A Few Thoughts On Industry Clusters And Startups

If I suggested a way for your clean energy startup to set-up shop near a bunch of companies involved in things like renewable technology and the smartgrid, what would you say? If I sweetened the deal and told you the list of companies included a few of the Fortune 500 and a slew of established mid-market companies, you’d probably say, “sign me up!”

So goes part of the argument for industry clusters, a term that Harvard Professor Michael Porter explored in the late 1990’s. And with the economy in somewhat of a rebound, there’s more discussion around how industry clusters can spark regional growth. But there’s obviously more to it than filling up business parks with like-minded corporations in similar verticals. Or is there?

recent Forbes piece highlighted an industry cluster in the Midwest, where a smaller startup was able to ramp up operations because of its alliance with a larger, more established company.

Vadxx Energy has gained a lot of value from being part of an active cluster of advanced energy companies and organizations. In fact, one of the big reasons our partnership with Rockwell Automation occurred was because of Vadxx’s participation in Northeast Ohio’s advanced energy cluster. Joining forces with a credible, multinational company has helped us accelerate our commercialization activities, raise additional capital, and attract new customers.”

But proximity and a burgeoning market only guarantee so much. It starts with human capital, driven by the innovators and risk-takers that comprise much of the entrepreneurial community. That’s where I see the bridge to Austin’s community, as well as its strength.

Washington Post columnist Vivek Wadhwa amplified that point.

“A recent analysis of 1,604 companies in the five largest Norwegian cities underscores what’s missing from this prescription for a knowledge economy: people. The prerequisite for a regional innovation system is knowledgeable people who have the motivation and ability to start ventures. To succeed, these people need to be connected to one another by information-sharing networks. Basic infrastructure is always needed, but fancy science parks and big industry are just nice to have.”

Now granted, Norway (and other Scandinavian countries) isn’t the most culturally heterogeneous region by any stretch. But more importantly, its leaders are committed to maintaining global ties and welcoming new ideas and inputs — outside of their regional comfort zones. Without that, as the study concludes, regional and national clusters are mostly “irrelevant” to innovation.

Whatever the results, Austin is a classic fit for much of the positives associated with clusters. When you add in the emphasis on human capital, strong industry segments, and access to a top-tier university, it’s hard to see how doubling down on the idea doesn’t make sense.

NYT had a recent piece on manufacturing, but I was more interested in this stat on where most of the R&D activity in the US takes place.

“American multinational companies that account for about 84 percent of all private-sector (non-bank) business R.&D. in the United States still place about 84 percent of their R.&D. activities in the United States, often in clusters around research universities..”

Again, manufacturing aside, that’s a big percentage of spending that hovers around clusters. And Austin’s familiar with the scenario, especially with Austin Technology Incubator’s alignment with the University of Texas and the fact that accelerators are moving closer to downtown hotbeds of startup activity. And that R&D spending? It’s companies like Dell, Facebook, Samsung and others spending those dollars.

So whether or not you buy into the cluster concept, here’s an excerpt from a recent ITIF report on cities and innovation I’ll leave you with.

“One reason why technology industries drive income growth is that average wages in high-tech clusters are $63,970 versus $43,180 in non-high tech traded clusters. One key factor that appears to drive higher incomes in a region is a higher share of employment in knowledge-based industries.States with higher concentrations of knowledge-based industries, including professional services and high-tech manufacturing, have higher incomes.”

 

Startup Figures Are Encouraging

The bright spot in this report is that 140 million entrepreneurs around the world say they expect to add at least five new jobs over the next five years. That’s why we think entrepreneurship is the economic engine that will revive our international economy

Here’s An Interview I Did With Austin Startup 9WSearch

If you wanted to start a company based on the financial markets, Austin might not be your first choice. Technically, for 9WSearch CEO Susan Strausberg, it wasn’t. “My husband and I picked Austin to start a green-oriented business, but it took a little longer than expected,” said Strausberg.  ”So we went back to our roots and started 9WSearch.” 

Those roots run the deepest in financial services, and with Strausberg’s track record in the industry, it probably doesn’t matter much where she sets up shop.

“We’re creating a new paradigm for the presentation and consumption of financial information,” said Strausberg. In the mid 1990′s, she had similar aspirations as the co-founder of Edgar Online, whose model accelerated as the SEC mandated that information had to move online. This time, it’s another ruling that’s proving to be a catalyst.

In 2009, the SEC ruled that companies would have to provide operating data in an easy to use format, opting to push forward with theeXtensible Business Reporting Language, or XBRL. That opened the floodgates for 9WSearch and others. Now companies had a standard to work with, making the development and delivery of specific apps and services much easier. Strausberg says the XBRL mandate, coupled with the fact that between eighty and ninety per cent of companies have a basic commercial or industrial classification, 9WSearch can create a curated view of company data and financials.

“We can create a custom template that gives our clients a tailored view of a company’s core information,” explained Strausberg. Her team has already accomplished much of the heavy lifting, so templatizing a business sector or company profile is a snap says Strausberg. They’ve essentially cleaned up some of the finance-speak and distilled the data down to simple and understandable terms, something 9W likes to describe as “actionable intelligence.”

Co-founder and CIO, Marc Strausberg, says there are more than 18000 tags that were approved under the XBRL mandate. So while the delivery is standardized, there’s still a big challenge fitting all the terminology into a standard taxonomy.

“The reality is many of the descriptions don’t add a lot of value, and what 9W does is surface the items that have value to an end user,” said Mr.Strausberg. He gave the example of an energy company that might be reporting on the success of its exploration efforts. “If we have 200 oil and gas companies and can whittle things down to “dry holes,” we’re saving people a significant amount of time,” he added.

Its filtering and curation expertise is really where the company is banking on separation from its competitors. Although finance is one of the largest silos on the web, mobile access to this information is severely lacking. Both founders also say they plan to involve their early freemium customers in the process of determining what the marketplace will want. In addition, 9W currently has basic social media capabilities, with the ability to share across most social networks.

On the customer front, 9W says it doesn’t have one ideal segment, but there are some obvious ones. Knowledge workers inside corporations should be easy pickings as 9W launches, especially as the company adds vertical product sectors.  It also wouldn’t be a stretch to see LinkedIn, Salesforce or other B2B software providers take a serious look at its portfolio. Salespeople, HR managers and certainly the C-Suite are used to buying and integrating content for the business. The difference in 2012 is the modularity of those content assets. You don’t need to buy the whole package from a media company, just the niche you need.

“There’s a gigantic shift in the way people will use information and most of us aren’t educated in the fine points of finance,” said Strausberg.

Neither are most businesses.

Good Points On The Startup Pitch

There are several key elements that make or break the pitch. The first is to clearly explain the problem you are trying to solve and demonstrate how big a problem it is. The second is to clearly define what your solution is. You should state what your company does in five words or fewer.

Some investors look at the team, while others look at the market segment, and still others consider the product or service offering, so you need to define those points also.