Friday, November 1, 2013

unCon 2013 Session: Mass Expansion

Moderator: Russ Wilcox

Suppose you were the CEO of Massachusetts, and you wanted to maximize the economy.  What’s your plan?

I recently asked this question to a group of entrepreneurs at the unConference, a gathering of leading figures in the Boston start-up community which is held annually in the Hynes Convention Center under the auspices of the Mass Technology Leadership Council (MassTLC).

We started by reviewing the big picture:  Massachusetts has population of 6.6 million.  That is on par with a Switzerland, Denmark or Singapore.  We have 3.3 million workers, and 250,000 unemployed seeking work.  Our per capita income is $53K which is near the top in the nation and 25% above the national average.  Our 2012 Gross State Product is $400 billion.  About 2/3 of our economy is the utilities, transport, housing, retail, government and so forth that just follows along from the general care and feeding of a population our size.  About 1/3 of the economy or $125 billion is really unique.  That’s our edge.

The unique portion comes down to knowledge and innovation sectors.  These are manufacturing, professional and technical services, finance, publishing, education and healthcare.  We also get a 3% kick from tourism to the Berkshires, historic Boston, Cape Cod and the Islands.  In terms of our advanced manufacturing, we have 6 commodities that we export over $1 billion per year:  optics and instrument (which includes medical devices), electronics, computers, pharmaceuticals, plastics, and organic chemicals.  And we do half a billion in seafood exports.   Also, our exports would probably be a lot higher if they measured services rather than just goods.

Three factoids:  our inventory of houses available for sale is at a ten-year low.  Our population of retirees over 65 is 13% now and will be 20% by 2030.  Our public school kids already test #1 in the nation.
So what’s changing with our knowledge economy?  Greg Bialecki is our Massachusetts Secretary of Housing and Economic Development and his team publishes an annual report on this, and they noted 3 key trends:  1) Rise of new sectors, particularly  robots and big data, where we now have over 100 companies in each field; 2) the VC industry seems to be changing – the early part of the funnel has shifted toward a hodgepodge of angels, grants and corporate deals – and the IPO window remains nearly closed; and 3) while we are strong at innovation, our rivals are catching up and our advantage is fading on key measures:  other U.S. states have been expanding their population base, attracting R&D dollars, and importing out of state talent faster than Massachusetts in recent years.

Beyond the trends, we ought to imagine what might be around the corner that could jump out and surprise us.  In my view, Massachusetts is at risk right now of a perfect storm, because our three economic pillars are all at high points:  1) we rely on U.S. defense and R&D grant budgets to spark our innovation, but no matter how Washington budgets shake out we know those budgets are quite likely to be reduced.  Meanwhile science budgets in rival foreign countries such as China are growing, so we face a big and sudden relative drop; 2) U.S. healthcare and medical device spending have been growing faster than the GDP for years – a classic warning sign that we may be in a bubble; 3) college loans and tuitions expanded dramatically over the past decade and also far faster than GDP, and that may be another classic bubble.

What does it mean?  We should be feeling urgency!   We need to seize the momentum and change our prospects.  Let’s make some smart moves.

Luckily, what entrepreneurs do well is exactly this:  use savvy to achieve a lot with a small amount of resources.  So that’s what motivated the session topic at this particular conference.    For an hour the group debated, broke apart into smaller groups, and then came back together to share.  The observations were:
·         Our three thorniest constraints to growth are transportation, land, and young talent.  Plenty of young people do come here for learning, but many leave afterward.  Cost of housing is a major reason that talented job candidates decline to come to Boston and this comes down to towns trying preserve their scarce land.  Kendall Square is our brightest innovation center and has attracted multiple large companies to build new R&D offices there, but slow commutes and soaring rents show that we are reaching the limit.  It all adds up to a high cost of living in Boston.  That is our greatest barrier to attracting talent.  Talent is the key because it originates the value in our knowledge industries.
·         Clusters are a good strategy – creating walkable neighborhoods where young people can live and young companies can thrive in an innovative and hip environment.  The group was skeptical of past efforts to create statewide clusters however.  Everyone felt that a new cluster based on innovation must still be close enough to Kendall Square to participate in the action.  Boston’s Seaport Innovation District is adjacent to Cambridge and a good example of how to expand well.  So we ought to consider more nearby cluster locations.  Allston, Watertown, and Newton come to mind; maybe Waltham if we can extend public transport.  For economic development further north, south and west, we should consider clusters devoted to other industries and specifically advanced manufacturing.  A good way for Massachusetts to expand its industrial base outside of knowledge work is to build local factories for the high-value materials and components we invent.
·         In establishing a new cluster, the group did not feel government should fund the whole effort, but rather act as a spotlight by shining attention onto a specific square or couple of streets, so that critical mass can collect and we can achieve ignition.   We had consensus that measures such as business and design competitions, hosting connectors, funding internships, supporting STEM and coops in local schools, and generally acting as a cheerleader DO achieve a lot, for relatively little funding.  Government, towns and regulated industries should align to invest in each cluster with fast transit, available permitted land, nearby housing and office space, and top-quality utility and telecom capacity.
·         Government and business need to act in partnership to achieve the above.  A good idea proposed by State Senator Karen Spilka was to embed a few entrepreneurs into the offices of the state government to turbocharge the collaboration.

As the session only lasted for one hour and quickly become focused on igniting more clusters, we could not address the full range of issues and possibilities for smart moves by Massachusetts.  There are a few other themes that should be added and could be explored in a future session:

·         Attracting more young skilled graduates to stay in Massachusetts.
·         Promoting Massachusetts as a world center of innovation, and investing to build trade and relationships outside the Commonwealth and outside the USA.
·         Sustaining the highest US performance, and going further to out-educate Singapore and Shanghai so that our workforce is best-in-class for innovation companies.
·         In closing remarks, Senator Spilka encouraged Boston’s entrepreneurs to meet their state representatives about these issues, noting “In a democracy you have the chance for a lot of power, but that power only becomes real when you exercise it.”


By Russ Wilcox

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