It can be difficult to see the forest for the trees when it comes to defining what it is we in the so-called “tech community” are trying to achieve.

The confusion begins with names: some call it the “startup community,” the “tech business community,” or #BmoreTech. Whatever. I’ve been splitting these hairs for several years now, and with the help of many others and after many personal experiences with organizing groups, events, venues, and businesses have developed a simple but powerful vision for the community.

We’re all trying to build an ecosystem that looks something like this (click to enlarge):

Before we get into the specifics of this vision, here are a few basic values that underly it:

• People are the lifeblood of the community. The ecosystem requires educated, creative people. We should strive to enrich and build compelling opportunities for the people in our community.
• Businesses generate the wealth that powers our community. Strong businesses make a strong community. We should aim to make our businesses stronger and more valuable.
• There is a role for everyone. Diversity of expertise and background is essential to a strong business community. We should aspire to have a healthy mix of product companies, service companies, business service providers, and many types of venues and events for relationship building.
• We should celebrate our successes. Celebrating successes, whether they are successful exits or just milestones, is essential to creating a community that values growth, curiosity, and experimentation.
• We should connect people together.  Trust and strong relationships are a precursor to new business formation. With strong trust relationships, we’ll have more new businesses and they will be more successful.

With this in mind, here’s how this model works, step by step. It’s a cycle, and for simplicity, we’ll start at the bottom.

1. Getting into the mix. (6 o’clock) New participants, exited entrepreneurs, investors, hackers, new entrepreneurs come together via a mix of venues and events. By “venues” I am talking about spaces that offer opportunities for daily, ongoing interaction between individuals. They’re “high touch” while being “low risk.” Think coworking, hackerspaces, regular café coworking, incubators and accelerators, and educational institutions. By “events” I’m talking about one-off or periodic events that afford people an opportunity to get together, get to know one another, and try new things. (Think Bmore On Rails, Startup Weekend, EduHackDay, CreateBaltimore, etc.) New investors can participate in angel groups and pitch events.
2. New business formation, access to capital. (9 o’clock) With trust, exposure, and experience, new businesses can form. With the prolonged exposure made possible by the “mix” phase, entrepreneurs can make more informed decisions about who to go into business with and have likely had more time to refine their ideas before ever beginning. This means a lower failure rate for new startups than in a less-developed ecosystem. As for investment capital, some will come from exited entrepreneurs, some from venture capitalists, seed funds, and governmental initiatives like TEDCO and InvestMaryland. We should aim to connect investors with nascent businesses. This will happen naturally to some extent in the “mix” phase, but we should consciously encourage it; bootstrapping should also be an option.
3. Business growth. (12 o’clock) Some companies will grow to become strong product companies, others will become service companies. Some people want to grow their businesses to sell them, while others just want to build and run a great business. These approaches are all valid. We should celebrate the formation and growth of all of the companies in our ecosystem.
4. Entrepreneur exits. (3 o’clock) Some entrepreneurs will seek the opportunity to exit their businesses and capitalize on their growth. This is most lucrative with product companies. When these exits occur, we should celebrate them as successes of the community as a whole.
5. Entrepreneur returns to the mix. (6 o’clock) Exited entrepreneurs should be encouraged to re-engage with the community, either as investors or as active entrepreneurs to form new relationships and new businesses. The cycle starts anew.

That’s really it. If we can make this cycle work, we’ll have a thriving entrepreneurial ecosystem in Baltimore. (This is the exact same cycle that made Silicon Valley great, and is now working in places like Boston, Austin, and New York.)

That’s Great, But Where Do We Stand Now?

We have much of what we need in place: venues, events, investors, and businesses. But the two things we have most lacked are a cohesive vision for how this cycle is supposed to work, and also the last link in the cycle – systematically re-engaging entrepreneurs into the ecosystem.

However, just today came the news that Greg Cangialosi and Sean Lane are forming a startup accelerator in Federal Hill. That’s an example of two successful entrepreneurs getting back into the mix and re-engaging. We need more of that. But we need to make it easier and more attractive for entrepreneurs – there need to be obvious on-ramps and channels. We’re starting to get that in place.

My hope is that this vision, which I have shared in one-on-one conversations with many friends and leaders to much enthusiastic agreement, can now take root as the underlying force that animates our community.

Role of the Greater Baltimore Technology Council

There’s been much discussion about what the role of the Greater Baltimore Technology Council should be, and I submit that this vision, as I’ve articulated it here, is what the group has been moving toward for the last three years – and with Jason Hardebeck (who is himself an exited entrepreneur) at the helm, I believe we can move towards it more quickly now.

The GBTC’s job is to:

1. Help build and protect the ecosystem. GBTC should be a watchdog that ensures the ecosystem has the right pieces in place and that they have what they need to function properly. This means working with government, educational institutions, and others to ensure that the conditions required for the ecosystem to thrive are present.
2. Accelerate the cycle. The faster this ecosystem operates, the more successful we will be. Specifically, GBTC should connect people together, and celebrate our collective achievements, and help pull our educational institutions into the ecosystem. Ultimately this will pull in more smart, creative people, accelerating the cycle further.
3. Make our businesses stronger. By connecting our community together better and providing venues, events, connections, and celebrating our success stories, GBTC can help to make each of our businesses stronger and more robust. This also means connecting businesses to service providers (HR, insurance, accounting, legal) and mentors who can provide value.

For all the drama and hand-wringing, it really is this simple!

Some have wondered whether they “belong” in the GBTC. That’s something every person and entrepreneur has to decide for themselves; there are obviously many valid and valuable ways to participate in this overall vision that are outside of the scope of the GBTC. However, if you care about growing and protecting this ecosystem, and if the group can help your business grow and succeed, I’d encourage you to lend GBTC your support; it just makes good business sense, as GBTC is the only group that has been tasked with this important work.

I know that others in positions of leadership in Baltimore’s tech business community (and at GBTC) share this vision. I encourage your comments and feedback, but before reacting, you might take some time to really think this over. This is something I’ve been looking at for several years, and based on everything I know, this is the right way forward.

The Rest of the Story

Oh, and there’s one more thing.

We all want to prime this pump and get this vision more fully underway, but I also think it’s reasonable to ask how Baltimore’s tech ecosystem fits into the bigger scheme of things. What relationship should we have with other ecosystems, in our region and around the world? Is the point to win or are we trying to thrive? I’ll be touching on this topic in an upcoming post, and it should help to clarify how this vision makes even more sense for Baltimore.

Occasionally we here in the burgeoning tech community in Baltimore have paused to take stock about how far we’ve come, and what would be good to do next. About a year ago, Mike Subelsky made some suggestions on the BaltTech blog, and he’s recently identified some awesome emerging leaders who have made a real difference in the last year. Many of the ideas he identified are ones that people have taken up and run with.

In my travels in the last year, I’ve come across several ideas that are working in other places that we should consider pursuing here – in no particular order.

• Startup Weekend – Bring together a bunch of startup-minded people on a Friday, form groups, and build something entirely new from scratch by Sunday. Demo it on Sunday afternoon. I had the chance to attend StartupWeekend Seoul this summer and it was a great experience. Lots of relationships were formed and some truly great ideas were unearthed. We need a big-ish place where folks can hang out for 3 days straight and someone to take the lead.
• Girls In Tech – This organization is a global group of women who are making a real difference in the tech community. Some have griped about the name, and I agree it’s somewhat problematic – however to their credit they are trying to do their best to attract young women involved in tech and create a culture that is at least somewhat fun and edgy. Behind the scenes, its founders and main movers and shakers are some of the most intelligent and connected emerging women leaders in the tech world; with strong leaders in China, New York, and San Francisco. I promise you that a Girls In Tech Baltimore chapter would find good connections worldwide.
• Founder Dating / Find-a-Cofounder – These events have been popping up in San Francisco, Seattle, and New York in various forms. The idea here is that if you can bring together a ton of people who all have a clear intent to want to form a startup – if they can find good partners to work with – maybe something will come of it. This seems like a great way to unearth “startup-curious” folks in boring jobs and pair them up with ambitious entrepreneurs who just need a strong partner. And every other combination. Worth doing. (And it looks like a meeting may be happening next week to start the conversation!)
• Hacks and Hackers – Baltimore has the critical mass to support a chapter of this group that aims to connect journalists and tech/developer people. And entrepreneurs. News here is horribly broken and it’s going to take an entrepreneurial mindset to fix it. The sooner we can get journalists and smart startup people to get to know each other better, the sooner a new model will be discovered. Get on it.
• TEDxBaltimore – I helped pull together TEDxMidAtlantic in 2009 and 2010, and TEDxOilSpill this summer. TEDxMidAtlantic aims to throw a spotlight on a wide range of creative thinkers in and around our entire region. Mel Brennan from YMCA of Central Maryland and Open Society Institute have been discussing a potential collaboration to help produce TEDxBaltimore, which would have the opportunity to focus on Baltimore and its future potential. I strongly support this and anyone who would like to step up will find support from YMCA, OSI, and TEDxMidAtlantic. Contrary to some recent tweets, no date has been set.
• Entrepreneurs Unplugged – This event in Philadelphia features an entrepreneur on stage to discuss their story, successes, and failures. As long as they can keep from lying on stage I think this could be an extraordinarily powerful format. GBTC has had a Face2Face program for several years, which avoids the tendency that entrepreneurs have to whitewash over failings and details by pulling together a very small group over dinner. Both are awesome.
• Reverse VC Pitch Party – My friends Larry Chiang and Dave McClure have been dreaming this one up, so VC’s can do “outreach and education and stimulate deal flow.” I think it’s a great idea and I’d love to see groups like my own Baltimore Angels as well as some of the VC firms in the region get up on stage and talk about the deals they like to see, the reasons startups should seek them out, etc. A great way to turn the tables and share perspectives that are all too often misunderstood.
• CityCamp – In the spirit of BarCamp and SocialDevCamp (both of which could use folks to take the charge for updated events – we’ll all help!), CityCamp is a catalyst and a forum for talking about what’s working and what still needs to be done from an Open Government / Gov 2.0 standpoint. It’s what Baltimore City’s well-intentioned “Data Day” this summer perhaps should have been. There’s a lot of potential for involving folks from the design, architecture, and foundation community here too.
• Junto & Salons – Ben Franklin convened a regular gathering of smart folks in Philadelphia, many much older than himself, to discuss ideas of the day and to trade notes about what businesses had gone bankrupt and the like; he called it a Junto. Lately I’ve noticed an increasing number of evening salon conversations about politics, startups, tech and the like. Our friends in Philadelphia revived the Junto tradition a couple of years ago, with awesome results. We’ve discussed doing it here but it hasn’t happened yet. Are you the charismatic leader?
• Bootstrap Baltimore / Mosh Pit 2.0 – For the last two years Jared Goralnick has put together Bootstrap Maryland at University of Maryland’s College Park campus. This is a great event, and we could use something here in Baltimore that is aimed at drawing out the amazing quantity of entrepreneurial talent here in Baltimore’s many universities. A few years ago, GBTC hosted an event called MoshPit – a business plan competition for college students. We need to revive this program and meld it with something like Bootstrap. And we especially need to reach out to students in engineering, science, and the arts – not just business students.

Go ahead and steal these ideas. There are plenty more where these came from. Borrowing working ideas from other places means they have a much higher chance of success than trying to design a totally new event format from scratch. Plus, it gives the potential for direct exchange with organizers elsewhere.

If you are interested in pursuing any of these ideas, ping me – I can put you in touch with the originators of these events. And thanks again to everyone who has stepped up to make a real difference here. We are changing this city one mind at a time.

Today Twitter CEO Evan Williams announced he would be stepping down as Twitter’s CEO. Dick Costolo, presently the firm’s COO, will take over that role.

As is its custom, Twitter (the site) exploded with the news, as geeks everywhere speculated, double rainbow-like, What does it mean?

The answer is that they’re simply tending to their business. The myth that founders somehow have mythical vision and deserve important sounding titles like CEO is really mostly garbage. Founders are mostly like everyone else, except for one important difference.

Founders try things. They seek new markets and ideas where others don’t. But they seldom have all the answers. Sometimes they are even visionary, but that doesn’t always make a good CEO from a day-to-day build-the-business standpoint.

Fact: Twitter was not Evan Williams’ idea. It was Jack Dorsey’s idea. And in fact Jack was CEO of the company from 2007 til late 2008 when Williams, a co-founder and early funder of Obvious Corp, took over. (Jack, a great guy and a big dreamer, went on to found Square.)

Fact: No one at Twitter had any idea where it might go when it was created. Seriously – neither Dorsey nor Williams predicted this outcome. I’ve talked to them both about it and the fact is they were just regular guys who tried something new. They had enough resources and drive to make sure it could grow, but they really had no idea where it might lead.

The whole idea that folks like Evan Williams, Jack Dorsey, Biz Stone, Mark Zuckerberg, or Kevin Rose are well-suited to actually run the businesses they have created is pretty much a myth. But yet it’s one people seem to like to believe.

Founders have a very different personality from the sort of person required to build, operate, and grow a business financially. The sooner we can all get over the celebrity CEO complex, the better off we’ll all be.

People need to understand exactly what it takes to found a startup, and Eric Ries has gone so far to say that entrepreneurs actively lie to promote the visionary founder myth – and I agree with him.

Costolo is a genius at building a new-media business like Twitter. Williams is a persistent guy who’s willing to break new ground.

Two. Different. People.

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?