Case Western Reserve University professor Michael Goldberg argues Cleveland offers a better business model than Silicon Valley for cities hoping to join the new economy. Watch video
CLEVELAND, Ohio -- During a recent Fulbright year in Vietnam, Michael Goldberg, an entrepreneurship instructor at Case Western Reserve University, shared American business strategies with a nation of mom-and-pop shops hungry to do more.
Can you help us grow a new economy, government ministers asked him. Can you show us how to be Silicon Valley?
No, I can't, Goldberg said. But have you heard of Cleveland?
As Goldberg described a hardworking manufacturing city, one that finessed its way into high tech fields with little help from venture capitalists or angel investors, the Vietnamese began to see a place they understood.
Word of a DIY start-up scene spread to other striving cities in nations that had looked longingly toward California. Goldberg's premise, that Cleveland offers the more realistic business model, is gaining followers like a kind religion.
In March, he's off to Budapest, Hungary, with a group of graduate students to talk strategy with a business incubator. In June, Greece beckons. An Athens university wants to translate his lectures into Greek. Meanwhile, he's been advising a start-up accelerator in Kigali, the capital of Rwanda.
"There's no angel investment happening in Vietnam," Goldberg said, trying to explain the rising interest in his work. "In Turkey, they're like, 'Venture capital would be a great thing. We don't have enough. What did Cleveland do?'"
Michael GoldbergSomething remarkable. By finding its own way into advanced industries, Cleveland pioneered innovation strategies that might work for cities around the world.
Confronting a Quiet Crisis
The Health Tech Corridor radiating from University Circle, the business incubators around town and the burgeoning start-up scenes in PlayhouseSquare and the Warehouse District, all are recent additions to the local economy.
A little more than a decade ago, Cleveland ranked near the bottom of Entrepreneurship magazine's annual rankings of Hot Cities for Entrepreneurs. There was no capital for new ventures and trouble was brewing.
The Plain Dealer detailed the city's fading manufacturing base in a series it called "A Quiet Crisis," which helped galvanize business and civic leaders into action.
Michael Goldberg teaches an entrepreneurial finance class at Case Western Reserve University on Thursday"We were too dependent on our past," said Baiju Shah, then a McKinsey consultant and now the chief executive of a pharmaceutical start-up. "It wasn't just that we needed a new economy and new industries. We needed to do a culture change to entrepreneurship."
From that epiphany emerged JumpStart, BioEnterprise, NorTech and other business development agencies focused on stoking high-tech and scientific companies by pooling available resources.
Help came from the Statehouse. Former Governor Bob Taft and his science adviser, Frank Samuel, created the Third Frontier program to invest in cutting edge research and to support entrepreneurs. Philanthropies united behind The Fund for Our Economic Future, which matched Third Frontier grants and developed new business strategies.
The results are eye-opening. Three business accelerators stir in a region that once had none. A community of angel investors has grown up around local entrepreneurs whose expertise is compelling. In 2012, Cleveland's biotech industry attracted $226 million from venture capitalists, besting Minneapolis and Chicago.
Goldberg sees a government-foundation partnership that filled a void of capital and entrepreneurship and nurtured a new economic ecosystem, one still evolving. He calls it the Cleveland case study.
"We've had to be really creative," he says. "Is it all working? You can't judge this intervention after 10 years. It will take a while. Maybe some fatigue has set in. That's part of the story, too."
Critics say the government had no business helping to launch businesses that could not grow naturally, and Goldberg says that's a reasonable argument. But what if that natural growth was not happening?
Around the world, "Everyone talks about Silicon Valley," he said. They hear of investors showering millions on start-ups that sell for billions a few years later and they want the same economy. But it's not practical or possible for most cities, he argues.
That's a perspective he learned in adventurous style, sampling the startup scene from Cleveland Heights to Tel Aviv to Hanoi.
Learning to loan to strangers
Goldberg, 44, a married father of three, grew up in a banking family and started an investment fund that focuses on Israeli start-ups. Recently, he was named a visiting assistant professor at the Weatherhead School of Management.
He was teaching courses on entrepreneurship at CWRU in 2011 when he was awarded a Fulbright scholarship to teach at Vietnam's National Economics University in Hanoi. He took the family.
In Vietnam's bustling capital city, he said, he met business enthusiasts who dreamed of Silicon Valley-scale innovation but were hopelessly outclassed. The nation did not have the capital, the entrepreneurs or the deal making culture to support an innovation economy.
"There was no tradition of loaning money to strangers," he said. "But in 2002, we didn't have that either."
He told his hosts about how his hometown fostered a start-up culture and they kept asking to learn more. They're still asking.
"With Cleveland, I see similarities," Hiep Hoang, 39, said in practiced English. She works for the Vietnamese National Agency for Technology Entrepreneurship and Commercialization. Right now, she's at Babson College in Boston, studying for an MBA. She plans to take her degree back to Hanoi and manage a government innovation fund started with help from Denmark.
"The private sector, the finance market, it's not developed in Vietnam," she explained. "It's very difficult for the startups to find capital. It's important to have another player in the innovation ecosystem. Vietnam can learn from Cleveland."
A continent away, Jovani Ntabgoba echoes her views. He runs kLab, a business incubator offering desk space, Internet connections and mentoring in Kagali, Rwanda's largest city. He connected with Goldberg on LinkedIn and converses with him via Skype.
Rwanda sees venture capitalists only if they drop in from the U.S. or Europe, Ntabgoba said by email. He wants to start a seed fund for local tech entrepreneurs "to sort of kick start promising ideas."
He says he got that and other ideas from Cleveland.
A class for the world
As Ntabgoba spreads the word in central Africa, Goldberg is getting ready to address a wider audience. In April, he'll teach an online course called "Beyond Silicon Valley: Growing Entrepreneurship in Transitioning Economies."
The class is being offered through Coursera, a company that provides online platforms to colleges for Massive Open Online Courses, or MOOCs. So far, more than 2,500 people from around the world have registered for Goldberg's class.
He is designing it with help from Lisa Delp, the former executive director of the Third Frontier and now director of Innovation Fund America at Lorain County Community College. Not every city has a venture capital pool to tap, Delp says, and that's OK. "Every community has resources and assets they can use."
The pair plans a different format than most MOOCs. Instead of hearing Goldberg lecture, students will hear Cleveland entrepreneurs describe their companies and how they started them.
Through the magic of video and the Internet, they will meet people like Tom Lix, who came to Cleveland from the East Coast and launched a company he says he had little hope of starting elsewhere. Lix founded Cleveland Whiskey, which uses his patented, fast-maturing whiskey process to age and bottle bourbon. In the maiden year just finished, he sold 50,000 bottles.
Lix credits more than skill and hard work for his initial success. The distillery commands space in an incubator run by MAGNET, the nonprofit Manufacturing Advocacy and Growth Network. He received business advice from JumpStart. And the LCCC Foundation Innovation Fund got him started with a $25,000 grant.
Now he employs 12 people and he's looking for more space.
"When we move, we're definitely staying in Cleveland," said Lix, 61, an experienced entrepreneur from Boston. "I was surprised at the reception they gave to a very early stage company. I haven't seen that before."
Neither has most of the world. But they soon may.
Robert L. Smith covers economic development for The Plain Dealer. Follow him on Twitter @rlsmithpd.