After a 42-year absence as an investment banker and venture capitalist, I returned to my beloved city with fresh eyes, no preconceptions and many questions.
When I first arrived in 1967 as a 21-year-old Army artillery officer, Colorado Springs was a young town overflowing with bright members of my "baby boom" generation. Today it is a "sea of silver" with no discernible industry orientation in a place where the very talented young do not come. Instead people come here to retire. So I started asking questions. Like any community, our city is facing a number of issues, the most serious being a lackluster economy, that is heavily reliant on the military, and a dearth of decent-paying jobs.
The first thing I learned is that the employment situation and economy are so bad that even the most optimistic finance studies say Colorado Springs will be bankrupt in 5-7 years. We may lose our airport before then. If we do, what do you think are the chances of us attracting talent and businesses of substance? What will it do to the tourism that City for Champions is supposed to draw in?
That bankruptcy date draws closer each time an out-of-control Congress approves one more war action and prints yet another round of currency to spend on needless wars and foreign nation building when it could be applied to our schools, infrastructure and job growth. We may not be able to control Washington but certainly we can take defined steps at the city level, rather than expecting a virtually bankrupt state and federal government to save us.
Statewide, venture investments fell nearly 30 percent from 2012 to $414.8 million, the smallest amount since 2004's total of $363.2 million, according to the MoneyTree Report from PricewaterhouseCoopers and the National Venture Capital Association.
Venture capital investments in Colorado fell to a nine-year low last year and bypassed the Colorado Springs area for a third consecutive quarter. No Colorado Springs startup has landed an investment from a venture capital fund since a computer storage manufacturer
X-IO received $2 million in the first quarter of 2013. And, until the last quarter of 2012, when Cherwell Software landed $25 million, such funding had bypassed the Springs for nearly four years. With such a weak entrepreneurial environment, how are we to cure our economy with decent-paying jobs?
We don't have even a Fortune 1000 (much less a Fortune 50 or 500) company based here. So no large employer seems to be on the job and tax revenue horizon. Our venture capital environment has many bright and industrious people but it is fragmented and always undercapitalized with no coherent plan to change.
Economic engine to lift Springs
Rather just than complaining about our city's problems I met with some of Colorado Springs brightest stars of higher education, venture capital, and civic and governmental posts. I also joined organizations like the Colorado Capital Congress (I am a co-founder): a nonprofit entity dedicated to making it easier statewide for Colorado businesses of all sizes to raise money. As noble as the Colorado Capital Congress' mission is, it is not enough. Something closer to home and to our city's specific needs is required.
Clearly, the only economic engine powerful enough to stop our city's slide into bankruptcy and to lift us out of our current "financial sand hole" is jobs. Not just any jobs but decent, high quality, jobs in growing industries. All other concerns, as important as they may be, are secondary until we fire up our recovery engine.
Where will those jobs come from? Four (perhaps five) potential sources:
- Established local businesses
- Out-of-state businesses that can be recruited
- Public projects like the exciting City for Champions, the Children's Museum, and the Public Market "a year round hub of food, music, entertainment and a seasonal farmers market."
Unfortunately, other than during their construction periods, none of these three proposed public entities will create enough decent paying long-term jobs to lift our economy. They can, however, put our city in a brighter light nationally and internationally.
A possible fifth job and revenue generator could be our Colorado Springs Airport but only if we first create enough jobs to give companies and wage earners an economic reason to travel. If enough get on board, the airlines will be motivated to price-compete for business that is going to Denver or even Pueblo. As beleaguered as our airport may be, interim airport director Dan Gallagher is one of our community's bright lights. Gallagher and his board are making significant strides cutting costs and improving revenue. As promising as all this is, it will do very little in the short term to create jobs. What it can do is save our airport and save Colorado Springs from the embarrassment of losing it.
A center for innovation
So nurturing entrepreneurs and attracting businesses from out of state seem to be our city's best paths to economic health. Unfortunately, Colorado Springs is not a magnet for young, talented, entrepreneurs. Each year a graduating class of highly intelligent college students and equally accomplished discharged soldiers depart for greener economic pastures. Solving this challenge will go a long way toward having enough talent and economic vitality to build local companies and attract larger established ones.
I suggest that solution, that "magnet," is a for-profit Center for Innovation and Business Development that is unfettered by government bureaucracy.
One that can be the beneficiary of city tax accommodation (we still need to get rid of or at least suspend the user tax) and seed capital from private donors and those who would actually like to invest in and profit from Colorado Spring's success. One that can harvest intellectual property as described below. So where do we start?
Pioneered just up the road in Littleton, economic gardening has proven to be a highly successful plan to grow an economy from within rather than trying to recruit "big game" from other cities and states. Colorado Springs has a small pilot program financed by the state, but it is not nearly enough. Economic gardening identifies the "gazelles" among companies with employees in the range of 10 to 99 employees - the companies that have the largest growth potential - and pours resources into them. More financing is needed, and the national team of economic gardening experts (sponsored by the Lowe Foundation) needs to be involved in the effort in addition to the SBDC (which manages the pilot program).
Christine Hamilton-Pennell, founder and president of Growing Local Economies wrote:
"What differentiates economic gardening from other entrepreneurship development strategies is its focus on providing market research and high-level technical assistance to small growth-oriented companies. The focus is on providing accurate, timely and relevant information to local entrepreneurs about key areas such as their competitors, customers, markets, and industry trends. Armed with this kind of information, a small business owner can make better strategic decisions, avoid costly mistakes, and successfully grow his or her enterprise."
Even the best efforts to build a comprehensive innovation and finance center that can do this will likely not come soon enough to staunch what seems inevitable. But we cannot just give up. Here is what we can do, what we must do.
Based on the results generated by our current entrepreneurial environment, I submit that colleges and universities should educate and leave growing and nurturing entrepreneurs to an entity that is focused and dedicated solely to that task and with no conflicting or distracting agendas. As it is now we have too many institutions competing for the money to build a true new business development and corporate recruiting center.
We need to work with those same universities, and with R&D centers and major corporations, like Lucent, that have IP which, for reasons of budgetary and human bandwidth constraints, will never see the light of day. We can use that IP to attract people and established businesses that, with our support, can turn it into actual businesses. We will conduct our search on two levels:
1) Find IP that can be acquired by purchase or via some form of consignment or partnering for the purpose of attracting promising entrepreneurs who would like to build great companies and live in "God's country."
2) Of greater and more immediate need is to find IP that is so attractive that we can entice actual operating companies to relocate to Colorado Springs. We have no national or international headquarters here. Hence no "stickiness." Case in point: When Intel hit a rough patch, I don't think it would have suddenly put 800 people out of work if it had been based here.
Our neighbor just up the road, the Air Force Academy, with its $60 million R&D budget, was just named the nation's top undergraduate research university for the seventh straight year. It could be a significant source of IP if we can cut through the understandable "red tape" associated with sensitive civil-military transactions like technology transfer. To their and the academy's credit, the present leaders have been receptive to exploring this concept. As part of the community, the academy and the Air Force can be a valuable partner in our city's recovery. All it takes is a simple technology transfer that will enrich the academy, our city and all who support and build the center that will house it. Once the academy signs on, other universities, corporations and research and development centers will likely follow suit.
Wall Street could also be prime hunting territory for category No. 2. Perhaps a "problem child" portfolio company might benefit from a change of scenery. Success fees, payable to an innovation and business development center, for helping to turn around such a company could be substantial. Retired or current CEOs who would like to create something new should also be of high interest to us.
If you know of opportunities that can be added to a target list and a plan to bring viable businesses to the Springs, I would like to hear your thoughts. To that end, I consider our current risk capital situation to be a serious indicator of where we are as a community, and that we clearly are falling behind. Our first order of business is to collect a set of performance metrics for how a region is doing.
In my humble opinion, it is past the time for the community to engage in real economic development, rather than continue to watch our serious slide. In spite of claims about the revenue potential of incremental outside visitors, projects like C4C are really passive and are more about getting a better environment for people, once they get here.
Real economic development is outward looking, in that we produce and then export goods and services outside the community thereby bringing wealth in.
Noted business author, David Greenspan wrote: "Most of the businesses I know that truly innovate over a longer period of time spend more time inverting the problem. Rather asking how to promote innovation they ask what destroys innovation? And remarkably, they stop doing as much of that stuff as they can."
Gregory Olinyk, founder and managing partner of Point-of-Reference, LLC (P-of-R), is a venture management expert with extensive international entrepreneurial experience providing analytic, functional and administrative skills in all aspects of corporate management.