Charlotte, N.C.: Behind the Curve in Innovation?

Charlotte’s decades-long growth surge has largely been built on big companies in highly regulated industries. In a city sometimes called “Bank Town,” small, nimble tech companies and other innovators just aren’t popping up.

by Ely Portillo, The Charlotte Observer / March 29, 2016
The Hearst Building in Charlotte, N.C. Flickr/William Froberg

(TNS) -- Compared to similar cities, Charlotte is behind the curve on innovation, entrepreneurship and investments in startup companies.

That’s the conclusion of the first Charlotte Entrepreneur Growth Report, a new study being released Monday by a group of local business leaders and entrepreneurs. The study found the Charlotte region has a thriving core of high-growth companies with billions in revenue. But it lags behind similar cities in the amount spent on research and development and new business formation.

One example: If people in Charlotte started companies at the same rate as people in Austin do, Charlotte would see an additional 700 new businesses a year founded in the region.

Part of that is because Charlotte’s decades-long growth surge has largely been built on big companies in highly regulated industries: Think Bank of America and Duke Energy. In a city sometimes called “Bank Town,” small, nimble tech companies and other innovators aren’t what come to mind when people think of the business community.

“We were the Rodney Dangerfield of the business community in Charlotte. Got no respect,” said Dave Jones, founder and CEO of Peak 10, a Charlotte-based information technology infrastructure company. He is presenting the results of the report Monday to Charlotte City Council. “But the reality was, we never beat our chests. We never communicated anything.”

The report, a collaboration of the city-backed Charlotte Regional Fund for Entrepreneurship and other local groups, is the second in two weeks to highlight Charlotte’s deficiencies in entrepreneurship. A Brookings Institution study released last week by Central Piedmont Community College also found Charlotte is lagging on key measures such as patents and R&D spending, compared with peer cities.

Advocates say the latest report points to the need to invest more in Charlotte’s universities and attract entrepreneurs who will start the next generation of fast-growing companies. They caution that Charlotte can’t rely on its traditional big businesses to succeed forever, especially as disruptive technologies continue to reshape the economy.

Paul Wetenhall, president of Ventureprise at UNC Charlotte, recalled watching companies such as Kodak and Xerox decline while he was working in Rochester, N.Y.

“Even when you have iconic companies that look like they’re going to do this forever,” he said, holding up his hand to show rapid growth, “the day comes when those big companies, either due to a technical change or market conditions, they go in a direction you don’t want to see.”

The study concludes: “In the short-term, Charlotte needs more startups and higher-potential innovation-based startups.” Among the key findings of the Charlotte Entrepreneur Growth Report:

  • The 248 “young, innovative” companies that responded to the group’s survey reported total revenue of $1.3 billion in 2015, on par with major Charlotte firms such as Coca-Cola Bottling. That’s important to highlight the combined size of a sector that might otherwise look small and fragmented, advocates said.

“We’ve never had a way to really congeal, connect all this and make it more visible,” said Terry Cox, president and CEO of the Business Innovation and Growth Council.

  • Charlotte is far behind other cities in academic funding for research and development. The $40 million of academic R&D funding in Charlotte in fiscal 2013 was by far the lowest among benchmark cities. At $17 per capita, that’s a fraction of second-lowest Kansas City ($137 per capita) and third-lowest Tampa ($163 per capita). Research Triangle Park has $1,174 per capita in academic R&D funding, while Atlanta has $269. One major reason: Charlotte lacks a medical school, which would be a magnet for federal grants, the largest source of R&D funding.
  • The amount of venture capital that young firms receive in Charlotte is “shockingly low.” From 2011 to 2014, Charlotte averaged $3 of venture capital investment per capita – again, a fraction of the second-lowest benchmark city, Tampa, which received $18 per capita. Atlanta received $70 per capita worth of venture capital funding, while Research Triangle Park got $119.
  • The average number of patents issued each year from 2011 to 2013 in Charlotte was 388. That’s ahead of Nashville (220 patents) but well behind the other benchmark cities such as Atlanta (1,919 patents) and Kansas City (821 patents). There were 1,870 patents issued each year on average in Research Triangle Park and 2,600 in Austin.
  • Charlotte ranked 25th among the top 40 metro areas in the U.S. for new business formation, similar to Kansas City. The city’s share of new businesses is lower than would be expected, based on population.

“If we started companies at the same rate as Austin, which is on the high end of that list, we’d have 700 more startups in metro Charlotte each year,” said Wetenhall. That figure would include both high-tech startups and more mundane companies, such as dry cleaners.

“You’d expect a high-growth city to be at the top of the list,” Wetenhall said. “(Business formation) is not here to the degree it is in other cities, and we can’t sugarcoat that. We’ve got great entrepreneurs and there’s a lot of activity, but there’s a lot less than you find in other cities we benchmarked.”

In response to the report, Charlotte city staffers plan to facilitate a one-day “Solution Design Sprint” in April to design a strategy to address needs raised in the report, which was created by Ventureprise, the Business Innovation and Growth Council and UNC Charlotte’s Urban Institute.

“The positive I take away from that is consistent growth” of the entrepreneurial community in Charlotte, said Jones. “The opportunity now is to set that strategy.”

©2016 The Charlotte Observer (Charlotte, N.C.) Distributed by Tribune Content Agency, LLC.

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