Friday, July 24th, 2009
This is the last in my two-part mini-series on good economic development in Indianapolis. As I said, there’s a reason that Indy is the fastest growing large metro area in the Midwest and is one of the best performing economically. It’s not all just good luck.
This one focuses on Indy’s internet marketing cluster. This is a group of nearly 70 companies locally that are focused on the marketing space, totaling over 1,000 employees. This includes companies that are both profitable and rapidly growing such as Exact Target (which recently raised about $75 million in VC funding) and Compendium Blogware, both based downtown. These companies are still actively hiring in the recession.
What’s good about this? Lots of things I’ll outline:
1. It’s a focused micro-cluster. It combines both emerging high tech trends such as software as as service, with good old fashioned business expertise of which Indy has plenty. Again, so many places have “high tech” strategies. But high tech is about as broad a category as can be. Neither Indy nor any other Midwest city is Silicon Valley and never will be. So having more focus in areas where these cities can bring to bear unique expertise is important. The future does not belong to the megalithic employers of yesterday. It belongs to clusters of smaller companies that in aggregate add to up to what an old school factory or corporate HQ used to bring. If one of these companies gets big, that’s great. But bigness shouldn’t be the goal. You add up a few of these clusters like this one, motorsports, etc. and you start to have the makings of a diverse urban economy.
2. It is a collection of many companies. This is important. If you only have one dominant employer in a particular industry, labor is going to think twice about taking a job there. If you are out, you’re gone. But in this marketing cluster, you’ve got lots of choices, and there are always new ventures being formed. It’s less risky to be in this business in many regards.
3. It is an ecosystem. The beauty of having lots of diverse companies within a cluster is that they create a network providing business services that span the value chain. This might be irrelevant nationally, but locally it has important benefits. If you looking to start a company in Indy, high tech or no, you can get access to most of the cutting edge marketing services you need locally and as sort of default choices. The critical resource in almost any business is management time and attention. If you start a business in Indy and want to do email marketing, you just hire Exact Target and you’re done. You can spend your precious bandwidth on other things rather than researching marketing service providers. Also, since they are local, you can physically show up at the office if there is a problem, something not to be discounted.
Jane Jacobs talked a lot about why large cities were fountains of entrepreneurship and innovation. One things she noted and illustrated with several examples was how so many new enterprises were able to find all the components and services that they needed locally. Come up with the greatest idea in the world, but if you have to scour the globe to find everything you need, you are operating at a huge disadvantage to those who have everything they need easily at hand.
4. It is building a culture of serial entrepreneurship. One of the things that has been less common in the Midwest than the West Coast is entrepreneurs who go on to new ventures after cashing out of their last one. But we see here people who have worked at multiple startups. Compendium Blogware founder Chris Baggott, for example, was also one of the founders of Exact Target. That doesn’t mean that either or both of those companies couldn’t ultimately fail, but at least there are two bets on the table that have the chance to pay off. Doug Karr, who works with Baggott as Compendium, is on his fourth company in the space.
5. It’s collaborative. The leaders and employees of these businesses know that they aren’t necessarily in competition with each other, and that anything that builds tech success in Indy only makes it a better and more attractive location for all such businesses. As Tory Burk put it, “What is impressive is the existing collaboration between these leading marketing technology companies. We all want each other to be wildly successful, we all believe Indianapolis is the greatest city to start and grow a company, and we truly support each other (through partnerships, integrations, joint events, and resources)”. And as David Castor said, “I work with SaaS companies all over the globe – but I find very few places where SaaS companies support one another like Indy.” One way they do this is through industry forums like SaaS CEO Executive Roundtable. These types of knowledge sharing organizations are critical.
6. Perhaps most importantly, these businesses employ lots of non-techies with traditional Hoosier skills. As Baggott noted, “Another point on this is that most of these jobs are not necessarily ‘Tech’ jobs. 80% or more of the employees of these companies never touch code. They deal with customers and prospects….something that really takes advantage of our strengths in Indianapolis.”
This is critical to recognize and trumpet. Leaders are trying to renew the economies of our states to be relevant in the 21st century. But so many of the targeted industries are oriented towards the educated elite – life science and high tech come to mind. If you are a lower skilled worker who just got laid off, why would you want your tax dollars going to support this? The majority of Midwesterners don’t have college degrees. How does the new economy benefit them? It is imperative that we are able to make real in a tangible way how focusing on new economy companies benefits the average person in our communities. For example, most Hoosiers don’t know much about developing software. But they know a lot about things like sales, customer service, being a receptionist or other office service worker, etc. These types of companies need those kinds of skills. Not every job is an elite knowledge worker job. And that’s actually a good thing.
7. This is an organically developed industry. This cluster spontaneously came into existence. It wasn’t a result of a top down program to create the next big industry. This means it probably has a lot more staying power. I believe that government programs can do a lot to create the conditions necessary for certain target industries to flourish, but ultimately there’s always a question of whether the industries so created can survive without subsidies. And if your town never produces industries without subsidies, that calls into question its real economic health. I’ve illustrated several examples of the “top down” type economic development success in Indy. Here is a great example of bottoms up. And it’s something that has been enabled through the pro-business atmosphere that prevails locally. Again, as Baggott put it, “What’s great about Indianapolis is, the government stays out of my way.”
So there is a lot of goodness here. I don’t want to claim this is a super-unique to Indy thing. I think most successful Midwest cities can point to similar examples. And I’m sure most cities have marketing services locally available. I’m just using this an example. Feel free to share similar examples from your city.
I think this cluster also shows one other great thing about the Midwest generally, namely that it is focused on companies that are designed to generate actual profits. So many Silicon Valley startups are about build it and they will come type products where the founders hope to find a way to make money later. Even hugely popular services like Facebook and Twitter make virtually no money.
In the Midwest, people start businesses to make money. This is probably considered a weakness versus Silicon Valley, but could it be simply a differentiated strategy? And perhaps one that is more relevant to the age we live in at that? As Doug Karr put it, “In other parts of the country, tech is tech and startup capital runs like flowing honey into any dumb idea without a revenue model. Here in Indianapolis, the leaders of our companies have grown out of hard work with solid business models.” The best known exponent of this approach is Chicago based software company 37Signals. They literally wrote the book on the topic, Getting Real, which is definitely worth checking out. Is the focus on actual business models something that could drive Midwest success in the future? Time will tell.