Potential Start-ups

Through news of successful venture-capital placements and efforts like EFGN's forums, Technet's Catalyst Awards, and LaunchPad to showcase local growth businesses, the idea that a globally competitive startup can actually begin and grow in the Spokane region has begun to take hold. Nevertheless, many in the business community are skeptical that the local economy will ever be competitive with cities like Austin, Colorado Springs, or even Boise, let alone Silicon Valley.

The fact is that Spokane is an ideal location for many types of startups, perhaps better than many of these competitive cities. A new marketing campaign is focusing on our quality of life, using the slogan “Near Nature, Near Perfect,” and the ability to live near lakes and rivers and mountains in an area with four distinct seasons and unparalleled summer weather is a valuable enticement to individuals. There are few places on earth where a recent college graduate can work downtown, have lunch by a roaring waterfall, and ride a few blocks from the office to go mountain biking on natural trails after work. In winter, those same trails can be used for cross-country skiing, and the closest downhill ski area is a half hour from downtown. If we use our conservation futures fund wisely, those who relocate here will be able to find a permanent ring of natural areas surrounding the urban area.

In addition, according to the arch-conservative Tax Freedom Foundation, Washington State ranks very competitively in its tax burden, better than Idaho, and with no income tax can be seen as an ideal location for highly paid recruits from income-tax states like California, Oregon, and Idaho to work in.

For the foreseeable future, traffic will not be a significant problem here, and as more compact development occurs near the downtown core, it will never be a problem for people locating there. Likewise, it is still possible to reach the countryside in just a few minutes from most places in the city. This is an attraction that sprawling cities like Dallas and Los Angeles—and even smaller places like Colorado Springs—are unable to offer.

Another powerful incentive for startups to grow here is the cost of living. Recent graduates locating in Silicon Valley find themselves unable to afford to live on their own. Studio apartments start at $1500 a month. Small tract houses sell for $750,000 in second-rate neighborhoods and well over a million in the more desirable locations. (Big houses are even more expensive.) The high cost forces many people to share houses with several other roommates, which can be fun, but even then their share of the rent might range from $1,000 to $2,000 a month--and they probably have to share a bathroom for that. A recent college graduate paid a competitive wage at a startup here could save enough in a few months for a down payment on a whole house just a few minutes from work.

These are all good reasons for recruits to move here, but what kinds of startups would attract them? Some kinds of startups that require massive amounts of funding and proximity to world-class research institutions, like many biotech firms, may not be short-term prospects for this area, but others are a natural fit. The following list offers some possibilities, along with brief explanations of why they would be good candidates to start and grow here.

Frozen Indian Food Collaborative

The Palouse is the pea and lentil capital of the world. Likewise, the region is a primary grower of soft white wheat. One of the biggest markets for these products is South Asia, where the wheat is used to make flatbreads and the peas and lentils are used for cooking traditional Indian foods. In addition, our region is a major grower of potatoes and cauliflower and lamb. Altogether we grow most of the ingredients needed for Indian food. It only makes sense that our region introduce the first nationally branded frozen Indian foods.

Products with added value bring more net income to a region. By taking these raw materials which are mainly exported at commodity rates and using frozen food and grocery distribution expertise already available locally (e.g. A.C. LaRocca frozen pizza, URM), we can add extra value by turning them into branded frozen meals in an as-yet untapped niche. Just as the Minneapolis founder of Chung King, the first nationally branded Chinese food, later introduced Michelina's frozen Italian dinners, this business could be the beginning of many other startups that take regionally grown foods and combine them into branded prepared foods sold nationally at a premium.

This industry would not only support our regional farmers, but also flour mills, factory workers in food-processing plants, regional freight haulers, railroads and trucking companies, bakeries, cooling-equipment makers and maintenance businesses, distribution businesses, advertising agencies, PR firms, call centers--and not least, small towns serving the now more-prosperous farmers and frozen-food factory workers. The pool of federal and state tax credits, subsidies, and low-interest loans intended to spur investment in rural and low-income areas will help get these enterprises off the ground.

Lentilini

WSU food researchers have developed a process to create extruded lentil paste and proposed a line of puffed lentil snacks. The same technology can be used to produce a kind of lentil spaghetti that can address several different markets. It's high-fiber, high-protein, and gluten-free, allowing people on doctor-prescribed diets for celiac disease and other gluten intolerances to enjoy spaghetti once more. Lentilini could also be marketed to the general public as a “healthy spaghetti” for those adhering to strict low-carbohydrate diets. Large-scale production could be performed locally at Pasta USA, which serves the western United States from its plant in Hillyard.

Products from Wheat and Grass Straw

WSU scientists have developed a complete method of turning this farm waste into wood substitutes that can be used for decking, siding, and other non-structural uses. A prototype production line has already proved the product's feasibility. Everything is in place for a startup with a marketing plan to set up a full manufacturing line and distribute the product to the construction industry and home centers, perhaps in partnership with Potlatch, the large, locally headquartered wood-products company.

Cell-Phone Game Developer

This is one of those industries where the playing field is currently broad and level. The American market is just beginning to grow. Global sales are anticipated to grow from $500 million in 2003 to $7 billion in 2007. Because of memory limits and screen size, the games have to be simple, and are easily programmed. The games tend to be downloaded from cellphone providers and are billed through phone bills, so the headaches of inventory, distribution, and accounts receivable are essentially eliminated. It's as close to a cash business as you can get. A company with a handful of programmers who develop a popular game could easily find itself one of the top developers in the industry, and cash for expansion would be available almost as soon as users pay their cellphone bills. Because the cost of development is slight, the cost of failure at this point is minimal. Because of the high potential cash flow, the opportunities for self-funded growth are high. There is no essential advantage for a startup in the cell-phone game market to be located in any particular region. The proximity to Cyan and its expertise in graphics, interactivity, and multiplayer game development is a particular asset for this region.

Textbook Publisher

The Great Northwest has a strong base of institutions of higher education, ranging from community colleges to Ph.D.-granting universities. Many professors are nationally recognized. Others are unquestionably experts in their fields. Few have authored textbooks. In addition, the universities and the region as a whole are filled with writers, English and journalism professors, and others who could work as full-time or part-time editors. The college textbook industry remains a highly profitable niche, with a 20% net profit margin--after the costs of author royalties, printing, distribution, bookstore discounts, returns, and so forth. Author advances are relatively small, lowering upfront product development costs. Competition is relatively limited as the industry has consolidated over the last 10 years, and yet size is not an advantage in this market because most textbook adoptions are done on a school-by-school or even professor-by-professor basis. One company, Course Technologies, Inc. (CTI), started up in Boston in the early 1990's with venture funding, using recent area graduates as editors and writers from around the country to develop a series of modular textbooks that could be reconfigured as needed to meet different markets. It was profitable nearly from the outset, and before the end of the decade was sold to International Thompson, making its founders millionaires. There is room for similar companies to start and grow. We have the resources to grow them here.

Modular Housing

The newest trend in high-end home construction uses either rapidly assembled wall sections or fully built modules to lower on-site construction cost. As a city with its own wood products and building materials companies, including door and window manufacturers and a unique steel-and-foam wall section builder, Spokane is ideally positioned to move into this sector and perhaps dominate it, in the Northwest if not nationally.

These are not trailer homes or even glorified trailer homes. They will look exactly like classic Craftsman-style homes or modern, architect-designed homes and small office projects. They are fully competitive with stick-built houses, but allow faster and and more solid construction of building units. Using computer technology, designs can be as sophisticated as anything built from scratch. They are ideal for infill housing as well as for greenfield developments. Currently our inner-city neighborhoods are being invaded by cheap, tacky, out-of-character new construction on vacant lots that could instead be filled with inexpensive but beautiful new homes that match the character of the neighborhood, increasing the attractiveness of the city rather than destroying it.

This is a company or set of companies that will eventually have their own production facilities in the area to help accommodate fast growth that may occur in the region at a reasonable cost without compromising design and construction quality. Since modular housing can be built year-round, it would also reduce seasonal layoffs in the construction industry. Local builders can use modular units for some or all of their projects, so their businesses won't be financially impacted, other than to allow faster revenue growth than might be accommodated solely by using stick-built methods.

Local suppliers like Window Products Inc., Huntwood Cabinets, John Saylor's wall system, and smaller woodworking businesses could partner with a startup like this and ship their products regionally and later nationally. Regional trucking companies could be contracted to move the modules and materials. Regional construction companies could install utilities and infrastructure, build foundations, and assemble the modules.