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In the knowledge economy, it’s the knowledge workers the talent. That is the critical resource that every investor in every entrepreneur is seeking. So then the question is, where’s the, where is that natural resource being generated? What’s actually being generated through the universities?
Jay Clouse 0:17
The startup investment landscape is changing. and world class companies are being built outside of Silicon Valley. We find them, talk with them and discuss the upside of investing in them. Welcome to upside.
Hello, hello. Hello, and welcome to the Upside podcast, the first podcast finding upside outside of Silicon Valley. I’m Jay Clouse, and I’m accompanied by my co host, Mr. whole milk himself, Eric Hornung.
Eric Hornung 0:57
So Jay, in our household, we’ve very rarely have traditional milk of any kind animal milk, if you will. We’re an almond milk household. And what that means is I don’t traditionally partake in the milk drinking not there’s anything wrong with almond milk. It’s just I don’t pour a glass of almond milk you know?
Jay Clouse 1:18
It’s just like an additive to your coffee. So what I’m getting at?
Eric Hornung 1:20
I don’t even I don’t even put almond milk in my coffee. Put in the eggs if I’m gonna whip the eggs because you know milk or you know for recipe calls for milk, then you use almond milk but it’s not a standalone milk for me. Well, one of the benefits of this quarantine is that whole foods mixed up our milk order and brought us a carton a singular carton of whole milk. And man have I had a week.
Jay Clouse 1:43
Where you raised on milk, I was full on raised on milk.
Eric Hornung 1:46
I was a gallon of 2% milk probably every three days when I was in high school, maybe maybe even more when I was like in my lacrosse bulking phase.
Jay Clouse 1:52
I don’t think I drank water until I got to college. Everything was milk.
Eric Hornung 2:01
Really? You didn’t have water?
Jay Clouse 2:02
Not really. I didn’t I mean, we had a well, we had our tap water was well water. I didn’t love it. I had it at sports, but like at home if I was drinking something, it was milk.
Eric Hornung 2:13
Hmm. I think I drank a lot of water and a lot of milk. I think I was still over liquidated child.
Jay Clouse 2:19
These substitutions that grocery stores are making during quarantine on these deliveries. We requested pasta sauce, and were substituted without asking diced tomatoes.
Eric Hornung 2:29
Well you can make pasta sauce out of diced tomatoes. So.
Jay Clouse 2:32
That’s quite a judgment call for the Instacart courier to make.
Eric Hornung 2:36
you Oh, so you use Instacart
Jay Clouse 2:38
Yeah, I don’t remember which one that was. I remember that was Instacart. Or if that was like an Amazon Fresh. We’re doing it all. It wasn’t Gopath. I can tell you it was not Gopath.
Eric Hornung 2:48
So the way I understand it, and Colleen handles all of this, but the way I understand it is they kind of text you when they’re in the store and say, does this work for you? Usually,
Jay Clouse 2:58
Yeah, usually we’ve gotten that but in this circumstance, we were given diced tomatoes with without our consent.
Eric Hornung 3:04
So did you make pasta sauce with the diced tomatoes?
Jay Clouse 3:13
You’re right. I should have said yes. And well, speaking of milk, which comes from America’s dairy farms often
Eric Hornung 3:20
Oh man, this is a stretch. This is a stretch.
Jay Clouse 3:23
Today we are speaking with. Today we are speaking with Patrick McKenna, the founder of One America works. One America works connects fast growing companies with future focus cities to help create new economic opportunities. By bringing investment and innovation to these communities. More people in more places will have access to the careers of the future and help contribute to the shared success of our economy. Eric, One America Works is a really interesting model. Patrick lives in Austin, Texas. I met him on the comeback cities bus tour, knowing that he had he spends a lot of time in Silicon Valley. One America Works is helping to solve one of the problems we saw when Amazon was opening their HQ2 nationally. And all these cities were competing with each other and kind of creating a race to the bottom in terms of what they’re offering Amazon.
Eric Hornung 4:14
Yeah, it’s kindly referred to as the mullet strategy where you put a second headquarters or a back office in a lower cost city and you keep your front office in San Francisco or New York or whatever it is. I guess some companies just moved completely, but I think he’s helping facilitate find which cities companies best fit with to accelerate their growth, but also save them some money and be more efficient.
Jay Clouse 4:41
That’s right. I met with the One America Works team couple months ago in Columbus, Ohio. They were looking at Columbus as one of the cities they want to better understand so they can pair high growth companies to Columbus as a place for a second headquarters. I’m really interested in the strategy. So I’m interested hear from Patrick here in this interview. what that looks like. Long term, how it all works and why he’s interested in this venture in the first place.
Eric Hornung 5:06
If you guys have any thoughts on this interview or diversified workplaces, you can tweet us @upsideFM or if you have something a little longer, you can send us an email at firstname.lastname@example.org and we’ll get to the interview right after this.
Well, that’s like the opposite of what you’re supposed to say in prompt situation, J.
Jay Clouse 5:26
Eric, what do SAS companies autonomous vehicle companies, cybersecurity companies, blockchain companies in consumer marketplaces all have in common.
Eric Hornung 5:35
They’re all companies.
Jay Clouse 5:36
They’re all companies and they’re all companies who have hired our friends at Integrity Power Search to help them fulfill their talent needs. Integrity Power Search is the number one full stack high growth startup recruiting firm between the coasts they partner with venture capitalists, private equity groups and CEOs to build amazing teams for the world’s most disrupting companies that may be SAS autonomous vehicles, blockchain consumer marketplaces, insure tech robotics process automation. Eric, they can do it all.
Eric Hornung 6:02
They can do it all. And we’ve seen them do it all. They are
Jay Clouse 6:05
Impressive. Over 600 searches since 2012. More than 200 happening just this year in 2019. their clients have collectively raised over $2.5 billion in venture funding. If you want to hear how Integrity Power Search can help your team for your talent needs, go to upside.FM/Integrity and get started.
Eric Hornung 6:21
Integrity Power Search, Who you gonna call? That’s their slogan, right?
Jay Clouse 6:28
I don’t think it is, but maybe it is now.
Eric Hornung 6:29
All right. You’re welcome for that one, Caleb.
Jay Clouse 6:33
This episode is sponsored by RIMS. RIMS is a global organization dedicated to the profession of risk management. For nearly 60 years RIMS has delivered the latest strategies and resources that allow risk professionals to grow, innovate and succeed in any business. RIMS works with industry leaders to produce content and online training that business professionals turn to. Topics include business continuity, cyber risk, risk management techniques, The fundamentals of insurance and more. There’s also a private members only site where people can discuss sensitive issues and get honest answers. In that members only site members have been leaning on each other as we all navigate the global pandemic. If you’re concerned about the safety of your employees and the sustainability of your organization, you need the resources and connections that RIMS provides. Learn more at go.rims.org/upside. That’s go.rims.org/upside, and you can save 25% off a year long membership.
Patrick, welcome to the show. Welcome back to the show. Actually.
Patrick McKenna 7:42
Glad to be back. Glad to be with you guys.
Eric Hornung 7:44
Patrick on Upside we like to start with a background of the guest. So can you give us a brief history of Patrick?
Patrick McKenna 7:50
Sure, happy to. Well, I’ll start with the relevant points. I’ve primarily been an entrepreneur. I’ve started four companies co founded four companies two based in Silicon Valley and two outside Silicon Valley, three of the four have been distributed workforce based companies which will be relevant for our conversation today. In Silicon Valley, I started as a co founder of a company called Liveops, which was working on customer service. We scaled that up to 20,000 work at home customer service reps in 32 different states. That was really fun ride from 2003 to 2008. And more recently, I started a FinTech company and co founded it in Baltimore. It’s called Facet Wealth. And this is certified financial planners, working from home relevant to the distributed workforce, but focused on bringing financial planning to the mass affluent. Also, as an investor, I’ve invested in 47 companies through High Ridge ventures, which is more of a home office and kind of early stage from the seed Angel fund. And 30 of those companies are based outside of Silicon Valley. Again, there’s this this thesis and this theme of kind of bringing kind of our capital and knowledge networks that many of us have acquired in Silicon Valley and identifying opportunities and backing founders are starting companies outside of Silicon Valley kind of accessing that talent and resources, which I’m sure we’ll get to. And then what America Works is, is a nonprofit that I co founded a couple years ago, and is focused on helping different geographies work together. Hopefully we’ll get into that as well.
Eric Hornung 9:18
When did that theme first emerge in your personal life?
Patrick McKenna 9:22
So I grew up in a small town in northern California it’s a 5000 person town and what’s called at USC, so big city. And so I haven’t had that small town outside of kind of the mainstream and then got this right into the deep end of Los Angeles, going to school down there. And then I went off and was in the army and was a technology officer. And then after the army, I ended up in Wall Street working at Morgan Stanley and investment banking. I was an M&A banker for the end of the in the 90s kind of got that, you know, full experience of working a very high level in finance, but always kind of remembered where I was from and so when I joined an early stage company and founded my own company, we were working with people who were based all over the country, we are in 30 different 32 different states. And what I saw was just amazing amount of talent, just really high quality people who weren’t in Silicon Valley or in New York or in Los Angeles, but had a lot to offer. And after I sold my first company, Liveops, I really developed this very direct theme to say, you know what, there’s so many talented people around this country that don’t have the same access that I had having left my small town and gone to school in a big city and then got a job on Wall Street and then was in a Silicon Valley or in a in a Sandhill venture capital backed company. I said, you know, how do I match my experience with that, that great talent, and that kind of led me to figuring out ways to access people all across the country to build businesses and back then and where they are.
Jay Clouse 10:50
Obviously, you’ve, you’ve continued to live in the Valley area while you do these ventures that have roots all over the country. How have you thought through where you base yourself given that if 30, if 47 of your portfolio companies are based outside of the valley, why still stay in the valley as your own headquarters?
Patrick McKenna 11:11
Well, I suppose this will be our first surprise on the interview is that I actually live in Austin, Texas.
Jay Clouse 11:16
Patrick McKenna 11:16
And it’s really the answer to your question is the reason I live here is when I started this journey of looking for opportunity back in companies looking for entrepreneurs, I quickly realized that I needed to be closer to the market I was interested in. And if you’re going to develop a network that’s going to lead you to the entrepreneurs that you want to back or the ideas that you want to start, then you need to be closer to those markets. And so started off as basically a roadway or going and traveling, going and spending time in Baltimore, spending time in Portland, Maine, spending time in Columbus. And what I quickly realized is, you know, showing up every once in a while doesn’t build the networks that are required with good high quality deal flow, as well as to really solidify the ideas that can turn into businesses and so I still keep my places in San Francisco, because you really do need that foot in there is an amazing Knowledge Network, there’s a incredible amount of innovation. And so my whole thesis isn’t one or the other. It’s how they work together. That’s really the key to success. And so I’ve made the decision that I want to get closer to the markets that I want to be focused on. And so from Austin, I can get to these places very easily. I also more immerse myself in this different way of working in different way of thinking, that is kind of maybe kind of creates a unique view of the world, rather than being somebody sitting on the outside in Silicon Valley, looking at how to access this talent pool that’s across the country.
Jay Clouse 12:34
How common or uncommon was that perspective, you know, in the early 2000s, when you’re working on Liveops, were there a lot of investors and operators like you in the valley who are looking outside of it at that time?
Patrick McKenna 12:47
No, I think we were all moving to Silicon Valley at that point. So I moved to San Francisco in January 2000. And I think most of the people that I was working with had literally moved to the valley around that time, it wasn’t until after the same maybe 2003, 2005 timeframe that people start looking to kind of rebound outside. So at Liveops, when we got about 500 people in Palo Alto, it became very clear that it was probably too expensive to continue to scale up our operation there. And we then opened an office in Phoenix. And it was a weird this is really turned me on to the potential for opening offices and accessing new talent, not just with distributed work, but in offices. We opened the office in Phoenix, and it wasn’t that, it wasn’t that methodical of a process. So I thought, first place is kind of close by that has a good school and we decided to do it. And then we offered that option up to current employees to say, hey, if you want to move to Phoenix, then you could just take your job, take your salary, or else prices like 15 people, which said, Great, I’ll move and I asked him about it, the people that went down there, they’re like, Look You know, I live in a two bedroom townhouse in San Jose, and I can move to Phoenix take this great job, I love working here, I have a great salary, great career path, but I can go down there, buy a house, send my kids to good schools, you know, have a pool, things like that. And so as we started scaling up the Phoenix office, we went from, you know, whatever, zero to 200 pretty quickly. And we found that there’s really unique talent. In that case in Phoenix that we actually didn’t have access to. In Silicon Valley we’re on operations and back offs and things like that. So it was it made our business more successful by having that office and that then inform the way I think about talent, entrepreneurs and the way you dish new ways. Think from the beginning, how to build your business that you’re going to go and put your offices either work at home or in the places where that talent is that you want to get access to.
Eric Hornung 14:53
You mentioned before that it’s more about how the valley and outside of valley work together than it is wondering The other, what are some examples of how the valley and the non valley as I’ll call it? How do they work together? Or how should they work together?
Patrick McKenna 15:08
Okay, so let’s do two different two different answers here, one from the entrepreneurial answer, right. So there are a lot of problems that we don’t see if your worldview is based on is informed only by the Silicon Valley map, right? There’s a lot of problems that nobody else sees, which are incredibly important problems to solve in great innovation. But there’s not another set of problems that are outside of Silicon Valley, that if those problems were highlighted, then we can bring capital innovation and talent to those problems. This could be like I have a company up in Milwaukee that’s doing fuel distribution, using a technology enabled service to distribute fuel in a very efficient way. People in Silicon Valley may or may not see that problem and see the solution the same way. That’s a unique perspective. Still tapping into capital and technology to solve that problem. Or say my company in Baltimore, we’re looking at the problem of people with 100,000 to a million of assets and how do they get affordable, high quality financial planning. And that’s a problem that may not get seen the same way in the valley, honestly, in a lot of the solutions in Silicon Valley are very high tech full robo, full automation. say if you’re looking at that problem for a place that is informed by Vanguard and T Rowe Price and Legg Mason, you might see that say, you know what, the human aspect is a little more valuable than say, just full automated. And so, in that case, we said, well, how do we apply AI machine learning things that are being developed in Silicon Valley that are incredibly powerful, and then add the human element to it. And so from an entrepreneurs perspective, I think there’s a ton of innovation that is being developed in Silicon Valley, but then can be leveraged to new solutions with new problems on the workforce side. If you’re scaling a company in Silicon Valley and you are building out your your engineering team, you’re your senior management team. And now you’re looking to really grow and grow fast. There’s a lot of competition for that talent. There’s a lot of skill sets in Silicon Valley, but not every skill set you might need. And your alternative is then to go out to say, Pittsburgh and start recruiting from CMU and drag those people back or go to Madison and recruit from University of Madison, or University of Wisconsin Madison, and drag all those people back. But it turns out that the talent you need is already out there. So you can get access to a deeper pool of talent that has the skills that you’re looking for. And do it in place where they already are, is very specific example say like lending home, which is a really cool Silicon Valley company that’s doing really amazing stuff with home lending. Their first 200 people in Silicon Valley, their next hundred people plus are in Pittsburgh, and they have the people in Pittsburgh have more experience in doing loan underwriting back office operating things that those skills aren’t exactly in Silicon Valley. They’re actually better there. And so looking for the it’s not a second level thing, it’s a different talent that you need to scale your business that can be found in other places.
Jay Clouse 18:10
We’re going to get to how that has evolved into the model with One America Works here in a second. But one, one last question on what you’ve learned with your background as an investor. If I’m an investor, one of your peers in Silicon Valley, or just getting into the game, and I’m saying I think that there’s some momentum in companies that are not based in the valley, how do I get started? How do I start deploying capital and find good bets across such a wide geographic region? What type of advice would you give them?
Patrick McKenna 18:40
The truth is you need to build you need to build your same type of network in the places that you want to invest in that you would need in Silicon Valley. There’s no shortcut to just showing up to a pitch competition at some University and then just picking the winner and investing in it. That is, that’s not going to work in Silicon Valley. That’s not going to work in Columbus. And so the way to do this is to actually make a longer term commitment where you’re building network, adding value, identifying local success, super angels, local entrepreneurs, helping, mentoring, advising, do the pitch competition, but as an advisor where you can help those companies and in becoming a known entity in those places, then you will start to see the pattern of deal flow. And the thing that I would really emphasize with the investor who’s looking at these regional investing is to say, what types of companies should be built where not every Silicon Valley has super deep, you can build almost any company, Silicon Valley, it’s deep in almost every skill type, but other places have specialties. Take Baltimore, for example, I got very involved in the Hopkins computer lab a thing called Fast Forward, where my partner Andrew Jones, and I who is with me in Fast, he’s the CEO of Acid. We’re spending a lot of time with local companies that were spinning up out of the Hopkins kind of engineering program had Fast Forward, and you become a known entity, you’re helping you’re meeting other super angels. And then eventually you find the talent that you’re looking for. And you say, you know what this idea matches the talent that’s available in this place with a you uniquely, right. So I think it’s really important to understand the talent that you’re going to be accessing as you grow that company around the problem. So if you have a great entrepreneur who’s got this great idea, and he’s trying to build it in a place that doesn’t have the talent to support it, you may actually have some questions about it. It’s a great idea. Why are you doing it in Cincinnati? Isn’t that talent actually in Cleveland, like they’re doing like a med tech thing, versus doing something a little more retail? So you do actually need to have some discerning understanding of here’s here’s the question I asked, here’s three questions I asked when I’m investing in anywhere, but really in the regional things is like, Why this? Why is this a problem that you want to solve? Why you? What do you uniquely bring to solving this? and Why here? The third question is not a question that you typically have to ask in Silicon Valley. Because it’s kind of understood. But if somebody is in Cleveland, and they’ve got an idea that this is what it is, and this is why I should do it. And then on the why here, they say, Oh, it’s because I kind of know people I’ve looked here before. Bad answer, the right answer is Chase Western has an incredible program that’s developing an innovation here, there’s three companies that are senior here, they’re gonna remind buyers, I’ve got an angel who’s like, there needs to be a strong why here. And if your founder can’t give you a strong why here, then you should probably question and maybe say, hey, go somewhere else and do it. But I think that maybe that’s helpful from an investor perspective, because I, I always worry about the second check, not the first check. Like we can get 500 to a million dollars together for a founder with a good idea, some traction, but who’s going to write the $3 to $5 million check? That’s always the question when you’re doing regional investing in somebody who doesn’t have a strong why here is either gonna have to move or they’re not going to be able to raise that next round. And that’s going to actually limit their success. So a couple laters there, I think, pretty informed with some experience. But hopefully that’s helpful.
Jay Clouse 22:05
When you talk about talent and regionally based and regionally specific talent. Isn’t engineering just engineering isn’t designed just design, like when you talk about talent that’s specific to a region, where where does that become really important?
Patrick McKenna 22:19
I think it’s important to think about what are the sources of this talent, right. So in the past, we’ve had forests, and we’ve had wells and we’ve had fisheries, we’ve had all these resources that were kind of location based. Well, in the knowledge economy, it’s the knowledge workers the talent, that is the critical resource that every investor in every entrepreneur is seeking. So then the question is, where’s the, where is that natural resource being generated? What’s actually being generated through the universities? Right? So the CMU talent flow, the Ann Arbor talent flow, the LSU talent flow, the University of Texas talent flow, those are are the sources of the knowledge worker talent? Right? So to answer your question is what expertise, unique expertise is being developed locally around those programs that will give you some specific edge. The one that’s probably the most well known from regional perspective is CMU and robotics and autonomous driving. Much like Silicon Valley is builds these knowledge networks of nodes where people are learning from each other and building build really the next thing and they’re kind of staying at the at the edge of each innovation. You can see that around CMU around robotics, machine vision, autonomous driving all these things. That talent sources evergreen coming out of CMU, those professors, there’s research programs. Now you have Uber and Argo AI, you have tons of companies that have been built around that they are coalescing and learning on an edge that other places will have a hard time competing with. So understanding. Take Baltimore, for example. A lot of people don’t think of Baltimore being like this. You know, edge technology plays but but Johns Hopkins is an incredible University. Any of the University of Maryland was just up the road, which is also an incredible University. And then you have very sophisticated buyers with the NSA. So you have cyber security, you have very sophisticated buyers, very sophisticated talent, that are kind of coalescing around say, cybersecurity or financial technology because you have T Rowe Price and Vanguards up the street and have late Mason and brown advisors. There’s a lot of legacy talent that’s sitting around these universities that give you some unique edge. And so the talent question when it comes to regional is to understand that unique talent that’s in different places are here in Cincinnati, P&G is generating a lot of unique talent around retail e commerce design, a bunch of stuff, and there’s companies that have been spinning up around that sophisticated buyer, which is P&G, which then gives unique potential for innovation. And so what I put a autonomous driving company in Cincinnati Probably not enough to make a really strong case for it, but something ecommerce design, there’s a bunch of things that would make incredibly positive as much like I mentioned Cleveland, doing stuff around medtech there’s clearly an ecosystem around it, that would give you some innovative edge.
Eric Hornung 25:16
So what does that mean for smaller communities like a, like a Tuscaloosa or a Missoula or something that’s, you know, like, where you’re from a 5000 person town, but probably isn’t as close to LA, they don’t have maybe the same competitive advantage of as a P&G or as a Cleveland or as a Pittsburgh. What does that mean for people who want to start companies there?
Patrick McKenna 25:39
It is harder. It is definitely harder. The second one when I think about smaller towns is they think the geographic region they’re in. So I’ve spent a lot of time in Youngstown, Ohio, which is kind of between Pittsburgh and Cleveland.
Eric Hornung 25:51
I’m sorry. I’m from Cleveland originally.
Patrick McKenna 25:55
I actually really like Youngstown.
Eric Hornung 25:58
Quite so do I yeah.
Patrick McKenna 25:59
And they have a Youngstown State, which is a state school there. And a lot of people don’t realize it, but a quarter of the students there are STEM, they’re really been producing the work the the workforce that’s been in the factories, you know, running machines, you know, you know, doing mechanical engineering, electrical engineering. So there is actually even in Youngstown, a core. Now Youngstown is missing out on a bunch of things. It doesn’t have great Airport has a low population, things like that. But it is nicely located about 45 minutes from the Pittsburgh airport, maybe an hour from the Cleveland airport, which puts it in a unique position. So my answer to that question is even small towns need to understand their strategic position. Do they have a school that is creating some version of talent? Do they have a location that puts them in MSA? Do they, you know, I think about it this way, you know, there’s four elements to either site selection or investing, right? So, one, there’s four, talent, cost of that talent. quality of life in that place, and access. And access the airports, high speed internet, office space, things like that. And so whether it’s Tuscaloosa or Pittsburgh, or, or San Francisco for that matter, or Seattle, we should all be thinking about how we fit on those, those four elements. Do we have the talent? What’s the cost of that talent? What’s the quality of life for the people who are living in that place? And what’s the access points, whether it’s an airport, the internet speed, or the office space, because all three of those of you keyboard parts have access?
Eric Hornung 27:35
As someone who thinks a lot about regions and cities, when you are making an investment? How much are you investing in the entrepreneur? How much are you investing in the company and how much are you investing in the city or region that they said.
Patrick McKenna 27:48
Investors are always very clear about your investing particularly early stage is the team. It’s an entrepreneur. And in regional investing, it’s even more so a lot of the challenges are redoubled with the original investing. An entrepreneur needs to be needs to be that much more charismatic, that much more resourceful, you know, to attract the talent. It’s harder to get somebody to leave a company and come work for you when nobody else in the town is doing it. Right. So they have a great job. They’re in Columbus working at JP Morgan in the IT department. Right? There’s not a lot of people know that there’s a huge resource in Columbus of super technical people working in finance, that you can access that talent but getting somebody like JP Morgan to come work at your your startup in Columbus is a lot harder than getting somebody to leave Charles Schwab in San Francisco, and come to work at your FinTech company down the street. Because guess what, the guy at Schwab, all his buddies left the last thing, and they missed out on something. So there’s a cultural dynamic, so that entrepreneur needs to be a great storyteller needs to be very charismatic, very clear, visionary leader, but then also like raising money, like you need to be able to get on a plane and go and tell a story in places that you don’t doesn’t have a, you know, a direct network. So I would say the entrepreneur and that founding team is more important even in the regional investing than it is in kind of traditional value investing.
Jay Clouse 29:11
Can you talk about the beginnings of One America Works, why you started it and what it is today.
Patrick McKenna 29:17
One America Work started from this notion that there’s talent everywhere. There’s everywhere. There’s talent everywhere, but the opportunity is not evenly distributed. So if you graduated from CMU Carnegie Mellon University in Pittsburgh, and you stay in Pittsburgh, same person, same backgrounds, same everything you stay in Pittsburgh, one stays in Pittsburgh, the other one moves to Silicon Valley, the person who moves to Silicon Valley has like a 10 x opportunity set, literally the same people. And I looked at that and said, wow, you know, what, can we come up with a solution that solves the two sided problem of access to opportunity? And then the other problem was access to talent. Right. We talked a lot about growing innovation. You know, companies that are growing, growing companies, whether they’re New York, LA, Seattle, San Francisco, they have the same problem. They need talent. They also need a lower cost. They there’s a whole bunch of things. And so but then the talent side, this this income, this this opportunity gap of the number of people that are in places that are not getting looked at by growth companies, I said, Well, that’s a that’s, that’s a problem that has a solution. And One America Works was that solution? They say, Can we imagine a world where growing companies find the talent they’re looking for in the cities that have historically generated the talent but haven’t had access to that opportunity? And then the question was, Why isn’t it happening? And how do we actually solve those problems? And so I looked at and I said, Actually, it is happening, but it’s not happening at a national scale. Right. I’m living in Austin. Austin is a great example of a city has done very well in this like office relocation. So Silicon Valley companies have now chosen Austin as an office location. So you have Google, Facebook, Apple, Oracle, all have big offices in Austin. Brinkley, Salt Lake has done quite well Denver, even Phoenix, for that matter. I’m talking about Phoenix earlier. And they said, Well, clearly, companies in the valley are open to opening offices outside of Silicon Valley. The question is, why aren’t they doing it more broadly? Why not in Pittsburgh, Cleveland, Columbus, Jacksonville, all these places, Milwaukee, places that actually have the talent. And so I looked at it from my own perspectives and entrepreneurs start talking to tons of other entrepreneurs. And it’s just you know, we all have this playbook. right there’s this this growth playbook you you NDP, you seed, you get your first customers, you show some growth, you get an A, you scaled, and you go to Austin, right or something like that. And I said, Well, why isn’t it happening other places and it’s really just a just a breakdown, right? If when I moved to when I opened an office in Phoenix, it wasn’t because I did once opened an office in Milwaukee, it’s just I didn’t know anybody there. I didn’t know the opportunities. And so One America Works, we designed this solution where we put people in Silicon Valley sway these reps. They are in Silicon Valley full time, they go around, talk to companies, VCs, and they find out who’s looking to open an office and say, Would you be open to us helping you find a city that has the talent you’re looking for? Sure. Then we go and talk to cities. And then we have the city coordinators, who are responsible for, you know, basically telling the story and kind of lowering the friction of getting access to the talent opportunity in the seats. Now, the step above that is where are the cities that actually are ready today to scale the teams. And that’s what we looked at the formula of talent, cost, quality of life and access. So what cities have that combination, and we started focusing on those cities, have coordinators in those cities and then we can make the connections And where companies are saying, Yes, I want to open an office. But I don’t know how to get started in Pittsburgh. We have a coordinator in Pittsburgh who will kind of receive that call an RFP, and then help them say, Hey, this is the kind of talent we have here. Here’s other companies like what you have, here’s how you can get started, and then help them recruit the team if they choose to come to Pittsburgh.
Jay Clouse 33:19
What I love about this model, I haven’t heard anything like it, you hear some companies that will make the point of there’s talent all over the place, we can help you find talented people and they can work remotely for your company. It’s fine to work remotely. You’re talking about actual offices, additional headquarters for companies that are based in the valley. So I’d love to hear from you. How many offices roughly do you think Silicon Valley companies are opening outside of Silicon Valley per year? And how big is a typical office? Are they hiring 50 people and starting there is it 10 people? What types of numbers do you know around that?
Patrick McKenna 33:59
It spans the entire spectrum, right? So starting at the highest level, we all remember Amazon HQ2. And.
Jay Clouse 34:05
Patrick McKenna 34:06
That was a theory that was a good idea. They were signaling that they could have done it anywhere. And I thought that was a good thing. In the end, the execution was a bit flawed, and it kind of backfired on them. And maybe it backfired on a lot of places. But the reality is, Amazon has thousand person offices, not just warehouses, but like offices and a lot of cities. You know, Apple has 5000 people in Austin, right? Like, that’s a big campus. Google is building a huge tower will be the tallest building in Austin. Google is building that in Austin. And they’re not doing it out of charity. They’re doing it because the talent that they need is here. Right? That is just a straight fact. The big companies seem to have the they have the resources, they have the insight. We have the capability to access his talent, more places, but it’s the midsize companies that actually don’t have the resources to do site selection don’t have the, you know, the resources, though there’s offices, I think that’s where the biggest opportunity is, right? That’s where if you’re a 200 person company in Silicon Valley, you need to, you’re competing in a knife fight with well funded public companies for talent in Silicon Valley, and you need that next leg, you need that edge. If you can find the talent you’re looking for in these other cities, you can then be the best best option for that high quality team and get them going in places like I said, Cleveland, Columbus, Pittsburgh, these are places that have the talent that companies are looking for. Now. It is definitely happening more on the high end, like the big companies, and I think the opportunity is for the midsize and growing fast growing companies to get access here. And I think that’s probably where One America Works has the most potential to help companies succeed.
Eric Hornung 35:01
Do you ever see it happening the other way? Like there’s a Silicon Valley companies that are moving to other offices, but are there companies in Cleveland that are coming to you In saying, Hey, we want to office in Silicon Valley.
Patrick McKenna 36:02
We haven’t been approached for an office in Silicon Valley, we have definitely been approached for helping recruit talent, individual workforce in Silicon Valley to move to some other city. So there are companies that are there are some talent types that are really hard to source anywhere like Product Manager, very difficult, very, very difficult in Silicon Valley has some of the best product managers in the entire world. It’s a real secret to success is so many companies. But if you’re Duolingo, and you’re in Pittsburgh, and you have an amazing business with a great founder, great technology, your short product managers, and Duolingo. I mentioned that because they famously put a billboard up on the one on one that said, you know, buy a house move to Pittsburgh and and they were recruiting people. And so we had definitely talked to companies about them doing direct outreach to talent in Silicon Valley to move to, to their growing companies in outside outside the valley.
Eric Hornung 37:04
You said before that you need to have one foot in the valley and one foot out. Do you think that the mid sized companies outside of Silicon Valley are missing out by not also being in Silicon Valley,
Patrick McKenna 37:14
There’s a chance, there’s a chance, the thing that I see companies that you’re referring to make the mistake of is that they’re solving a problem that was already solved. And a lot of times, because the valley is moving at such a high iteration, literally a month or two months different, we may have already, you know, gone past that problem now for the next problem. And not knowing that not knowing that little Rosetta Stone of a solution could set you back a lot. And so the nice thing about where we are today is you can actually access a lot of that innovation through the internet. Like you can follow the right blogs. You can follow the right people to hear what’s going on develop a network of other founders of getting an investor who’s based in the valley who’s is well connected to help pull your senior team in to do like quarterly CTO conferences and things like that where you can hear what’s going on. These really do matter. And we do. I’ve done them with all my companies, but we try to get our technical teams especially plugged into kind of networks in Silicon Valley. The truth is that those technical networks are already global. They’re already operating between, you know, London and Berlin and Shanghai, and you know, Bangalore, and so there is already a culture of collaborating a company in Cleveland needs to realize that they can access that and find those access points doesn’t mean they necessarily need to have a physical presence in Silicon Valley. But they need to be thinking about is the problem that I’m trying to solve, already solved somewhere else, because I’m always saying to people, like, why this, like, is this problem still need to be solved and why are you uniquely set up for it? If they know that their problem hasn’t been solved, they should find the cloud computing stuff, the security stuff, they should find the collaboration tools, all that massive scale platform infrastructure that Silicon Valley is so good at. Don’t rebuild that stuff in Cleveland, do your edge piece, you know, do your computer vision that’s gonna make the the drone platform, you know, that much more efficient. Don’t rebuild the drone platform, like there’s a bunch of operating systems that you can operate on. And then you can just put your piece on top of it. So it’s a great question. I think there’s a lot more ways to do it. And I think it’s cultural and mental rather than physical in that case,
Jay Clouse 39:31
At this point in the lifecycle of One America Works. What are some of the cities that you’re seeing as rating high on these four levers of talent, costs of talent, quality of life and access the companies that are coming to now in the valley? What are some of the cities that you’re having them take a look at most frequently?
Patrick McKenna 39:49
Right, so we’ll put it in three kind of big buckets. There’s those who have already kind of proven that they’re good destinations. And I mentioned those is Austin, Salt Lake Denver. Those are pretty well worn paths. And then we have like our call it heard super hubs like these regional hubs that would be like Phoenix, Chicago, Atlanta, Phoenix is pretty well known as a pretty good path to Phoenix. We’re seeing a lot more people interested in Chicago and Atlanta. But how to access those markets are, it’s still not well understood. So we’re building some resource capacity on helping companies access both of those. And then there’s the we call the new cities to the playbook that would look a little bit more like Austin or Denver. And this is where you get Pittsburgh, Columbus, Indianapolis, Nashville, Raleigh, Durham. Those are places just gave you a pretty good list there Kansas City that have really good answers to the four questions, but have not historically been accessed by Silicon Valley, or growth companies in general. And I should just say here, it’s not just Silicon Valley. That’s a shortcut for sure. innovative and tech companies, New York City. has been, is has the same problem, right? It’s very expensive there and you have some incredible high quality talent that have very unique skill sets. But when you start scaling a team, it’s hard to put three, four or 500 people together in the West Village, right? It’s just really hard to do. So New York companies have also caught on to the One America Works theme. And particularly like with Pittsburgh, it’s a lot of direct flights. It’s east coast. You know, Columbus is also very easy to get from New York as well. So when I’m talking about kind of Silicon Valley, there’s a Silicon Valley style company that also exists outside of Silicon Valley that would benefit from this, this model.
Jay Clouse 41:36
To kind of go full circle to where we started this conversation with those three layers of different types of cities. My gut would tell me that if I’m a company looking to set up a new headquarters, looking at quality of life, cost of talent, access. Those all seem fairly similar for a lot of those cities. How often is this come down to the knowledge workers we were talking about versus one of those other three levers.
Patrick McKenna 42:04
When it comes, it comes down to, in the end how comfortable the team is that they can recruit the people that they’re looking for. It really comes down to if you’re assessing between Pittsburgh and say, Indianapolis, they’re a little further apart than Columbus both have incredible cases to be made for why you should go between those two, they do have a slightly different talent pool and a different set of companies that success points, those would dictate which city a company would choose. Now, there is another element says the human element and the quality of life question is one that is a little bit company determinant. Right. Some companies might say, you know what. Austin is cool. I can see us doing Austin, Indianapolis. I just can’t imagine it. Right. Where somebody said you know what, Atlanta it’s, you know, it has its has an urban feel to it. It’s kind of has a bigger by has professional sports and stuff like that. So they might see themselves in Atlanta versus say Pittsburgh. And so there is a human element to the quality of life question that in the end, you have to. Here, I’ll leave you with this example that really does define it a bit. So you have this growth company 200 people, you’re raising your see $25 million round CEO, it’s announced publicly CEO gets in front of the company and says, Hey, great job, everybody. We’re growing. We’re going crazy. We got $25 million growth. And good news is we’re opening a second office. Everybody’s all yours. Right? Answer one. The office is New York City. Awesome. New York. Love it. Paid trips to New York. I don’t really want to live in New York, but I love that we’re going to be there love to go check it out. Answers you, Austin. Wow, awesome music fun, all this kind of stuff. Low cost like I would move to Austin like senior teams leaders would actually removed off the ability to scrape number three, put your city in the answer the CEO makes that announcement to the company. And imagine what the company is going to say about that answer. And that will dictate whether the quality of life has met the bar. This is really important way to think about it. I say that when people say Pittsburgh At first, they might say I’m not sure about it, but when they look closely, professional sports, great housing, East Coast time zone, like there’s a bunch of stuff that makes Pittsburgh for example, a really great option in Columbus. If you take a little closer to university town, it’s like there’s actually a lot of cool stuff too. It’s a bit suburban if you’re in a suburban versus being a little bit more urban. And there’s a there’s a value to it that people would say, Yeah, I get that. That’s really cool. And you can then put Nashville you can put other cities in and you can see that story working. You can run the same, that same scenario with other cities. And if your answer if you’re a city and you don’t have a good answer for. Yeah, that makes sense. You need to think about how you change that.
Jay Clouse 42:58
It’s been awesome, Patrick, if people want to learn more about you or how they can get involved with One America Works, where should they go after the show?
Patrick McKenna 45:07
Oneamericaworks.work, love to have you sign up for our newsletter, let us know if you want to bring your city bring us to your city or tell us about your city. We’d love to learn more.
Eric Hornung 45:20
All right, J, we just spoke with Patrick from one America works. What worked for you in that interview?
Jay Clouse 45:28
I like this model. I think it makes a lot of sense. I think this this model, and this idea focuses on a very core human truth, which is we don’t know what we don’t know. But from the outside, we often assume people have a lot of information or perfect information. So if I’m a company in Silicon Valley, and I’m looking for a second headquarters, it makes a lot of intuitive sense to me. To Patrick’s point that I’m probably really only aware of some of the cities that are nearby that maybe my friends have opened offices in and in blissfully unaware of some of the benefits of some other major emerging cities across the country that could be much better fits. I love that. We didn’t get talked much about the financial model behind One America Works and how its funded. It’s a nonprofit. But I also like that about this. I think it’s a good thing for the country. I think it’s a good thing for companies, I think it’s a good thing for cities. It seems like one of these win win win opportunities that genuinely lifts all boats.
Eric Hornung 46:28
I think we see it on Upside, at least happening in reverse. I think about Blake Lawrence, who’s in Nebraska, but then he spends most of his time in New York because that’s where the front facing side of the business needs to be. But his entire team is in Nebraska. So I think this idea of geographic arbitrage is just like really smart for a company to do. Like I think about Long Guru and how they moved Tan Arbor, from Silicon Valley because people in Silicon Valley just didn’t understand lawns, but what if they needed capital? I know those guys don’t, because they have their own lawn care service that’s making the money that funds them. But if they did, they could live in Silicon Valley part of the time or have a front facing office in Silicon Valley for their fundraising experience and have their core business still be in the Midwest. So I have to imagine that there’s a lot of companies in Silicon Valley that have a city that maybe they just don’t know has a superpower in the thing that they’re doing, where they could have a huge incremental benefit just from being in that city, whether it’s consumer packaged goods in Cincinnati, or pet health is in Kansas City. I think just a lot of like, cities that are vertically focused on things where companies can benefit dramatically just by showing up in that city.
Jay Clouse 47:49
One of my favorite parts this interview, Eric was asking him to, on the spot, ranked some cities for us, which is something that we do kind of for fun on the show. You mentioned good destination of Austin, Salt Lake in Denver, some of the regional super hubs of Phoenix, Chicago, in Atlanta, in new cities to the One America Works playbook of Pittsburgh, Columbus, Indianapolis, Nashville, Raleigh Durham in Kansas City that tracks pretty well with what we hear generally on the show, which also makes me begin to think, are we right? And is everybody right? Or are we just all starting to circle around the same thing and come to a consensus?
Eric Hornung 48:25
Yeah, like, what’s the what’s the non consensus pick right now? that’s actually going to be the right answer. Yeah. Or is, is this a scenario where consensus is right, because it’s just a numbers game. So when everyone says Austin’s the new place, that Austin just becomes the new place because everyone moves to Austin, because it’s the new place, right? Like it’s a Is it a self perpetuating cycle? Or is it everyone look over here, but this is where the real action is happening? I don’t know the answer to that. What I do know is that his answer to those city ranks is very in line with what we talked about with other investors and entrepreneurs on this podcast.
Jay Clouse 49:05
I’m excited to see the first company that gets placed in Columbus through One America Works. I know that our city would welcome that. It’s a priority to try to bring in different companies that can both bring town and keep talent and grow talent. So I think it’s I think it’s a great idea. We’d love to hear your thoughts in this episode. You can tweet at us @UpsideFM, or email us Hello@upside.FM if you have something a little bit more longer form to a disagreement or a city that you think is not in that playbook that you think should belong, tweet at us and let us know. Otherwise, we’ll talk to you next week. That’s all for this week. Thanks for listening. We’d love to hear your thoughts on today’s guest. So shoot us an email at email@example.com or find us on Twitter @upsideFM. We’ll be back here next week at the same time talking to another founder and our quest to find upside outside of Silicon Valley. If you or someone you know would make a good guest for our show, please email us or find us on Twitter and let us know If you love our show, please leave us a review on iTunes. That goes a long way in helping us spread the word and continue to help bring high quality guests to the show. Eric and I decided there were a couple things we wanted to share with you at the end of the podcast. And so here we go. Eric Hornung and Jay Clouse are the founding parties of the upside podcast. At the time of this recording, we do not own equity or other financial interests in the companies which appear on this show. All opinions expressed by podcast participants are solely their own opinion and do not reflect the opinions of Duffin Phelps LLC and its affiliates on your collective LLC and its affiliates or any entity which employ us. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. We have not considered your specific financial situation nor provided any investment advice on this show. Thanks for listening and we’ll talk to you next week.
Interview begins: 7:40
Debrief begins: 45:20
- Why the valley as the headquarters? ( 10:50)
- Working in and out of the valley (14:53)
- Getting started in terms of location (18:10)
- Talent Resourcing (22:05)
- Four Elements in investing (26:00)
- Regional Investing (27:35)
- One America Works (29:17)
- High rating cities (39:31)
Connect with Patrick: Twitter
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