Consider this, Alibaba, the world’s most valuable retailer, holds no inventory.
Airbnb, the world’s largest provider of accommodations, owns no real estate.
Uber, the world’s largest car service, owns no cars.
And Apple, classified by the U.S. government as a manufacturer, says “substantially all” of its products are made by others.
Now do you think maybe, just maybe, there is a new paradigm at work here?
And do think economic developers, the good folks charged with aiding and abetting economic growth in their respective communities, have adjusted accordingly?
I posed that question at a conference of the Young Professionals group with Southern Economic Development Council this past week in Dallas.
Most of the attendees had been employed in economic development for less than a year. Being millennials, they already had a strong hunch that some of the stuff being sold to them as economic development truisms (and I have been guilty in propagating some of this stuff) comes from a 20th century mindset.
Look, there is something to be said for traditional, tried and true approaches that have worked well in the past. But we are entering a new era in which labor, information, and money move easily, cheaply, and almost instantly, largely because of digital technologies.
Not surprisingly, some of us oldsters have a hard time wrapping our heads around that.
As a result, some companies, typically run by old white guys, are quickly finding themselves not where they want to be. And I could make the same argument with some economic development organizations.
21st Century Companies
Forward-looking companies, 21st century companies, are creating new, more fluid relationships with customers, workers, and owners.
Alibaba, Airbnb, Uber and Apple have found ingenious ways to connect buyers and sellers directly and conveniently, enabling new, nearly capital-free business models.
The one and only single slide that I showed to my YP-SEDC audience, (I did not want to subject them to death by PowerPoint) was labeled “The New Reality.”
It was a bar chart showing big-named companies creating high value with scant hard assets. The subhead read: “Assets? We don’t need no stinkin’ assets.”
Older Companies Can Change
The 21st century companies are learning that they can thrive while owning less, creating value in new ways as they reinvent R&D and marketing.
And we’re not just talking sexy Silicon Valley startups here. Older companies can transform themselves into a 21st century companies if they bring in the right people who stay abreast of new technologies.
Nike is reinventing manufacturing with 3D printing and using social media for marketing. Companies that don’t adapt, well, they are likely to fade away.
The highlight of my time with the YPs was not giving my speech, but showing one of them an app on my android phone that captures business cards. I know some senior, high-ranking economic developers that don’t even know what an app is.
The New Reality Begins With Capital
The new realities begin at capitalism’s foundation, capital. A company doesn’t need nearly as much as it used to.
As technology continues to advance, barriers to entry, commercialization, and learning continue to erode.
New players with access to new tools can operate at much smaller scale, enabling them to create offerings once the sole province of major companies. 3D printing screams out for the classic garage or basement business to be born.
Make no mistake, some large companies will continue to dominate certain segments of manufacturing, but we’re seeing a rise of local, small-scale, agile manufacturing ecosystems, precisely because the cost of entering the game has been lowered by advances in technology.
Makers Make It Cool
I recently spent a few days in Birmingham, Ala., where I took it on myself to visit all four craft brewing companies that have set up shop in the city in recent years — Avondale, Good People, Trim Tab, and Cahaba. (Yes, conservative, Bible Belt Alabama is home to 24 breweries, with at least another six in process.)
They were are all the vision of young “makers” who wanted to bring great value, great beer, to a niche audience.
I call them hipsters, but that is likely stereotyping or just unflattering. My point is these were young entrepreneurs who had formed companies to purposely make small batches of their product for small audiences. And this small-batch maker environment they had created was making Birmingham a pretty cool place with the creation of new entertainment districts.
I cannot help but believe that their maker mentality foretells of things to come with manufacturing in this country – more small manufacturers, making small runs of product specifically tailored to niche groups of consumers.
Numerous factors are leading manufacturers to build to order rather than building to stock. In this environment, intermediaries that hold inventory are becoming less and less necessary.
And again, this poses opportunities for both big and small communities alike.
Wherever they reside, whether it is an urban or urban setting, economic developers should work toward fostering an environment that encourages and, yes, even coddles and protects, business startups. And then watch for the gazelles, those fast-moving, fast-growing companies that are fulfilling a niche by offering true value to their customers.
What I Didn’t Want to Talk About
Facing these young professionals who are just now getting their feet wet in economic development, I didn’t want to talk to them about ceiling heights or how big a spec building should be or whether they needed more rail-served sites.
That is pretty mundane stuff, and they are going to hear that ad nauseam from others.
What I wanted to talk about, what I wanted them to think about, was how these 21st century companies are taking root and often disrupting the marketplace with imaginative ways to bring value to customers.
The New Destroyers
McKinsey Global Institute says “some tech and tech-enabled firms destroy more value for incumbents than they create for themselves.”
Microsoft’s Skype brought in some $2 billion in 2013, yet McKinsey calculates that in that year Skype transferred $37 billion away from old-guard telecom firms to consumers by giving them free or low-cost calls.
When Airbnb entered Austin, hotel revenue dropped 8 to 10 percent, and hotel rates dropped accordingly.
Frankly, this new breed of forward-thinking disruptors are reflective of younger demographics, the very people that I was speaking to at the SEDC conference.
So there you have it. That’s much of what I said to the young professionals at the SEDC conference. They were a bright bunch, and I had this lingering thought that they could actually teach the teachers a thing or two.
The Tennessee Economic Development Partnership was also in Dallas last week. I had breakfast with a couple of economic developers one morning.
That night, I was invited to attend a Tennessee singer-song writers event, sponsored by the Tennessee economic developers. I couldn’t make it because I had work to do.
But at the SEDC conference the next day, I learned that some drunk guy had stumbled up to the gathering, saw my name tag sitting on a table, put it on and wandered into the group.
“He asked me what we were doing here, what we were about,” said one young economic developer. “He was obviously drunk, and I tried to be polite, but it was a bit unnerving. Several people came up to me afterwards to tell me that was NOT Dean Barber.”
Which was absolutely true. It twernt me.
Now I wish I could claim that I have never been in my cups or full of myself. All I can say is that I wasn’t guilty this time.
I’ll see you down the road.
Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. If you liked what you read here, invite Dean to speak at your next meeting. He can be reached at email@example.com or at 972-767-9518.