Bacon's Rebellion

Democracy Thrives in Sunlight

Virginia’s Entrepreneurial Vitality

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by

James A. Bacon
in

inc5000

How does Virginia reinvigorate a lagging economy dragged down by sequestration-driven cuts to defense spending? Foster a business environment conducive to new business formation.

There’s a good-news, bad-news story coming out of publication of the 2014 Inc. 5000 compilation of the nation’s fastest-growing companies. As Virginia Business reports, the 284 Virginia companies on the list ranked Virginia 5th in the country, lagging only California, Texas, New York and Florida, states with far larger populations and business communities. That’s a positive indicator of Virginia’s business vitality.

It’s a mixed-news story, however, because three-quarters of the fast-growing companies are located in Northern Virginia. While NoVa is an incredibly fertile ground for entrepreneurship, RoVa (the rest of Virginia) is not. Take away Northern Virginia, and what you get is… middle America.

Many (including me) have questioned the ability of the NoVa business community, which is heavily skewed to defense contracting work, to restructure itself to thrive in an era of federal budget cuts. I’m less worried now than iI once was. Ironically, budget cuts may benefit the region in the long run. With one of the best educated, highly skilled populations anywhere in the country, NoVa residents have no lack of ideas for new enterprises. The contraction of the government-contractor sector releases employees, office space and other resources  to start-up companies. While NoVa is suffering now, the number of fast-growth firms suggests that the region will recover and within a few years resume its position as Virginia’s economic growth leader.

Charlottesville looks like a mini growth story but the metropolitan region is too small to have much spillover effect for the statewide economy. Hampton Roads and Richmond appear to host small, fast-growth companies roughly in line with national averages — a lukewarm performance.  Virginia’s smaller metros and rural areas are laggards, as are small metros and rural areas are across the country. (I’m on vacation and haven’t had time to calculate the number of fast growth companies per capita, so these impressions are rough and subject to revision.)

— JAB

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13 responses to “Virginia’s Entrepreneurial Vitality”

  1. TooManyTaxes Avatar
    TooManyTaxes

    NoVa is still stuck in a world where property interests in dirt outweigh other property interests – the Age of Til Hazel. Dulles Airport has a revenue and cost intersection problem. Instead of cutting costs and attracting low-fare carriers, MWAA is trying to get the Commonwealth to build a road to attract airfreight and build more buildings. And landowner in Loudoun County want the same road so rezoning applications that were denied can be granted. Lots of stakeholders don’t like the idea that transportation money needs to be spent on projects that reduce traffic congestion. Loudoun County agreed to build a high school away from the growth areas so that it could also pay the National Conference Center money to keep its owners away from bankruptcy.

    We need to abandon the concept that rights in dirt are the most important or we won’t be able to focus public moneys on projects that bring new businesses and disruptive technologies to the market.

    1. DonR Avatar
      DonR

      Absolutely right! We certainly don’t need any more government subsidized development until we either succeed or fail at our effort to diversify our economy away from such a heave federal presence. No transportation money should be spent except to relieve congestion and improve quality of life (bike trails, walking trails, walkability, etc)

  2. Tysons Engineer Avatar
    Tysons Engineer

    TMT and I agree… holy moly does anyone see flying pigs?

    For the cost of some of these mega infrastructure freight subsidies to major players, we could be building on a young tech worker population who needs cheap housing and cheap office space to innovate and have incentive away from corporate 9 to 5s. Given a bit of breathing room, and the entrepreneurial spirit which I still think the 2000s generation possesses in spades, I think we can really leverage what we have into a silicon valley of the mid atlantic.

    I would point out, NOVA is much more than defense, though still clearly government. There is nonDoD IT, data, web services as well. In other words, we don’t just have missile system and satellite companies 😉 but yes for the most part we are still serving government in one way or another.

    We don’t have to get rid of our history as government services, afterall the capital is not moving anytime soon and many of these jobs are going to remain, but just stagnate and sheer from the edges. What we need is an economy that fills in that growth gap. Really diversifying even 25k to 50k jobs would completely alter the jobs landscape over the next decade.

    1. DonR Avatar
      DonR

      Right you are. It only took one Microsoft to diversify Seattle from a port city and heavy manufacturing base into a tech stronghold.

      We need better communities, not mega-projects.

      Spend the money on overpasses that relieve congestion, bike trails, running trails, make Tysons walkable, turn the old NRO headquarters into incubator space, actually get something from the CIT, etc.

  3. Cville Resident Avatar
    Cville Resident

    To be honest, I think the list really reinforces a pretty sad tale. Some folks I know in Richmond and NoVa love to visit Charlottesville for a weekend here and there. We have friends in both areas who come to town every couple of years for a weekend. And to give the region its due, it has definitely diversified its economy a lot in the last 10 years. This list doesn’t surprise me. Used to be impossible to find folks not affiliated with U.Va. in Cville. With a lot of recent economic development, there’s definitely a much larger “non-U.Va.” contingent. It’s still a college town to be sure, but nothing like it was.

    But all of our friends who visit will tell you that it’s the only place in “western” or “southern” Virginia that they’d ever consider living in. (I think at least one of the couples will retire here.) I notice it a lot with their children. One of them moved to Cville to work at a tech firm. But every other child is either employed in the Urban Corridor or in a large metro out of state. I also notice it in Cville/Albemarle kids. Some bright ones stay (way more than in the past but not nearly enought). But the rest of them that grew up around here are either in the Urban Corridor or out of state in a large metro.

    The rest of the non Urban Corridor is DYING. It has been for a while, but in the last 5 years it seems to have accelerated.

    If you visited Roanoke and Richmond in 1992, obviously Richmond had more going for it. But Roanoke wasn’t light years behind. Now? Good Lord. It really is night and day.

    And that’s Roanoke, which is the “big city” out there. Lynchburg has Babcock/Wilcox and Liberty…..so it at least has those things going for it. Blacksburg’s got Tech. But the rest of SWVA and Southside??? Absolutely pathetic. We’re talking Mississippi. Sure, ag is huge. But ag employs an increasingly small share of people. The rest of the population? It’s ugly.

    Like you, I don’t have too many worries about NoVa. That many smart folks clustered together are going to find economically productive activities. I also think Richmond and Hampton Roads aren’t going to be leaders, but I think they’re doing enough good things and have a good enough workforce/assets to meet the national average when it comes to economic indicators.

    But the true issue that everyone on this blog seems to like to gloss over is the non Urban Corridor. Until you bring that part of the state out of Mississippi like territory, the state is not going to be an economic leader.

    1. virginiagal2 Avatar
      virginiagal2

      Charlottesville is great – I would have stayed there after graduation if there had been a reasonable chance of jobs. I have seriously thought of moving back more than once.

      I agree that the job situation is improving – but I really don’t think that Virginia is using UVA anywhere near its potential.

      Interestingly, most of the non-UVA people I know in C’ville work for themselves or for small entrepreneurial companies. This includes people who are obviously very successful – not talking about “lifestyle” companies done as a hobby.

      C’ville and Albemarle county have good schools – 4 on the Newsweek best high schools list. It has a lot going for it that isn’t being put to full use.

      Blacksburg is actually growing – I think it’s the only locality of any size in SWVA that is. (C’ville isn’t technically part of SWVA.) Also has the local HS listed on the “good high schools” list. Has research centers for drones and smart highways, as well as a ton of really interesting research in other fields. It could be an economic engine.

      My personal guess, as a non-economist, is that the blow to Roanoke was largely Norfolk and Western becoming Norfolk and Southern. It still has good schools – 4 on the good high schools list.

      Don’t forget Harrisonburg, which has JMU and the main offices of Rosetta Stone and also has a high school on the good high schools list.

      And, again, there are also schools on the best high schools list in Danville, Lynchburg, Bedford County, and Washington County near Bristol.

      These areas have people with potential. These are areas with potential.

      With modern technology, most tech jobs can be done remote – I can (and often have) work on a server on the West Coast as easily as one in the next room. Give me a decent broadband connection and a laptop and I can work anywhere.

      There’s online education available NOW for many hot new technologies, either free or very cheap – Safari Books, Lynda, Coursera, Google developer tools, Udacity, EdX, even YouTube.

      It doesn’t take subsidizing individual companies. I do think that talking up the potential, speakers, informal talks and networking -that would help.

      And get decent broadband to the rural areas of the state, even if we have to redo the law about municipal Internet. Fast broadband is the oxygen of the modern economy.

      1. DonR Avatar
        DonR

        “I agree that the job situation is improving – but I really don’t think that Virginia is using UVA anywhere near its potential.”

        The fault lies more with UVA than with the state government. Trust me, I find it very hard to say anything positive about our state government but UVA’s lack of impact on Virginia is derived from UVA’s wildly overblown sense of its own superiority.

    2. DonR Avatar
      DonR

      I am 55 and I know two couples with whom I went to college who are retiring in Charlottesville (one is already there, the other has bought the land). I kow about 10 more couples seriously thinking about it.

      Charlottesville is too small and too far removed from bigger cities to become a major tech hub. However, a more focused plan around something like data science might work extremely well. UVA (my alma alter) would have to get off its lazy ass and actually take economic development seriously and some of the local billionaires might need to start a venture fund dedicated to Charlottesville area companies (like Ted Leonsis did up here in the DC area).

      Finally, the state of Virginia needs to distribute operations out of Richmond. Some of the more technically oriented departments should be sent to Charlottesville and Blacksburg.

      Our political class needs to look at other successful US centers of entrepreneurial success other than silicon valley (which is, and will remain, unique). Look at Austin, Portland, Seattle, Raleigh, Melbourne (FL), etc.

      Where is Virginia’s Secretary of Technology? Oh, I forgot – she’s a lifelong bureaucrat. Guess there’s no point sending her out to look at how to attract private business.

      McAuliffe ought to form a task force of private citizens to look at how other communities in America have succeeded. People with no ties to our state government. They should present their findings in public.

      As for Charlottesville – I love the place. I’m just too much of a water rat to live there. But I sure intend to visit all those retired friends of mine.

      1. Cville Resident Avatar
        Cville Resident

        Interesting thoughts as always. I agree about moving some state functions to Blacksburg and Charlottesville……economic development tends to spur more economic development.

        You’re right that neither Charlottesville nor Blacksburg will ever be “major” metros. But if the state is serious about economic growth, it definitely needs to work to develop those areas so that “western” or “southern” Virginia has at least a couple of areas that produce serious economic growth.

        I, too, am not U.Va.’s biggest fan in terms of economic development. However, I will say that if you do some digging, they’ve definitely started to play a bigger role in the area’s overall development rather than just the university’s. The research parks and incubator have spun off a few seemingly viable companies here.

        I have also heard that VT is definitely getting more involved in Montgomery County/Blacksburg development as well. I think it’s telling that the Roanoke Airport is now the Roanoke-Blacksburg Airport. 20 years ago, Roanoke was pretty ambivalent/disinterested towards VT/Blacksburg. Now, Roanoke is quite dependent on VT/Blacksburg.

        1. DonR Avatar
          DonR

          This company was started by a NoVa couple who used to work for me before they decided to move to Palm Coast, FL. They started off in Florida as retired, got bored and started this business (I’ll direct you to the employment page). http://coastalcloud.us/careers

          Their thinking is straight forward – they can hire Florida college graduates who want to stay in Florida and live on the beach for very reasonable salaries. They also have a network of seasoned people who live in cities around the US. The seasoned people make the sales and survey the needs of the company to which they are selling. The work is packaged up and electronically shipped to Florida where the work is done. The results are sent back to the buyer under the watchful eye of the seasoned rep.

          The county where they operate is considered economically distressed. However, it is also home to the closest beach to Gainesville – home of the University of Florida. It’s too far to commute but not too far to make regular visits for Florida football games.

          I was invited to their business launch. Rick Scott (governor of FL) came to the launch, stayed an hour, gave a short speech and spoke privately with the entrepreneurial couple.

          When was the last time a governor of Virginia came out in person to help launch a start up?

          I love their recruiting tag line …

          Live at the beach, work in the cloud. They even trademarked it.

          You could have Live in the Hook, work in the cloud. Don’t worry about the trademark. The husband of the entrepreneurial couple went to UVA. He’ll let you step lightly on his trademark. Although … his wife went to Duke so maybe not.

  4. virginiagal2 Avatar
    virginiagal2

    Jim, I looked at the article, and the article looks at “fastest growing” companies – not most promising, not most successful, but the ones that are shooting up like a rocket.

    Some of those will do well long term, and some won’t. Very fast growth kills a lot of companies.

    Most successful small businesses “bootstrap”, rather than rocket, to become larger businesses. They don’t use venture capital, and they still succeed.

    The emphasis on venture funding and hyper-fast growth IMHO is misplaced. It’s exciting and good press, but economically isn’t focused on the best allocation of resources.

    I’m not sure using this list actually accurately measures the entrepreneurial vitality of any given region. It’s like looking at steroid users and using that as a proxy for best athletes – some overlap, but not the ideal measurement.

    The same issue of Inc. actually covers the topic of organic growth and bootstrapping, better than I can – check out – http://www.inc.com/magazine/201409/tom-foster/inc.500-companies-who-bootrapped-their-way-to-success.html

    1. James A. Bacon Avatar
      James A. Bacon

      I agree, the Inc. methodology has limitations. I’ve long suspected that the NoVa numbers reflected the large number of companies formed to administer a federal contract. Some prosper, winning more contracts; others languish, losing their contracts and going out of business, or perhaps getting absorbed by bigger contractors. Only a closer examination of the list would indicate how many have new technology or business models with the potential to become a true long-term growth company.

      1. virginiagal2 Avatar
        virginiagal2

        Agreed. And also, more access to venture capital, which puts growth on steroids.

        Some sustain it and some don’t.

        And sometimes very fast growth can overwhelm your systems – cash flow, processes, staff – and sink your company.

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