The Birmingham entrepreneurial ecosystem is now in its adolescence. Just like a teenager, our entrepreneurial system does miraculous things that impress, inspire, and invigorate the community — then stays out past curfew, blows allowance money, and remind us that the part of the young brain responsible for judgement is not yet fully formed. This push-and-pull tension – i.e., we are doing well, but we have also problems — is right and healthy. A transforming economy, which is what we must be, can neither be led by chamber speak, pie-in-the-sky optimism, nor by naysayers. Innovation and transformation is tough, hard work accomplished by realistic visionaries. We have those people now in a quality and a quantity that can work separately in their fields but collectively in the community to move Birmingham forward. That is awesome and great, but let me give you a warning:
We will fail in 2019. We must not let this define us.
Once-promising start-ups will explode into venture capital ruins; large companies will disappear; mid-sized companies will enter into the private equity arena and provide little if anything beyond well-paying jobs (which is good and well, but not enough). Large political forces, specifically healthcare and research funding, will hamper the development of UAB. The Woodfin administration, as enthusiastic as possible about economic development, will be pulled toward the norm and engulfed in politics. The Alabama Legislature will succeed in their annual attempt to do something stupid for the economy. Two out of our three major football teams will fail to live up to expectations. No meaningful replacement for Slossfest will be found. And that is all assuming that there’s no recession, which is not an assumption I’d make. I may be pleasantly surprised, but the tea leaves do not look pretty, and I am pretty sure I am not alone in my sentiments.
Birmingham entrepreneurs will fail in 2019; we must not let it define us. The world is changing, but it’s impossible to predict exactly how that will happen. We know that artificial intelligence, precision medicine, driverless cars, and a host of other technological forces will reshape and transform our daily lives, and we know these forces will disrupt our economic systems. But we do not know precisely how, and mistakes inevitably will be made.
I am not a huge champion of the fail fast, fail often, fail forward, fail whatever mantras that run through entrepreneurial investment psychologies. Failure should not be celebrated and we already have enough mediocracy in Birmingham to go around. However, when we know that failure is inevitable, planning for the fallout is good practice. As one or more of these young darling start-ups fails to grow, it’s essential that we continue to develop and grow companies. As the economy tightens, the risk profile for start-ups is challenged, but the necessity to continue to develop and grow high-growth companies becomes even more important. We must not let failure define us.
Here are some of the things on my radar to work on and look at when it comes to working in Birmingham:
Bolstering existing innovation organizations. We have a host of organizations working to develop the entrepreneurial ecosystem; we need to make them better.
Working on investment instruments and approaches. The traditional VC investment approach – Seed, Series A, B, C – is a perfect fit for some companies. However, for companies that do not meet or match the “hockey stick” growth pattern, this type of financing creates a “go big or bust” dynamic that, in my opinion, results in tremendous capital waste.
Better develop the institutional pipeline. We have to get more companies in the trajectory of pulling larger institutional money from out-of-state into these early stage companies.
Understand and incorporate into the ecosystem social capital and social entrepreneurialism. An enormous amount of capital is being invested around the principle of doing good financially by doing good by society. Not only is Birmingham not at that table, Birmingham, with some exceptions, does not even know that table exists.
By several indications, we are heading into an economic downturn. The best time to start a company is in a recession. Let’s get to it.
Text by Mike Goodrich