The actions of entrepreneurs and indeed all private sector actors are notably missing from consideration about regional economic development. In an attempt to harness the natural tendency for innovative activity to cluster spatially governments around the world provide cluster-building incentives. Lerner’s (2009) provocatively titled, The Boulevard of Broken Dreams, finds that government efforts to transform regional economies often fail to live up to their promise. Lerner suggests that government venture capital programs work best when they involve significant private sector involvement. But beyond public–private partnerships, the actions of entrepreneurs and the policies and strategies they employ may be transformational for places.
In early work, I found that entrepreneurs actively engaged with their local environments to build relationships and advocate for resources to support their growing businesses—build a cluster while building a firm (Feldman 1999). Recognizing the importance of the local ecosystem, entrepreneurs developed a geographic community of common interest around their technology. Industrial ecosystems are an efficient way to organize industrial activity but building an industrial cluster should be a means to an end—not an end to itself. In the case of Fred Carl, and others like him, there is an attachment to place that defines traditional economic logic. Entrepreneurs excel at being able to identify opportunities that are not obvious to others. Their familiarity with the history and context of a place may enable entrepreneurs to see opportunity that is not obvious to others and defies traditional analysis. But this perception of opportunity that is not obvious to others is the essence of entrepreneurial advantage. And when entrepreneurs act upon placed-based opportunity, they are in a position to apply their skills and potentially create prosperity and economic change. Certainly, the contemporary efforts of Tony Hseih (founder of Zappos) in downtown Las Vegas or Dan Gilbert (founder of Quicken Loans) in Detroit can best be described as the application of an entrepreneurial mind-set to changing local economies.
The literature has focused on questions related to how firms benefit from location and agglomeration economies. But consider turning that question on its head by asking how the actions of firms affect the places in which they are located. Internal organizational practices such as providing educational benefits and skill enhancement training, profit-sharing opportunities, and good working conditions certainly affect the vibrancy of place and the quality of capacity in a local community. In the pursuit of profits, there are private sector policies and actions that benefit places and others that are rent-seeking and destroy regional prospects. The effect of the actions of firms is a notably missing piece of the puzzle in the consideration of regional economies.
The logic of industrial clustering suggests that agglomeration economies and nonpecuniary knowledge spillovers benefit local firms. As such, firms receive an intangible subsidy that is difficult to price but empirically demonstrated to have value. Firms that benefit from external economies have a choice. They may either behave opportunistically and engage in rent-seeking behavior, deriving as much benefit from the location as possible and exhausting all potential benefit, or firms may behave benevolently and invest in resources and institutions that perpetuate the advantage, and contribute to the self-reinforcing cycles of economic growth.
The notion that investors believe in some other purpose than immediate short-term profits can also be seen in Start-up Nation, Senor and Singer’s (2011) depiction of Israel’s economic miracle. Certainly, in the formative years, Israel was not an attractive place for investments if only potential return on investment was considered. Yet, investment did flow into the country driven not by short-term monetary returns but reflecting a variety of religious, emotional, and altruistic motives. What is interesting about Senor and Singer’s story is the way that every disadvantage is turned on its head to become a source of opportunity—that is the essence of the entrepreneurial mind-set. But fundamentally the stories highlight how certain individuals can take a long-term view and make investments that are driven by a sense of duty and a belief in a future vision, rather than short run returns.
My observation is that in successful places, there are individuals that assume the role of regional champions—individuals who live and work in a region and take responsibility for stewardship of the place. This was the lesson of the Viking Saga and I would like to suggest that it is a general trend. In the management of technology in large companies, a product champion takes responsibility for furthering the development and promotion of a new product in order to improve commercial success. A product champion shepherds all the aspects of development with the objective of introducing a competitive product that will achieve high market share. A product champion is desirable because it is easy for inertia, lack of coordination, and the immediacy of short-term goals to obscure long-range objectives in complex organizations. As a corollary of a project champion, regional champions could serve a similar function at the community or regional level.
Often, the story of successful places is predicated on the story of an individual who was instrumental in creating institutions and making connections that were transformational for a local economy. Certainly, Fred Terman is often credited as having the vision to create Silicon Valley. As Dean of Engineering at Stanford, Terman was in a strong position to influence the course of events. Most famously, Terman had a garage that he lent to two of his students, Bill Hewlett and Dave Packard. Fred Terman was educated at MIT, but he moved to the relative backwater of Palo Alto, where Stanford was a respectable regional university. Terman returned to his home—the place he grew up and where his mother lived. Against predictions that he was throwing away his career, Terman demonstrated an attachment to place that was seemingly irrational at the time but worked out rather well, in large part due to his actions, or consider George Kozmetsky, who championed entrepreneurship in his adopted hometown of Austin Texas. The founder of Teledyne, Kozmetsky, created the Institute for Innovation, Creativity, and Capital (IC2) at the University of Texas and mentored over 260 computer companies in Austin. Any reading of the biography of these individuals highlights their connection to community and efforts that extend beyond immediate profit maximization. Perhaps motivated by altruism or attachment to a place or community, these individuals made a difference in the economic fortune of a place.
Ewing Marion Kauffman offers another example of a local champion. He was born and raised in Missouri and lived in Kansas City. After what the literature defines as a strategic disagreement while working as a salesman for a pharmaceutical company, Kauffman started his own pharmaceutical company. Rather than locate in the Philadelphia–New Jersey corridor, where the industry was concentrated, Kauffman decided to stay in Kansas City, a rather unlikely place in the 1950s. He named his company Marion Laboratories Inc., using his middle name rather than his last name to add legitimacy. When he sold his company to Merrell Dow in 1989, the company had grown to become a global diversified health care giant with $1 billion in sales and employment of over 3,400. Marion Laboratories was a generous employer and is noted to have provided educational and training benefits, profit-sharing plans, and employee stock options before these were the norm in start-up companies. By 1968, 20 of Marion’s employees had become millionaires, including a widow in the accounting department. After the merger with Merrell Dow in 1989, hundreds of employees had become millionaires (Morgan 1995). The impact on the Kansas City economy was significant.
Kauffman was a leading benefactor of Kansas City. Although he was not interested in baseball, he purchase the Royals in 1968 to bring major league baseball back to the city under the belief that a team was required to be considered a major city. Rather than a vanity play, Kauffman invested to make the Royals a team that developed young players. The Kauffman Foundation, while well known for developing entrepreneurship as a topic of academic study, has a strong local profile contributing to education, the arts, and social programs in Kansas City. Numerous entrepreneurs make this transition from offering good employment benefits to promoting local causes to creating philanthropic foundations (Feldman and Graddy-Reed, forthcoming).
Bo Burlingham, a writer for INC magazine, uncovered a similar phenomenon of entrepreneurs who choose to focus on more satisfying business goals rather than concentrating on the demands for continuous growth and the short-term pressures to exceed last quarter’s earnings. Burlingham discovered that instead of starting a company with the single goal of maximizing profits, these entrepreneurs focused on goals like creating a great product, providing a great place to work with great customer service, and making contributions to the quality of life in their local community. Burlingham found that entrepreneurs were motivated to find more enriched and satisfying lives. This involved doing business differently. Burlingham wrote a book entitled, Small Giants: Companies that choose to be great instead of big, that created a worldwide movement that shares practices about how to build a different type of company (Burlingham 2007) .
One of Burlingham’s examples takes place in another unlikely city, Buffalo, New York, and involves the singer turned entrepreneur Ani Difranco. Difranco could have signed with any of the big record labels but instead she started her own recording label, Righteous Babe Records. She located the company in her hometown. DiFranco uses small local companies to press her CD’s and print all the album liners, posters, and tens of thousands of T-shirts, even though she could have the work done more cheaply elsewhere. This local outsourcing has spread wealth in the local community. In addition to the record company, Di Franco has converted an abandoned church into a concert hall, created a headquarters for a touring company, and started a retail store. James W. Pitts, the president of the Buffalo Common Council, said in the New York Times newspaper, “the most laudable achievement of Ms. DiFranco was simply coming home. Hometown girl makes good and doesn’t forget where she comes from. Obviously the impact that she has made as entertainer, performer, and philosopher is extraordinary. But to come back here is a testament not only to her talent but her future—and Buffalo’s future.’’ But rather than an altruistic act, there are mutual gains. DiFranco was motivated to give some back to her home community but she also recognize that by living her life away from the Hollywood glitz, she could relate to her audience in a more authentic manner.
The early history of Silicon Valley certainly demonstrates this generosity. The Silicon Valley model of venture capital emerged not so much as a way to make money, although that certainly did happen, but as a way of engaging with the community and staying actively involved with the technology. This is exemplified in the life story of Eugene Kleiner, founder of Kleiner, Perkins, Caufield, and Byers, and wonderfully codified in the documentary, Something Ventured (http://www.somethingventuredthemovie.com/).
Unfortunately, many MBA students who wish to become venture capitalists now believe that profits and transactions are more important than relationships and the joy of being engaged with a technology. The successful Silicon Valley Venture Capital model can be interpreted as creating social capital that leverages investment capital. While some may dismiss this example as simply being in the right place at the right time, it is central to understand that opportunities are created and the capabilities are socially constructed. Silicon Valley did not have a clear early advantage in the computer industry. Examining the history, it is clear that Silicon Valley’s advantage was deliberately constructed over time (Lécuyer 2008).