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Sunday, May 25th, 2008

Economic Development Strategies, Done Right

I met a few weeks back with a group of people trying to figure out strategies for developing the life sciences industry in Indiana. One of the ideas that came out was getting a better understanding of what has worked well in the past or elsewhere in different spaces, and one of the key ideas was understanding how and why the Indianapolis sports strategy was so successful.

As a bit of a history lesson, back in the 1970’s the city of Indianapolis decided that it wanted to try to make sports, specifically amateur sports at the time, a pillar of the growth of the city and downtown. It then embarked on a 30 plus year sustained strategy of pursing that business and intelligently deciding what strategies, assets, and actions plans the community needed to have in order to make it happen. Indianapolis was just awarded the Superbowl for 2012. In a very real sense that wasn’t a bid one or two years in the making. It was a bid and an accomplishment for which the seeds were sown 30 years ago.

I haven’t done the full research on this myself, though I would love to have the leisure to dig in and write a detailed case study on it. That’s because on the surface it would appear to have all the characteristics of what it takes to have a successful, sustainable economic growth strategy.

  • There was a clear sense of vision and purpose about what was to be achieved, rooted in the local culture.
  • It was a target market that no other city had systematically pursued, and so Indy was able to get first mover advantage.
  • There was sustained leadership from the mayor’s office, and it was a clear priority of the community.
  • The effort behind it was bi-partisan. The papers are debating today who deserves credit for the Superbowl victory, Peterson or Ballard. The truth is, they both do. The Indy sports strategy was never primarily a party matter or program, at least not in my memory.
  • There was a sustained commitment over the long haul, and no expectation of immediate riches. The city has not rested on its laurels and even today continues to invest in facilities related to sports.
  • The city took a comprehensive view of its strategy, targeting not just events, but also the governing and sanctioning bodies such as the NCAA. Bidding for events was part of a holistic pitch to an organization, not just a war of incentives as a random convention might be.
  • Perhaps most importantly, the city built what Warren Buffet might call a “wide moat” business in sports. Success always attracts competition, but Indy’s strategy built a differentiated offering that enabled it to remain a premier sports event city, even after 30+ years of other cities playing catchup and fierce competition. This was rooted in three things: a “cluster” of governing bodies that created network effects locally, a strategy to design facilities and indeed an entire downtown with a major focus on hosting sports events, and building a deep bench of civic talent, from professionals to volunteers handing out water bottles, that knows how to pull off events in a first class way.
  • It isn’t just jobs, dollars, etc., but also creates more things to do and things going on in the city, which is certainly good when wanting to make people want to live there.

Now one can perhaps argue that sports hasn’t had a jobs or money payback to justify the investment. Frankly, I don’t know the answer. But it is indisputable that the city has largely succeed in the goals it set out, and that the sports business has had a huge impact on the city’s brand image nationally and internationally.

I’ll just give one example of the latter before moving on. I visited Turkey in 2002 about the same time as the world basketball championships in Indy. This event was perceived at the time as a bit of a disaster, with attendance far below expectations. The local organizers took a financial bath on it, IIRC. But the Turkish national team was a competitor, and Turkish Airlines had painted up one of their planes with a fancy basketball mural and had a lengthy article about the team in its in-flight magazine that, while mostly focused on the Turkish angle, mentioned Indianapolis several times. There was a significant amount of sports media coverage of this as well. How much would it have cost the city of Indianapolis to get its name in the Turkish press on an advertising basis? Would anyone have ever even thought to do so?

Companies pay north of $100 million just to put their names on stadiums which are only variably mentioned on TV. How much more is the “naming rights” to an event worth for a city that will get much more media exposure? I prefer to think of this sort of thing less as a direct economic development tool than as an image and brand marketing investment, and the exposures per dollar invested is probably as good or better than private sector advertising.

But I digress. I thought about this as I saw an article talking about a similar local initiative called “MusicCrossroads”. This is effectively an attempt to replicate the amateur sports experience on a smaller model, targeting primarily amateur music this time. It seems a lot of the same people are involved. It is earlier in the process, so the jury is still out on its success, but it appears to be another great potential industry. It is an untapped market where a holistic strategy of helping organizations could build a wide moat business with similar brand benefits, this time targeting a crucial cultural element. What’s more, it is again intelligently looking at where Indianapolis can be competitive, hence the city is targeting groups like non-profit marching band organizations, not trying to create a Midwest Carnegie Hall and attack NYC head on.

It’s amazing that no one has done this before. In fact, if I were the organizers I would have taken a lower profile to build up the business more before going public. You can bet some other city will see this and start copying the strategy tomorrow. You’ve got to protect your trade secrets, fellas!

It all goes back to that strategic positioning. Find out who you are, find markets you can target where you have an advantage or where there is whitespace to grab. When you see what Indianapolis has done with sports generally, motorsports in particular (a separate initiative also worth of a case study), and others I don’t have time to go into, it is clear that there are some pretty darn sharp people out there thinking about these things locally. When you see a strategy and execution like this, it perhaps goes a way to explaining why Indianapolis has been one of the Midwest leaders in population and economic growth over the last couple of decades.

This brings us back to life sciences. Clearly there is a huge buzz around this, not just in Indy, but in every city. With declines in traditional industries, and a belief that the winning geographies have yet to be chosen in this area, it is easy to see why almost every city has a plan here.

But the plans most cities have developed have lacked serious strategic depth and realistic expectations. So often you see a local medical school (which almost every city has), wrapped up with a local hospital cluster (which almost every city has – “Pill Hill” is probably one of the most common neighborhood names in America), and whatever life sciences business happen to be around (most cities have a few) into a slick marketing strategy with lots of impressive facts and figures.

These typically go hand in hand with a variety of conventional wisdom “silver bullet” or cook book programs and beliefs. Example A) take one part university research, one part venture capital, and one part government incubator, add ice, shake and serve, then companies and jobs appear. Example B) Roll out programs to cater to the “creative class”, have indie rockers and artists hobnob with twentysomething corporate employees and CEO’s, then magically your city becomes a magnet for the world’s best talent. Example C) Massive infusions of state funds are needed to lure top professors to the local university, build gigantic laboratories, and even fund basic research.

Beyond this, there’s an expectation that there is going to be a rapid payoff, and that the rewards will be reaped in a few years for less, not take decades to achieve. In fairness, some of this is driven by electoral cycles.

Compare this to the Indianapolis sports example and see the difference. Typically you see every city stampeding into a crowded market, without a differentiated strategy, no plan to build a wide moat business, and no view of a sustained, long term commitment. Various strategies are also often associated with specific politicians and parties, such a governor, that almost forces the other party to recommend something else.

I’m not going to say that life sciences is the wrong business for most cities to invest in. In fact, it does intuitively seem like something with such a potential high payoff that it just isn’t feasible to not be in the game. Like the internet, it might not be clear today how bioscience will transform business, our world, and our lives, but it seems likely to have a major effect in some way. Like a business with no internet strategy, a city with no life sciences strategy might end up a has been.

Like with the internet, there are probably going to be a handful of big winners, and also a lot of has beens and people that lost out. The real winners in the internet weren’t the random me-too companies. It was those who figured out how to create sustained competitive advantage. And it wasn’t just pure play tech companies like Google. It was boring, normal companies that figured out how to use the internet and information technology to strategically enhance their core business and drive out costs.

For any city pursuing an economic development strategy based on life sciences, or anything else for that matter, studying the lessons of Indianapolis and its sports strategy should be required. Heck, that even applies to Indy’s own economic development efforts in other areas. The two key lessons are:

  • Don’t overlook under served markets in an attempt to pursue the same goal as everyone else. A strategy based solely on life sciences or other “hot” items is likely to be a failure for all but a fortunate few. Seeking out the niche industries, like Indy is doing with music, can be a huge. This is where real clusters form.
  • Find where you can create a lasting competitive advantage, create a holistic strategy with real depth and thought behind it, be committed for the long term without expecting immediate gigantic paybacks, and have leadership from the top without becoming partisan about it.

I guess it is what I constantly say here. Cities can’t be truly successful by copying formulas from elsewhere. Of course be aware of what is going on in the world and don’t be afraid to copy the best of what others are doing. Instead, you have to organically create value, and at least some of the time come up with the ideas other people are copying.

Bonus Indianapolis News:

Property Lines is reporting that the state has put plans to open a strip of land along the downtown canal, one that had been originally left available for future buildings during the construction of a state parking garage, to development on hold. The state wants to see what the city’s preference is.

I plan a long future posting on the canal. The canal was an absolutely stellar concept where the detailed follow-through on execution created an outcome well below the potential. The fact that this is trumpeted as a total success only goes to illustrate the local trend towards judging present success primarily in terms of the immediate past instead of against the best going on in the world around, or around the potential for what could be. If new buildings replace weedy lots, that must be good in the local estimation. There’s not enough consideration of what those buildings could be, a valid governmental concern when you consider the amount of public money invested in the canal. If the amateur sports strategy was great concept, great vision and strategy, great execution, the canal is great concept, poor vision and strategy, ok execution.

While you wait for the detailed writeup, I’ll just refer the reader back to what I said about a proposed apartment development in Broad Ripple. This land clearly should be developed, as should the parking lot at the Indiana Historical Society across the street. I wasn’t sold on any of the proposals for this lot, but certainly some type of development, preferably a mixed use of higher density residential and commercial, with some public amenities like restrooms, is called for. Like the Monon, the canal is beachfront property and the result of tens of millions in public investment. The city clearly needs to reap the return on that investment, in terms of strategic benefit to the canal district, and bringing taxable property onto the Center Township/IPS rolls.

Bonus GeneralNews

Talk about attracting talent, a great article in today’s New York Times shows how that city is a huge attractor. Called “Starting Salaries But New York Tastes“, it talks about how young people desperate to live in the city engage in all manner of strategies from making a $3.50 plate of rice and beans last two meals, to sneaking vodka into bars, to sleeping in apartments crammed tighter than a freshman college dorm. While other cities beg young, educated people to move there, a heckuva a lot of young, educated people are begging New York to let them come. They are willing to endure significant hardship to live there. That shows, perhaps in an extreme way, where cities need to get. Every city that wants to attract the 21st century labor force needs to make itself a place that those people actually want to live. It’s one thing to try to retain your own kids or urge expatriates to “come home”, but at the end of the day, you need to be an attractor of people who don’t have a historical connection to a place.

6 Comments
Topics: Economic Development, Strategic Planning
Cities: Indianapolis, New York

6 Responses to “Economic Development Strategies, Done Right”

  1. thundermutt says:

    I think New York is a special case, because it is the US center for arts, cuisine, design, finance, and urban life. No matter in what field a super-ambitious young person wants to make his/her mark on the world, the place to do it is New York (for the most part).

    As you correctly point out, the best strategy for a mid-sized city is to build on (or develop) unique strengths. For decades, state capitals had an advantage in many states, as they became statewide centers for health care, finance, insurance, real estate, and engineering, all regulated professions. Those strengths are hardly unique; the ghost headquarters of banks and insurance companies in Indianapolis are testament to that.

    Only one city can be the headquarters of amateur and collegiate sports, and luring the NCAA Headquarters operation here was no doubt the capstone of the sports strategy. Interesting that you have placed the story about Indianapolis’ sports strategy just above your story about Kansas City…former home of the NCAA. One would imagine losing that organization is part of what jolted Kansas City awake to benchmarking and to developing its own unique strengths.

    (sorry for the prior delete…one or two sentences didn’t make sense when posted)

  2. Anonymous says:

    Short term thinking?

    Sad to see Indianapolis dropped out of the bidding to land USA Basketball headquarters and its events saying they didn’t have enough time considering they were concentrating there efforts on getting the one time Superbowl event.

    Unfortunately, we will be hearing a lot about the upcoming Superbowl for the next couple of years as the rest of the Indianapolis convention business continue to dwindle. City leaders need political cover for spending $1 billion plus on a over budget football stadium and expanded convention center as we loose our largest conventions.

  3. Anonymous says:

    Actually, thundermutt, the NCAA headquarters was in Overland Park, KS. Losing it had no impact on Kansas City and virtually none on Overland Park – they are doing just fine.

    I wouldn’t call the sports strategy a succesful economic development strategy. I would call it a pyramid/ponzi scheme, whereby, a consistent effort has been made to prop up each subsidized endeavor with additional subsidized endeavors, ranging from multiple stadiums, shopping malls, parking garages, hotels, luxury condos, NCAA headquarters, etc. I will admit that this persistency has prevented the pyramid scheme from collapsing. Most cities actually expect that they can sit back and watch the downtown prosper with a couple of handouts; they don’t expect that they have to continuously pour money down a rathole. Indy is more than willing to fill that rathole and make it bigger, if necessary.

    As they have already found out, the convention center expansion won’t even do what it was purported to do – bring back lost conventions.

    Successful economic development strategies involve education and infrastructure.

    Here’s an idea, instead of building 700 million dollar stadiums, maybe Indy could be become the high-speed internet capital of the world by making sure the entire city has fiber-optic or whatever the fastest method of providing high speed service, thereby attracting those businesses and entrepreneurs needing that type of high speed service while unleashing the untapped potential of its citizens.

    Sports worshipping leads to the fall of civilizations; it is not its savior.

  4. Anonymous says:

    ^
    Ha, the above poster must have been the last one picked for the team growing up.

    I think the life sciences strategy makes a lot of sense for Indy. I can’t think of any Midwestern city with as many assets to support this an initiate as Indy. In particular, the large groups of researchers at Dow and Lilly make this a natural choice.

  5. Anonymous says:

    Personally I am very excited about the recent moves Republic Airlines has made. Delta has really ruined our airport by taking over Northwest and devastating our routes. Within a couple of years I suspect you will see Froniter have an eastern hub here as well as a hub for Midwest.

  6. Anonymous says:

    Personally I am very excited about the recent moves Republic Airlines has made. Delta has really ruined our airport by taking over Northwest and devastating our routes. Within a couple of years I suspect you will see Froniter have an eastern hub here as well as a hub for Midwest.

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