Start-up is no longer a four-letter for cities recovering from recession. To the contrary, in many such cities, start-ups are helping set the stage for a viable economic future.
While venture capital may be in short supply these days, stressed communities are increasingly assuming the role of an investor, absorbing some risk for entrepreneurs that could help them gain footing in the coveted life science and technology sectors. With the aid of research parks and small business incubators, these communities are also preventing an exodus of brainpower by creating new opportunities for talent.
Lemons to Lemonade
“Before the recession, Kalamazoo had been blessed with 150 years of prosperity significantly above the national average,” says Ronald Kitchens, CEO of the city’s economic development agency, Southwest Michigan First. But Kalamazoo’s solid history in manufacturing and pharmaceuticals could not shield it from the sweeping market changes to come.
“The paper mills were closing; the market was moving to Asia,” says Kitchens. “Big pharma was consolidating. Our headquarters of the Upjohn Co. ended up consolidating twice, so we lost that headquarters status. The world was changing and we hadn’t done anything to develop the next generation of entrepreneurs.”
When Western Michigan University (WMU) stated its intent to construct a new engineering school in another city, the Kalamazoo community rallied, raising $64 million in private and public funds to create an innovation campus that would include the new school as well as the Southwest Michigan Innovation Center (a high-tech/wet lab business incubator) and the Biosciences Research and Commercialization Center at WMU, which provides commercialization expertise and research support to emerging life sciences ventures. Shortly before the incubator’s 2002 opening, Pfizer, Inc. acquired the region’s largest employer Pharmacia Corp. (formerly Upjohn Co.), and announced plans to phase out Kalamazoo operations. The city then launched an aggressive campaign to retain laid-off scientists, with impressive results.
“The closing allowed us to develop 15 companies within about a six-month period,” Kitchens says. “Almost overnight, our innovation center went from empty to full.” Now the city is nurturing a budding life sciences sector, with the aim of generating companies to serve in every step of the pharmaceutical process. Over a dozen research and engineering companies have located in the park.
“We’re trading in the traditional economic development model of hunting and killing for the farming model,” adds Kitchens. “We’re going to plant seeds and nurture and grow them here.”
From Barracks to Business
In addition to being battered by a turn-of-the-century recession, cites like Sacramento, CA, had to close thriving military bases due to government mandate. The biggest hit to the Sacramento region was the 2001 closing of McClellan Air Force Base, which at its peak employed nearly 20,000 people. To prepare for the closing, developers gathered local and federal funds to create an incubator to help transition the base’s highly-skilled civilians into self-employment. One of the first buildings to convert to private sector use was the 21,000 square-foot facility that became the McClellan Technology Incubator.
“The incubator was formed about the time of the dot-com crash, so the timing wasn’t the greatest,” says incubator board member J.D. Stack. “But Sacramento had lagged in the technology arena. We were just starting to get some traction when the crash occurred. What the incubator effectively did was offer a safety net to anyone who still wanted to give it a shot.”
This safety net cradled a number of promising start-ups based on technologies that came out of the base, such as cooling systems that have been adapted for use by firefighters at home and soldiers overseas. Currently, the incubator is also attempting to grow a clean energy industry through an initiative called Clean Start.
“We already have a lot of clean tech expertise and innovation in the region, through the University of California at Davis and Sacramento State University and the work that’s coming out of the state government support,” says Stack. Clean Start, he explains, is attempting to build companies on that foundation through programs like a business plan competition that will award $50,000 in prize money.
“We’re trying to draw some of the technology innovators and entrepreneurs in the region out of the woodwork so that we find out who they are and what they’re trying to do, and so that we can assist them into taking their companies to the next step,” concludes Stack.
In New York, civic leaders are hopeful that a new life sciences park will help deliver Buffalo from decades of decline. Buffalo’s manufacturing economy felt the sting of recession acutely, with the loss of over 21,000 jobs in four years.
New York State funded the bulk of the $131 million Buffalo Life Sciences Complex, which opened in June. The complex unites three research institutions – the New York State Center of Excellence in Bioinformatics (operated by the University at Buffalo), the Roswell Park Cancer Institute’s Center for Genetics and Pharmacology, and Hauptman-Woodward Medical Research Institute – with the region’s largest medical campus, the Buffalo Niagara Medical Campus.
“The center has been a catalyst that has led to some specific growth in life sciences,” says the Center of Excellence’s business development director, Marnie LaVigne. “It’s creating a very visible hub, a gathering point for activity across the region. But most of all it has meant retention of jobs. It has helped Buffalo stop the bleeding.”
The formation of the center accounts for 4,000 new or retained jobs since 2001. “We’re steadily creating work for the region,” LaVigne says. “Maybe not thousands of jobs at a time, but tens of jobs at a time, which makes a difference when the jobs are high quality.” The Buffalo region is currently home to 130 life sciences companies.
Though Buffalo has produced innovation like the pacemaker, diagnostic tests for cancer, major drugs for the treatment of multiple sclerosis, and artificial blood, it has historically failed to retain the economic impact of discovery, according to LaVigne.
“Unfortunately, in the past we sold our inventions to other cities. Our goal now is to make a home for new products in New York state and even southern Ontario. While we may not be able to produce the drugs right now, we have an outstanding patient population and should certainly be part of the clinical trials. We want to participate longer in the process.”
Proof of Concept
While research parks and incubators did not become a popular economic development method until the 1980s and 90s, their ability to successfully transform a local economy is evident in one of the earliest manifestations – Research Triangle Park in North Carolina.
“[The park] fully transformed the North Carolina economy,” says Rick Weddle, president and CEO of Research Triangle Foundation, the nonprofit organization that runs the park. “In the mid-1950s, when the park was being developed, the Raleigh-Durham region was one of the poorest, not only in North Carolina, but in the southeastern United States.”
According to Albert Link, a professor of economics at the University of North Carolina at Greensboro, the area’s top three industries – furniture, textiles, and tobacco – were steadily eroding due to northward migration, Asian competition, flagging demand, and loss of jobs to automation. Today, Raleigh-Durham consistently ranks among the three or four locations in the nation for both life sciences and information technology.
“Roughly one half of our employment is in high technology or technology-based industries,” boasts Weddle. “We’re at the top of the food chain. And that’s just not something we could say 30 years ago, or that most Americans communities could say today.”
The largest research park in the nation, Research Triangle Park encompasses 7,000 acres and benefits from three research universities – Duke, University of Durham, North Carolina State University in Raleigh, and the University of North Carolina at Chapel Hill.
Because of the association of start-ups with job growth and innovation, even mature clusters like the Research Triangle region continue to emphasize the start-up’s importance.
“There have been about 1,500 start-ups since 1970 in the Triangle that we have been able to track,” says Weddle. “Today, while we’re thought of as a big company location, four out of 10 of our companies have fewer than 10 employees, and eight out of 10 have fewer than 250 employees. So while we have to maintain our critical mass of companies, [we also have to] accelerate our ability to spin out, spin off, and grow up these small start-up companies.”
According to the Association of University Research Parks, there are currently over 400 research parks in the world, with just under 200 in North America. Of 72 parks who responded to the association’s 2006 survey, 60% are operating technology incubators within the park. Incubators reduce start-up failure rates by offering tenants lab space and equipment at no or low cost, and by providing services such as business plan development; management training; public relations, legal, accounting, and IT services; university interns; and most importantly, links to funding sources.
If research parks and incubators have evolved slowly as institutions in recent decades, post-recession market conditions may propel their progression.