Category Archives: Entrepreneurialism

Block.one Chooses Arlington for U.S. Headquarters

Blockchain CTO Dan Larimer

This may be the most fascinating Virginia business story of the year. Block.one, a leader in blockchain technology that originated in Blacksburg but is headquartered in Hong Kong, has announced that it will establish its U.S. headquarters in Arlington County. Virginia is providing a $600,000 grant from the Commonwealth Opportunity Fund to snag the $10 million investment.

Block.one employs more than 80 people in Blacksburg, and the town will “remain a significant innovation hub,” reports the Roanoke Times. The company is hiring people for 44 jobs in Blacksburg, and 21 in Arlington. Blockchain is known mainly as the technology that underpins digital currencies, although it has fast-growing applications in payments processing, logistics, and other fields.

The governor’s press release said that Block.one publishes the EOSIO blockchain software, “the fastest public blockchain protocol in the market. The free, open-source protocol is designed to be adapted and used by the developer community and companies to create a more secure and transparent digital infrastructure.” Continue reading

Undercover Billionaire and the Opportunity Narrative

Billionaire sleeping in old pickup truck - Erie, Pa

Billionaire sleeping in old pickup truck, Erie PA

by Don Rippert

The show.  The Discovery Channel started airing a new series about a billionaire who goes to Erie, Pa with an old pickup truck, $100 and a cell phone with no contacts.  His goal is to build a business worth $1m in 90 days.  If he achieves the goal he will share ownership of the business with the employees.  If he fails he will finance the business with $1m of his own money.  This show strikes me as a laboratory experiment regarding Jim Bacon’s Opportunity Narrative. Continue reading

Sweet Briar Finds Niche in Artisinal Agriculture

A Sweet Briar student holds a honeycomb from one of the school’s beehives.

Women account for a rapidly increasing percentage of the nation’s farmers, and in that trend Sweet Briar College sees a business opportunity. The women’s college, which nearly shut down due to financial difficulties a couple of years ago, has no intention of competing with Virginia Tech’s traditional agricultural sciences program. Instead, it is building a program around artisinal farming.

Located on 3,200 acres in the shadow of the Blue Ridge Mountains, the Sweet Briar campus once was a working plantation with tobacco and agricultural crops. Now it hosts vineyards and beehives, and it is tearing out the old tennis courts to install a nine-bay, 27,000-square-foot commercial greenhouse. In the future, the school plans to raise livestock and plant orchards.

According to the 2017 U.S. Census of Agriculture, 56% of all U.S. farming operations have at least one female decision-maker, and the percentage of female farmers has been rising rapidly, reaching 1.23 million, reports the News & Advance. Says President Meredeith Woo: “We see a very interesting megatrend in which we want to be at the forefront and make sure that we’re educating women [and] exciting women about very interesting possibilities in this new century which they will own.” Continue reading

When Nobody Was Looking, Virginia Developed a Thriving Medical Device Industry

Garry Warren, CEO of ivWatch in Hampton has developed technology to reduce the infection risk from IV therapy. Photo credit: Virginia Business

Virginia business boosters have long fanned fantasies that the state might join the ranks of the nation’s biotech industry leaders. There isn’t much chance of Virginia becoming a center of pharmaceutical commercialization — an industry in which the required expertise is highly concentrated geographically — but there may be hope for medical devices.

Writes Virginia Business: “Analysis released last year found the medical-device subsector of Virginia’s bioscience industry grew four times faster than the national average. In 2016, the commonwealth had 184 medical device and equipment companies, a 31% increase from 2014.” Continue reading

Bacon Bits: Rural Development Edition

Seeding entrepreneurship. The Virginia Coalfield Economic Development Authority has approved $180,000 in seed-capital grants up to $10,000 for businesses that have been operating less than a year and have fewer than 10 full-time employees. The new businesses are projected to create $770,000 in total private investment and create 135 full-time and part-time jobs. Assuming the businesses deliver on their investment and jobs — not to be taken for granted — this looks like a promising approach to economic development. Since it started two years ago, reports the Bristol Herald-Courier, 53 businesses receiving micro-grants have generated $3.1 million in private investment and created 542 full- and -part-time jobs. Beats subsidizing an out-of-state company to build a light manufacturing plant and then shut it down 10 years later.

Addressing the doc shortage. Southwest Virginia has a chronic shortage of doctors, nurses and other health care providers. The United Company Foundation in Bristol is issuing a $1 million challenge grant to the Edward Via College of Osteopathic Medicine in Blacksburg to lower medical school debt for doctors who agree to practice in Southwest Virginia, reports the Roanoke Times. Two $40,000 scholarships will be awarded this spring to third-year medical students. After they complete their residencies, they will be required to work for three years in the region.

To plug the broadband gaps, first you have to find the broadband gaps. Continue reading

Food Trucks Can Create Oases in Food Deserts

Food desert theory.  Food deserts in cities can be defined as urban areas where it is difficult to buy high quality fresh foods at an affordable price.  This lack of access to healthy food causes problems for people living within these food deserts.  Instead of eating healthily people living in food deserts buy the “junk food” that is available. This, in turn, causes a variety of predictable health problems such as heart disease, malnutrition and diabetes.

Food desert solutions. Over the years, many well meaning people have proposed a series of solutions designed to solve the food desert problem. One example, described on Bacon’s Rebellion, involves the sale of collard greens in the small grocery and convenience stores in the Church Hill neighborhood of Richmond. Another involves not only selling healthy foods in Richmond but growing those vegetables in Richmond too. There have even been efforts by local health care organizations to provide “the Class-A-Roll” … a truck with a teaching kitchen inside to provide healthy food cooking lessons. Given that Sen. Mark Warner, D-VA, was conducting a town hall yesterday in Richmond to address food insecurity, one can only assume that these well intended ideas didn’t work. Of course they didn’t work. They miss the real point. Continue reading

Amazon in Northern Virginia: 5 Positives

The road to the Silicon Swamp is paved with gold.

1-The Future. In 2011 Marc Andreessen, founder of Netscape, wrote an essay for the Wall Street Journal titled, “Why Software is Eating the World.” The eight years since Andreessen’s essay was published have served to vindicate, validate and verify the accuracy of his thesis. Yet while software eats the world, it doesn’t necessarily dine in the same old restaurants.  Car making used to be centered in Detroit. Now Silicon Valley is the new Detroit. Not only are upstarts like Tesla centered in The Valley but traditional car manufacturers are heading west too. As Andreessen noted, traditional non-technology companies all need to become software companies in order to survive. Metropolitan areas with strong software skills will attract not only technology companies but non-technology companies as well. Embrace software or be eaten by it. The future belongs to those who code.

2-Ecosystem. Silicon Valley isn’t Bentonville, Arkansas. No one company dominates Silicon valley and therein lies its enduring strength. The Valley is an economic growth machine fueled by start-ups, spin-outs, mergers, acquisitions, bankruptcies and oceans of venture capital. The idea that NoVa’s benefits from the Amazon deal start and stop with Amazon is myopic. Talented employees will come to National Landing, work for Amazon, and then leave to start new ventures. The 25,000 Amazon jobs should be seen as a starting point rather than a final outcome. In fact, startups founded by Amazon veterans like Fugue are already operating in the area. Continue reading

How Walkable Urbanism and the Talent Pipeline Won the Amazon Deal

Conceptual rendering of Virginia Tech’s proposed $1 billion campus in Alexandria near the proposed Amazon campus.

More information is coming out about the wheeling and dealing behind Virginia’s incentive package that coaxed Amazon, Inc., to locate a $2.5 billion campus in Northern Virginia. It turns out that many of the key pieces in Virginia’s incentive package were initiatives that had been in the works for years. Virginia is putting resources into projects that, most likely, it would have funded eventually anyway.

Amazon wanted an urban location and it selected the Crystal City-Potomac Yard area of Arlington and Alexandria, currently being rebranded by the largest property owner, JBG Smith, as National Landing. A decade ago JBG Smith had commenced the yeoman’s work, with no immediate prospect of reward, of winning the local planning and regulatory approvals to re-develop the aging edge city into a walkable, high-density, mixed-use area — just the kind of urbanism Amazon was looking for.

Meanwhile, Virginia Tech had engaged in preliminary planning to build a major academic campus in Northern Virginia. The idea was mainly conceptual when Amazon announced his national HQ2 competition, but Tech had a scaffold upon which to build when the state began scrambling to put a deal together.

It helped that Commonwealth’s point man for selling Amazon, Stephen Moret, was not a conventional economic developer. The Virginia Economic Development Partnership president takes a broad, integrative approach to the profession that transcends the assembly of real estate deals. Having recently earned a Ph.D. from the University of Pennsylvania in higher education management and serving as a member of the State Council of Higher Education for Virginia, Moret is well versed in the critical need to build the talent pipeline. He is also conversant about the connections between land use, workforce, innovation districts and economic development.

I haven’t talked to Moret since the Amazon deal was closed. But I recall a conversation a year-and-a-half ago in which he casually blue-skyed an idea for promoting corporate investment in Southwest Virginia by creating a New Urbanism-style development zone around the campus of the University of Virginia-Wise. In that vision, the real estate was almost incidental. Moret’s idea was to create a knowledge-based community with access to UVa-Wise students and graduates that a corporate investor would find attractive.

It’s not a stretch to say that the Amazon project is the same idea writ large — very large. The $550 million in direct employment subsidies constitutes only a modest piece of the deal. What really sold Amazon on Northern Virginia was the prospect of setting its corporate facility (a) in a walkable urban community, (b) in close proximity to a technology-oriented university campus, (c) in order to create a dynamic innovation ecosystem with Amazon at the center, (d) in a metro area with one of the largest tech-savvy labor pools in the country.

Building the talent pipeline. Both the Roanoke Times and the Washington Post have published articles highlighting how the educational piece of the incentives package came together.

As the Roanoke Times writes, Virginia Tech’s proposal to build a $1 billion, one-million-square-foot campus near the Amazon facility was the cornerstone of the talent-recruitment piece of Virginia’s bid.

Virginia Tech had been planning some sort of campus near the nation’s capital since President Tim Sands arrived at the university four years ago. Tech didn’t have a location in mind or much more than a general sense of what the Innovation Campus could be.

“If the first time we had thought about it had been 14 months ago, this probably wouldn’t be what it is,” Sands said during the gauntlet of interviews after Tuesday’s announcement. “We were ready and the timing was perfect.”

Moret was unaware of Sands’ Northern Virginia ambitions when he first reached out to schedule a conference call with college and university leaders around the state last year.

He discussed the HQ2 bid with everyone and laid out early plans to roughly double the number of computer science graduates the state produced each year as part of the HQ2 bid.

He also asked if anyone was interested in the possibility of opening a campus near Amazon in the Washington, D.C., area.

“Virginia Tech reached out right away and said, ‘Hey, we’ve actually been working on this idea for a few years. And we’re prepared to put in a very large investment to make this happen,’” Moret recalled.

George Mason University also stepped up in a big way with plans to expand its Arlington campus. But the GMU campus will not be tightly integrated geographically with Amazon’s like Tech’s will be.

Crystal City rendering by Torti Gallas + Partners

Investing in walkable urbanism. Writing for the Congress for the New Urbanism’s Public Square Journal,  Robert Steuteville provides background on the urban planning piece of the deal.

Crystal City can be thought of as a large suburban retrofit—guided by a plan and form-based code that won a 2009 CNU Charter Award for Torti Gallas + Partners and Kimley-Horn and Associates. That plan and code, adopted by the county in 2010, entitled the new, higher-density development and put in place a framework to create a more walkable urban neighborhood over time.  …

The area was originally built without a master plan, and that changed with the recent master plan. “It’s high-rise suburban. It wants to be higher density, with a more urban mentality— away from cars and with retail on the street that is accessible to people,” says John Torti of Torti Gallas. “It has the potential of becoming a wonderful place.”

Steuteville’s article provides the following graphic comparing a mile-long segment of Rt. 1 as it looks now with the plan transform it into a more walkable, urban boulevard:

Continue reading

Dissecting Virginia’s Amazon Deal

Source: PROJECT COOPER: BRIEFING FOR THE
HOUSE APPROPRIATIONS COMMITTEE

Virginia has committed to investing a sum unprecedented for an economic development deal in the Commonwealth — roughly $2.5 billion in state and local dollars to bring Amazon, Inc. to Northern Virginia. In a presentation to the House Appropriations Committee yesterday, Stephen Moret, CEO of the Virginia Economic Development Partnership (VEDP) provided a detailed account of the incentives. Now that the numbers are out, the public has an opportunity to review the deal. At Bacon’s Rebellion, we love critiquing things, so here goes…

Cash flow positive for the state. The first point to note is that, while Virginia is making a massive public investment to the project, it will be cash-flow positive for the Commonwealth from Year One. If Amazon pays its projected 2,500 employees an average of $150,000 a year — the target number to qualify for state subsidies — the company’s Virginia workforce will generate a lot of new income taxes and sales tax revenue. By Year Ten, added state revenue from direct, indirect and induced employment will amount to $209 million. The sum could grow to $364 million within 30 years. That compares to a General Fund revenue forecast of about $20 billion in Fiscal Year 2019.

As Steve Haner explained in the previous post, the deal will have a minimal impact on the current budget cycle, and future expenditures on higher education, transportation and direct subsidies to Amazon will be phased in over time. The project is designed to ensure that new General Fund revenues will exceed project-related outlays. In other words, according to Moret’s numbers, the state will make a “profit” on the deal from which the entire state benefits.

Investing in competitiveness. A second key point is that 60% of the incentives will be invested in infrastructure and educational programs that don’t go into Amazon’s pocket. I have a huge philosophical problem with the state giving $550 million in Phase One (and another $200 million in a potential Phase Two) to one of the world’s richest companies. Talk about welfare capitalism! But Amazon could have located in Dallas, Texas, or a handful of other cities, so it has the power to play off one location against another. I don’t like it, but that’s the way the world works. The question for Virginians is whether or not the state comes out ahead.

Critical to the deal, Virginia will invest heavily in building its tech talent pipeline. According to Moret’s presentation, the state envisions producing approximately 25,000-35,000 new degrees (over and above baseline levels) in computer science and related programs over the next 20 years. That’s more than Amazon will require. So, labor-starved tech companies other than Amazon will benefit from the investment.

In an earlier post, I had expressed concern that the state would be subsidizing Amazon’s employee recruitment efforts to the tune of $22,000 per employee, giving the company an immense advantage over other Northern Virginia companies competing for talent. In his presentation, Moret acknowledged that there would be “short-term pressure” on Northern Virginia job markets, but that NoVa executives were mostly positive about the deal. His presentation includes a sampling of reactions back in February:

“The economic lift that we get in Virginia, the branding part of it, would be a strong positive for our recruiting efforts. Clearly we will be competing for talent, but that’s fine,” said a Fortune 500 CEO. “I think it’s important for regions to have a diversity of employment options. The economic lift and intellectual lift for the region is a strong, strong positive. I would like to see us get selected.”

“It would be a double-edged sword. Great for the economy. Great for the brand,” said the CEO of a successful tech company. “Long-term it would be good, but it’s another competitor to deal with for talent. … It would give cachet to our area.”

Said the C-level exec of a Fortune 500 company: “In the short run, it will entail some competition for talent. But it’s very powerful for the region for the long term. We’ve made Virginia our hub. The fastest growing part of our ecosystem
is tech – we hire thousands of associates [every year]. We want to have an ecosystem where new tech grads stay here and where there is a desire of folks from around the country to move here.”

The workforce worries are real. But the Virginia’s higher-ed investments will expand the local talent pipeline, Moret argues, while the presence of Amazon will help give the Northern Virginia tech sector a more positive brand nationally, aiding recruitment from other labor markets.

Meanwhile, the state, Arlington County, and the City of Alexandria will spend hundreds of millions of dollars building out transportation infrastructure serving the Crystal City/Potomac Yard area. The transportation initiatives, designed to complement walkable urbanism in the region’s urban core, will accommodate business and residential growth for more than just Amazon. The Metro bus and rail system is operating at significantly below capacity, notes Moret. This deal could boost ridership and revenues for the troubled mass transit system.

Projected share of Amazon commuters by transportation mode.

As Arlington and Alexandria re-develop the region as a walkable mixed-use community, Arlington projects that 77% of Amazon’s workers will walk, bike, car-share or take mass transit to work. That number, if accurate, is phenomenal. By creating a new template for Crystal City/Potomac Yard, Amazon could catalyze the development of even more transportation-efficient walkable urbanism that can soak up a lot of future transportation demand. Continue reading

Safety Training for Offshore Wind Workers?

Turbine construction off coast of England. Photo credit: Energy News Network

Who knows if and when Virginia will ever build a dynamic wind-power industry, but at least one aspiring entrepreneur wants to make Virginia Beach the location of the East Coast’s first safety training facility for wind industry workers.

Scott Chierepko, a retired Navy Seal, wants to break ground on a 25-acres facility complete with a massive indoor pool, the size of two Olympic pools, equipped with model wind towers equipped with blades and generating components, boats, cranes and catwalks, reports Energy News Network. The equipment will allow workers to gain expertise “moving from a small boat to a tower, escaping from a flipped supply vessel, practicing high-angle rescues and tool transfers, and rehearsing how to lower injured workers from high above.”

Trainees will also be able to learn how to evacuate from a submerged helicopter. A separate outside facility will be designed to teach them firefighting skills.

“It’s Hollywood in a box,” he says about the pool’s waves, water currents, rain, wind, light, fog, sound and other simulated atmospheric effects. “It’s a systems engineering challenge, but we’ll have the whole nine yards. We’ll be able to provide everything from a sunny day with flat seas to a night with four-foot waves.”

Meanwhile, Old Dominion University plans to offer students a certificate in offshore wind site assessment planning. Graduates would be eligible for jobs with the private companies that design site assessment plans and the state and federal agencies that review them.

“Eventually we will need welders and other shipyard trades, but right now the jobs are in planning,” says George Hagerman, senior project scientist with ODU’s Center for Coastal Physical Oceanography. “We have a real-world, locally relevant example to use throughout our certificate coursework.”

The Energy News Network article did not say where Chierepko’s BEI Maritime  hopes to raise the money for his training facility, so there is no way to evaluate, based on information in the article, what the odds are that he might succeed with his venture. An obvious question: What investor would want to plunk millions into a venture whose success would be contingent upon the emergence of a wind-power sector that, at this point, does not yet exist?

But the story does illustrate the kinds of service enterprises that might be spun off from an East Coast wind power industry should it come to fruition.

Will Virginia Legalize Recreational Marijuana Use?

High times today.  The marijuana legalization wave is beginning to wash over North America. Nine states (WA, OR, CA, NV, CO, MA, VT, ME and AK) along with the District of Columbia have legalized the recreational use of marijuana.  Well over 20% of Americans now live in states which have legalized recreational marijuana use. On Oct 17 of this year recreational marijuana use will be legalized across Canada. While the various provinces will regulate the sale and use of marijuana in their own unique ways, it will be legal across Canada.

Higher times to come. Several more states are slated to decide the question of legalized recreational marijuana use this November (or sooner)…

Michigan – Voter initiated measure to permit those over 21 to grow and possess personal use quantities of cannabis and related concentrates.  Statewide polling data from this spring shows 61% of voters intend to vote “yes” on the measure. While you may not be able to drink the water in Flint it looks like you’ll be legally able to use it in a bong come this November.

New Jersey – The New Jersey legislature is debating bills that would legalize recreational marijuana in the Garden State. Interestingly, some of these bills would also expunge the criminal records of anybody convicted in the past of marijuana-related crimes. Was I ever arrested for weed?  Fuhghetaboutit!

North Dakota – A voter – initiated referendum will appear on North Dakota ballots this November. Uniquely, the North Dakota initiative would set no limits on the amount of marijuana people can possess or cultivate. Perhaps a large stockpile is required to get through those long, dark winters.

New York – A recent state commissioned study on recreational marijuana legalization came out strongly in favor of making ganja legal. Gov Andrew Cuomo quickly sprang to action setting up a working group to write a marijuana legalization bill. Put New York in the “when, not if” column.  This should give new meaning to Billy Joel’s song “New York State of Mind” (which has the opening line, “Take a holiday from the neighborhood”).

Oklahoma – This June Oklahoma voters approved a broad medical marijuana usage law. Activists have collected a lot of signatures to get the question of legalized recreational marijuana on the Nov 6 ballot. Whether there are enough signatures or enough time to get the ballot question approved this year remains to be seen. Sadly, Merle Haggard died in 2016 before being able to revise the first line of his famous song Okie from Muskogee … “We don’t smoke marijuana in Muskogee”.  It seems that sooner, rather than later, people will be openly smoking marijuana in Muskogee.

Delaware – In June, a majority of House lawmakers voted in favor of legislation to legalize marijuana use and retail sales. However, because the legislation imposed new taxes and fees, state rules required it to receive super-majority support. Lawmakers are anticipated to take up similar legislation again next year. I’ll predict that by 2020 people will be legally getting small in the Small Wonder.

A spot of hemp, Mr. Jefferson? Five of the first six presidents of the U.S. were Virginians and there is evidence that all five of them smoked a little hootch from time to time. You can read the evidence from an unimpeachable source … High Times …  here.

Will River City go up in smoke? But what of modern Virginians and Virginia politicians? In a 2017 Quinnipiac poll Virginia voters supported allowing adults to legally posses and use small amounts of marijuana by 59 – 35 percent. So, the voters would like to see marijuana legalized in Virginia. But since when did the voters matter to Virginia’s political elite? They don’t listen to voters, they listen to dollars. The Virginia Public Access Project tallies up the following donation totals for “all years”:

Beverages – Alcohol Distributors / Brokers – $20,885,384
Retail Sales – General $10,113,070
Restaurants – $6,533,357
Beverages – Alcohol Manufacturers – $3,993,418

As point of reference, Dominion Energy donated $11,354,842 during the same period.  Meanwhile, PepsiCo, owner of Frito-Lay – the maker of Cheetos – only donated $82,385.

— Don Rippert

Predictions of Coal’s Demise a Tad Premature

E. Morgan Massey

As a teenager E. Morgan Massey worked a summer job in the West Virginia coalfields as an assistant “field man.” He traveled around with Stuart Andrews (father of the late state Senate Finance Chair Hunter Andrews), keeping tabs on coal mining operations represented by his grandfather’s coal sales company, the Richmond-based A.T. Massey Coal Company. That was during World War II, before Massey enlisted in the U.S. Army Air Corps, graduated from the engineering program at the University of Virginia, and began mining coal, not just selling it. At 91 years, he has seen more ups and downs in the coal industry than a Kings Dominion roller coaster, and he thinks the market may be turning again.

Not only has Massey lived through more booms and busts in the coal industry than just about anyone alive, he has made more money than most. He built A.T. Massey Coal into the fourth largest coal producer in the country before he retired some 25 years ago at 65 and Massey Coal went public as Massey Energy. Vowing not to compete with his old colleagues, he proceeded to pioneer the development of the South American coal industry and become the first American to invest profitably in a Chinese coal enterprise. The key to his success was a philosophy articulated when he ran Massey Coal under a joint partnership of the Fluor Corp. and Royal Dutch Shell. He steered the company’s capital into highly productive mines that would remain profitable even during the inevitable downturns in coal prices. To boost output during the good times, he leased out marginal coal reserves to sub-contractors who would bear the brunt when prices tumbled.

The coal industry has taken a walloping the past decade as tighter federal environmental regulations have penalized coal as an electric power source, the fracking revolution has undercut coal as a boiler fuel, and solar and wind power have begun displacing fossil fuels generally. While a market remains for high-quality Central Appalachian coal in the metallurgical market (in which coal is processed into coke and used to make steel), the steam coal market seems to be shrinking with no let-up in sight. The situation has become so bad that the Charleston Gazette-Mail headline has proclaimed that coal’s decline is “imminent” with or without President Trump’s recently announced regulatory rescue.

When I’m not blogging for Bacon’s Rebellion, I’ve been working with Massey on writing a corporate/family history of the Massey family and the A.T. Massey Coal Company, and I’ve had the benefit of his thinking. Coal has survived the demise of its market as a fuel for railroad locomotives, steam ships, a home-heating fuel, cheap oil, and abundant nuclear power. Coal has always found new markets. Even if no new markets materialize any time soon, the depression in coal prices and production has been so severe that Massey thinks the time may be opportune for some bottom fishing.

Despite his age, Massey still has the entrepreneurial bug. While he’s not interested in opening any new coal mines, he sees a future in the fuel. With the help of 80-year-old Stan Suboleski, a former head of Virginia Tech’s mining engineering program, he’s launching a new venture, the Minerals Refining Corporation. This time around, he’s “mining” coal using a technology developed at Virginia Tech to extract coal fines (and possibly rare earth metals) from the massive piles of preparation-plant refuse found all over Appalachia. One way or another, he’s determined to find a way to extract a profit from the black rock.

AI – Nirvana or Apocalypse (for Virginia)?

Smells like tech spirit – Artificial Intelligence may be on its way to becoming the buzziest buzz-term in the buzzword laden history of the buzz-o-sphere.  No prior trend has engendered the societal debate that AI has sparked.  Scientistsbillionairespoliticianspoetspriestsbutchersbakers and candlestick makers have all gotten into the game.  Ok, the candlestick maker reference was hogwash but give that industry time … something will come up.  Everybody has an opinion and the opinions are “all over the map”.  Artificial intelligence will either be the recreation of Eden on Earth (without the troublesome snakes and apples) or the kind of zombie apocalypse that gives zombies nightmares.  Either way. it seems clear that AI will have a profound effect on how we live, work and play in Virginia.

“I’m sorry Dave, I’m afraid I can’t do that.”   Concerns about computers getting too big for their britches go back a long way.  Generation after generation had their fears of computer overlords generally mucking things up.  The average American Baby Boomer first learned the perils of artificial intelligence in 1968 from HAL of 2001: A Space Odyssey fame.  Thirty three years later everybody laughed when 2001 came and went without any psychotic computers in evidence (give or take the Apple Newton).  But here we are 17 years later and there are some very serious people with some very serious concerns.  Why did concerns about AI go from the realm of entertainment to a serious debate about the start of nirvana vs the end of mankind?

The winter of their discontent.  AI has gone through a series of boom and bust cycles over the decades from the hype of the 1970s and 80s to the last of the so-called AI winters from about 1990 through 2011.  In some ways the public’s fascination with AI elevated the highs and made the lows all that much lower.  In 1981 Japan’s MITI funded the Fifth Generation Computer Systems project with $850M.  The ambitious program would build a new generation of computers designed for AI along with the AI software needed to make the dream come true.  An impressive list of goals was drawn up.  Ten years later the goals had not been met.  Twenty, even thirty years later many of the goals from 1981 were still elusive.  Then, in 2011, came one of those bizarre occurrences that sort of change everything.

Your answer must be in the form of a question.  In January 2011 IBM’s AI platform, named Watson, played Jeopardy! against the two best human Jeopardy! players in history and beat them soundly.  The AI winter was over.  In reality, AI research had been going on at IBM and elsewhere during the so-called AI winter but the Jeopardy! contest reawakened the public’s fascination with AI.  AI research was often called something other than AI during the AI winter because of the stigma AI had developed.  Kind of like the way liberals now call themselves progressives.  There were neural networks, expert systems, knowledge engineering, etc.  However, it was AI.  The Watson Jeopardy! match put AI back in the public’s imagination and it’s been “off to the races” ever since.

The Last Question.  Google followed IBM with a more impressive AI demonstration.  In 2016, using its Deep Mind AI platform, Google defeated the reigning human Go master.  Go is a 3,000 year old Chinese board game that has been notoriously hard for AI platforms to successfully play due to the mind-boggling number of possible moves.  These advances, and many more, explain why the debate over AI and the future of mankind has reached such a fever pitch.  It appears that this time … AI is finally real.

Come out Virginia.  Don’t let ’em wait.  You backward states start much too late.  Ok, apologies to Billy Joel but Virginia has a long history of denying the present and ignoring the future.  In a world where Russian bots already stand accused of meddling in American elections Virginia needs a frank discussion regarding the escalating capabilities of automation and AI.  Will bots affect the 2019 Virginia elections?  How will automation impact Virginia’s economy?  Was it coincidence that Steve Haner’s by-line started appearing on BaconsRebellion about the same time that AI-powered bots began posting on social media?

— Don Rippert

Huzzah for Middle-Aged Startup Entrepreneurs

Many communities are obsessed with making themselves attractive locations for Millennials on the theory that recruiting and retaining skilled and educated young workers will boost the entrepreneurial economy. Come to think of it, I might have contributed to that line of thinking. But maybe localities should be appealing to an older crowd. Successful start-up entrepreneurs are more likely to be middle-aged than youthful.

According to data published by Pierre Azoulay and three other economists in a National Bureau of Economic Research paper, “Age and High-Growth Entrepreneurship,” Americans are more likely to start up new enterprises between the ages of 35 and 45 than at any other age. The likelihood of starting high-growth enterprises skews even older.

“The view that young people are especially capable of producing big ideas — whether in scientific research, invention, or entrepreneurship — is common and longstanding,” the authors state. “Famous individual cases such as Bill Gates, Steve Jobs, and Mark Zuckerberg show that people in their early 20s can create world-leading companies. Meanwhile, venture capital firms appear to emphasize youth as a key criteria in targeting their investments.”

Younger people are less beholden to existing paradigms of thought and practice, according to this train of thought, and they are less distracted by family obligations. But Azoulay et al. find that the most successful entrepreneurs tend to be middle-aged, not young. “The mean founder age for the 1 in 1,000 highest growth new ventures is 45.0. … We further find that the ‘batting average’ for  creating successful firms is rising dramatically with age.”

Mid-life entrepreneurs have had more time to accumulate human capital (deep experience and knowledge in their field), financial capital (money), and social capital (contacts and relationships), yet the still maintain high levels of energy and ambition.

Bacon’s bottom line: A half year ago, I compiled some research for a client comparing economic trends for the City of Richmond, and the counties of Henrico, Chesterfield and Hanover. With its walkable urbanism, Richmond has positioned itself within the region as the preferred abode for Millennials, and many businesses are relocating from suburban locations to downtown Richmond in order to recruit the Millennials. I expected Richmond, with all that youthful energy, to outpace the counties in start-ups and entrepreneurship.

Source 2017 Inc. 5000

Richmond does, in fact, host more fast-growth start-up companies, as measured by 2017 Inc. 5000 entries, than Chesterfield, Hanover or Powhatan counties. But Henrico boasted the most of all, accounting for nearly half of the 29 fast-growth companies in the entire metropolitan area. Henrico has precious little walkable urbanism to sell; land use is dominated by traditional sprawl-style development. What the county does have is lower taxes, good schools, low crime, upscale retail, and neighborhoods with spacious houses — primary considerations for middle-aged families raising kids.

I think Henrico could benefit from more walkable urbanism, which would make a killer land use in a jurisdiction with low taxes, low crime, and good schools. But the larger point is that a middle-aged population and entrepreneurial vitality need not be incompatible. Indeed, the two traits go hand-in-hand.

Virginia Small Business Rating: Fair to Middling

Ranking out of top 177 metros. For an explanation of metrics, see Reward Expert’s methodology here.

Yesterday I opined on the critical importance of tax rates in influencing the flow of corporate and human capital between the states (“Supply Siders Like Virginia’s Economic Outlook“). But I made the point that taxes are hardly the only factor driving economic growth. Another important variable is entrepreneurial vitality — the ability of states and metros to grow their own businesses. Strong entrepreneurial ecosystems have kept states like California and New York in the game despite atrocious tax policies that push businesses and high-income households out of their states.

Now comes a new of “Best and Worst Places to Start a Small Business,” published by Reward Expert, a company that creates reward packages for credit cards. Researchers used a bundle of 30 metrics including office space, demographics and diversity, education, income, transit, housing costs, and venture capital activity, among others for 177 metropolitan areas with populations greater than 250,000.

Under this methodology, the Denver, Colo., and Boston, Mass., metros scored No. 1 and No. 2, while Charleston, S.C., and the Tallahassee, Fla., regions scored the worst.

And Virginia metros? Overall, they put in a fair-to-middling performance. The Washington and Richmond metros ranked 21st and 22nd respectively, both respectable scores but not enough to blow anyone’s socks off. Roanoke was a pleasant surprise at 29th. Lynchburg scored in the top half. Virginia Beach-Norfolk was the only laggard, falling into the bottom half — but nowhere near the bottom.

Metropolitan rankings have become a dime a dozen now, and I haven’t analyzed Reward Expert’s methodology to see if it is better or worse than the others. (I do question how valuable the five-year startup survival rate is as a metric, for instance, for it seems to vary within such a narrow range. And Washington’s low score for educational attainment looks plain wrong.) Just consider the report as one more colorful fragment in the kaleidoscope of data we scrutinize to track our performance.

Combine this report on small business prospects with the “Rich States, Poor States,” which focuses more on factors influencing corporate investment and human capital flows between states, and the outlook is cautiously positive for Virginia. By no means can we consider ourselves an economic development powerhouse, as we were during the glory days of the 1980s and 1990s. And we’re still too dependent upon the vagaries of federal government spending. But our economic fundamentals look better that those of most states.

Update: WalletHub has come out with its own ranking of best cities for business startups. Bottom line: Virginia sucks. Out of 180 cities:

Richmond — 79th
Virginia Beach — 131st
Norfolk — 150th
Newport News — 160th
Chesapeake — 170th

Important difference between the two rankings: Reward Experts looks at Virginia metropolitan regions, WalletHub looks at Virginia “cities.”