In New Orleans, Entrepreneurship Paves the Path to Change
In conjunction with 1776, the U.S. Chamber of Commerce and its Foundation attended a series of roundatables in eight cities to examine the startup economy and civic entrepreneurship. A new research report, "Innovation That Matters: How City Networks Drive Civic Entrepreneurship." is available at InnovationThatMatters.vc.
“We were laid to our death beds in 2005,” said one New Orleans leader. “People wrote off the future of the city.” He paused and turned, facing a room full of startup founders. “But people used this as an opportunity to change.” We preserved what we liked about New Orleans, he said, and changed what we didn’t.
Tim Williamson, the head of The Idea Village, nodded his head. “What you have here is a group of folks who believe in this city. And they view entrepreneurship as a way to create change.”
New Orleans has indeed changed. There’s an energy to the city that’s palpable. Something special is going on, like New Orleans has found some secret that it’s getting ready to share.
Sure, the city has a long way to go as a startup hub, but it’s come even farther. That’s why the Chamber and 1776 visited New Orleans’ brightest startup founders recently to figure out what makes their community tick.
In the Past
New Orleans was once a boomtown. River traffic and Gulf access made the Big Easy a trading hub like none other. Population soared in the centuries that followed its founding by the French in the early 18th Century, helping make the city the most powerful in the South. New Orleans in time became known as an incubator of the arts—a refuge for lost soul.
The city’s population crested to new heights by 1960, and like any wave New Orleans fell back to earth. New Orleans proved ill equipped to handle new roads, new ways of manufacturing and shipping goods, and the sort of business that sustained them all. A quarter million residents and innumerable businesses left in the decades that followed. The fastest route to getting ahead in New Orleans was to leave it. The city that was left behind became mired in corruption. “The community just gave up,” said one local businessman.
Then Katrina happened. On August 29, 2005, the most devastating hurricane in American history made landfall in Mississippi. Category 3 winds and a record-breaking 28-foot storm surge thrashed the Gulf Coast as Katrina swept into New Orleans. Every levee protecting the city failed. Floodwaters rushed in, sweeping away houses and lives as the nation watched. Nearly 90% of the city fled in those horrible days, many never to return.
Where One City Ends, Another Begins
The city of New Orleans nearly died that day in August. Many deemed the city a lost cause; others just lost too much to care. And in some ways New Orleans was indeed lost that day, at least the city as it was known. Old power structures were swept away. Entrenched interests went off in search of finer pickings. What was left behind was a city with its back against the wall. The only way out was up. “Once you take a punch like that,” said Tulane’s John Christie, “risk doesn’t scare you as much anymore.”
Nowhere is the result of this Katrina Moment clearer than in education. Ambitious reformers axed the city’s derelict school systems, once ranked among the worst in the nation. The state wrested control from the old administration and began to shutter bad schools left and right. Charter schools opened in their place, and parents were later handed vouchers to pay for the school of their choice. Meanwhile, teacher’s ranks were being filled with bright, young Teach for America (TFA) fellows.
New faces like these came to town in droves to help rebuild New Orleans. They brought a social conscious and sheer talent with them. They built a new community on top of the older, fractured one and more or less stayed there. It turns out that if you’re smart enough for Teach for America, you’re smart enough to do a lot of other things than teach. Indeed, something like half of local startup leaders now are TFA alums.
Locals said in the years following Katrina that they felt like New Orleans was finally a place that felt open to them. And the networks that formed in the wake of Katrina were thick and welcoming to newcomers. Today, these connections are scaling into startups.
“Katrina fractured the closed, insular networks of the past,” concluded Idea Village’s Tim Williamson. “You have a new, grassroots movement, a community where the networks are starting to open up and scale.”
Think about some of the most prosperous places on earth. Switzerland. Singapore. These are places that, viewed through the narrow lens of resources, don’t have much going for them. Yet through a complex interplay of capital and culture, these places leapt ahead of their competitors.
Now consider New Orleans. The city has no major corporations or venture capital (VC) funds. It does have oil spills and hurricanes. Yet New Orleans’ startup community is rife with hope. The city has good people, they feel, who believe in the city and are using all they ways they naturally connect in community to launch and scale entrepreneurial ventures.
New Orleans today boasts the same dense, open networks that fueled Silicon Valley. Ask local startup founders what makes their city a great place to do business and they will inevitably point to a "secret sauce" that’s one part economic structure and another part culture. They say that the connections between themselves are decentralized yet intimate, and that experimentation is finally being encouraged.
“It is just community,” says one founder about New Orleans startups. Looking around a room full of familiar faces, he said that it was New Orleans’ intimacy that gave the city its strength. Everyone knows everyone else, he said, and new faces are just as welcome. “What we do best is connect.”
“One of the things we hear time and time again is how the thing that attracts people to New Orleans is this sense of community,” said one economic development leader. A local consultant echoed the sentiment. “Having those informal kinds of networks where we are all in the same space but not competing is a very cool environment for entrepreneurs.”
While startups there have a familiar share of concerns—talent and capital chief among them—they aren’t what define the city. New Orleans connects what resources it has and marries them to a more risk-friendly culture that has emerged in the aftermath of Katrina. A slew of incubators, angel networks, meet-up groups, and startup funds are evidence of change. And how do they coordinate? “We meet at a bar in St. Bernard Parish,” said one founder. “There’s nothing top-down about it.”
Culture makes its mark on New Orleans’ startups. “We always had this energy of basic creativity,” said one development expert. As he says this, faint strains of jazz float through the window from a far-off tune. “What changed for us was when we were able to convert that into business and entrepreneurial activity.” Evan Judge of Federated Sample agreed. “The city has gone from a place that just plays hard to a place that works hard.”
Even still, predominantly black communities struggle with frightening levels of poverty and unemployment. Recent figures show that less than half of black males in New Orleans are employed, down from nearly two-thirds in 1980. Many say they feel stuck; their economic mobility is tied to geographic mobility. “Our challenge,” said one city consultant, “is to ensure that those networks are inclusive.”
Katrina left its mark on New Orleans’ community. When the hurricane hit, many older residents packed up never to return. Fast forward nearly a decade and often only millennials are equipped to lead companies. Some see a silver lining to the lack of gray. “You can be a big fish in a small pond,” said one young founder, who expressed amazement (and a little trepidation) at how much he could achieve in the city at such a young age.
Not only had many residents moved north and out of the city after the storm, but a large source of employment began to come from the city's physical assets that are, like with oil and gas, on the outskirts of town. Recognizing economic opportunity (and tire tracks) when they see it, parishes now come together and cooperate economically. Even the barriers between New Orleans and Baton Rouge have since fallen. “We realized we don't compete against each other,” said Jerry Bologna of Jefferson Parish. “We compete against Austin and Silicon Valley.” Katrina helped the city to start thinking more regionally.
Katrina also impacted the sort of startups founded in New Orleans. Education startups were an obvious beneficiary of the tide of TFA alums. Urban planners and civic engineers, once tasked with rebuilding New Orleans and protecting the city against future disasters, became sought the world over for their know-how. Much like for the Dutch, hard experience with floodwaters is now being used to help others. Same for the push today for green buildings, of which the city is also a pioneer.
They say to follow the money to know the truth, and in New Orleans the story points to investors and government.
Take the Louisiana Fund, for instance. When it first began in 2004 as a venture capital firm, there were no companies for it to invest in. So out went its ambitions of being a later-stage investor; the Fund instead became an early stage seed investor. It also brought in talent from the coasts to help jumpstart its investments.
Today, the Fund’s angel network has pre-screened over 100 deals, investing roughly $20 million and is bringing in $100 million in returns. Indeed, the Fund is now oversubscribed. While these figures do not exactly reach Silicon Valley-level demand, they represent immense progress for New Orleans. New Orleans’ angel network is one of the fastest growing such groups in the country.
Local startups say that every company that's been investable has gotten money. Few of their founders seemed to cast an envious eye on the coasts, at least for initial capital. Startups just tapped hidden reserves of capital that had previously been poured into, say, restaurants. This is not to say that getting funds is easy as a startup. “We want dumber money” one startup founder admitted with a laugh. But money exists and it’s rapidly being unlocked and tapped.
But to go big as a startup in New Orleans, you can’t go home (yet). Healthcare startups, for instance, often need large sums of patient and knowledgeable capital. New Orleans cannot fill their coffers alone. Thankfully, national and international funders are taking their calls.
If there’s a missing piece, it’s found in a large exit where a startup cashes in and, critically, takes a portion of its winnings and invests it back in the entrepreneur community. There is no Steve Case, the AOL founder, who used his TimeWarner funds to catalyze a startup community in DC, or a wealthy backer who’s made the city a mission, as in Detroit with Dan Gilbert of Quicken Loans.
The benefit of this money is that it’s flexible and fast (right now there’s no way to just ask for fifty grand with a quick turnaround), while also being from a source that’s long-term and community-focused. One founder said that $40 million could fund every startup in New Orleans right now, many of which are just now emerging out of seed stage. Big exits create institutions. New Orleans’ startup community is itching for an exit; many are starting to wonder if one will ever come, some founders say. For New Orleans to own its future, it will need the money to own it.
As for government, it did one big thing right in the aftermath of Katrina: it got out of the way. The focus seems to have been on people more than place. The city created an ambient temperature for incubating smart people instead of chasing smokestacks and building fancier amenities than the ones it already enjoys.
The city gradually refrained from tinkering with the startup community and instead let it form from the grassroots. When policy makers gave money, it was often either to private incubators or in removing the capital gains tax on startup exits. New Orleans is nearly alone among large cities in having a one-stop shop for business permitting. The city government’s main role, said a local leader, was to facilitate the linking and leveraging of people.
Game of Talent
In the late 1990s, there was no hope for recruiting talent in New Orleans. Now smart people come for the city’s growing opportunity, and they stay for its quality of life and affordability.
“There’s a lot of growth and excitement around entrepreneurship in New Orleans,” said Shuchi Khurana, the COO of local startup Bioceptive. There’s the growing University Medical Center and the groundbreaking BioInnovation Center on Canal Street. Education startups are drawing on one of the best clusters of bright people in America. Katrina gifted smart cities types with a recognizable niche. Energy firms can draw on a massive cluster of oil and gas firms in the region.
Universities are strong in New Orleans. Tulane and Xavier, just to name two, attract students from around the country and boast strong programs. Students stream in from around the country and graduates stream out, many of whom stay in New Orleans or return later. Meanwhile, their leaders are engaged in the startup community.
Still, local colleges are not producing much in the way of engineering or computer science talent. Government funds rarely make their way into building R&D capacity—a critical oversight for building an innovative city. Moreover, these universities have relatively small endowments. This means they struggle to act as anchor institutions for New Orleans in the same way that MIT does for Boston or Stanford in Silicon Valley.
Startups in turn need to better coordinate, founders say, with colleges and high schools to make sure they know what they need in terms of talent. With more local control over funding and a plan for managing the city’s talent supply chain, the better.
Some startups say they live in fear of losing skilled employees to local competitors. “It used to be that you couldn’t an employee to wash a petri dish,” said one healthcare executive. Now that demand is off the charts, universities have worked to keep up, though not always with success. Outsiders are filling the workforce gaps, which is really the biggest change.
Of course, it doesn’t hurt the recruitment game that startups receive a 35% tax credit added to the salaries of in-state software developers. The state, to its credit, recognizes that investing in smart people matters. Nevertheless, fighting brain drain may prove less effective than encouraging brain circulation.
If anything, the most significant number in talent may be the cost of living. Startups say they are scrappier and nimbler because New Orleans is so affordable. "I think New York should be worried," said one founder. The people they need to hire do not have the same cost of living concerns in New Orleans. “You can actually do cartwheels in your apartment,” said Molly Oemichen of LaunchPad, a co-working space. “So of course we’re poaching from Brooklyn.”
Leadership is critical to startup communities. They are the nodes in their networks and the keepers of communal knowledge. Anyone can be a leader, given enough time. Yet experienced voices are rare in New Orleans.
The same flight of residents that cleared out the closed, stagnant networks of old New Orleans, and gave millennials the chance to claim the mantle of founder faster, is the same one that today undermines New Orleans’ capacity for leadership. There is a generation gap, locals say, of roughly 20 years. Even older families that have stayed, who otherwise could have been supporters of New Orleans’ startup community, have few links to the younger crowd that lend the startups their dynamism.
A yearning for leadership extends to the city itself. New Orleans leaders clearly believe that they need to be in the driver’s seat, and not the state government. What they envision mirrors a city-state more than anything else. The state is not always on the same page. Their message to the state government: either be helpful or get out of the way.
The city government itself though can do a let to help make New Orleans more competitive. Super-fast broadband would be a start. Auctioning surplus properties online would not hurt either. Perhaps the biggest opportunity for New Orleans’ government is in prying open more of its own data. Government data is not born open; instead it lives its life walled off from inside and outside the city. Warehouse public data, the startups say, and then simply release it. Let them figure out what’s important.
The city appears to be doing just this, leveraging the local tech community to better use their data. It is analyzing which houses in New Orleans have a high probably of not having fire alarms and giving the owners free fire alarms. The Blight States app, a product of Code for America, scrapes data from the city’s code enforcement system and allows residents to track the blight fight from inspection to judicial review.
There’s so much going on in the city with projects just like these, and so much more that’s yet to be created. But in some ways there lies the hope for entrepreneurs. “People tell us they want to be in New Orleans because it’s a place of inspiration,” said one local development expert. “It’s our muse.”
There is a pipeline full of entrepreneurs ready to fill New Orleans’ gaps and solve big, meaty problems. The city can and should equip them to flourish. Between its citizens, entrepreneurs, and civic institutions, New Orleans has the ingredients for a thriving ecosystem.
New Orleans boasts the open, dense networks that make startup ecosystems so successful. The city always had the pieces in place. It just needed a moment of crisis to sort them and build.
Katrina swept away parochialism, that great enemy of dynamism, and left in its place clusters of bright young people to serve as a beachhead of the modern age. That is New Orleans’ great secret, and one that other cities are soon to discover.