November 2010

Connection and Diversity Spur Economic Development

by Michele Reeves on November 27, 2010

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There is a traditional top down model, implemented the world over, in which cities build infrastructure in an attempt to cluster technical industries and spur job growth, which Vivek Wadhwa discussed recently in the Chronicle of Higher Education:

All of those are well-intentioned efforts to build Silicon Valley-style technology hubs, but they are based on the same flawed assumptions: that government planners can pick industries they want to develop and, by erecting buildings and providing money to entrepreneurs and university researchers, make innovation happen.

Regional planners and some academics get very defensive when asked to produce evidence of cluster theory’s success. They commonly tout Silicon Valley and North Carolina’s Research Triangle Park as examples of the success of government-supported clusters. Research Triangle Park is a 50-year-old project that achieved success decades ago but lost momentum in the Internet era. And the success of Silicon Valley was achieved without government involvement.

Economic development, whether it be on a neighborhood scale or from a city-wide perspective, can be fostered by focusing on connectivity and diversity, not unlike the interactions needed to encourage physical revitalization, as I laid out in my post on ants and revitalization.

There is an excellent article by Steven Johnson in the Financial Times about the thriving New York high tech scene. I was surprised to learn that the New York area is now second only to Silicon Valley in attracting venture funds to start-up internet firms. And, as Mr. Johnson argues in his piece, the route to reproducing the conditions that existed prior to the success of Silicon Valley, or the NY tech scene, need not require top down planning and large public expenditures.

Mr. Johnson believes that “one secret to New York’s technological success lies in the Interactive Telecommunications Program (ITP), a two-year graduate course at New York University.” This course brings together students of varied backgrounds, from artists with no technical expertise to hard core coders, and out of that cauldron of diversity comes creativity and ingenious ideas. The graduates of this program go on to work in, or found, copius numbers of start-up ventures in the region.

The physical density of the city also encourages innovation. Many start-ups, both now and during the first, late-1990s internet boom, share offices. This creates informal networks of influence, where ideas can pass from one company to the other over casual conversation at the espresso machine or water cooler… .

Economists have a telling phrase for the kind of sharing that happens in these densely populated environments: “information spillover.” When you share a civic culture with millions of people, good ideas have a tendency to flow from mind to mind, even when their creators try to keep them secret.

All of these spaces – the graduate schools, the co-working offices, the media environments – exhibit the final trait that has been key to New York’s technological success: its diversity. A number of studies have established an essential connection between diversity and innovation. One such study, by the Stanford Business School professor Martin Ruef, interviewed 766 graduates of the school who had gone on to have entrepreneurial careers. Ruef was interested in the diversity of professions and disciplines, not of race or sexual orientation. He created an elaborate system for scoring innovation based on a combination of factors: the introduction of new products, say, or the filing of trademarks and patents. Then he tracked each graduate’s social network – not just the number of acquaintances but the kind of acquaintances they had. Some graduates had large social networks that were clustered within their organisation; others had small insular groups dominated by friends and family. Some had wide-ranging connections outside their inner circle of friends and colleagues.

Ruef discovered that the most creative individuals consistently had broad social networks that extended outside their organisation and involved people from various fields of expertise. In groups united by shared values and long-term familiarity, conformity and convention tended to dampen any potential creative sparks. The limited reach of the network meant that concepts from the outside rarely entered the entrepreneur’s consciousness. But the entrepreneurs who built bridges outside their “islands,” as Ruef called them, were able to borrow or co-opt new ideas from these external environments.

Let sophisticated behavior trickle up. Get your citizens talking to one another. Encourage inter-disciplinary cooperation. Bring people together from varied and different backgrounds — both from a cultural and professional perspective. Strengthen the connections between the private sector and universities. And, as Vivek Wadhwa says, teach entrepreneurship to students and experienced workers alike, finding ways to eliminate the stigma associated with failure.

Then, get out of the way!!


On Emergence, Ants, and Bottom up Revitalization

by Michele Reeves on November 19, 2010

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I was thinking about commercial districts yesterday as I finished Emergence, by Steven Johnson. I was particularly taken with his descriptions of ants, and how they build colonies with no central vision or control. A fully functioning ant mound is created strictly through a series of small local interactions between ants, largely using pheromones. Though the amount of information exchanged in each is tiny, from these local interactions, a higher functioning order emerges.

This is exactly the sort of behavior cities should be encouraging between stakeholders to foster organic revitalization.

Instead, from a city’s perspective, from a planning department’s perspective, and from a development agency perspective, it is often easier to focus on that one big new “catalyst” project that will single-handedly improve an area, rather than encourage many small-scale projects, fostering a bottom up approach. Unfortunately, this desire to renew from above takes a tremendous amount of public capital and doesn’t always work.

Is it possible to consider rejuvenation of a commercial corridor or a downtown from a different, more cost-effective perspective?

Yes, provided that you have decent building stock (and by decent, I mean a continuous run of structures from almost any era) and a functioning grid. From those simple building blocks, you can directly improve what you have, rather than trying to indirectly help it by completing a single large new building. From the seeds of your downtown or your commercial corridor, you can grow a place, which will then require significantly less, or perhaps no, public money to encourage new construction.

In Emergence, Steven Johnson writes about the five fundamental principles that a system designed to learn from the ground level must exhibit, as an ant colony exhibits:

  1. More is different. The statistical nature of ant interaction demands that there be a critical mass of ants for the colony to make intelligent assessments of its global state.

  2. Ignorance is useful. It is better to build a dense interconnected system with simple elements and let sophisticated behavior trickle up.

  3. Encourage random encounters. Encounters with individual ants are arbitrary, but because so many of them are in the system, those encounters allow individuals to gauge and alter the macrostate of the system.

  4. Look for patterns in the signs. The knack for pattern detection allows meta-information to circulate through the colony mind. (Smelling the pheromones of fifty foragers in the space of an hour imparts information about the global state of the colony.)

  5. Pay attention to your neighbors. Local information can lead to global wisdom.

Paraphrase: Get all of your stakeholders talking and doing — the more people the merrier. The more projects the merrier. The more activity the merrier.

Or, to put it more formally, if we create opportunities for and catalyze a sizable number of small local interactions, these can bring about positive changes in cities and neighborhoods with minimal monetary investment. And, these interactions and projects will take your city in directions you never imagined, and I mean that as a good thing. “Let sophisticated behavior trickle up.”

Now, meaningfully engaging stakeholders is not easy. It’s much simpler, and more attractive, to focus on big flashy projects with a lot of quantified knowns on sites controlled by the city. But, it doesn’t help create sustainable renewal.

So, how do you stir up the pot? Who do you get interacting? What the heck is Michele Reeves talking about?

  • Business Owners. Are they talking to each other? Do they have a functioning business association or downtown association? If not, help them. Provide funding, expertise and assistance.

  • Property Owners. Nothing happens in a downtown or commercial corridor without the property owners. Do they know each other? How do their buildings look? How do they interact with the public sector? Usually, in historic districts that are languishing, there is a complete and total disconnect between some of the long-time property owners and the public sector. In other words, they hate the planning and permit department. Cities need to repair this vital connection between property owners and government before renewal can occur. Get property owners engaged!

  • Retail Sophistication. What is the level of retailing in the downtown or commercial corridor? Can business owners and property owners benefit from merchandising training? Do property owners and shop owners understand the tie between good design, attractive buildings, and retail performance?

  • Permits. Does your planning and permit department do everything it can to help small business owners and property owners? Often, the public sector tailors their process toward large development, which makes the path to acquiring a permit nearly incomprehensible to local entrepreneurs and small building owners. Start building connections to these groups and understanding their needs. Create streamlined “cheat sheets” for simple building improvement permit procedures, or step-by-step instructions for restaurant tenants and food cart vendors.

  • Brand. Is there a unified story or identity for your district? Create your story. Manage your story. Leverage your story. Makes sure everyone is telling your story, the way you want it told.


Traffic Engineering Writ Sexy

by Michele Reeves on November 7, 2010

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Broach the subject of transportation planning and traffic engineering with nearly anyone and they, anticipating a barrage of boring facts and geeky analysis, will hastily prepare for a deep mental hibernation.

Well, I’m here to tell you that discussions about traffic can be quite engaging! See for yourself in this wonderful video of a presentation given by Ian Lockwood recently in Portland, posted by Metro.

One of the points Ian makes in his talk is illustrated by this drawing of Wall Street circa 1867: streets were not always places that we evaluated solely based on throughput of vehicles!!

The grid was a place of infinite exchanges, sights, smells, and sounds — business was conducted, kids played, you met your neighbor, you grabbed a coffee, food was cooked… . In modern times, many cities have ceded control of their streets, some of their most valuable real estate when it comes to making places compelling and interesting, and turned them over to traffic engineers. Complex computer modeling tools are then used to figure out how to move cars efficiently through town. These models tell us nothing about livability, or foot traffic, or retail viability, or downtown decay…

A good example of the impact that streets can have on a downtown is pictured below. Eugene, during the “urban renewal” heyday of the ’60s and ’70s, ripped out many of their older buildings and then installed wide one-way streets, creating a ring of pavement encircling their downtown, effectively routing people around the gem of a core that still exists near the intersection of their historic main streets.

Most small- to mid-size cities have no idea the impact that uni-directional traffic can have on their downtown cores. These streets are not designed to take you “to” a place, they are designed to route you “through” a place. For the 10% to 20% gain in throughput, a city gets a confusing downtown grid that is difficult to navigate for anyone who is not on an established route. Drivers are not encouraged to stop, experience, and look around, causing retail decline. Cars travel faster, creating an environment that doesn’t encourage pedestrianism, which causes retail decline. And, these one-way roads foster architectural form that does not contribute to effective placemaking, causing retail decline.

It is no surprise then, that the vast majority of Portland’s successful commercial corridors are on two-way streets in neighborhoods with architectural form and density that was constructed in the streetcar era.


The Retail Genius of Trader Joe’s

by Michele Reeves on November 2, 2010

Trader Joes Edamame

During my brokerage days, most of the neighborhoods in which I worked gave me this very clear message (with wide stakeholder agreement):


Okay, check. Then, I would ask them what they did want, and with a completely straight face, they would vehemently answer:


That wasn’t confusing! But, Trader Joe’s is a great example of a retailer with incredible caché, even amongst chain-haters.

These savvy retailers keep operating costs low by moving into existing buildings, when possible. They don’t spend a fortune on fancy buildouts and expensive merchandising. They hew to their brand relentlessly. They don’t expand willy nilly. I have always marveled at their ability to turn what is essentially a high-end convenience store into something palatable to educated foodies!

Given that, I wasn’t surprised to learn that the founder of Trader Joe’s came from a convenience store background, which I discovered in this engaging article about the grocer in Fortune magazine.

There are many interesting tidbits in this must-read about the privately held German company, like the fact that it is a privately held German company! I was particularly impressed with examples of how Trader Joe’s focuses on the customer:

A ringing bell instead of an intercom signals that more help is needed at the registers. Registers don’t have conveyor belts or scales, and perishables are sold by unit instead of weight, speeding up checkout. Crew members aren’t told the margins on products, so placement decisions are made based not on profits but on what’s best for the shopper. Every employee works all aspects of the store, and if you ask where the roasted chestnuts are he’ll walk you over instead of just saying “aisle five.” Want to know what they taste like? He can probably tell you, and he might even open the bag on the spot for you to try.

Fortune also dishes some dirt on who Trader Joe’s suppliers are, including busting the myth that products are all sourced from small, local, organic enterprises.

Some of that may be because Trader Joe’s business tactics are often very much at odds with its image as the funky shop around the corner that sources its wares from local farms and food artisans. Sometimes it does, but big, well-known companies also make many of Trader Joe’s products. Those Trader Joe’s pita chips? Made by Stacy’s, a division of PepsiCo’s (PEP, Fortune 500) Frito-Lay. On the East Coast much of its yogurt is supplied by Danone’s Stonyfield Farm. And finicky foodies probably don’t like to think about how Trader Joe’s scale enables the chain to sell a pound of organic lemons for $2.

In the vein of exploring supply chains, I would have liked to know more about their sourcing procedures, and the subsequent impact of those procedures on smaller vendors, because the store’s image is strongly tied to products that are purported to be artisanal. Do they sign contracts with firm commitments to orders, or do they ask small businesses to expand with only “intents to purchase?” Grocers such as Trader Joe’s carry a big stick, and I am curious to know if they wield that stick with local businesses, and if so, how often?