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How years of wealth weakened Alaska's spirit of innovation

  • Author: Charles Wohlforth
    | Opinion
  • Updated: January 18, 2017
  • Published January 18, 2017

Alaska's decades of oil wealth atrophied our capitalistic muscles. Our business culture needs to learn risk-tolerance and aggressiveness to compete in America's innovation economy.

I came to this conclusion after asking eight successful innovators, investors and business experts why Alaska doesn't have more stories like Triverus, the Palmer startup I wrote about in my last column.

My visit to Triverus convinced me that high-value manufacturing is profitable in Alaska, as the company imports raw metal and exports unique machines to clean aircraft carriers for the Navy. Investors say there is plenty of money for good ideas and inventors are busy.

If Alaska's business people have the money, opportunity and ideas to create new industries, why aren't they doing it?

To some extent, they are. This decade has seen more Alaska startups. Facilities and support are in place to help them. Various inventors have contacted me and I know some are making good, especially producing outdoor recreation gear and after-market parts for aircraft.

But these are small potatoes, even in our tiny Alaska economy. And development is slow.

Investors who want to put money into growth-ready innovation companies can't find them. Plenty of people have ideas, but few are prepared for the next step after the seed germinates.

"My partners and I have met with more than 60 startup companies," said Jamie Kenworthy, of the 49th Fund, an investor group. With $4.4 million to spend, they have closed only one deal in two years.

"There are plenty of good ideas. There are not the business skills to execute on that," Kenworthy said.

Startup experts explained that creating a great new product is just the first step in starting a successful company. Ideas become profitable only when managed with skill in business growth. In Alaska, those skills are in short supply.

Half of Kenworthy's investment kitty came from a 2010 federal jobs bill that distributed money to the states for equity investment in growing companies. Gov. Sean Parnell's administration didn't apply for Alaska's share, so Anchorage did, becoming the only city with a federally funded angel investment fund.

Mayor Dan Sullivan hired Joe Morrison to get the city's $13 million allocation on the street. Morrison set up the 49th State Angel Fund, by 2014 putting the money in four investor funds that each put up a private match of at least a 50 percent. Then he left.

This week, Mayor Ethan Berkowitz hired Morrison back. Only $1.4 million of the federal money has been invested in businesses (not counting matching dollars). Morrison will work with the investors, or remake the entire program, to get it moving.

Investors say the primary problem isn't a lack of education among business people, although some cited a need for a greater emphasis on tech and innovation at the University of Alaska Anchorage. The deeper issue is that Alaskans haven't had to compete as businesses do in other states.

Plenty of Alaska businesses compete for contracts with oil companies or the government, but that's different from creating new products and selling them outside Alaska.

As the national economy changed in recent decades, with new fortunes being made on risky investments in innovation, Alaska's economy coasted on money brought in by huge public corporations — oil and mining companies, cruise lines, air cargo carriers and fish packers — plus the military and government.

Human capital is lacking. Until the recent downturn, skilled young people in Alaska didn't need to start companies. High-paying jobs were plentiful in the oil patch, at the Native corporations, and on state and federal payrolls.

"The risk capital environment in Alaska is almost nonexistent," Morrison said.

H. Ky Holland grew up here, left for 20 years to work in business in Oregon and California, and returned. He teaches business management at Alaska Pacific University, runs an investment seed fund, and has two startups.

Holland said Alaska has a lifestyle economy — others in the field made the same point — in which people want to make enough money to support their fishing and skiing, but may not have the ambition for more. On the West Coast he saw fierce passion to compete.

"Alaska doesn't wake up in the morning thinking that way," he said. "We think about what is the state budget and is the price of oil up or down. We don't think about how we can be more competitive globally."

A lot of people are working to build an innovation culture in Alaska. Besides the money for startups, various programs offer mentorship and training, peer-support and space to work. Sponsors hope to build a community of entrepreneurs large enough to become self-supporting.

Advocates of this work hope it will diversify the economy and prevent Alaska from depopulating.

I'm skeptical. The bonfire warming our economy is going out. This effort is like rubbing sticks together to make a spark. It's needed, but the initial flame will be small.

When innovation powers an economy, a great university is usually nearby, said Palmer engineer and author Alex Hills. He built the first Wi-Fi network, technology he put into two successful startups, while working at Carnegie Mellon University. That university helped turn around the Pittsburgh economy.

"In the early stages you have to really pull these creative people in, and it's always a challenge to find them," he said. "I think we'd be kidding ourselves if we thought this stuff was going to turn around the Alaska economy. It's not. It takes time."

But Holland said innovation doesn't only happen at startups. Existing businesses need to become more aggressive and competitive too, reaching out to new markets and pursuing new ideas rather than hunkering down.

"A lot of our current business leaders, who have been around a long time, they've made a lot of money, and their approach right now is to sit back," he said. "Do you really think there's going to be a recovery? Is somebody going to fill up the pipe? Is oil going back to $140 a barrel?

"I want our Alaska businesses to grow our way out of this situation, not wait."

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