Friday, July 24th, 2009

Indy: Good Economic Development – Internet Marketing Cluster

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.

More Indianapolis Economic Development

Amateur Sports
Music Crossroads
Energy Systems Networks

Topics: Economic Development
Cities: Indianapolis

12 Responses to “Indy: Good Economic Development – Internet Marketing Cluster”

  1. Babbage says:

    Interesting article. What's funnier is that it makes me feel famous that I know people you've quoted in it. Exact Target recently announced they were expanding and leasing more office space downtown, which is good. It would also be interesting to see where these smaller companies all located their offices throughout the Indianapolis area.

  2. Douglas Karr says:

    Imagine what we could all achieve given the capital that other regions are provided! I also wonder how incredible growth would be if these industries had the backing of our state and regional governments.

    I recently put in for the 21st Century Fund and was denied without ever talking to a human being… and I've been part of a long string of successful startups here in town.

    With the startup capital, I would be able to hire sales staff and expand business opportunities. Instead, our gov is focused on 'shiny' opportunities instead of REAL business opportunities.

    When is someone going to dig deep and find out whether or not our grant funding is actually being invested in businesses that win?

    I wish we had the billionaires per capita that San Jose did – we'd be so much further along than other regions. However, we lack both the billionaires or the government skills to make great investments here.

    Thank goodness for the wealthy entrepreneurs who DO believe in solid business and aren't distracted by politics and shiny stuff.

  3. Anonymous says:

    I wonder how much IUPUI/Purdue and even Ball State has to do with the success of a lot of these companies here in town. Speaking from the talent these companies need to write the code/design the sites etc. As as grad from there working locally in a high tech area, I am somewhat biased. But none the less I have worked at several agencies, and a lot of household name national clients are serviced from here in Indianapolis.

    We have a cluster of schools here in the hinterland that pump out a lot of quality grads tailored for these types of businesses.

  4. ardecila says:

    Good points. I will say, though, that the scatter-shot approach that VC takes on the coasts allows a lot more ideas to be proven in the marketplace, with the downside of a high failure rate, whereas your observed Midwestern requirement for a solid business plan leads to a greater success rate among startups, but much fewer startups in the first place.

    The coastal model would seem to attract the creative class in greater numbers than the Midwestern model, which, as you said, tends to play off of Midwestern strengths in "traditional" business skills like sales and management. There, now I related your post to Richard Florida.. I think my job is done.

  5. Kruse Internet Marketing says:

    I note where the guy says he couldn't get funding despite his having a successful history in startups. This is where attitudes have to change, I believe, as even though money is tight local monies may be best leveraged by putting them in a state-owned bank and using the multiplier (fractional reserve banking) to greatly increase their worth. The example of North Dakota, frequently written about by Ellen Brown, is perhaps the best example of this in current terms. People, plain folk, need to have a far greater understanding of the issues that stop money from being freely available as it's needed. Here's some further reading;
    North Dakota Banking example

    If you read her stuff in general it's clear and easy to read and right now everyone needs to know more on this subject.


  6. Jefferey says:

    Im curious if these firms are geographically clustered in metro Indy. Do they prefer a certain suburban area or set of office parks or are they scattered around the metro area?

  7. thundermutt says:

    Exact Target is in downtown Indy. Angie's List is just outside downtown. I'm not sure where the other companies in the cluster have located.

  8. The Urbanophile says:

    Thanks for the comments.

    Doug, it's pretty shocking that they'd deny you without even talking to you.

    Jefferey, I do not believe the companies are geographically clustered. But that is very over-rated in a city like Indianapolis where you are 20-30 minutes from anywhere. Clustering makes much more sense in larger cities where distances are greater and traffic much worse. In the time it takes me to make my 5 1/2 mile Chicago commute via L from Lakeview to downtown – about 40 minutes – I could literally get almost anywhere in the Indianapolis region from downtown. This is even easier when you consider that like most places Indy has a "favored quarter" development pattern, meaning you would rarely have to go from far south to far north or something.

  9. Jefferey says:

    True, the favored quareter phenomenon would lead to de-facto clustering, but that wouldn't be driven by the desire of firms to be close to each-other.

  10. JG says:

    I did not hear any mention of Indiana or Purdue's business schools in these articles. I am curious to what extent they have played in this phenomenon – other than merely graduating some the owners and employees of these firms.

  11. best internet marketing strategies says:

    Nice post. I learned many more about internal marketing strategies with this post. thanks for posting.

  12. indyjrob says:

    Thanks for this post Urb. I am a marketer who uses the incredible products put out by these companies and I've long thought about how lucky we are to have this valuable cluster in our backyard. In my job I have to promote the merits of our city and it says a lot for leading edge companies to be planting roots here. The tree that seems to ne spawning from Exact Target is very encouraging and I hope it is a trend that sustains.

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