Sunday, January 25, 2009

Baltimore's Internet Economy as I See It

There are a lot of creative people in Baltimore working with Internet technology. At events like SocialDevCampEast, Beehive, Refresh, Bmore on Rails, Twin Tech, Outlet, or Ignite, you'll meet a ton of them. Many technical people in and around Baltimore have a national following, and I've run into them at far-flung events like Techcrunch50 and Lone Star Ruby Conference. We have several successful entrepreneurs in our midst who have built great Internet businesses. A recent accounting of greater Baltimore's IT industry gives us top rankings for many tech indicators. Baltimore's economy definitely has the human capital to succeed in the Internet industry.

Yet few of these talented people are starting or working for product companies. I rarely meet someone who's involved in making something that he or she owns. Baltimore's Internet economy, as far as I can tell, mostly comprises consulting work, services, and government contracting. Those sectors are very strong, and bring a lot of wealth to our region, but product companies have much more potential to improve the long-term prospects of our economy. Because they involve greater risk, product companies create a lot of wealth for investors and early employees, who then go on to invest in the next round of startups. Service businesses have less growth potential since they are ultimately constrained by the hourly labor of their employees. When they don't work, income doesn't come in.

Why should it be this way? How do we encourage more product-based technology companies to form here? Starting a risky venture requires a leap of faith and a maverick move against the grain of what society expects you to do, so how can society foster these choices? In an email, Dave Troy gave me a great metaphor:
"...you can't make a wild mushroom grow. The only thing you can do is be sure the conditions are right. That means there needs to be enough biomass in the underlying organism, there has to be sufficient food, moisture, and the temperature has to be right. The mushroom has to want to grow on its own."
I don't presume to be any kind of a "startup mushroom farmer", as I am still working on my first startup. But I do think we have the potential makings of a startup ecosystem in place:
  • Exemplars of success: Advertising.com, BillMeLater, Image Cafe, and other companies were started here, and there's a strong software game industry in Hunt Valley.
  • Integrated economy: Baltimore and DC are closely connected, being less than an hour away by train or car. We are part an Amtrak corridor connecting us to Philadelphia, New York, and Boston.
  • Low cost of living: you can buy a lot of house in Baltimore in a nice neighborhood (including one of the best-planned great places in America) and lead the kind of urban, connected lifestyle much prized by creative people.
  • Tolerance and diversity: Although our neighborhoods are largely segregated, it's still the kind of town where noncomformists can feel at home. We've got John Waters, the High Zero festival, Theater Project, Creative Alliance, and the Visionary Arts Museum, just to name a few examples.
  • Community spirit: In my experience, people in Baltimore really want you to succeed at whatever you're starting or trying. If you want to make a movie or start a business or become an activist, few in this community will tell you that you can't; most will say "that's cool, how can I help?" I experienced this vividly when I helped found the Baltimore Improv Group and Ignite Baltimore. People in this city could not have been more supportive.
  • Culture and recreation: The greater Baltimore area encompasses many amenities that entrepreneurial people enjoy. Museums, symphonies, parks, book stores, art house movie theaters, coffee shops, major league sports franchises, etc.
  • Excellent university: There are many good schools in Baltimore, but Johns Hopkins in particular has a global reputation, and is a fertile recruiting ground for local technology companies.
  • Talent pool: there are over 100,000 IT workers in Maryland according to the Economic Alliance of Greater Baltimore [link requires registration]. The Washington-Baltimore region is first in the US in the number of residents holding Bachelor's and graduate degrees.
With a little more investment of energy, time, and resources, I believe we could capitalize on these assets by priming the conditions for startup growth. Here are some ideas for what else we could do:
  • More visible angel investment: If I have the skills and ambition to start a technology company, how do I meet someone who has the capital and appetite for risk to invest in one, or tell me my idea needs more thinking through? As Dave Troy puts it:
"One of the valuable functions of an angel community is that it creates a mechanism for telling silly entrepreneurs to go pound sand; or to come back with a better idea or team. We don't have a very functional mechanism for handling any of that here right now. What we have is some risk-averse investors telling potentially good entrepreneurs to pound sand, and we have a lot of silly entrepreneurs pursuing ideas that they probably shouldn't. So, towards the notion of 'supporting' local startups, in my opinion the best way to 'support' them is not to encourage them or patronize them, necessarily, but rather to find ways for them to fail more quickly.

"...We need faster failures and quicker morphing of bad teams into good ones, and the pursuit of good ideas instead of bad ones...we need to provide real, objective guidance mechanisms to help entrepreneurs navigate the money and power networks they will need to master in order to succeed..."

Awesomely enough, Dave recently announced the formation of Baltimore Angels, and at last count 14 angels have signed on.
  • Develop a bootstrap network: Baltimore does not lack for ambition or ideas. I know of at least nine companies in various stages of growth (600block, Localist, Ipiqi, MPTrax, Ubernote, SpotCrime, AwayFind, DiscoverED, Sleep.FM -- these are software companies, because that's the field I follow). We should build up a bootstrap network to support and mentor such entrepreneurs and connect them to potential investors.
  • Reach out to students: Jared Goralnick pointed out to me that technical people graduating from college today assume they have only one choice - to get a high-paying, stable job (i.e., at a big consulting or contracting firm). It's an admittedly attractive choice - who would turn down the chance to make $80,000 or more right out of college? But students need to know there are other options that could prove more lucrative: starting their own company or joining a startup, options which may payoff financially but will no doubt payoff in terms of the business and technical education they offer. Recent college graduates can take bigger risks as they have less to lose and more to gain, but few students get that message. Jared is organizing an event scheduled for 4/11, watch his blog for more details.
  • Encourage self-organization: No formal entity could have started SocialDevCampEast, Coworking, Refresh, Outlet, or Ignite, but entities like GBTC, the University of Baltimore, and many local businesses have shown tremendous support for them. These groups are all run at low-cost with little or no budget, and they still need help. Our business and government leaders could do wonders by helping with facility rental, marketing, or publicity, or by attending the events, speaking at them, and mixing with the technical community.
  • Improved communications: I'd love for someone to start a blog chronicling the local startup scene and self-organizing tech events.
  • GBTC Round Table: I hear really good things about the GBTC's round table groups. If there was a group that focused on startup technology companies, I bet people would flock to it, as there aren't many opportunities for local Internet entrepreneurs to mingle exclusively with their peers. It would also demonstrate GBTC's commitment to helping product companies.
I've made some generalizations here, and what I've written is pretty specific to my experiences, but it's from the heart. My own startup, OtherInbox, is based in Austin, Texas, because that's where the principal founder is located, but also because it's a really ideal place to start a technology company. It's got all of the support mechanisms I mentioned above, and has had a few rounds of successful startups, so now the startup community is self-sustaining. Technical people in Austin can't help but encounter many examples of success, and there are a lot of investors willing to mentor them and invest in their dreams. Truly, Austin is ripe for wild mushroom growth -- yet Austin is more culturally and economically isolated than Baltimore. If they can do it, why can't we?

I'm a entrepeneur and technologist, a hacker and improvisor, and I want to spend my life starting and running technology companies. I'm also a transplanted son of Baltimore, with many friends and connections and roots here, and I really love this city. I want to make my dreams come true here, and I'm committed to doing whatever I can to make this the kind of place where every entrepeneur has that chance. So let's get going!

Thanks to Dave Troy, Stephen Muirhead, Bill Mill, Prescott Gaylord, and Jared Goralnick, who read drafts of this post and gave me great feedback.

16 comments:

Paul Capestany said...

Great observations on the emerging startup and tech culture here in Baltimore Mike. I don't know if you've read any Paul Graham (founder of Y-Combinator) but he has a "How to be Silicon Valley" essay wherein he simply states:

"I think you only need two kinds of people to create a technology hub: rich people and nerds. They're the limiting reagents in the reaction that produces startups, because they're the only ones present when startups get started."

Baltimore has had the nerds for a while, they just had never coalesced. And we *just* got the rich people added to the mix with the Baltimore Angels. If you read the rest of the essay (http://www.paulgraham.com/siliconvalley.html), it seems like we could have just the right chemistry now to have great things happen here in Baltimore. I'm excited.

BTW, thanks for the Ipiqi shoutout!

- Paul

Michael Barr said...

I believe there is a GBTC round table for tech startups.

A computer study said...

Were from ( http://Sleep.FM ) Baltimore too, well Bel Air, MD to be precise.

Here are clippings about us...
Cnet - http://tinyurl.com/6l7ksr
LifeHacker - http://bit.ly/Fz3G
TechCrunch - http://tinyurl.com/5ajyrw

cheers,
ryan

Mike Subelsky said...

Thanks for your feedback guys!

Paul: I have read the Paul Graham essay and that was a primary influence on my essay. Stephen Muirhead pointed out to me that we aren't going to attract a whole lot of rich people interested in tech because Baltimore is not a glamorous town - so the rich people here tend to have made their money in more traditional, older fields. All this means is we have to be scrappy and favor bootstrapping.

Michael, if there is a roundtable I'd like to know about it; last time I looked, I didn't see any.

Sleep.FM, sorry I forgot to add you guys. We met at Twin Tech II awhile back. I updated the post with your link

eee.c said...

Great article. Exciting even.

I would suggest that now is the ideal time to start a start-up. From a long term investment in your career perspective, what is going to look better on your resume in 2009: (1) coded .Net for some company or (2) founded a start-up. How do you demonstrate drive, passion, discipline to prospective employers in 2010? Scraping by in a job that pays the bills but doesn't inspire you to aspire?

What's the worst that can happen? You get to do something that you enjoy, ideally with others that share your passion. You learn tech, because nothing forces you to learn like having to do it all. You learn business, because you have to run the startup. So what if you fail? All startups do.

Failure is the worst that can happen and failure is pretty awesome.

And maybe, just maybe, you really do have that million dollar idea.

Also by Paul Graham: http://www.paulgraham.com/hiring.html

A D Bachman said...

Hear, hear!

I always like to add that Baltimore is a "big small" town. It's big enough to give us access to just about anything we'd want, while being small enough that you can take it all in--can grasp what's going on. The whole, "haven't I seen you somewhere?" phenomenon, maybe call it small-world-ism, means strong connections last and weak connections are reinforced.

It's easy to be negative and cynical, but it's good to hear some optimism on the tech future. If I hear "in this economy" as an excuse one more time, I'm gonna punch a puppy.

So what's your next adventure?

Highly recommended: Building A Local Tech Culture

Ben said...

Great observations and important questions, Mike. Paul Graham's recipe for a tech startup stew calls for rich people and nerds. I think it's key that Baltimore Angels are both. What's more they built their mad money in their own tech startups. That makes them well equipped to evaluate other startups - their technology, their business models, and their teams.

Dave Troy is right that silly entrepreneurs should be told to pound sand as early as possible. Sometimes nerds and their lesser brethren become enamored of technology for it's own sake and are oft inclined to develop solutions looking for a problem to solve. It's best for entrepreneurs to fail early and fail often rather than to die one slow, painful death.

But the decision on the part of founders to abandon a venture runs counter to the virtue of persistence so key to startup culture. So I hope that Baltimore Angels will do what all investors claim to do - but which almost none REALLY do - provide carefully considered, well-expressed feedback to entrepreneurs who may be wasting their time and money tilting at windmills. An offhand "No thanks" won't spark the soul searching necessary to make a founder consider abandoning [that particular] dream.

Baltimore needs more than one well-qualified angel group. Some of today's most admired companies were turned down for funding by more than one group of local angels before finding one whose proclivities were a match. Also, while Baltimore Angels may be rich compared to the average Joe (or Ben), they can't fund all the worthy startups on their own.

Baltimore has an incredible amount of "old money" - money which is invested in vehicles which currently are as risky as funding startups. Is there a platform to bridge the communication gap between nerdy founders and the old money families? This is where government economic authorities, the Greater Baltimore Committee and other institutions can and should play a role; make the connections; establish the forums; help grow the membership of Baltimore Angels to the extent they wish to grow. I'm not involved in a startup for the first time in 15 years so I don't know how well these entities are performing this role.

What about the first institutional round, if it's needed? That will most likely have to come from outside the region at this point. VCs don't like to "venture" beyond their own back yard. My experience is that this region's VCs (and most angels) focus largely on medical / biotech and "tangible" infotech. Software is of second tier interest. Internet ventures - not really. This ordering of priorities is reflected by those of the Maryland Department of Business and Economic Development's Challenge Fund which targets Seed stage ventures.

If I had my last venture to do all over again, I'd have to learn from my biggest mistake - I'd have to move to where the money is flowing into game-changing startups. I'd also look up from my desk and network much more with the nerds and other idea people so I'd be more familiar with the pool of local talent. Ignite Baltimore,
Twin Tech, SocialDevCamp and one or two other forums are now making that sort of networking possible, thanks to guys like Mike and Dave.

I've made a few comments which sound negative. This is just my supplement to help frame the important issues and opportunities Mike raised and, I hope, to highlight the suggestions he has put forth for Baltimore to realize the best of its possible futures.

Mike Subelsky said...

Chris: I think the problem is even now, our education system is almost totally aimed at making people into good "joiners" of institutions -- so they graduate from high school and join a college or an established company, then from college they join grad school or a company, etc. I wish I had taken more time earlier in my life to consider whether I'd be really happy joining a large organization. It turns out, I'm much happier working on a startup, and I bet a lot of other people would be to. It's not for everyone, but more people would benefit from knowing of the option.

Adam: I completely agree with your big-small town thesis. I feel like that's why the Baltimore Improv Group has been so successful, because we have a large enough of an audience to come out and support new cultural institutions, yet we're small enough that we can all drive to each other's houses, and run into each other outside of improv, and work with each other on business things, etc., and it's easy to get the attention of the press. I think it would be much harder to make a go of it in a larger town or a smaller town. Also, that tech culture article is EXCELLENT. I have to say your link recommendations are always perfect! I want to do everything that guy says, right now. Especially the technology portal.

Ben: I don't think your comments sound negative at all, just realistic. They mirror what Stephen Muirhead wrote in response to an earlier draft. Also agreed on the need for multiple angel groups -- though I'm excited for this one and think they are the kind of people who will not take their role lightly. We might also need some seed funding companies like Y-Combinator or TechStars or something like that.

Anonymous said...

I live in DC and I'm connected with many entrepreneurs in Baltimore from various projects. I must say Baltimore is a gem for all the reason you stated. I'm an entrepreneur and I'm probably going to move to Baltimore within the next year. I believe there is no better place on the east coast for a startup, especially in the current economic environment.

Mike Subelsky said...

Wow! That's quite an endorsement. Can you say more about why you think it's the best place?

Jon Payne said...

Very good stuff here Mike. I created and grew an online marketing firm in Baltimore from 2003 to 2008. We still operate in Baltimore though I've flown south for the warmer weather :) That said, Baltimore has been a great place for us - economy, clients, work force, etc.

Ernesto Gluecksmann said...

I'm not sure why attorneys and doctors get to "practice" law and medicine but entrepreneurs and business people are expected to get it perfect.

It’s not that when one fails that matters, is how one responds to it that counts.

Justin Kownacki said...

Great observation on a key issue -- though Baltimore's not alone in asking these questions.

As a new transplant to Baltimore, I see a lot of similarities between here and Pittsburgh. One asset Pittsburgh has developed is InnovationWorks ( http://www.innovationworks.org/ ) and its spin-off, AlphaLab ( http://www.alphalab.org/ ) -- both of which are incubators for small biz / tech companies. Does Baltimore have anything similar?

Mike Subelsky said...

Welcome to Baltimore, Justin! I lived in Pittsburgh in the 90's as a college student at CMU. The closest thing we have to those two projects -- which look really cool -- is Baltimore Angels (@baltimoreangels) -- but we also have bootstrapmd.com which could fulfill some of those function as well.

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