Despite all of the hullabaloo about health care reform, I propose that the number one problem we’re facing right now is jobs—rather, the lack of them.
According to the U.S. Department of Labor, the unemployment rate in August was 9.7 percent, with 216,000 net jobs vanishing that month. That doesn’t count 9.1 million people “working part time for economic reasons” or 2.3 million people “marginally attached to the labor force.” When you factor in people who have just plain given up, the real unemployment rate is easily in the mid-teens.
No industry sector is unaffected, including high tech. According to the Semiconductor Industry Association (SIA), worldwide chip sales amounted to $51.7 billion, a 17-percent increase from the first quarter. SIA president George Scalise is encouraged “to believe that the sequential increase in quarterly sales represents a gradual recovery of demand.” Recovery, or dead-cat bounce? At this point it’s too early to tell.
In either case, this looks to be a jobless recovery, like the one we all went through after the Tech Crash of 2001-3. I managed to stay employed in Silicon Valley during those years and watched the new thinking that emerged during that recession. “If you lay off half your people and work the remaining half twice as hard, you wind up with the same output and much lower cost.” What MBAs call a no-brainer!
Semiconductor companies have also responded to the recession by cutting costs either by going fabless or by moving production offshore. Here in Austin AMD, Freescale and Applied Materials have cut roughly 2,000 manufacturing jobs in the past year. Cypress has closed Fab 4, Samsung is about to close Fab 1, AMD has closed a fab, and Samsung has announced it plans to lay off a third of its Austin work force. Applied Materials, among others, is shifting its production to Asia to be closer to its customers and to cut costs. Dell closed its last PC factory in Austin last year, for the same reasons. Even when the economy recovers, these manufacturing jobs aren’t coming back.
Austin’s response is the same as what I’ve seen in Silicon Valley—focus on being a design center and nurture an entrepreneurial infrastructure. The real value in any product—from chip to box—is the innovative design that goes into it. But how do you realize that value if you have a great idea but no employer to pay you to develop it?
Go into business for yourself.
Incubate to Innovate
Being talented at engineering doesn’t correlate directly—or even closely—with being talented at doing business. Even if you think you have a knack for business, you still need to complete your R&D, build a prototype, prepare a marketing plan and a business plan, put together a team and stay alive until you can find the money to fund all your plans.
That’s where technology incubators come into play. Incubators exist to provide technical and business management training; access to capital; professional and business networking opportunities; technology transfer assistance; and a host of other supporting activities to help minimize the risk for budding entrepreneurs trying get their ideas from concept to market.
The National Business Incubator Association (NBIA) defines a business incubator as “a comprehensive business assistance program that helps start-up and early-stage firms, with the goal of improving their chances to grow into healthy, sustainable companies.” Companies graduating from incubator programs have a far higher success rate than the average start-up. The U.S. Small Business Administration has found that after four years, only 44 percent of firms remain in business. Contrast that with what NBIA historically has found about incubator graduates: among incubation programs whose average age was nearly ten years, 87 percent of graduate firms were still in business.
Part of that success rate is due to screening, part to culling and part—the part that NBIA prefers to emphasize—is due to mentoring.
On the screening side, entry into most tech incubators is competitive. You have to explain your product and defend your proposed business plan—however preliminary it may be—to the incubator’s screening committee. This may be just the incubator manager, but more often it will consist of a group of experts familiar with your technology and your markets. This can be a real trial by fire, though it also forces you to think through important assumptions that you may not have really examined.
The TiE That Binds
I recently went to a local meeting of TiE—The Indus Entrepreneurs, the world’s largest entrepreneurial network—which served as a boot camp for would-be startups getting ready to pitch the intake committee at the Austin Technology Incubator (ATI). The grilling, while friendly, was relentless, especially on the marketing assumptions that the presenter had made. He left with a long check list of ideas that needed further research and reflection.
On the culling side, individuals or companies that make it into an incubator program are presented with a list of ‘graduation requirements’. If you’ve got enough customers that you look to be self-sustaining or you’ve grown to take up too much space in the incubator, it’s time for you to leave. Tech companies are typically given 2-3 years in an incubator before either being graduated or—if they seem to be chronically just spinning their wheels—forced out. The former companies usually succeed; the latter, rarely.
Mentoring and support is what incubators are all about. The incubator manager can connect you with a network of experts in marketing, business, accounting, law, IT—whatever support services you need to get off the ground. They also offer access to local networks of Angel investors and venture capitalists, to whom they can provide valuable introductions.
The incubator itself typically supplies all the services of an office suite arrangement, but at a much lower price. Non-profit incubators may offer below-market rent, for-profit ones probably market rate. Both provide packages of services, which may or may not be subsidized. There are no free lunches, but with all the support and services they provide, incubators are a real bargain.
Check It Out
So if you’re looking for a job—or are insecure in your current one—consider creating one for yourself. Check the NBIA web site, then look for an incubator near you. Go visit one and talk with the incubator manager. This may or may not be the road you should take, but it’s one you should consider. In either case you’ll come away from the meeting with a better idea of the direction you want to take.
You’ll also come away with a serious appreciation of the role of technology incubators, which I certainly share.