Friday, May 4, 2007

Cincinnati Innovation -- an Oxymoron?


I don’t mean to be overly provocative with my title. I do mean to raise the question “What is the Innovation culture, if any, of my beloved hometown of Cincinnati?” Let me say how much I love Cincy to start with here. I don’t think there is a more beautiful city in the Midwest, and it’s hard to beat Cincinnatians for being friendly. I spent many good years living in Cincinnati and I often wish to return to Mooney Avenue in Hyde Park and spend some time reading novels under a giant oak tree.

But I digress, this is not a love letter, it’s about an honest look at the state of innovation in Cincy. I return to my hometown May 21 for a 7:00 pm appearance at Joseph-Beth in Hyde Park to sign copies of Jack’s Notebook. Come visit with me! My visit prompted my thinking about my Hometown.

Historically, Cincinnati is darn innovative. Jet engines were first developed at GE in Evandale. Proctor and Gamble, the giant that looms large in this cities corporate profile, certainly has innovated like crazy over the years and continues to do so. P&G strategy over the last few years has been nothing short of brilliant. Kroger’s continues to grow by being very smart, and yes, innovative. Tom Nies and Cincom was a pioneer in the software business (disclaimer, I worked for Cincom for 4 years in the 80’s). Once upon a time Cincinnati was one of the most admirably balanced economic cities in the world, with all kinds of thriving companies. It was the world capital of precision machine tools at one point, and not so long ago. So, okay, Innovation and Cincinnati do belong in the same sentence.

However, Cincinnati is no longer as well balanced as it once was. The big companies continue to do well, but with some rare exceptions it’s hard to find the gleaming and exciting light of new business formation and innovation. Opportunity, or rather the lack of it, is at the heart of Cincinnati’s racial disquiet. No hope means despair, and desperate people do drastic things. I spoke with a real gentlemen named Jim Clingman, Jr. (http://www.blackonomics.com/) yesterday and he confirmed what I thought was true 20 years ago. It’s not a level playing field in Cincy for the young business person coming up. Jim is a UC professor and an advocate for economic empowerment. He says that the investment funds that were supposed to help small businesses (one of the responses to the racial problems that occurred) only go to companies with more than a million in revenues. And there doesn’t appear to be any micro loan programs in Cincinnati – and that’s hard to believe given the need and they’re proven effectiveness for bootstrapping. Jim is one of the driving forces behind Entrepreneur High School, an educational program located within Woodward High, to create new players on the field. It’s a modest success, having survived within CPS for 5 years now and graduating it’s first class. They’ve won national awards for business plan development. If only this program were more widespread…it should be an option in every public high school. Especially in Cincinnati.

And having said all the above, Cincinnati is still a force -- at this time home to 10 Fortune 500 companies and 18 Fortune 1000 companies. These companies do well in a low cost of living city like Cincinnati, drawing on its educated population, and on a solid mid-western work ethic. These companies long ago carved out their niches and are, mostly, content to do incremental innovation to maintain their market shares. One bit of good news -- as some of these bigger organizations downsize and send talented and experienced baby boomers off to retirement, those folks refuse to go quietly and often go out and start ventures. This is a real engine for small business growth and Cincinnati would do well to aid and abet this trend. Enquirer columnist John Eckberg, author of The Success Effect, made me aware of this. He cited as an example the story of the founding of Lenscrafter. Dean Butler, a retired P&G executive noticed that there was no good reason glasses had to take two weeks to come back from the grinder. He put the lens makers in the back of the store, delivered glasses in one hour, and the rest was history. A seasoned veteran is the kind of person who not only has that kind of business insight, but also has the experience to grow a company.

And Cincinnati has some stars -- Doug Hall at Eureka Ranch is arguably the leading innovation consultant in the USA. While I don’t agree with all his methods, you can’t argue with his results, which keep customers from all over the world coming back to Newtown for his services.

Let me get personal here. I left Cincinnati in the mid 80’s to pursue a software career in a bigger market, Chicago. It was a good move for me. I worked for several companies in Chicago and then started my own, with partners, in the early 90’s and prospered. That would never have happened for me in Cincinnati (you can’t get a cup of coffee in Chicago without running into somebody with a new business idea). New business requires capital and mentorship. It requires a culture that supports risk taking. Here’s my opinion: Cincinnati is a risk-averse city. The statistic I found on Wikipedia -- that it is #16 in the USA for entrepreneurship (not bad) and #1 in failure rates -- is interesting. It means only “sure things” are being tried. The downside to having a good batting average is you give up the long ball, the home run. The Big Red Machine didn’t operate that way! You need good bets and you need to bet on a long shot once in a while because they have the biggest payoff.

Let’s look at technology. There needs to be a culture that develops new technologies and nurtures them into new businesses. I don’t see that going on in Cincinnati. Okay, the University of Cincinnati does some good work in engineering research and development (check out the interesting work being done at Extreme Photonics http://www.uc.edu/news/steckl.htm) – but unlike Stanford or Harvard – where are all the start-ups taking that stuff to the next level? And creating jobs? It’s really not happening in Cincinnati.

Until Cincinnati starts supporting technological development and start-ups, and until it does the hard work of creating more empowerment for small business from the ground up with micro loan programs, and better entrepreneurial education, it will remain what it is today, a good town content to follow, and not a great town leading innovation.

10 comments:

Steve said...

Hi Greg:

Nice post! ... But one small error.

Tom Neis -- is spelled "Nies"

Regards

Steve Kayser

Gregg Fraley said...

oops...I'll fix it in the post...thanks Steve.

Penny van der Lith said...

You pose some interesting thoughts and I see some parallels to South Africa, where I live.

Why is it that, when compared to our counterparts, SA has the lowest rate of entrepreneurship of all developing nations AND scores poorly on measures of innovation?(South Africa GEM 2005 Report)

Given our recent history and the rapid pace of positive political and social change, South Africans should be raring to go. SA is rampant with opportunity, offers no shortage of labour, a solid infrastructure, political stability and a sound economy. Below is my take on it - based on research by the Global Entrepreneurship Monitor (http://www.gemconsortium.org).

Firstly, our school system fails to prepare school-leavers for business and only a tiny portion of our population has access to tertiary education, or even finishes high-school. South Africans are not being taught basics like financial arithmetic and general business skills at school.

A recent German study suggested that the younger an entrepreneur is when he or she begins, the more likely he or she is to ultimately succeed. Apparently younger entrepreneurs are less risk-averse because they have less to lose and have a longer time frame in which to make mistakes and learn from them. In SA, the need for a tertiary education, followed by years of working off the debt incurred getting it, means that potential entrepreneurs might be leaving their ambitions too late.

Secondly, South Africans are generally too poor to start viable businesses. Most SA entrepreneurs are “necessity entrepreneurs” who start informal businesses because they are unemployed and desperate. The barriers to entry (education, training & capital) are so low that one ends up with an over-representation of a particular type of business in an area, the businesses cannibalize each other, no-one earns a livable wage and the cycle continues. In SA, Micro-lenders don’t offer an immediate solution to this because until recently the industry was so poorly regulated that they were little more than loan sharks preying on the poor, ignorant and desperate.

Thirdly, the regulatory environment is not entrepreneur-friendly. For instance, Black Economic Empowerment (BEE) usually means that most contracts go to a very small and extremely select group of outrageously wealthy black entrepreneurs. Basically, the money is getting “dammed up”. Also, government policy both explicitly, and in practical terms, offers the least support to the group that is statistically most likely to succeed and provide employment: white men. (Please don’t shoot me - I can’t help that the stats are not p.c.!). Also, the stringent labour regulations in South Africa, while extremely supportive of the workforce, are a pain in the butt for the entrepreneur. My personal theory is that this has a double-whammy effect. Because entrepreneurs are more reluctant to hire staff than they would perhaps otherwise be, they might be taking longer and having to work harder to “make it”, so they are more likely give up. The negative effect on job creation means that fewer people earn a livable wage that will put them on a secure enough footing to either start a business themselves or offer their children an education that will equip them for business.

South Africa’s poor standing in the innovation stakes stems, in my opinion, from several factors. Firstly, I suspect that we expend too much energy on hi-tech and “western” aspirations that breed a culture of imitation. Instead of looking at what the real needs and requirements of South Africans are, we assume that Africans want the same things that Americans or Europeans want. Perhaps we do, but I suspect there are a number of uniquely South African business opportunities that are overlooked because we import ideas instead of generating our own (go to http://www.lapdesk.co.za for an example). A second factor is that South Africa is a high-stress society. Our shocking crime rate means that we are becoming increasingly risk-averse and fearful – both serious blocks to creativity. Finally, many South Africans think life owes them a favour and blame their apathy on the legacy of apartheid, racism, affirmative action, BEE , the government, the church or whatever else fits their situation.

The solution is a personal one. When we quit blaming, start paying attention, and actively search for opportunities to do things differently we’ll be flying ahead like its nobody’s – or rather, everybody’s - business.

Roni said...

Greg,

Bravo
Looking back at the Queen City from both time and distance allows us to see the forest from the trees that they may not see.
I think other problems are the hide-bound cultural retraints that come from years and years of societal segregation - east Vine St. vs. west Vine St., public vs. parocial school system, multi-generational native vs. relative new comer.
Sometimes when I talk to my young relatives there I dispare that nothing will ever change.

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