Category Archives: Entrepreneurialism

Virginia Manufacturing Output Up, Jobs Down

There are more than 2,000 craft breweries in the U.S. now. Could artisan foods and beverages be the Next Big Thing in manufacturing?

There are more than 2,000 craft breweries in the U.S. now. Could artisan foods and beverages be the Next Big Thing in manufacturing?

by James A. Bacon

Manufacturing output in Virginia increased 3 percent between the 4th quarter of 2007 and the third quarter of 2015, yet manufacturing employment decreased more than 14% during the same period. Put another way, Virginia added $1 billion in manufacturing output, even after adjusting for inflation, but lost more than 40,000 manufacturing jobs, writes Aaron Williams in the Commonwealth Institute blog.

Overall Virginia employment is gaining steam. The state gained almost 20,000 jobs in the first quarter of 2016 and 100,000 jobs over the last year. But the gains were concentrated in service sectors like education, health and business services. The bastions of blue-collar employment such as construction, mining and manufacturing remained close to flat.

Williams’s commentary focuses on manufacturing. One possible explanation for increased output with declining employment is increasing productivity — the adoption of new technologies such as robotics to enable each person to produce more goods. While Williams doesn’t rule that out, he leans toward a second explanation: a turnover in manufacturing enterprises from low-value, high-labor intensive enterprises to high-value, low-labor businesses. “For example, high-end craft breweries and wineries replace textile mills and furniture factories,” he writes.

Between 2007 and 2013, food, beverage, and tobacco products manufacturing increased 40 percent while furniture manufacturing decreased 51 percent, textile mills decreased 57 percent, and petroleum and coal manufacturing decreased 65 percent. Simply put, manufacturing is a quickly changing sector in Virginia’s changing economy.

Bacon’s bottom line: Whether or not you except Williams’ analysis of the why manufacturing jobs are drying up, there is no disputing that manufacturing output is increasing while jobs are shrinking.

What does this mean for public policy? First, it calls into question the economic development priorities of the Commonwealth of Virginia — the Virginia Economic Development Partnership, regional economic development partnerships, the Tobacco Indemnification and Community Revitalization Commission, and time spent by Virginia governors on traditional economic development salesmanship — which have changed little since the model was perfected in America’s 1970s industrial-era heyday. If the goal is to create jobs, then pursuing manufacturing investment offers diminishing returns. Virginia still lands deals, but the deals offer less employment.

Another point: the high value-added model of breweries and wineries is a largely bottom-up phenomenon. While the Commonwealth has bolstered the wine industry through research, education and marketing under the auspices of the Virginia Wine Board — 2015 budget of $350,000 — please notice that the state is not in the business of subsidizing the start-up new vineyards and wineries. (Subsidies for craft breweries is a different matter, especially if they are big breweries coming from outside the state. Witness Stone Brewery.)

The trend toward local artisan food products is one that has occurred largely outside the eye of the traditional economic development apparatus, geared as it is to finding tenants for industrial parks. The Virginia’s Finest marketing campaign promoting craft food manufacturers is the exception that proves the rule. But, similar to the wine board, the support has been entirely at the level of branding and marketing… which is as it should be.

If Virginia wants to support the emerging craft economy, it needs to re-think its approach to economic development. I haven’t given much thought to which supporting structures are needed to boost the sector, but I’m pretty sure it’s not tax breaks and subsidies for individual enterprises, or industrial real estate development. The best approach may be thinking about reducing regulatory barriers and obstacles for entrepreneurs.

Hooville the Best Small City in Virginia to Start a Business?

Source: WalletHub

From the data geeks at WalletHub comes a new list of the best small cities in the country to start a business based on 15 metrics encompassing business environment, access to resources, and business costs. Here are the Virginia cities listed:

best_small_cities

The Virginia results are, shall we say politely, counter-intuitive. Northern Virginia’s “small cities” (in reality suburban communities) fare poorly while depressed cities such as Petersburg and Danville score near the top. The methodology gives brownie points to cities with low business costs, which could in theory should be helpful to any small business but in reality mostly reflects a lack of demand for real estate, labor and other business inputs.

Another issue I have is the need to distinguish between types of small business. A new Subway franchise and a cyber-security start-up are both small businesses. But the employment of the former will top out at about 15 or so low-wage employees, while the latter has the potential to grow to an enterprise with hundreds of highly compensated employees. Which one would you rather have in your community?

I see this list as being useful mainly for stimulating a discussion about the kinds of things we should measure to identify the important drivers of entrepreneurialism and economic growth.

— JAB

What Charlottsville Needs Is… More Charlottesville

Boyd Tinsley, violinist and founding member of the Dave Matthews Band, will give a free concert.

Boyd Tinsley, violinist and founding member of the Dave Matthews Band, will give a free concert.

There is nothing else in Virginia like Charlottesville’s Tom Tom Founders Festival, which launched a week-long series of events yesterday. Food trucks, craft beer, music concerts, an art bus, murals, films in the park, street dancing, a capella performances, craft cocktail competitions, a chili showdown, crowdfunding pitch night, and celebrations of arts, innovation and entrepreneurship — it’s all packed into one week.

The festival, now in its fifth year, “converges hundreds of bands, start-ups, artists, and visionaries with the purpose of celebrating creative founding,” says the Tom Tom website. “It’s a real opportunity to launch ventures amidst ideas and parties in one of America’s most beautiful and historic small cities.”

Charting a future as an arts-infused, tech-savvy economy was the theme of the Founder’s Forum opening event. “Speakers highlighted the importance of creativity as a means to boost Charlottesville’s attractiveness to businesses through education and culture,” reports Charlottesville Today.

“We will not succeed, I think, by trying to become Boulder or Raleigh,” said Mayor Mike Signer. “We will succeed by … becoming more Charlottesville.”

Bacon’s bottom line: The festival sounds like so much fun I wish I could be there. I’m envious — I want one in Richmond! Any region that can tap into the energy at the intersection of the arts, technology and entrepreneurship will thrive in today’s economy.

When I graduated from the University of Virginia in 1975, my experience at the university was so positive that I wanted nothing more than to move back to Charlottesville. At the age of 30 I managed to do so, taking a job in corporate communications for AMVEST Corporation in an idyllic location five minutes from UVa in the Boar’s Head Inn complex. But I discovered to my dismay that unless a newcomer was connected to UVa or had the bucks to join the Farmington Country Club, Charlottesville was no city for young professionals. It wasn’t long before I moved to Richmond, which I found much more to my liking. But times have changed in the past 30 years. Charlottesville looks like the kind of city where young professionals can sink roots and prosper. I foresee a great future for the region.

— JAB

Yeah, It Makes Sense for Virginia to Invest in Cybersecurity

Mackster

The Mackster gives speech at Launch Lounge event in San Francisco in March 2016. Photo credit: Richmond Times-Dispatch.

by James A. Bacon

Normally, it’s a terrible idea for government to pick economic winners and losers. Politicians latch onto fads and enthusiasms arising from the private sector but allow wishful thinking to override investment discipline when it comes to allocating government capital.

Bacon’s dictum is that if “everyone” knows a sector is hot, and “everyone” is investing in it, unless you’re the smartest, best-informed guy in the room, you’re probably wasting your money.

Twenty years ago, economic developers were chasing the semiconductor and “high tech” sectors. Today, biotech and greentech are hot — and mayors and governors around the country are mal-investing hundreds of millions of dollars in those sectors in the vain hope of triggering riding the wave to economic prosperity. That’s why I cringe when I read about the City of Virginia Beach putting money into a “biomedical” office park, and I get the heebie-jeebies when the state backs Northern Virginia’s Center for Personalized Health.

I may live to regret saying so, but I think that Gov. Terry McAuliffe may be on to something with his cybersecurity initiative. His two-year budget for 2017-2018 steers $750,000 in extra funding to Virginia’s Center for Innovative Technology (CIT) to develop an “information sharing and analysis” capability to build upon CIT’s Mach37 cyber-accelerator located in the CIT building and CIT’s investments, typically about $50,000 a pop, in cyber-related start-ups. In the grand scheme of things, the money is pocket change. The real contribution that CIT provides is acting as a relationship and resource broker for aspiring entrepreneurs.

There are several reasons why I think the cyber-security initiative makes sense for Virginia.

First, business and government awareness of cyber threats has increased markedly in the past few years. The threat is real, and business and governmental organizations are spending more money to combat it.

Second, Virginia is a major player in the industry, second only to California in the number of cyber-security vendors. Companies with cyber-security capabilities have clustered in Northern Virginia to serve the Department of Defense, the Central Intelligence Agency, the Federal Bureau of Investigation and the National Security Agency, where security requirements are high. With a wealth of human capital — thousands of IT workers trained in information technology and cyber-security — the region generates lots of new security-related business ideas. The existence of an existing business cluster and innovation ecosystem makes it easier for entrepreneurs to recruit skilled employees and forge alliances and partnerships.

Third, cyber-security as an economic development ploy has not yet become a national craze. Stupid money hasn’t yet started flowing into the industry, creating a glut of too many dollars chasing too few deals. Inevitably, that will happen, and Virginia leaders need to be alert to it. But it doesn’t seem to be happening yet.

Fourth, Virginia is not throwing around a lot of money. The added sums are infinitesimal compared to what Virginia is spending on new STEM programs at Virginia universities, the Commonwealth Research Commercialization Fund, and the universities’s share of the recently approved 2.1 billion bond package. As noted above, Virginia’s main contribution to cybersecurity is identifying entrepreneurs with promising ideas and hooking them up with private-sector partners who can help them. That is a defensible, inexpensive, and value-added role for the state to play.

Finally, the potential return on public investment is high. ThreatQuotient, a Northern Virginia cybersecurity company that received $1.5 million in seed funding from local investors including CIT early last  year, raised $10.2 million in second-round financing in December, and won recognition in a cybersecurity industry conference in San Francisco as “startup company of the year.” ThreatQuotient now employs 50 people in Reston, according to the Richmond Times-Dispatch.  Reports Michael Martz:

CIT officials estimate the [Growth Accelerator Program seed] funds leverage every dollar invested by 18.5 times, using $17.9 million in equity investments to attract $331 million in private investment in companies with a total value of $798 million. They estimate those companies will create up to 9,000 jobs in Virginia over the next five years. The [state] budget allocated $3.1 million a year to the program and requires a return on investment of no less than 11 to 1.

It goes without saying that such claims should not be taken at face value. CIT, like every other public, private or quasi-public entity in the world, is putting the best face on its performance. Still, the investment returns would appear to be orders of magnitude greater than traditional economic-development tax incentives and real estate subsidies.

There appears to be one other thing the state can do to promote this burgeoning sector. As Martz observes, thousands of cyber-security jobs are going begging in Virginia. The industry has grown faster than the ability to train people to fill the jobs. “It’s an absolute fact for our industry that the demand for talent, especially technical talent, and the supply, there’s just a disconnect,” he quotes John Czupkak, who serves on the ThreatQuotient board of directors, as saying.

As I have long maintained, state and local government can best promote economic development by doing its core jobs well: Deliver the highest quality government services at the lowest possible cost. Virginia doesn’t need to incentivize or subsidize cybersecurity to make it successful. Virginia community colleges and universities need to turn out more graduates with the skills the industry needs.

Disrupting Education and Health Care

steve_case

Steve Case

by James A. Bacon

Education and health care are the two most moribund economic sectors in the U.S. economy, plagued by lagging productivity and poor outcomes. Not coincidentally, both sectors are joined at the hip with government. Democrats are determined to preserve the status quo, while Republicans offer no clear market-based alternative. Is there any reason to think anything will change?

Steve Case, the legendary co-founder of AOL who now runs investment firm Revolution LLC, thinks that a “third wave” of Internet innovation will transform both sectors from the bottom up. He writes the following in the Wall Street Journal today:

While the presidential candidates discuss the merits of abolishing or expanding the federal Education Department, entrepreneurs are revolutionizing how instructors teach and students learn. Venture capitalists see what’s coming. Funding for EdTech startups hit $1.85 billion last year, according to EdSurge, up from $360 million in 2010. Former teachers are leading companies that are unleashing—finally—personalized and adaptive learning. While the pundits debate education policy, the innovators are in the trenches improving classrooms all across the country.

Or look at health care. As the candidates pitch plans to abolish or build on the Affordable Care Act, the real action to improve America’s medical system is coming from entrepreneurs. They are inventing better ways to keep us healthy, and smarter ways to treat us when we get sick. The revolution in health care is being led by the innovators who are working tirelessly to improve outcomes, enhance convenience and lower costs. And again, investors sense this: Last year health care companies raised a record $16.1 billion in venture capital, this newspaper reported, an increase from 2014 of 34%.

But there is no divorcing government from the process, argues Case.

Third Wave innovators … won’t be able to go it alone; they’ll need to go together. They’ll need to engage with governments, as regulators and often as customers. And they’ll need to recognize that revolutions often happen in evolutionary ways. Success will require many alliances, as well as constructive dialogue with regulators.

This entrepreneurial revolution offers Virginians an alternative to the stale and polarized alternatives of the past. Virginia may or may not be where these new companies originate and create product-development, back-office and headquarters jobs. But our approach to public policy will influence where these entrepreneurs do business first. The more flexible and open we are, the greater the likelihood of attracting investment and re-energizing our education and health-care sectors. This is a once-in-a-generation opportunity. Will we take it or squander it?

Gramercy District a Game Changer

Rendering of the Gramercy project.

Rendering of the Gramercy District project.

by James A. Bacon

Northern Virginia technologist and developer Minh Le is partnering with Microsoft Inc. to build Gramercy District, a $500 million “smart city” development adjacent to the planned Ashburn Metro station on the Silver Line, reports the Washington Business Journal. Not only will Microsoft contribute technology it will participate as an investor. (Details on Microsoft’s exact involvement are sketchy.)

“We believe that technology is going to be a major force and driver in the way people live, the way people learn, the way people socialize,” says Le, a former managing director with Accenture who has delved into predictive data analytics, big data management and software development. “What we’re looking to do is build the next great tech real estate company.”

The WBJ describes the vision:

Key to the project is the marriage of real estate and technology, Le said. Gramercy District will be a “smart city,” baking technology into every aspect of the project, from the building systems to the parking to the retail to the Internet of Things — essentially device-to-device communication. The development will be ideal for tech companies and startups, he said, as the IT systems will be in place before the first building even comes online.

Gramercy District, to be built on 16 acres, ultimately will comprise 2.5 million square feet of development. The property fronts the Dulles Greenway and is adjacent to the Ashburn Metro station, which is scheduled to open in 2018/2019. Le’s company, 22 Capital Partners, is billing the project as the Loudoun County gateway, connecting all major employment centers by Metrorail, international businesses via Dulles Airport, and visitors and tourists to Loudoun’ s wineries,farms, and equestrian events.

The site is zoned for high-density, mixed-use, transit-oriented development. The project is expected to unfold over multiple phases. The first calls for a 268-unit, seven-story luxury apartment building, 26,000 square feet of retail, rooftop amenities and structured parking. A second phase calls for more mid-rise residential as well as retail and a high-tech business center.

Bacon’s bottom line: All I can say is, “About time!” The rest of the world is barreling ahead with smart city initiatives, leaving Virginia in the dust. That’s no surprise for Richmond, Norfolk, Roanoke and other downstate metros but quite a disappointment for tech-savvy Northern Virginia. If smart cities would take root anywhere in the state, one would expect it to be in NoVa. Sadly, while NoVa’s IT industry is tech savvy, its skill sets do not appear to have migrated to the real estate community.

But it always takes someone to be first, and from the brief description I have of him, Le seems to be the logical candidate. He has a strong IT background and he obviously sees an opportunity to embed technology into a real estate development in a way that no one else in Virginia, or even the Mid-Atlantic, has done before. What’s especially interesting about the Gramercy project is that it is driven entirely by the private sector. Most smart city initiatives in Europe are government backed, as is the smart city thrust in Dubai. The only global analogue I can think of is the high-tech Sangdo business district built from scratch on the outskirts of Seoul, Korea. If Le can create a replicable business model, Gramercy is potentially a very big deal. It could be the most transformative event in real estate since the invention of the skyscraper.

What “smart city” technologies would apply? The WBJ article mentions parking — presumably, this would be dynamically priced parking designed to limit and optimize the space dedicated to parking spaces. The article also mentions building systems — that would be primarily things like energy management (HVAC and lighting), water management, security and employee access. Also mentioned is the Internet of Things. That is an exceedingly broad and vague category, but it conceivably could include such things as measuring traffic loads on Gramercy District streets to coordinate with stop lights, parking and mass transit.

It is highly encouraging that Le will be applying the “smart city” technologies in a “smart growth” district of mid-rise, mixed-use buildings with Metro access. I will be especially keen to see if he develops a “mobility as a service” application like the projects being pioneered in California that, as a substitute for car ownership, would provide subscribers access to an array of transportation options from Metro rail, commuter buses, vans, Uber-like ride-hailing services, and automobile rentals. That, I believe, is the future of transportation and a far more likely savior of Northern Virginia from its traffic congestion headaches than anything the state has planned.

I may be reading too much into a single news article, but I feel safe in predicting that Gramercy will be the most significant real estate project in Virginia announced this year, if not this decade… if not so far in the 21st century.

Another $100 Million for Venture Capital? Who Is Accountable at Inova?

Inova CEO J. Knox Singleton (left) with Governor Terry McAuliffe and George Mason University President Angel Cabrera announcing Inova-GMU strategic partnership. Photo credit: The Connection.

Inova CEO J. Knox Singleton (left) with Governor Terry McAuliffe and George Mason University President Angel Cabrera announcing Inova-GMU strategic partnership. Photo credit: The Connection.

by James A. Bacon

In February Inova Health System announced its intention to create a $100 million venture fund dedicated to precision medicine, an initiative timed to coincide with an Obama administration event highlighting the nascent science, and designed to support Inova’s own $300 million plan for a center for personalized health just outside Tysons Corner.

From an economic development perspective, such a fund is just what the doctor ordered for a Northern Virginia economy overly dependent upon defense, intelligence and homeland security funding. The giant health system has signaled its willingness to spend what it takes to build a nationally recognized medical R&D hub centered on preventing disease by understanding patients’ unique genetic make-up, and there are plenty of interests, from George Mason University and Virginia’s biotech industry to the McAuliffe administration and real estate companies hungry for the next development play, who want to see Inova succeed.

“We think it’s transformational, something that can really propel this region,” Josh Levi, vice president of policy for the Northern Virginia Technology Council told the Washington Business Journal. “It’s not just the money. It’s the acceleration, the incubation of partners. The thing they’re really bringing is the expertise.”

When questioned by the WBJ, Inova officials declined to provide the most basic details about the fund. Who will manage it? What kind of companies will Inova back? Most importantly, where will the money come from? The company says that it will share more information as it becomes available.

From what I’ve seen, it appears that the WBJ is the only Washington-area media entity asking questions. And the scope of its questions are very narrow, befitting the focus of a business publication.

But there are even bigger questions that no one is asking. Is this an appropriate business for Inova to be in? Is it appropriate for a health system to be allocating such a large sum to an enterprise (a) in which it has no experience, and (b) is so divorced from its mandate of delivering health care services to the citizens of Northern Virginia?

I am truly of two minds on this issue. On the one hand, I can see a great future for the Center for Personalized Health as a job and wealth creator. On the other hand, the initiative seems to be barreling ahead with no questions whatsoever. The only skepticism I’ve seen are in the comments section of this blog, when Reed Fawell has asked what massive commercial development in the Merrifield area of Fairfax County implies for traffic along the already congested Interstate 66. I’ll let Reed continue to examine the traffic/land use implications in the comments section. In the meantime, I will continue to ask how appropriate it is for Inova as a not-for-profit entity serving the community to undertake this initiative at all — not because I am adamantly opposed to what Inova is doing but because the enterprises seems to be making multi hundred-million dollar commitments without any pushback whatsoever, and somebody has to ask the questions.

As I observed in December:

The not-for-profit Inova, which exercises near monopoly dominance in the Northern Virginia health care market, generated operating income of $218 million in 2014 on $2.7 billion in operating revenue. That’s a profit margin of about 8%, more than twice the profitability that non-profits normally need to maintain healthy operations. That translates into about $109 million in what one could classify as excess profit.

Unlike a for-profit company, Inova is not obligated to maximize profits. To the contrary, insofar as the company is exempt from taxes and has a community mission, one could argue that it is morally obligated to (a) reduce charges to patients afflicted by ever-escalating medical bills or (b) provide more care to low-income patients not covered by Medicaid.

How has Inova been allowed to morph from a community hospital system into a budding underwriter of Northern Virginia economic development? Perhaps we can find some clues by examining the NoVa board, a Who’s Who of the Northern Virginia business and political establishment. Here is a list of the men and women who are, in Inova’s own words, “responsible for oversight of Inova’s finances, strategic planning and management”:

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J. Stewart Bryan III, R.I.P.

J. Stewart Bryan III. Photo credit: Richmond Times-Dispatch

J. Stewart Bryan III. Photo credit: Richmond Times-Dispatch

by James A. Bacon

J. Stewart Bryan III, long-time chairman of Media General Inc., died Saturday at age 77 from complications stemming from a fall at his home. Born and bred as a newspaper man, he presided in recent years over the transformation of Richmond-based Media General from a newspaper-dominated conglomerate into a pure-play corporation owning 71 local television stations across the country.

When I joined Media General in 1986 as part of the start-up team for Virginia Business magazine, the company was highly profitable. Newspapers were fat with display advertising, and Sunday editions were so loaded with classified ads they could double as doorstops. The company owned local television stations as well as the Fairfax County and City of Fredericksburg cable television operations, a New Jersey newsprint recycling company and a slew of smaller enterprises. But senior management at the time was widely regarded as aging, decrepit and lethargic, and the company barely fended off an effort by New York money manager Mario Gabelli to put its slate of nominees on the board of directors.

Taking over as CEO in 1990 Bryan brought new executive talent into the organization and as well as a philosophy of tempered change. A true Richmond blue blood, he epitomized what was best and worst about the city’s aristocracy. He was always the gentleman, unfailingly polite and considerate to those around him. He was unflappable in temperament and loyal to those who had been loyal to him (and to his father, former CEO D. Tennant Bryan). From what I could observe, he was highly ethical in his business and personal conduct. While I felt plenty of pressure from above as publisher of Virginia Business magazine (a tiny cog in the larger machine) to raise profitability, I was never encouraged to take ethical short-cuts of any kind.

The flip side of Bryan’s gentility was excessive caution in steering the company into the future.  Media General was slow and halting in responding to the Internet challenge — although, in retrospect, it’s not clear that any other newspaper has performed much better. At a measured pace, Bryan did some smart things. He sold the cable properties to Cox Communications at a huge premium. He sold the cyclical, capital-intensive newsprint recycling business. He sloughed off smaller non-media properties. And by the early 2000s, he had presided over the refocusing of Media General into a media company with newspapers, television and Internet. The vision, as best exemplified in the company’s Tampa operation, was to fuse the unique strengths of television, newspaper and the Internet into an integrated media platform.

To this day, I think it was a pretty good vision. If the world had moved at a slower pace (and if federal regulations hadn’t made it nearly impossible to own television and newspapers in the same media market), it might have worked. But no one anticipated the speed with which the Internet would disrupt the newspaper industry. Within a few short years, classified advertising — jobs, cars, real estate, personals — moved online, gutting newspaper revenues. The volume of display ads shrunk, too, and newspapers lost pricing power as readers of the print content and the display ads embedded in them migrated to Internet content and banner ads. While newspapers could boast of more readers than ever by combining print and online numbers, advertising yielded far less revenue per reader. As sales tanked, newspapers survived by cutting costs, including newsrooms, which diminished the value of their content in the eyes of readers. It was a vicious cycle that no one, not even the Jeff Bezos-owned Washington Post, has figured out how to reverse.

I saw most of this coming and in my last couple of years at Virginia Business, I desperately tried to transplant our still-strong business-to-business brand onto the Internet by means of hybrid print-Internet products and even some unique Internet-platform products. I felt confounded by an unwillingness of Media General to fund any initiatives — we had to boot-strap everything — and my inability to circumvent the incompetent leadership of the company’s Internet team. In my final gambit, I presented a proposal asking Media General to invest in an enterprise I called “Datamancer,” which would have leveraged the Virginia Business brand to create a cluster of business-intelligence products capable of generating a subscription-driven revenue stream. There was zero interest in the idea — perhaps less than zero interest. The response was more like, ew, get this proposal off my desk! I departed Media General soon thereafter, in 2002.

I cannot say my idea would have succeeded, but that’s almost irrelevant. The larger point was the lack of interest in even exploring it. My penchant for blurting out awkward truths in management meetings probably did not help me. But Media General’s corporate culture was antithetical to outside-the-box thinking. The company pursued a strategy within its field of competency of acquiring other media properties, consolidating operations, sharing costs and cutting overhead. Needless to say, Media General did not succeed in cost-cutting its way to growth.

Indeed, the company nearly met an early demise when it borrowed heavily to purchase a chain of television stations, roughly doubling its television portfolio. Bryan was no longer CEO then, but he allowed the transaction to move forward. When the 2008 recession hit soon thereafter, Media General was way over-extended financially. Amidst speculation that the company might default on its bonds, shares of its stock fell as low as $1 per share. The company survived by restructuring its debt in a last-minute deal and by unloading its newspapers. Since then, the company has rebounded smartly, with the promise of an extra boost from a federal ruling that will allow television stations to auction some of their broadcast spectrum.

I can’t imagine that Bryan, who had long before relinquished his role as CEO, had the same attachment  to Media General in his final days that he did back when served as publisher of the Richmond Times-Dispatch. But it must have been some consolation to him that the fortunes of the company had rebounded to $16 a share.

Media General is in the midst of a bidding war right now, and there is a chance that it could be purchased by Des Moines-based Meredith Broadcasting Group at a modest premium. With Bryan gone, there is little to tie the corporate headquarters to Richmond. If Meredith takes over and consolidates operations in Iowa, Richmonders may have yet another reason to mourn Bryan’s passing.

There is a larger lesson here for those who obsess about the inequality of wealth and the rise of a permanent aristocracy. Once upon a time, Stewart Bryan ranked among Virginia’s wealthiest citizens. With money, lineage and social standing, he was a central figure in Richmond’s old elite. Disrupted by the Internet, the source of that wealth has shriveled. The old blue bloods hold no sway in Richmond any longer. Bryan’s passing marks the fading of a way of life. As long as America’s economy remains free, vibrant and dynamic, new generations of wealth will always supplant the old.

Who Needs a Chauffeur When Your Favorite Driver Is a Click Away?

Matt Donlon, co-owner and Trish Fitzpatrick, VP of corporate outreach for Uzurv. Photo credit: Richmond Biz-Sense

Matt Donlon, co-owner and Trish Fitzpatrick, VP of corporate outreach for Uzurv. Photo credit: Richmond Biz-Sense

by James A. Bacon

The Uber revolution continues apace, spawning a host of competitors, imitators and add-ons. An interesting example comes out of Richmond, where four former Uber drivers are developing an app for passengers who want to reserve specific drivers at specific times.

Uzurv (pronounced YOO-zerv) is beta testing an app that lets customers reserve rides ahead of time so they aren’t limited to drivers who happen to be on the clock for immediate, on-demand rides, reports Richmond BizSense.

The reservation service will not replace Uber, Lyft or like services, but will complement them. Co-owner Matt Donlon says that Uzerv will do for ride-hailing services what OpenTable, an online reservation network, does for restaurants. “Uber is a great engine,” Donlon said. “What we’re doing is a service that builds off that engine.”

Explains Bizsense:

The drivers will have personal profiles, and users can browse potential drivers and sort by preferences like the driver’s gender and whether the car is pet-friendly or look for their favorite drivers. Users can also pay extra to entice drivers to respond to their request.

On their side, drivers can review requests and determine the value of a potential ride. When drivers see a reservation they would be willing to fill, they submit a request to get the reservation, which then sends a notice to the rider. When the rider chooses a driver, a chat session is opened between the two parties.

Once the rider is in the driver’s car, both are prompted to open the app of Uber, Lyft and the like to complete the rest of the transaction.

In Richmond, fees for riders and drivers will run between $2 and $3 per transaction. Uzurv is testing the app with 17 Uber drivers in the Richmond area, and will commence beta testing in markets in Virginia, North Carolina and California.

Bacon’s bottom line: It remains to be seen whether passengers will be willing to pay that premium. I expect that there will be some market for the service, although I would not hazard a guess as to whether demand will be sufficient to support the enterprise.

My last Uber driver decked out his car with twinkling Christmas lights on New Years Eve. I appreciated the extra effort, and I would happily patronize him again. Would I care enough to pay a small transaction fee? Maybe, but I’m not rushing out to download the app. But I know other Uber riders whom, I suspect, would like to develop a friendly relationship with their driver.

Succeed or fail, Uzurv is example of the entrepreneurial innovation that is roiling surface transportation. The app rewards drivers for exemplary service, and provides more choices for passengers. The application of IT and smart phones to transportation will spur more innovation and transform the way we travel. The big question: Who will innovate faster, the giant auto companies moving into the Mobility As a Service market (See “Mobility As a Service Is Coming Soon“) or scrappy entrepreneurs like Donlon and his partners? The spectacle will be fun to watch. VDOT, are you paying attention?

A Moral Choice: Economic Development or Lower Medical Charges?

cfphby James A. Bacon

Building on its plans to establish a Center for Personalized Health, Inova Health System is forging a partnership with George Mason University that will allow physicians, researchers and clinicians to work together on personalized medicine research, the two institutions announced yesterday. (See the Washington Business Journal article here.)

Inova will contribute $2.5 million in seed funding to the partnership and work with GMU to raise more money over the next few years. Much of the activity will take place in the former Exxon Mobil campus in Merrifield that Inova had previously purchased for $180 million. Inova’s plans also include a $250 million cancer institute, to be funded in part by a large donation by real estate mogul Dwight Schar. The larger vision is to build a health “ecosystem” devoted to the research, education and treatment of complex disease therapies tailored to an individual’s genetic make-up.

Meanwhile, GMU has unveiled a $40 million Advanced Biomedical Research building, rebranded its Prince William County location as its Science and Technology Campus, and started construction on a $73 million health sciences building.

These developments represent a welcome diversification of the Northern Virginia economy, which has been overly dependent upon defense, intelligence and homeland security spending by the federal government. Governor Terry McAuliffe understandably praised the latest announcement as a step in developing the “new economy” in Virginia. With characteristic enthusiasm, he said the new personalized-medicine campus could become a world leader. ” I love it because this agreement here is going to take us to the next level. … I want this facility to be the greatest in the globe.”

But the investment spree raises moral questions. For the most part, Inova Health System’s funding comes from its hospital operations. The not-for-profit Inova, which exercises near monopoly dominance in the Northern Virginia health care market, generated operating income of $218 million in 2014 on $2.7 billion in operating revenue. That’s a profit margin of about 8%, more than twice the profitability that non-profits normally need to maintain healthy operations. That translates into about $109 million in what one could classify as excess profit.

Unlike a for-profit company, Inova is not obligated to maximize profits. To the contrary, insofar as the company is exempt from taxes and has a community mission, one could argue that it is morally obligated to (a) reduce charges to patients afflicted by ever-escalating medical bills or (b) provide more care to low-income patients not covered by Medicaid.

To be sure, Inova does provide a significant volume of charity care. Its flagship hospital, Inova Fairfax Hospital, provided $151 million in 2014, according to Virginia Health Information. But the company’s high level of profitability suggests that it could do more.

Instead, Inova has chosen to plow its excess profit into economic development. I have no doubt that the personalized medicine initiative will benefit the Northern Virginia community in the long run by creating a new economic pillar in the region. The funds to do that are not likely to come from any other source. But it’s important to understand the trade-offs that Inova’s board is making here. It is extracting wealth from the community to bulk up the profits that grow the Inova empire. The people paying higher medical bills are not necessarily those who will benefit from the investment in the Center for Personalized Health.

Would I make the same decision if I served on the Inova board? Perhaps I would — I don’t know. But I’d like to hear all points of view presented. It’s a decision in which the public should have a voice.