John Gardner, in his classic analysis Self-Renewal, emphasizes the importance of a society open to change and risk-taking. "In the ever-renewing society what matures is a system or framework within which continuous innovation, renewal and rebirth can occur." (italics his) He compares an ever-renewing society to a "total garden" or "ecological system," the creation of which is the essential goal of the Phoenix Project.

The excessively cautious nature of our region, by preventing beneficial changes, is counterproductive. It tends to preserve the very things we wish to avoid: low wages, underemployment, and stagnation. We can't overcome these problems by sitting still and pretending they'll go away. Peter Drucker pointed this out in Landmarks of Tomorrow, as Gardner explains: "in a world buffeted by change, faced daily with new threats to its safety, the only way to conserve is by innovating. The only stability possible is stability in motion."

Spokane has difficulty energizing its economy for four primary reasons:

1) Fear of failure stymies risk-capital investments.
2) Lack of available management skills and funding to recruit national-caliber management holds back fast-growing companies.
3) An underdeveloped network of business relationships handicaps the growth and vision of startups.
4) The "invented-here" syndrome creates an anti-local bias: if it's a local product, person, or service, it must not be any good.

These four factors have tended to contribute to a vicious cycle that makes startups hard to get off the ground. For example, Purcell Systems and LineSoft both had to go to San Francisco for large-scale funding to pursue growth strategies. Once they had funding available, they were able to attract management candidates to take them to the next level. Both companies reported difficulty in pursuing funding, sales, and partnerships locally. (On the plus side, both companies found it easy to recruit highly qualified employees.)

Sources of Success

1) Eliminate the fear of failure. A startup's ability to overcome obstacles and ultimately provide a successful exit will raise the comfort level of local investors. Ironically, the easiest way to raise this local comfort level is to attract extra-regional investment first. The dilemma is that capital from outside the area is generally reluctant to invest without a vote of confidence from local investors. It is possible to raise local investor confidence in a startup's management by providing a means for startups to share expertise. Most startups don't need a full-time CEO, CFO, marketing director, and other executives, but by having strong candidates on board from the outset, a company provides reassurance to investors that it can handle strong growth.
2) Raise investor confidence with strategic use of a set of A-Teams, or shared executives, who can temporarily fill the gaps in a startup's management, making it easier for startups to ramp faster while attracting both local and extra-regional investment. These executives will call on a national and even international network of contacts to help them find both funding and candidates to fill positions in a fast-growing company.
3) Although it will take some time to form a dense network of relationships throughout Spokane's regional economy, a smaller network located in close proximity, preferably in one large building, will jump-start the growth of startups also located in that building. In a sense, we can create a Silicon Valley in a box, with all the components necessary for successful growth located in the box with the startups. Startup founders at different stages of growth will be able to bounce ideas off each other, gain insight into solutions of mutual problems, and rub shoulders with professionals and other partners, creating new nodes in our network.
4) A concentration of professionals with a national or international track record of success will draw attention to the quality of resources available locally. As success begets success, local firms will develop a national reputation, attracting more professionals to advise and staff newer generations of startups.

The Need for Serendipity

"The society interested in continuous renewal will strive to be a hospitable environment for the release of creativity," writes John Gardner. Creativity, whether in business or the arts, is enhanced by "the receptivity of individuals to the sights, sounds, events and ideas that impinge on them…. Men or women with the gift of originality manage to keep a freshness of perception, an unspoiled awareness."

The Phoenix Project, with its collection of things to do, places to go, people to meet, and businesses to visit, will provide countless opportunities for serendipitous encounters. At lunch or dinner in the International Marketplace, waiting in line for a movie, watching the glassblowers or woodcarvers, or shopping for fresh, locally grown and prepared foods, those who need help (founders and other startup employees) will be able to bump into those who can help (potential funders and advisers), and all of them will bump into people from throughout the community. New ideas and suggestions will quickly gravitate to the place where they can do the most good. In Silicon Valley, this happens spontaneously because everyone--engineers, creatives, professors, scientists, attorneys, accountants, marketeers, and so on--knows each other or knows someone who knows someone. In Spokane, this is more difficult. Businesses in traditional industries can get the help they need, but startups find it tough to locate those who understand their business and can provide worthwhile advice. By putting startups, and many of those with experience and the desire to work with startups, together in the Phoenix Project, we can eliminate this difficulty.

The Need for Large Numbers of Startups

The fact is that nobody knows which companies will ultimately succeed in a big way. It's a truism that out of a portfolio of ten venture-funded companies, only one will be a home run like Google, two will be moderately successful like Packet Engines or Coldwater Creek, three will become profitable, and four will either fail, or fail to provide a positive return. Suppose the region starts only one company in national markets each year. The odds are that only one of them, at best, would succeed after ten years. The odds of regional success are far higher if Spokane were to start 10 venture-funded companies each year. Using the rule of thumb, 10 startups would yield 1 home run and 2 successes each year, as opposed to one or even zero successes by limiting our number of startups. Over 10 years, we could expect as many as 10 home runs and 20 successes, providing an enormous return on the community's investment in time and money. This is what has made the economies of cities like Boise and Colorado Springs successful.

To understand how this would affect the regional economy, consider that 30 Coldwater Creek-sized companies--without even a single Google-like home run among them--would have a $36 billion stock-market capitalization and $18 billion in annual sales, and employ about 60,000 people. That would be a nice boost to our regional economy. Creating a single Google would be almost as nice in many ways; Google today has a $120 billion market cap, revenues of $5 billion, and 4,000 employees. (For those who say a Google-sized business could never be created here, consider that Wal-Mart was created in Bentonville, Arkansas, which has a population of 24,000. Wal-Mart has a current market cap of $202 billion, revenues of $280 billion, 12,000 employees in Bentonville, and 1.7 million employees worldwide.)

The Danger of Picking Winners

The Phoenix Project will naturally vet applicants for startup space, but within broad bounds: the company's product or service should have a large and growing national or international market, the idea should be feasible even if not fully fleshed out, the company should have some kind of unique competitive advantage and the potential for barriers to entry in their subset of the market, and it should be possible for the company to attract management and staff who can help the company fulfill its potential, if they are not already part of the team. The large amount of available space and frequent review of company results allows room for successes to thrive and a means to boot out clear failures, making room for new startups. Catalyst-funded ventures would receive additional assistance.

SOURCES: John Fahey, The Inland Empire: The Unfolding years, 1879-1929; William T. Youngs, The Fair and the Falls; William Stimson, A View of the Falls: An Illustrated History of Spokane; World Book Encyclopedia, 1965 edition; personal experience; Michael Porter, interview with Charlie Rose; Pauline Flett; Peter Drucker, Landmarks of Tomorrow; John W. Gardner, Self-Renewal: The Individual and the Innovative Society.