Sunday, September 23, 2012

War For Talent: Detroit

Detroit has a vision problem. What's the standard for recovery? Billionaire entrepreneur Dan Gilbert cites talent retention:

When we know that the vast majority of our brain talent that’s coming out of University of Michigan or Wayne State talent is staying here — that the first thought is not moving to New York or L.A. or San Francisco, or when that’s the small minority — then I think that we’re taking major steps at least.

And … did you meet any of the interns we have down here? We brought in 600 interns from 157 colleges and universities around the country.

Of all the things we’ve done, there’s nothing more important. In a speech I did last Friday, I put some of the comments from the interns, saying things like, before I wouldn’t have considered Detroit, now I’m going to stay. That’s the biggest most important thing you can do … get those young people.

Gilbert aims low and errantly. That's poor leadership. Think Chicago. Be a destination for talent, not a better mousetrap.

Detroit isn't alone. Hipster magnet Portland suffers from a similar affliction:

Given that trajectory, Lightner and Ricker's attempts to make it in New York present a potential problem for Portland, a city that has staked part of its economic future on being able to lure and retain creative people, including chefs. Are we a national-caliber restaurant city, or are we the small-market team, destined to have our best players poached by the New York Yankees? Or, to put it another way, how can we keep ambitious young talent satisfied?

Portland is a national draw. In the urban hierarchy scheme of things, it can't possibly compete with New York. Portland will never be that kind of crucible. But it is already an ideal, a destination for the Big Apple weary. Don't worry about who is leaving. Focus on the people who would like to move there. The circulation of chef talent between Portland and New York, as well as San Francisco, is world class. If anything, Portland needs to do more exporting and develop into a site of talent production. The city has a long way to go to catch up to Detroit.

Our obsession with brain drain sets communities up for blackmail and boondoggles. The same is true for businesses and the competition for CEOs:

New research by Charles M. Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware, and Craig K. Ferrere, one of its Edgar S. Woolard fellows, begins by attacking this conventional wisdom. Mr. Elson and Mr. Ferrere conclude, contrary to the prevailing line, that chief executives can’t readily transfer their skills from one company to another. In other words, the argument that C.E.O.’s will leave if they aren’t compensated well, perhaps even lavishly, is bogus. Using the peer-group benchmark only pushes pay up and up.

Understand that Detroit? Check your numbers, Mr. Gilbert. The brain drain threat is bogus. Gilbert's worldview is reinforced by the same faulty thinking inflating CEO compensation. Furthermore, aggressive talent retention (i.e. noncompetes) undermines innovation and economic development. Meanwhile, executives thinking about relocation are more concerned about quality of place:

You don’t find a lot of businesses relocating from Nevada to Massachusetts. We have a reputation for being a very high cost state for doing business, so what has been your experience?

I hear that a lot. The reality is people want to come work here. The schools, the students in the universities around the area, produce often some of the best technical talent. Despite the weather, despite the Red Sox, people actually want to live here. That gives us the ability to attract some terrific talent.

You saw some of the technical production talent, but the leadership talent, too. I lived in Nevada for nine years — a beautiful, natural environment — but attracting executive leadership talent to move their families to very rural areas is a tough spot.

That's where urban amenities come into play. It's a boutique migration, a very old story. The new stadium is about corporate suites, not rank-and-file fans. Your legacy institutions of opera and symphony orchestra? That's what yesterday's Creative Class demanded. Your city is held hostage by c-level executives. They command direct flights for uneconomical destinations. CEOs threaten to leave and take their headquarters with them. Bogus blackmail.

This kind of stickiness retards growth. The constraints on the expansion of the gaming industry in Austin:

Frank Coppersmith, chief operating officer of GameSalad Inc., which helps people create and publish games, spoke of his own challenges in that department.

While GameSalad started in the Austin Technology Incubator and raised its initial money from connections at the South By Southwest festival, Coppersmith said he eventually made a foray to the West Coast.

"Was it a disadvantage to you in raising (Los Angeles) money, that you were based here?" Strama asked him. "Did they try to move you?"

"I think it was a very significant barrier to our ability to raise money on the West Coast," Coppersmith replied. "Though I think not so much because we're far away, but ... when a (venture capital firm) looks at the value that they bring to a company, it's because they don't just bring money. They bring networks of people, and expertise. And if you're in Texas, those networks don't necessarily extend to Austin, so they don't know how to optimize you."

Coppersmith also admitted that GameSalad moved its corporate headquarters to San Francisco – although the majority of its operation is still local.

"It was just essential to get that on-the-ground visibility in California," he said. "I'm sorry to say that."

Emphasis added. The depth of the talent pool takes a backseat to the location of the headquarters, which is largely an executive driven decision.  The folks pulling the strings are well aware of the financial benefits of stoking the fires of brain drain anxiety. Austin might be more cost effective. But it isn't San Francisco or Los Angeles. It becomes almost impossible for an urban upstart to amass the necessary networks of expertise.

Enter Rust Belt Chic.Today's urban pioneers are tomorrow's executives. Headquarters are already moving from suburban tech parks to downtown. The new aesthetics of place will inform a different relocation geography. The Innovation Economy is converging. The expensive real estate and associated higher salaries matter. The playing field is tilting towards cities such as Detroit. Too bad the Dan Gilberts of the world are obsessed with brain drain.


Pete Saunders said...

Jim, it wasn't until I read this post, and saw the quote about small-market teams being poached by the Yankees, that I thought of the perfect sports analogy to your theory -- the NBA's San Antonio Spurs.

If you don't know, the Spurs are a small-market team that has been immensely successful. They own four NBA titles, the fourth most after the Celtics, Lakers and Bulls, and have one of the highest winning percentages in league history.

I think their talent theory dovetails very well with your theory. They have been able to strike it rich with home-grown talent (draft picks David Robinson and Tim Duncan became Hall of Famers), but they have supplemented that with a talent identification method tailored to their small market needs. First, they are miles ahead of the league in identifying exceptional foreign talent. And second, they excel at bringing in talented players who don't "fit" in other places, and making them fit in San Antonio. They don't go after the high-profile free agents or ever try to make the big splash, they simply work their talent ID methodology to perfection and they win.

If ever a sports team exemplified your talent theory, this must be it.

Jim Russell said...

Pete, Richard Florida has a penchant for mapping the agglomeration of talent (e.g. athletes and musicians). His Martin Prosperity Institute did an interesting study of Toronto (big talent market) and Halifax (small talent market):

When the benefits of living in a large market no longer justify the costs, that's a trend of convergence. The agglomeration of talent in large markets, real estate prices be damned, is divergence.

I'm looking for evidence of Innovation Economy convergence, which I think will benefit cities such as Detroit. The Spurs are a good example. Moneyball is another (i.e. big spenders don't always win). But are the Spurs a trend or an outlier? Halifax? Pittsburgh?

Given the significance of the last downturn, an economic rupture is logical. The Spurs model does indicate that cost effectiveness mattered. The franchise's approach might have been a canary in the coalmine.