Innovation: Finding help from above in the city of angels

nzherald.pngLook no further than Los Angeles, the fastest-growing region for innovation within the United States and a case study for the development of a fast moving high-tech economy.

Though existing in Silicon Valley's massive shadow, Los Angeles has undergone substantial change to move from being the creative capital of the Western world to a thriving hub for technology and entrepreneurs.

Los Angeles boasts 8.5 per cent of all early-stage start-ups in the United States, compared to the two traditional juggernauts, Silicon Valley and New York, which boast 24 and 14 per cent respectively. That margin looks set to narrow further with Los Angeles pacing the country with start-ups growing at 5.3 per cent in the first half of 2014 compared with Silicon Valley at 4 per cent and New York at 4.5 per cent.

The past two years have seen more than 250 companies raise at least $1 million of investment in LA.

Los Angeles is thriving in the innovation and technology space and it hasn't happened by chance. It's taken a concerted push from government, business and intermediaries to spur and sustain growth.

Herald Business Reports identified seven key strategies that are propelling innovation success during a visit to Los Angeles.

nzherald1.jpg1. Appoint a Chief Technology Officer

In New Zealand, Xero founder Rod Drury has been campaigning for the Government to appoint a Chief Technology Officer to ensure the country stays ahead of the big technological trends - to no avail. But in an effort to stay on top of the growth in technology and ensure Los Angeles can continue to forge ahead, that's precisely what Mayor Eric Garcetti did when he appointed the city's first Chief Innovation Technology Officer last year.

Peter Marx, referred to as Los Angeles' "tech czar", spearheaded the city's open data movement and is now taking the technology lead for the LA government.

"My role is to look at technology strategy as it affects different city functions, the economic development of the technology industry and to work with the private sector and government agencies to understand how their development is going to affect the city," Marx told the Herald. "My job is less executional and more focused on drawing attention to what is happening.

"The technology industry works really differently from traditional government. If you think about how online services are developed today, they're built iteratively, with agility and without necessarily knowing what the end looks like. This is really different from traditional government functions - nobody would build a bridge without thinking what it will look like at completion - but the technology world does that every day."

Mayor Garcetti is banking that having a figure like Marx to shape development and champion change will pay long-term dividends.

Question: Why is New Zealand so loath to follow suit?

2. Leverage Points of Difference

Hollywood has one of the strongest brands in the world - palm trees, movie stars, it's the epicentre of film and television production. It's also what makes Los Angeles stand apart and provides unique opportunities to build business.

"With the likes of Paramount, Sony, Warner Brothers and Disney being the most prominent companies in Los Angeles for a long time, the technology scene grew from a design, art and media perspective," explains Jay Tsao, founder of GM Technologies.

That had its "pros and cons" adds Innovation Director Amy Amsterdam of the Los Angeles County Economic Development Corporation, who frankly acknowledges the perception of Los Angeles as the "red-headed stepchild of the innovation world" and the struggle for investors, in particular, to get past the convertibles and cosmetic surgery Los Angeles is better known for.


This is really different from traditional government functions - nobody would build a bridge without thinking what it will look like at completion - but the technology world does that every day.
Peter Marx


"We've struggled to tell the Los Angeles story, which is ironic coming from the centre of the world's best storytellers," says Amsterdam.

That was a point which Marx also hammered home as he talked about the role of defining Los Angeles as a technology hub. "I worked for a company called Digital Domain doing special effects a long time ago, and I don't remember New Zealand doing special effects, then suddenly New Zealand ends up being an incredibly significant player through the Lord of the Rings movies. New Zealand defined itself there, much like Los Angeles is trying to redefine itself with technology."

Rather than fight those perceptions, the technology industry in Los Angeles has piggy-backed on to the large media and entertainment ecosystem which makes up Tinseltown.

"A lot of the small up and coming companies leveraged the entertainment ecosystem and the core competencies already built through Hollywood. We saw companies gaining traction then in associated industries - excelling in graphics, digital design, animation," says Tsao.

With a barrage of content created in Hollywood every day, companies have worked to find synergies and opportunities working within the industry, improving the industry and creating platforms to utilise that content. That promotes growth and creates asymmetric opportunities through the wealth factor.

nzherald2.jpg3. Engage the Wealth Factor

Success breeds success and wealth creates wealth. When successful companies grow it not only draws more direct capital into the innovation ecosystem, but attracts interest throughout it. In Los Angeles the success and then exit of the primary investors in MySpace spawned a plethora of start-ups and attracted the talent and investment necessary for a host of companies to take the next step.

"As we see the growth of more and more technology start-ups out here, we're starting to see more successful exits and the effect that has on the wider industry," says Bree Lennon, founding partner at Society 56.

High-profile companies making exits and taking the next step with IPOs - the likes of Oculus Rift, Blizzard and TRUEcar - are showing the world Los Angeles is a great place to be and somewhere that can produce successful companies by bringing the wealth factor into play.

Explains Tsao: "The initial founders, employees and executives, they naturally increase their wealth as a result of these exits and the natural progression is to fund their friends' companies, new internal company initiatives or other ventures that stay here within the local ecosystem and help start that growth.

"That's what we've seen happen with Silicon Valley over the past few decades and the same effect is emerging in Los Angeles."

Creating wealth and producing growth has an organic flow-through effect. As more successful exits happen, it's not just the entrepreneurs directly who benefit - the capital that is realised filters throughout the ecosystem, be it incubators, accelerators, venture capitalists and government institutes.

But it's not just about capital; the early successes of MySpace, Overture and Applied Semantics didn't just bring the money needed for the environment to grow, but also the talent, exposure and external interest. Taking advantage of that requires getting the public and private sector on the same page.

4. Push the Politicians

An integral component of the soaring growth in the Los Angeles technology and innovation space has been the contribution of Governments that have thrown their political weight behind initiatives to stoke development and sustain growth. Special tax brackets, zoning ordinances and business attractions schemes are just some of the initiatives offered in Los Angeles.

"There's a lot of work being done behind the scenes to try to alleviate the pressures on business and make it more attractive for businesses, in the technology spaces in particular, to come to Los Angeles," says Lennon, a founding partner at Society 56 which helps New Zealand and Australian companies make the transition to LA.

In 2010 the city implemented a heavily reduced tax rate for internet companies - lowering their bill from $5.07 to $1.01 for every $1000 in gross receipts - a move extended for four more years at the end of 2014 and passed with unanimous support.

Local government has also been proactive, ensuring that unique and open spaces with the ability to scale are available to companies of all sizes - from start-ups through to the Googles and Yahoos of the world.

"The zoning ordinance has been working with large land owners both in the private and public sector to come together and create more technology business parks," adds Tsao. "Local Government has created favourable ordinances and policies to enable land owners to be a little more creative about how they can build these projects out, attract a range of businesses from a variety of industries and promote cross-sector collaboration."

There are also significant support networks in place through government agencies to help businesses looking to move their business to Los Angeles. The Los Angeles Economic Development Corporation has a clear mandate, to "attract, retain, and expand businesses and jobs for the regions of Los Angeles county".

"We provide assistance to get the resources within Los Angeles to make businesses work here," explains Amsterdam.

"We assist with site selection, layoff aversion, relocation services, tax assistance in terms of navigating the local network, ombudsman assistance. We provide that support to make sure that businesses coming to Los Angeles can access the resources, the contacts and the networks to make transitioning and setting up here a smooth process."

nzherald3.jpg5. Build Connections to Bridge the Gap

Expanding the influence and impact that the technology and innovation sectors can have, can't be moved ahead by just one player. It requires the public and private sector on the same page, with intermediaries helping to bridge the gap between them - as well as connecting the top and bottom ends of town.

"Compared to a lot of other regions, one of the gaps we saw in Los Angeles was a real lack of connections. If you look at Silicon Valley, you have the universities, the government and large corporations all very well-connected to the technology community," says Sean Arian, vice-president of Innovation & Emerging Technologies at the Los Angeles Area Chamber of Commerce.

Bridging that gap has been a key part of the strategy to grow the innovation culture of Los Angeles, with the Bixel Exchange taking a frontline role. An initiative of the Los Angeles Area Chamber of Commerce, the Bixel Exchange works to connect, advise and educate companies in the region.

"We wanted to get back to what Chambers of Commerce originally stood for and that is, we help build industries within our regions," says Arian. "If you look at Los Angeles, the industries are in their beginning phases but what is really starting to grow is technology.

"We saw that Silicon Valley also excelled at mentorship, providing opportunities for entrepreneurs to connect with likeminded people, get advice from those who have been there and done that. That's partially because of the geographic spread in Los Angeles."

Arian told the Herald the Bixel Exchange's first project was mentorship and advisory services for entrepreneurs. "We put 80 companies through our programme in the first year and are hoping to do 150 in 2015. They work with our advisors who help with business plans, marketing materials, growth hacking - all of those good things which our advisors have been and done."

Getting major players on the same page as fledgling companies has been a real success. SAP is a strategic partner in the big data space, while Warner Brothers has taken a lead on digital media. Both these companies are examples of corporations that are taking the development of new and innovative technology seriously. They boast internal incubators, bringing in companies within their industries, giving them access to their executives, capital and most crucially - their internal intellectual property.

Says Arian: "We need that connection now to be the same with Microsoft, Google, NBC Universal, Disney and create similar programmes with them. It's about taking what we've learned from these first two and scaling up."

6. Fighting the Brain Drain

Just like New Zealand, the innovation ecosystem of Los Angeles faces the threat of brain drain. The city graduates more engineers than any other city in the US. But keeping them around to contribute to the economy that educated them has proved a problem.

"Once they get their degrees, we're seeing the engineers we're producing and nurturing heading out to the East Coast, up the road to Silicon Valley and others overseas, all of who are helping those places innovate and grow."says Tsao. "Now we're seeing a much more concerted effort here to try to retain them in Los Angeles."

One of the key retention issues is the lack of understanding by graduates about the scope of opportunities in Los Angeles. The development agency is now putting a lot of effort into building relationships between the universities and the business community.

"The schools here are so large, they're isolated on these huge campuses and the students weren't getting off the campuses to get hands-on with the community," says Amsterdam. "At the growth rate we're experiencing, we're starting already to have labour shortages with coding, and high-skilled roles. Having a local workforce prepared to take advantage of that is really important. We can play a role in that by helping to link the tech community to the education system."

The Los Angeles Area Chamber of Commerce is working with LA Hi-Tech to prepare students while still in school for jobs in technology. Their pilot programme brought together eight community colleges to work with 16 high schools and 3600 students.

7. Celebrating Innovation and Innovators

Celebrating innovators and inspiring others has become a key pillar of Los Angeles' strategy - with the first Innovation Week held in 2014 drawing a huge response - and more such celebrations are planned.

"Innovation Week was born out of the concept to highlight and celebrate the amazing things happening in Los Angeles and try to encapsulate that in seven days. There were events all over the city, showcasing everything from architecture to gaming," says Amsterdam.

California is turning out more entrepreneurs than anywhere else in the country - and a big part of that is the perception and positivity associated with entrepreneurs. Innovation is celebrated. Failure is expected, not punished.

People turned out in their thousands to Innovation Week.

Even President Obama crashed the party, hosting an interactive town hall celebrating the success of Los Angeles and the opportunities apparent for innovators.

"Technology is changing now just how you do business, not just how you buy products, but also how you interact, how you organise politically, how you get involved in the community and how your solve problems," said Obama. " And all of that can support millions of new jobs. So in some ways, entrepreneurship is in the DNA of this generation.


The original article can be found here.

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