explosion as we enter into an era of urban “redensification.” I share that vision and believe that high speed infrastructure is one of the most important urban design investments we can make today.

In this process, we have articulated a powerful vision for the future of Baltimore, and that vision isn’t going away. We’ve identified our key strategic strengths, and they are the foundations for our shared future. We can’t control whether Google will choose to make an investment here. But that’s not what is most important: we’ve built a case for why we should be investing in ourselves. And that’s a message that resonates with everyone from carriers and broadband providers to prospective residents and businesses.

We have several “aces in the hole,” and our prospects are beyond strong: we’re feeling lucky, as they like to say at Google. But frankly, if Google chooses not to invest here at this time, we should seriously consider making this investment ourselves — the returns would be immense.

This week saw the ending of a tragic saga that has been decades in the making. Baltimore Mayor Sheila Dixon negotiated a plea agreement to obtain Probation Before Judgment in which she promised to resign as mayor within 30 days. She entered an Alford plea, in which she did not admit guilt but admitted that the prosecution had sufficient evidence to convict her.

But the real story here isn’t about Dixon; it is about the long-term systemic abandonment of public life by the American citizenry.

And I use that term loosely. Americans take a cynical eye towards civics and citizenship. Public servants are routinely portrayed as buffoons and as half-witted wards of the state. Politicians are universally derided as corrupt, megalomaniacal, and intensely self-interested. Depending on the election, Americans vote in anemic numbers. Children are no longer seriously raised with the idea that civic engagement or public service is a kind of higher calling.

We are now consumers of politics rather than participants in civic life. And the accompanying “fanboyism” that we see in consumer behavior has effectively destroyed intelligent political discourse. Presumably somewhere out there there is a sticker of Calvin Elephant pissing on a Democrat Donkey. Enough.

The Dilemma of the American City

A confluence of factors over the last 90 years has drawn people from the urban core to the suburbs: air quality, the invention of the automobile, the Great Depression, unchecked suburban planning, school policy, racial prejudice and realignment, blockbusting profiteers, the end of urban manufacturing, ineffective urban planning, drug use, tax imbalances, poor transportation infrastructure, and incompetent city governments.

This has resulted in cities that have neither the tax base nor the level of civic engagement required to operate. The politicians do not have the skill or vision to initiate meaningful change. The population wants improvement and change but is often unwilling to exchange their short term interest for any long-term good. Surrounding jurisdictions point fingers at the city, and the problems become self-reinforcing. For each day that our cities slog on in dysfunction, the more people are convinced that dysfunction is a permanent and intractable condition.

To change things in the long term, we need to attract people back into our cities. And there are workable strategic reasons why this is possible: cities provide real competitive advantage, particularly for industries based on ideas and information.

Urban Feudalism

It is not a coincidence that the graft case against Dixon was centered around her relationship with multiple developers. This 2008 City Paper article gives a good sense of the shadowy web of relationships surrounding the Mayor, her predecessor, and developers.

It requires a special kind of optimism to think that the gift cards, cash, and other baubles that Dixon received were anything other than bribes. While it is laudable to offer her the benefit of the doubt, the reality is that she did receive these gifts from developers. And developers have more impact on the design and function of our city than any other single business constituency.

While we can defend Dixon’s sincere love for her city, her ambitious agenda, her mostly-functional administration, and her political bravery, the tragic truth is that she fell victim to the inherent flaws of the very place that made her. The culture of personal gain over civic duty is pervasive and inescapable in Baltimore. And the government accurately reflects the values of its people.

Our cities plod along, hostage to the special interests and powerful “players” to whom we have consigned our urban future. We have enabled and continue to refine a new system of urban feudalism, its landscape populated by warlords each concerned with their own particular brand of self-interest. There is precious little difference between a corner drug dealer and the Mayor of Baltimore when everybody’s on the take.

A Path to Recovery

It is easy to complain about American public life and politics, and real solutions are hard to find. James Fallows argues in this Atlantic Monthly article that while the American system of government has been horribly hamstrung by special interests, the only hope we have is continued engagement. He argues that we cannot divorce public life and the private sector, as both fail when that happens.

I believe there may be yet another pathway forward, inspired by the great American thinker and architect Buckminster Fuller’s quote: “You never change things by changing the existing reality. Instead, build a new model that makes the existing reality obsolete.” If there is a way forward it is in this direction.

Public Life Without Politics

We have become accustomed to the idea that participation in public life comes only in the form of elected office or through lumbering nonprofit organizations. But there is an emergent form of public engagement centered around alignment behind ideas. The Internet has enabled likeminded people to converge both online and in the real world to achieve amazing goals, all without the burdens of machine politics and the slow-moving governance of nonprofits.

American cities offer an exceptionally strong opportunity for our country to return to competitiveness on the world stage. Compact, efficient, and diverse, our cities are platforms upon which we can design an economic life predicated on two key core values: respect for place, and respect for people and their time.

If we truly love our place and our people, competitive advantage will flow naturally from there. Embracing our cities is a pro-business agenda. It’s a future where everyone wins.

An Apolitical Future

Until recently, the flow of information to citizens has been imperfect and incomplete, and political parties have acted as proxies to enable people with similar values to coalesce.

But as information flow becomes more perfect and attitudinal alignment can occur in higher-resolution ways, political parties may no longer be effective channels for achieving important public goals.

To the extent that people can rally around goals and achieve real results using apolitical modern organizing efforts, we may find that the future of public life lies in individual action rather than in elected office or in nonprofit organizations.

Our country’s future demands that we find the answer.

This was originally written as a guest post on Gus Sentementes’ BaltTech blog for the Baltimore Sun.

What if there was a place where freelancers, creatives, entrepreneurs, and financiers could meet up to collaborate on up-and-coming startup ideas? That place exists today, and it’s called Beehive Baltimore.

On October 1st, Beehive Baltimore will celebrate its first nine months of operation as a coworking facility, located in the Emerging Technology Center in Canton.

If you’re not familiar with coworking, it’s a shared workspace for creative professionals who might otherwise work at home or in a coffee shop. These days, anyone who works primarily via laptop and the internet is a great candidate for coworking!

Beehive Baltimore opened February 1, 2009 specifically to cater to these kinds of professionals, and the Beehive community now has over 40 members including people in web design, programming, marketing, public relations, finance and other information-based industries.

Last Thursday, we held an open house at the Hive for prospective members and others in the community to stop by, meet some of our members, and find out more about what coworking is all about.

Beehive is designed to be a community of peers, and does not aim to make a profit. Working in partnership with the Emerging Technology Center in Canton, Beehive aims to connect freelancers, seasoned entrepreneurs, and other professionals via long-term relationships that lead to mutual benefit – and possibly to new startups!

The Hive (as we call it) has also already given birth to multiple events and meet-ups that might not otherwise have a place to meet. Some of the groups that we either have hosted or have helped create include:

• Baltimore Angels (an angel investment group)
• Baltimore Hackers (a computer language study group)
• Baltimore/Washington Javascript meetup
• Baltimore Flash/Flex User Group (a group for users of Adobe’s Flex platform)
• Refresh Baltimore (a web professionals group)
• Barcamp Baltimore (a user-generated tech conference)
• TEDxMidAtlantic (coming on November 5th)

On October 1st at 12pm, Beehive Baltimore will host its first “Show and Tell” event, where participants are invited to share their projects, startups, or prototypes and get feedback from the group.

And on October 15th, Beehive Baltimore will be recognized by the Maryland Daily Record as an “Innovator of the Year.”

Several Beehive members and affiliates will be providing some guest posts for BaltTech over the next two weeks while Gus Sentementes is on vacation. So stay tuned for some voices from the Hive over the coming days!

Beehive Baltimore is part of a large coworking movement. Hundreds of cities all around the world from Los Angeles to Charlotte to Paris to Shanghai have implemented coworking facilities, and we see ourselves as connected to these communities.

And so coworking looks to be an integral part of the tech startup ecosystem – where entrepreneurs, creative talent, and angel investors can all come together to talk about the Next Big Idea.

To find out more about Beehive Baltimore, visit http://beehivebaltimore.org or email info@beehivebaltimore.org.

Approaching Baltimore by train from the north, as thousands do each day, a story unfolds.

You see the lone First Mariner tower off in the distance of Canton, and the new Legg Mason building unfolding in Harbor East.

Quickly, you are in the depths of northeast Baltimore. You see the iconic Johns Hopkins logo emblazoned on what appears to be a citadel of institutional hegemony. It is a sprawling campus of unknown purpose, insulated from the decay that surrounds it.

Your eyes are caught by some rowhouses that are burned out. Then some more: rowhouses you can see through front to back. Rowhouses that look like they are slowly melting. Rowhouses with junk, antennas, laundry, piles of God-knows-what out back. Not good. Scary, in fact. Ugly, at least.

Then a recent-ish sign proclaimig “The *New* East Baltimore.”  Visitors are shocked to see that the great Johns Hopkins (whatever it all is, they’ve just heard of it and don’t know the University and the Hospital are not colocated) is surrounded by such obvious blight.

Viewers are then thrust into the Pennsylvania Railroad Tunnel where they fester, shell-shocked for two minutes while they gather their bags to disembark at Penn Station, wondering if the city they are about to embark into will be the hell for which they just saw the trailer.

Appearances matter. Impressions matter. One task that social entrepreneurs could take on to improve the perception (and the reality) of Baltimore would be simply this: make Baltimore look better from the train.

We know that the reality of Baltimore is rich, complex, historic, beautiful and hopeful.  We ought to use the power of aesthetics and design to help the rest of the world begin to see the better parts of the city we love.

Author’s Note: my father-in-law Colby Rucker was the one that first pointed out to me how awful Baltimore looks from the train.  It was on a train trip from New York to Baltimore today that I was inspired to jot down this thought.

If you would like to read a good book about how places can make you feel and convey important impressions, read The Experience of Place (1991) by Tony Hiss (son of the controversial Alger Hiss). They were both Baltimoreans.

Here in Baltimore there is a great deal of uncertainty about the future of journalism, as there is everywhere. I have been involved in organizing some efforts by local new media publishers to study options for the future; my interest in this topic is purely personal.

Yesterday I attended a two-hour symposium arranged by the University of Maryland’s Merrill School of Journalism. In attendance on this panel were Monty Cook (Editor, Baltimore Sun), Tim Franklin (Former editor, Baltimore Sun), Jayne Miller (WBAL Television), Jake Oliver (Afro American Newspapers), Mark Potts (founder, WashingtonPost.com). It was moderated by Kevin Klose (former president, NPR) and sponsored by Abell Professor Sandy Banisky.

The discussion was mostly a paean to times long gone: to well-staffed newsrooms rich with sources, and benefit plans to match. It was an apologia from television to print, explicating the ability that cable-subscriber funded news operations have had to survive via subsidies that the press could never extract. It was a cursory overview of myriad efforts to invent new modes of journalism online. And it was a predictable declaration of heresy: “these so-called wanna-be websites” (Jake Oliver) “will never hold a candle to traditional journalism.” (Jayne Miller)

I quote directly.

And herein lies the problem. As observers, these trained journalists accurately state that a small, unfunded website run by “these kids” (many of whom are 20 year veterans of the press) can not effectively compete with some imagined newsroom of the past. However, these “small unfunded websites” are just starting out. They will grow. And these imagined news operations no longer exist, and the ones that still do are shrinking. The old and the new are on a collision course.

While the traditional media sticks its head in the sand and belittles the startup efforts of entrepreneurs and journalists, the world is shifting beneath its feet. And all the time spent on internal infighting, in denial, in testimony before congress, and in bankruptcy courts is time not spent reinventing the future of journalism. Their legacy costs, on health plans and labor unions and real estate and “right-sizing” are costs that aren’t being spent solving the market need.

What are the odds that the existing companies (the ones with the problem) will be the ones who come up with the solution? They are astronomically small. That’s almost never how things play out in markets.

A new, reasonably-funded journalistic startup today has access to all kinds of assets: a large pool of trained, laid-off journalists; incredible inexpensive distribution technology in the form of web, mobile, and Kindle; a motivated pool of citizen journalists; and most importantly, a startup mindset that is focused on being lean, nimble, and experimentational.

If I had to bet on whether a bloated 172-year old company that’s in bankruptcy will find the model, or whether it would be one of a field of startups, I’d bet on the field of startups every time. Why wouldn’t you?

The only coherent argument against new startups is really one of mass and heft – both in terms of startup capital and in terms of depth of connections. However, it is reasonable to expect that a reasonably-funded startup staffed with experienced businesspeople and journalists is going to be every bit as rich with contacts as a comparably-sized post-bankruptcy old-media concern. The difference? Less legacy DNA, less legacy expenses, and a lean, nimble, humble mindset that’s focused on finding the answers in an open market.

Failure of Imagination

Just as the failure to prevent the September 11 attacks was attributed to a “failure of imagination,” we see a comparable failure of imagination in journalism today.

The traditional media companies fail to imagine what the confluence of web, mobile, and citizen journalism might ultimately be able to deliver, and that it might be better than anything journalism has delivered to date.

Potential funders see all options as risky and want to bet first on “traditional” outlets. They see these brands not only as less risky, but as a restoration to a prior order.

“Restorations” are not how markets work. Things don’t get restored. They are creatively torn apart and reassembled.

The first investors to imagine the possibilities present in new journalistic startups will ultimately reap the rewards; rewards which will never be seen again in newspaper companies.

The companies that bring you local news today will most likely not be around in 10 years. A host of new companies will take their place.

The only question for those in the industry today is whether they want to be part of those solutions.