by Don Katz, Anchorage Center Director
Published October 2, 2019
I am originally from New York but spent 20 years in metro Detroit. There was a time when the Southeast Michigan economy ebbed and flowed with the auto industry, hyperbolically. This caused deeper, longer, and more horrific recessions while the rest of the country may have incurred a mere economic slowdown. Every economist attributes this hyperbolic response to the high concentration and dependency on automotive related activities.
Having arrived in Alaska during a prolonged recessionary period that was largely due to depressed oil prices and the precipitous drop in production and drilling activities that followed, it was painfully obvious that oil prices were the most significant economic factor driving the state’s economic downturn. The death grip that the price of oil has on the Alaska economy should cause more discussion about the ways and means available to diversify Alaska’s economy from a commodity based industry that can result in exponential swings for the region’s economic health. Perhaps the first step is to avoid being trapped in a bubble by examining how other highly concentrated economies transformed themselves.
Southeast Michigan began a loosely organized effort to diversify its economy in the late 1990 and early 2000s when it became clear that “productivity gains” from the new digital economy really meant automation and layoffs for the industrialized economies in the rust belt. Those subsequent conversations throughout the rust belt sounded very much like the discussions happening right here in Alaska, today.
For those rusted economies, meaningful introspection, self-examination, and come to Buddha/Jesus/Moses/Mohammed moment sparked an entrepreneurial spirit that ignited years of small business activities. Over time, those activities evolved into a thriving startup community that not only fostered a culture of entrepreneurialism but gave hope that Southeast Michigan’s economy would diversify beyond bending metal. Today, anyone who visits Detroit would find a thriving tech sector and financial district that exudes the entrepreneurial spirit that spawned numerous high growth companies and that created a complex and diversified regional economic base.
Of course, the economy still ebbs and flows with the automotive and manufacturing sector, as that is the yarn from which the region was woven; however the diversification in the last twenty years has changed the mindset from labor being the primary road to middle class to an environment that champions projects, (public and private) with an intent to diversify the economic base. Companies relocate to Southeast Michigan because the education system, quality of life, cost of housing, and climate are more appealing than the more prolific metropolitan hubs.
There was no particular watershed moment that created this new dynamic in Southeast Michigan; it wasn’t happenstance or a perfect storm that caused Detroit’s paradigm shift from manufacturing labor economy to entrepreneurialism. It was evolution. The collective ability to recognize the need to adapt coupled with a concerted effort among state and local governments, high-profile investors, local tech companies, university incubators, co-working spaces, digital meet-ups, and finally key investors seeing the raw talent and opportunity that made funding good ideas great investments. It was a change in the ecosystem that created greater resources for a new business ecosystem that allowed the collective to be more than the sum of its parts. The result is the hope that the valleys of cyclical economic downturns may not be as severe or prolonged as they once were.
Should Alaska strive to be Detroit? Perhaps this gets a chuckle because most think Alaska is somehow so very different than Detroit. However, capital and talent don’t necessarily care what industry it uses to create investment returns. Like all investments, capital just wants to be invested where it can achieve its full potential, whether it be cash or human capital, the gauge of success is ROIC (return on invested capital) and it has no preference as to paternity.
The Alaska SBDC encourages local entrepreneurs and investors to look beyond the state’s border for resources, ideas, and strategies that have proven to work in similarly situated regions. The game board may be a bit different color and the knight might ride a moose instead of a stallion, but the game is still chess, and a winning strategy may succeed in Alaska too.
From time to time, the Alaska SBDC will share our ideas and point to resources, in and outside Alaska. We do this with a hope that Alaska’s startups, investors, and entrepreneurs can mine those nuggets or catch a useful idea to make their enterprise grow or operate more efficiently.
Today’s resource: startupnation.com. Startup Nation is a tremendous free resource for any small business and for our startup community. Please take a look. If you don’t learn something of value from this resource, I will eat my Extra Tuffs!