Greater Greater Washington

How can DC foster an entrepreneurial District?

Over the past 10 years DC has grown from being a virtual non-entity when it came to the tech sector to a vibrant center with almost 450 startups. Some firms such as Blackboard and LivingSocial have built national and international reputations. What has DC done to help this along, and what can and should it do to keep the momentum going?


Photo by Stefano Cobucci on Flickr.

Last week, Smart Growth America hosted a panel on the relationship between startup communities and startup places, featuring DC planning director Harriet Tregoning, CEO of iStrategyLabs Peter Corbett, and SGA Vice-President Ilana Preuss.

Tregoning and Preuss talked about many ideas we've often discussed here on Greater Greater Washington in other contexts, which tend to attract "creative class" individuals to DC, like investing in public transportation and providing access to low-cost office space.

As any entrepreneur can attest, creating a new business brings with it many inherent risks and living in an environment that is extremely expensive can make diving into working on a tech start up a challenge. Reducing transportation costsmaking it realistic for residents to not need a caris one such way to make urban living more affordable. DC has made progress on this front in recent years with innovations such as the Capital Bikeshare program.

Moreover, if downtown DC only has rents that are affordable to large corporations or the government, then startups are going to logically locate somewhere else. A study by real estate firm CBRE found that downtown Washington had the second-highest commercial rent in the United Stateswith only Midtown Manhattan being more expensive.

What can DC do to increase the supply of affordable commercial office space? DC took one step by helping fund 1776, a new incubator which offers startups some much-needed office space.

What about the height limit?

More controversially, there is the question of whether DC should allow its buildings to be taller. Congressman Darrell Issa (R-CA), who chairs the House Oversight and Government Reform committee, has held hearings on modifying the 1910 Height of Buildings Act, which limits building heights based on the width of the adjacent street.

I asked Tregoning what she thought of this proposal. She argued that lifting the height limit would not necessarily create less expensive office space, as the new taller buildings are costly to build. She also said that building farther upwards could take away some of the charm that makes DC such an attractive place to live.

Corbett: DC plan is "bulls**t"

The world of startups and government are very different, and people in the startup world have often eyed the world of government and policy with suspicion. Some of that seemed to be on display as Corbett criticized Mayor Gray's stated goal of making DC the foremost east coast technology center, colorfully calling it impractical. Corbett said DC is not going to catch up to New York, which is already far larger and is constructing an "Innovation Island" tech center on Roosevelt Island.

However, that seems somewhat beside the point; it's good for DC to set high goals for itself. Many startups set goals of being the market leader in their industry and people in tech companies often speak of "taking over the world" with whatever product they are building, even though few ever do so and many are profitable and successful without massive dominance.

Corbett also argued that DC should make itself more attractive for investment by lowering its capital gains tax rate, which is significantly higher than in Maryland or Virginia. Mayor Gray has proposed this, but the DC Council did not go along.

However, in response to a later question, Corbett also said that "it's incredibly easy to get angel money in DC" and "anyone who's gonna kill it in the tech sector isn't going to let the location of their money stop them," Aaron Wiener reported, statements which seem to bolster Ken Archer's argument that the tax cut wouldn't really make a difference.

These debates are incredibly important for the future of the District. DC is known for being a government town. In the future it could be known just as much as a place where startups and entrepreneurs come to thrive. That would be good for all residents and the District's economy.

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Scott Stirrett is co-founder and former president of DC Students Speak, a citywide organization that aims to get more students involved in civic affairs. Scott is a senior at Georgetown University's School of Foreign Service, studying international politics with a concentration in foreign policy processes. 

Comments

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While this would take a long time to bear fruit, DC can increase the number of tech startups by increasing the number of tech college graduates. DC's strength is in education/NFP sector, so focusing first there makes sense. I'd like to see DC reduce hurdles for universities that want to expand campuses for more tech studies (like Gtown and GWU) and bolster UDC's tech offerings. Maybe work to attract a tech satellite campus from a major tech oriented university like VA tech?

by Falls Church on Apr 25, 2013 12:27 pm • linkreport

DC centric comment: Why would DC care about a tech sector? Most of its unemployed will never work there.

by Jasper on Apr 25, 2013 12:31 pm • linkreport

Either the fundamentals are there or they're not. Economic incentives don't seem to have affected development of IT corridors very much. In fact economic incentives tend to fail miserably, in general.

It seems to be a matter of customers and having an appropriately skilled workforce. the DC area has both. The defense contracting world has helped the Dulles corridor. Other customers can make inner DC attractive. the type of space available also matters--my impression is that Wall Street was made attractive because of this.

by Rich on Apr 25, 2013 12:38 pm • linkreport

I'd say take one of DC's underused high schools -- say Cardozo --and turn it into a public magnet science school. Compete with TJ and open it to anyone.

What is the fee --- 10K a year for a student. Say you get a 90/10 split for 1000 students. So 900 non DC residents and 100 DC residents.

That is only abotu 10M a year.

(and by you're going to attract a lot of DC parents who otherwise would go to charter school).

I'd undercut the private school and offer an out of state tuition of say 5000 a year.

by charlie on Apr 25, 2013 12:39 pm • linkreport

Before we get into the "how" question, I'd like to see someone answer "why?" There's a huge amount of economic research showing that it is generally harmful to have the government trying to promote any particular industry. There are some limited exceptions to that general rule, but I've never seen any convincing argument that high-tech (or whatever the vague term "entrepreneurial" means) is one of those exceptions.

by Rob on Apr 25, 2013 1:12 pm • linkreport

My pie in the sky dream builds on charlie's suggestion -- for DC to develop or recruit a (public or private) world-class career and technical college. Many people hear the term and think of ITT Tech and its ilk, but career and technical education has gone well beyond the old "voc-tech" model.

There are a number of schools (Wisconsin's technical colleges being a leading example) that are providing high-quality career and technical education, certificates, and associates' degrees, with many students going directly into decent-paying jobs in fields such as medical technology, manufacturing, and software development, and others going on to enroll in bachelors' programs in engineering or other fields. Not only that, but many of these schools then offer programs either co-located on local high school campuses, or with early enrollment available for high school students. If well-designed, a great technical college can help address "upstream" problems like high school dropout rates, while focusing on the "downstream" issues of growing a larger skilled workforce in DC.

by Jacques on Apr 25, 2013 1:32 pm • linkreport

The higher tax means that whoever is starting this venture will move to VA or MD when they realize that they have a hit on their hands and then DC will miss out on that wealthy person's property and income taxes.

by NikolasM on Apr 25, 2013 1:47 pm • linkreport

Depends on what you mean by entrepeneurial district.

I feel like the tech sector copes pretty well without centralized locations, but I'm not expert. Probably updating the infrastructure to bring fiber to more areas etc would be a big step. I've always been fascinated by public wifi too. I like the idea of incorporating a tech campus in the St. Elizabeths area development in SE.

I'd be more interested in other sectors. Zoning more stuff for mixed use light industry/arts/craft/food prep would appeal to people producing things and customers that want to buy locally. For example I recall recent legislation that made it easier for people to start home based bakery businesses.

We certainly don't need to look to downtown, but rather other areas with a natural advantage such as farther flung metro stations, waterfront areas, underutilized industrial type sites,etc.

by Alan B. on Apr 25, 2013 1:50 pm • linkreport

Not sure Living Social is a good example to bring up anymore. They lost a pile of money last year and seem to be just barely clinging to life for now.

by Chris S. on Apr 25, 2013 1:51 pm • linkreport

Why not simply focus on making it easier to start up and run a business in DC in general terms instead of trying to target and focus on given industries? Otherwise I think you're fostering a rent-seeking environment, which is what I would argue happened with Living Social.

by Fitz on Apr 25, 2013 1:55 pm • linkreport

The District should consider promoting areas that are currently industrial or are underutilized. As the article implies, one impediment is high rental costs. Ivy City, along the Metropolitan Branch Trail / Glenmont Red line leg, and the east campus of St. Elizabeth's are examples.

Like others have stated, however, probably the biggest problem is a lack of locally grown high tech educated young people. Successful tech corridors seem to have a tangential relationship with schools and colleges that focus on technology. We don't really have that here, at least not one that is widely known.

by Randall M. on Apr 25, 2013 1:56 pm • linkreport

I get so fvcking tired of everybody looking to the tech sector for entrepreneurship.

There's a massive lack of skilled tradesman in this city. I'm in trades and I make more than 99% of government employees here.

We should have a real discussion of how we don't teach people to do anything in the trades any more. Instead, we look for the cheapest plumber, electrician, or HVAC guy we can find for work.

We've lost respect for entrepreneurs who start basic businesses and do those things well.

by kck on Apr 25, 2013 2:15 pm • linkreport

@Jasper:

DC centric comment: Why would DC care about a tech sector? Most of its unemployed will never work there.

Why would Herndon care about a tech sector? Most of its unemployed will never work there.

by oboe on Apr 25, 2013 2:20 pm • linkreport

My brother is an electrician so I'm always interested in the trades environment. I'm curious what the local issues are, regulatory, interest, unlicensed work being done? What's the local vocational schooling (including MD and VA) like? Back home the local economy for trades kinda went into a tailspin with the housing crash.

by Alan B. on Apr 25, 2013 2:30 pm • linkreport

Show me a place or community that was able through investment demonstrably increase the rate of SUCCESSFUL entrepreurial development (defined as start up firms that last more than 3 years and book net revenue in at least one year). Also, HEIGHT LIMIT is the answer to EVERYTHING. Next you'll be touting it for addressing bad breath, stinky feet, and the heartbreak of psoriasis. Monomaniacal much?

by Tom M on Apr 25, 2013 2:40 pm • linkreport

The reason for the "why" is that DC needs to attract industries that have more and more jobs available, rather than worrying about its industries where jobs are disappearing. Also, these goods and services will be ones that local DC clients-- law firms, trade groups, government agencies-- will use, so they might as well be designed and built locally. That's our competitive advantage.

It also needs to be a place where someone who grew up in the area with a scientific and engineering education decides to stay in rather than moving out to the distant suburbs or moving across the country to California or Washington state.

And yet I am skeptical. We should have a small and sustainable tech industry, but I just don't see us having a competitive one. Why aren't we competing on health care, medical devices, and biotech where we have internationally renowned hospitals and research institutes as our competitive advantage?

by Tyro on Apr 25, 2013 2:49 pm • linkreport

I was the audience member who asked Corbett about the differing tax and regulatory environments. The big issue is that in California, you have to go hundreds of miles before you leave the state and enter a new tax and regulatory regime. In DC, you just walk across the Key Bridge and your capital gains tax rate drops from 9.0% to 5.8% and your corporate income tax rate drops from 9.975% to 6.0%. You also get cheaper rent in Arlington.

With such huge difference located only two metro stops from downtown, it's no surprise that Virginia is the obvious place to locate your tech business.

by Eric F. on Apr 25, 2013 2:55 pm • linkreport

I might add that an "entrepreneurial environment" depends on a lot of things that are generally counter to overall DC culture. For example, a lot of small startups running on a shoestring will set up shop in out-of-the-way office space or spaces that are not strictly meant to be office space but are repurposed (residences, warehouses, unused retail space). In the first case, DC's strict zoning frowns upon the existence of office and commercial space outside of designated downtown areas, so in many cases, this kind of inexpensive space doesn't exist. In the second case, neighbors, ANCs, and other interest groups make strong efforts to crack down against unauthorized use of space for commercial purposes, particularly residential. That leaves the formal downtown office space, with which law firms, well-heeled trade associations, and foreign countries can easily outbid small startups for.

A fostering the existence of even a nascent startup culture would require a massive rethinking of what it means to live and work in DC from the people who are already here, and I don't think that is something that voting majorities are even passively willing to allow to happen, much less actively encourage.

If there are to be startups, people generally want them out of sight and out of mind, and there are plenty of isolated office parks in Maryland and Virginia that can fulfill that role.

DC was designed to provide a strictly separated working district for local residents which would allow them to engage in stable, regular, long term employment and to leave this area early and return to a strictly residential homespace.

Nobody moved here because they wanted to deal with the churn of entrepreneurs repurposing office space while going through the churn of opening and closing businesses which might be here today, gone tomorrow. It's not the aesthetic DC residents are going for.

by Tyro on Apr 25, 2013 3:03 pm • linkreport

I think the last thing DC wants to end up as is a "jack of all trades, master of none."

If the focus is on the start-up culture in particular, I think the city should work to leverage the resources and markets that already attract a lot of people to locate here -- namely its huge network of think tanks and nonprofits, large military presence, and a lot of global clout on economic development and policy. Having better collegiate academic programs in STEM fields will help.

I'm not saying that we should stop pouring subsidies into LivingSocial and other glamorous, trendy start-ups, but we should focus on delivering the best possible resources to the people who actually WANT to start a company here because of what other cities CAN'T offer.

So maybe instead of asking ourselves how we can become the next San Francisco, we should ask ourselves whether we actually want to be.

by Scoot on Apr 25, 2013 3:13 pm • linkreport

Great comments all. As a panelist referenced in this post, and someone who cares a lot about the overall success of this city - let me clarify/summarize a few things...

1. This panel was specifically about tech + smart city planning. That doesn't mean DC gov is only or even mostly focused on the tech sector. If you look at DC's 5 Year Economic Plan (I advised on the tech part of that) you'll see it's just one piece of the puzzle.

Full document here: http://bit.ly/10fTIbT

2. The reason it seems governments are focused on the tech sector is because this is essentially the only one that's generating 'high growth' companies right now. If DC was only focused on these kinds of companies -- I'd be concerned. They're not. DC gov is focused much more broadly than that.

3. I know the audience got the impression I think the DC gov's tech related plans are "all wrong". I really don't and didn't say that. I think it's "mostly right and not bold enough" and have told every DC gov contact I know that that's my perception. My follow up comment to saying DC wouldn't beat NYC was "DC needs to focus on being the best possible DC".

And I think it is.

4. Lastly....I think we're in a great place tech-sector wise. There's a tremendous amount of activity. Check out any/all of this if you're interested and what to get involved in the tech community:

https://hackpad.com/How-to-Hack-the-DC-Tech-Ecosystem-EYfL7X7gepL

Take care,

Peter Corbett
http://twitter.com/corbett3000

by Peter Corbett on Apr 25, 2013 3:57 pm • linkreport

Maybe the city could purchase the Intelsat building across from UDC and turn it into a tech institute.

by Chatham on Apr 25, 2013 4:42 pm • linkreport

Chatham: That would be absolutely epic.

For the time being we have http://1776dc.com which is growing into a bonafide urban tech campus one 15,000 sf floor at a time.

P

by Peter Corbett on Apr 25, 2013 4:50 pm • linkreport

Actually, Living Social is not a DC company, it is a Delaware company that has an office here.

by Matt A. on Apr 25, 2013 8:54 pm • linkreport

Actually, Living Social is not a DC company, it is a Delaware company that has an office here.

That's pretty pedantic and unnecessary. It's like chiming in to say that GM is not a Michigan company, but rather a Delaware company with an office in Detroit.

by Tyro on Apr 25, 2013 11:58 pm • linkreport

It's astounding you DC-area residents do not have a clue where your economic well-being comes from.

by Ironchef on Apr 26, 2013 8:49 am • linkreport

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