Silicon Mountain gone: City requires clear path

Whatever happened to Silicon Mountain?

I will just touch the surface. There have been several threads running mostly in parallel.

First thread: Mostek was founded in Dallas with Texas money, and was in the semiconductor memory business. Plans for the Colorado Springs facility were finalized in 1979. Mostek was purchased by United Technologies (UTC), and the Colorado Springs facility was integrated into UTC as the United Technologies Microelectronics Center. UTMC was later purchased by Rockwell, who built out the facility, but it never became operational. Intel in turn bought the facility from Rockwell, and expanded it into a two-wafer fab. Intel operated one of the fabs for a couple of years before moving operations elsewhere.

Second thread: In the early 1980s the “big three” were INMOS, NCR and Honeywell for an approximately 9-year run. INMOS was sold to SGS-Thomson and left town. The NCR wafer fab went through name/ownership changes of Symbios Logic, AT&T, Hyundai and LSI before being shut down, then was re-opened by dPiX. Honeywell never created a growth business in this particular industry sector and ultimately sold its facility to Atmel. LSI moved into town and is still in operation. It is fair to say all were isolated “islands” of activity and there never was enough density of semiconductor companies and suppliers to get adequate economic traction for Colorado Springs.

Third Thread, legacy of the “big three”: Ramtron and Simtek were local semiconductor startups created by “big three” executives. Both were recently bought by Cypress Semiconductor, which operates as a business unit within Cypress’ memory division. More than a dozen small design centers operate mostly under-the-radar for larger semiconductor companies, such as Linear Technology, PMC-Sierra and Maxim Integrated.

The common denominator is that the decision-making has rarely been local. Headquarters and funding sources have invariably not been in Colorado Springs. My sources indicate that various enterprises have never done enough to develop or attract companies with headquarters in Colorado Springs. There is a sense among some industry insiders that it is likely too late now to try to do this.

Other comments: There has been inadequate help provided to interested companies to locate sites and find talent. Also, the local talent pool has rarely been adequate.

A final observation is that the city never has had a strategic plan to reach out and capture such companies. (We are in stiff competition with other cities.) Part of this involves meaningful tax incentives. Our use tax is a major disincentive for any capital-intensive business to locate here or stay long.

Policy implications

In a recent paper, “What Makes a City Entrepreneurial,” authors Glaeser and Kerr from Harvard observe:

All else being equal, regional economic growth is highly correlated with an abundance of smaller firms. An abundance of small, independent firms is one of the best predictors of urban growth, a fact that raises questions about the occasional local development strategy of chasing large employers with generous tax breaks.

One could easily imagine that small, independent firms are as much a reflection of good local policies as an independent cause of growth. However, evidence suggests that investing too much in attracting large, mature firms may not be good policy. These firms provide immediate headlines associated with new jobs, but growth is more reliably correlated with small firms.

Focusing on quality-of-life policies can attract smart, entrepreneurial people. The best strategy may be to attract smart people and get out of their way.

Those observations are consistent with June 2010 results from the U.S. Joint Economic Committee, which found the largest contribution to economic activity comes from firms less than five years old.

In Colorado Springs, the traditional model for the previous Economic Development Corp. was to find companies, or divisions of large companies, to move here from other states. This strategy has had mixed results. There is inadequate “stickiness” — the company or division that comes today can leave tomorrow. That approach may feed the short-term voracious appetite of the developer community, but the end result is not a legacy of vibrant economic activity. Instead, economic development activities should focus on policies that directly tie to factors presented last week.

As for improvements downtown, an area of continued focus, such improvements have merit but should not be confused with creating an entrepreneurial culture. In Silicon Valley, there was a repeated push over two decades to improve the rundown San Jose downtown area. But that area did not hold back the evolution in Silicon Valley, which is stronger than ever.

Going forward

It’s clear that Colorado Springs is starting from ground zero in many regards. Public support through a coherent economic development policy is necessary. (The private sector is insufficiently motivated or rewarded to make a difference, given the long-term nature of the process.)

Colorado Springs does not have a tradition of public support at levels needed to make a real difference. Indeed, the current City for Champions proposal bears little relationship to addressing the factors for entrepreneurial cultures. I’m not against the concept in principle; I merely make note of this obvious fact. Quite apart from the merits of such a proposal, it would seem foolhardy to place such a large bet on tourism without also considering an investment in real economic development.

How do we create a thriving startup culture in Colorado Springs? The good news is that a blueprint for creating a thriving entrepreneurial community already exists: http://visual.ly/seattles-startup-recipe. The bad news: Colorado Springs is missing key ingredients and does not appear to have the will to tackle these issues.

What should we consider? Here are some thoughts:

The universities can and should become thought leaders in new ways to encourage sponsored research. This will require innovation in technology transfer policies. In turn, this could lead to more startup activity while providing long-term funds for enhancing programs, a virtuous circle of improvement.

Universities must stick to their knitting with a culture of developing academic excellence. One output would be viable intellectual property. Leave it to others to launch and incubate successful companies. No organization can do it all.

The city should engage far more to create an entrepreneurial environment, the path to quality jobs. We need to grow our own companies from the ground up, with enlightened visionary support from the city. There is no silver bullet to replace the needed effort in economic development, seriously underfunded for over a decade, if not much longer. We are falling behind dozens of cities that have long since figured out the formula.

Winning formulas are well-known but not pursued by this city. Some examples:

Chattanooga, Tenn.: In September 2010, EPB became the first municipally owned utilities company to offer Internet access directly to the public at 1 gigabyte per second, utilizing its exclusive fiber optics network. It has been emulated by at least six Tennessee cities and studied by others, even internationally. This technology has made Chattanooga a player in attracting tech talent to the city.

Madison, Wis.: A 25 percent investor tax credit makes raising money easier and organizations like Capital Entrepreneurs, Merlin Mentors and Forward Technology Festival create a vibrant ecosystem. According to Forbes magazine, Madison ranks second in the nation in education of its residents.

Austin, Texas: Entrepreneurs say it’s easy to start a business, networking is top-notch, taxes are low, regulations are light, and hiring is a breeze. But what really sets Austin apart is a culture that embraces new ideas: Its annual South by Southwest entrepreneurial festival is just one example. That culture goes out of its way to support new businesses.

Kansas City, Mo.: All great cities known for innovation have one particular area known for vibrancy of the entrepreneurial spirit — the hub from which the identity grows. By designating and aligning assets to help create one key innovation hub, they are able to better craft their message and story to the world. This benefit then spins off to the entire region. Creating an energetic center of innovation also reinforces the idea of the “third place” for individual interaction and idea exchange.

Conclusions

The city needs to be far more engaged in promoting the generation of risk capital in new company formation. The city has podium power, but has not been seriously engaged in this vital function.

We should figure out how to capture more headquarter companies in Colorado Springs. Capturing only divisions of large companies has not been very successful. We should be realistic in the size of companies that we can capture. We might focus on a mixture of middle-market companies in Colorado and neighboring states, where the entire company would move to Colorado Springs. Capturing a large prize from, say California, including the headquarters, is simply impractical. It certainly has not happened yet.

Red carpet plays: Finally, we should actively chase CEOs who have cashed out from other states and might want to move to Colorado Springs. CEOs, being restless individuals but with the right DNA, might just end up starting new companies! This area has never been explored, but could have significant payoff.

Ric Denton, CEO of the Colorado Springs Technology Incubator, is a Silicon Valley veteran with extensive experience in taking early-stage startups from conception to multi-million dollar organizations. He and his team assist startup clients with product development, funding, strategic partnerships, operational guidance and their go-to-market strategies.

One Response to Silicon Mountain gone: City requires clear path

  1. City government and city businesses need to stop looking to corporate America to come in and save the day. That ain’t gonna happen. Frankly, the resources large corporate manufacturers need are not here. What is going to save our economy are entrepreneurs and small business. The City needs to create incentives for small business to start up and grow organically in our own community. And state government needs to put restraints on the parasites that choke and kill small business endeavors. And I do mean insurance companies and lawyers.

    Steven Shepard
    November 27, 2013 at 3:13 pm