NOVEMBER 12, 2011
There are many who believe the future of our cities and ultimately, our nation, depends upon a particular demographic: the creative class.
The term "creative class" is credited to Mattison Fitzgerald, an artist. But the term has come to be associated with Richard Florida, an economics professor, more than anyone else.
Florida has authored several books on and about the "Creative Class": how important they are as a group, and what cities everywhere need to do to attract more of them.
While I don't completely accept Mr. Florida's proposition about the creative class, there are some important points to be made.
One of those points is about geography or as Florida likes to say, "place matters".
To place high on his list, a city (or area) must have - or be perceived to have - an atmosphere of tolerance.
In other words, it has to be OK to be different.
Without that attitude of acceptance, you don't have (or can't attract) the people willing to take the risks necessary to build a business or a city.
But once you have folks willing to take on those risks, you still need a market for whatever products or services you're planning on providing as well as an environment (permissive attitude?) that embraces change.
I like to tell people the story of Paula Deen, my mother's favorite celebrity cook, who built a great career without formal training or connections.
She overcame many obstacles including divorce, raising two children on her own, and a lack of education that would have qualified her for a "normal" job. Not to mention having little or no money to begin a "real" business.
Instead, she began making sack lunches for local construction workers which she and her boys would deliver. As word spread about the quality of her food, she was able to secure a loan, open her first restaurant and never really looked back.
Whatever her faults, there is no doubt in my mind that Paula Deen is far more than an ordinary cook. She has talent combined with a flair for cooking and for "touching" people that has taken her far.
However, I also believe that geography was a contributing factor in her success.
Deen's first cooking success came when she moved to Savannah, Georgia - a tourist town with truckloads loads tourists whose pockets were full of cash.
She could have continued making those sack lunches forever if she hadn't moved to a place where her talents were met with both appreciation and MONEY.
I don't think there is a banker in my town - and we have a lot of local restaurants - who would have given a divorced mother of two - without previous business experience - any kind of loan to open a restaurant where the primary attraction was sack lunches.
How about your area?
Perhaps your area is a bit more trendy and less stodgy than mine.
Anyway, my point is that risk is a product which can be packaged more attractively and "sold" more easily under the right circumstances.
I'm sure people don't think of it as such, but that's pretty much what's going on, don't you think?
Her friendly personal banker in Savannah obviously calculated his risk exposure very differently than my banker here in West Texas would.
I doubt it. In fact, I would bet the failure rate for restaurants in Savannah is quite high.
Attitude might be the key difference. A more tolerant view of failure, perhaps?
If this loan were to go bad, maybe it won't reflect as badly on the banker there as it would on a banker here.
Question: Are there places where risk is perceived and priced differently?
I think the answer is yes.
For some of us, that's not exactly news.
For years, if you wanted an oil deal, Dallas was the place to go.
If you want to begin a start-up company, then you're at least considering Silicon Valley, Boston, or maybe even Austin or Portland.
Small Town USA is NOT the place to find funding for a new business of any kind.
After I began this little rant, I discovered Ray's link to Paul Graham who pretty much made the same point (and said it so much better).
Whether I agree with Mr. Florida or not, as a investor, rancher, or businessman, I have to focus on the long term.
Right or wrong (better or worse), I plan on holding investments for years, if not decades.
I need to be especially careful with the selection of my communities.
And it's my belief that areas such as those surrounding Virginia Tech, A&M, UT, Stanford, and the Boston area schools of Harvard and MIT will continue to out-perform other places (although your choice of asset class will also be a factor) over the very long time frame that I prefer.
How do you determine the local "attitude" for risk?
Here's a test for you:
First, imagine being invited to a dinner party.
After the usual introductions are made, the "small talk" begins and of course somebody finally pops the question: "What is it exactly that you do for a living?"
You smile back and say "I'm starting a new company."
Does this reply bring polite smiles of condolence (for not having a real job) or are people excitedly asking questions about your new business?
Once upon a time, I used to check bank call reports and earnings reports for risk factors and for their willingness to make loans.
I wonder what a call report in Silicon Valley would look like compared to small town (or BIG town) USA?
Or is the money for these start-ups coming from outside the banking system?
Is it just "outsiders supporting outsiders"? Could you develop a risk test to check for attitudes toward start ups? Investments? Loans, of any kind?
Yes, but that is a story for another time.
PS - In 2003, the Library of Congress paid $10 million for the only existing copy of the 1507 map that was the first to show the New World and call it America.
You can learn more about that map - the one at the top of the page here.