2016 Tulsa State of Entrepreneurship
Presented by Natalie Deuschle, Elizabeth Frame Ellison & Meredith Peebles of the Lobeck Taylor Family Foundation
The dictionary defines “entrepreneur” as a person who organizes and manages any enterprise, especially a business, usually with considerable initiative and risk. Under this definition, Chris, a chef who spent years perfecting his cherry pie recipe and is finally ready to open his first bakery featuring homemade pies is an entrepreneur, as is Hillary, the engineer at the University of Oklahoma who just filed patents on a technology that tests for Alzheimer’s disease. In fact, this definition seems to encompass any business owner (and even some non-business owners) and since entrepreneurs like Chris and Hillary need very different kinds of help, some experts have chosen to further classify entrepreneurship into two categories: Small to Medium Enterprises and Innovation Driven Enterprises.
Chris’s bakery is an example of a Small to Medium Enterprise (SME) characterized by the smaller, regional market he serves with traditional business ideas and limited competitive advantages. Chris will succeed if he can properly develop his business model and pricing, and if there is demand for his baked goods. If he’s successful, Chris may hire employees and even open additional locations in the region. SMEs are the lifeblood of Tulsa’s economy and creating SMEs is critical to moving people out of unemployment, especially when the economy suffers. These jobs are particularly important for individuals with relatively low levels of education and skills, although SMEs also do create a small number of jobs for skilled professionals. “A form of self-employment, SMEs give people the opportunity to work independently and use their skills, particularly in times when large, established companies are laying off workers. On the other hand, SMEs are, as their name suggests, small! Many SMEs in the United States and Europe only employ a founder and a spouse, or just a handful of workers.”
Hillary’s Alzheimer’s test, on the other hand, is an example of an Innovation Driven Enterprise (IDE). Although Chris’s decision to open a bakery is moderately risky, Hillary’s business is highly risky and chances are that (like so many high-tech entrepreneurial startups) she will fail, creating no jobs at all. On the other hand, if she succeeds, she will create tens to hundreds of jobs for PhDs and master’s-level graduates in chemistry, engineering, and business. She also might create manufacturing jobs and sales jobs around the world. Unlike Chris, Hillary must think globally and work to create a competitive advantage for her innovation that will take it worldwide. Hillary’s potential economic impact is much larger than Chris’s, but her likelihood of success is also much lower.
Both SMEs and IDEs are vital components of a healthy and flourishing entrepreneurial ecosystem, but they cannot be treated identically. While Chris needs mentorship, advice and access to business coaching and a small amount of startup capital before he has potential to realize gains, Hillary likely will require greater investment to develop her competitive advantage and access global markets at scale. External capital is a mainstay of IDEs when compared to typical SMEs. External capital can be venture capital, but today’s market-savvy IDE entrepreneurs also are using angel funds, strategic partners, crowdfunding and other sources of external capital. Hillary’s needs revolve much more around early access to capital and global access to markets. IDEs have the distinct advantage of creating high level jobs and auxiliary employment for those with lower skills. Beyond the immediate jobs they create, as Enrico Moretti has argued in the New Geography of Jobs, IDEs have a job multiplier effect, creating five jobs for every direct IDE job. In Massachusetts, the Biotechnology Council calculated that for every biotechnology job created directly by a biotech-focused IDE, five auxiliary jobs are created.
However, since the risk is so high, Hillary is less likely than Chris to succeed in providing any jobs at all. Thus, while it is important to support IDEs because of their potential for the creation of hundreds of direct jobs, it is just as important to support people launching and growing SMEs because their likelihood of success is much higher, and supporting fifty SME entrepreneurs like Chris could equal the same amount of job creation with less risky capital investment than an IDE business like Hillary’s.
SME entrepreneurship matters in Tulsa because small and medium sized businesses have an outsized impact on our local economy: the majority of Tulsa businesses, eighty-four percent in fact, are small, local businesses with fewer than ten employees. That amounts to 44,000 businesses that add $4.9 billion of gross product to the economy, provide over 100,000 primary jobs and add $1.8 billion to our city’s payroll every year. Tulsa has seen several SME victories in businesses like the McNellie’s Group: a restaurant company that started as one pub downtown in 2004 and now has expanded to over a dozen locations in Oklahoma and Arkansas. Consumer Affairs is one IDE in Tulsa that has experienced great success, growing to 180 employees and expecting to add fifty to one hundred more in 2016. Nurturing our small businesses as they start and expand is vital to maintaining and expanding SMEs, and creating a more cohesive entrepreneurial ecosystem by breaking down silos, increasing collaboration and developing strategic partnerships between colleges and universities and entrepreneurs will to pave the way to increase support for IDE entrepreneurs.
2016 ushered in big changes for Tulsa’s entrepreneurial ecosystem that supports both SMEs and IDEs. January brought the grand opening of both 36 Degrees North, a physical space for entrepreneurs and providers of support resources to convene in Tulsa, and Kitchen66, an incubator for food entrepreneurs with rentable commercial kitchen space. Both of these spaces only served to further the city’s growing entrepreneurial culture and increase the cooperation among entrepreneurs and the services that exist to help them. Because of this increased collaboration, more entrepreneurs are availing themselves of support services, attended workshops and networked with one another. More entrepreneurs than ever are attempting to raise money to fund their startups, while investors are increasingly seeking ways to invest in homegrown, early stage companies.
At the same time, broader economic factors have also encouraged new entrepreneurial activity. Fear of losing stalwarts of Tulsa employment like Williams Company by acquisition or bankruptcy and the continued decline of the oil and gas market made Tulsans think long and hard about taking advantage of our assets as experts in advanced manufacturing and our ideal geographical location in the center of the United States. This will hopefully serve to advance business to business testing and allow for collaboration between large, established corporations and beta testing startups. Tulsa elected a new Mayor in June whose campaign affirmed his commitment to supporting startup culture in Tulsa. All in all, Tulsa has taken several positive steps to grow our entrepreneurial ecosystem in 2016.
The Lobeck Taylor Family Foundation is pleased to present its annual State of Entrepreneurship Report, a reflection on the progress and goals for the Tulsa entrepreneurial community. As a way to track progress year over year, the report follows the eight traditional domains of an entrepreneurial ecosystem identified in the first report, including: Physical Infrastructure, Promoting Culture, Support Services, Human Capital, Finance, Access to Markets, Research and Development and Policy. Within each domain, the report will highlight progress made, opportunities for improvement, and where appropriate, best practices from around the country, for consideration.
In January 2016, 36 Degrees North opened its doors as the basecamp for entrepreneurship in Tulsa. The ceremonial coffee mug toast on January 25th between 36 Degrees North founders: the George Kaiser Family Foundation, Tulsa Regional Chamber and Lobeck Taylor Family Foundation and the newly named Executive Director Dustin Curzon represented more than a collective partnership welcoming entrepreneurs home. It was a celebration of a completed call to action from the 2014 State of Entrepreneurship Report that recommended Tulsa should “consolidate efforts to build a mixed-use facility” for entrepreneurs complete with not only coworking space, but also classrooms and conference rooms. In ten short months, 36 Degrees North has welcomed over 4800 unique visitors through its doors, hosted more than 270 events and boasts over 200 members representing more than 80 companies. 36 Degrees North was also cited as the most utilized resource in 2016 with almost seventy percent of survey respondents having visited for coworking, meeting with a mentor or to attend a workshop or meetup.
Tulsa’s food entrepreneurs also found a place to call home in 2016 when Kitchen66 launched its business incubator and took up residence in the Sun Building downtown. With more than 9000 square feet of rentable commercial kitchen and café space, the newest culinary visionaries have space to test their recipes and receive candid customer feedback by hosting a pop up dinner and selling in a market day or at the café. Almost sixteen percent of survey respondents indicated that they had utilized Kitchen66 this year.
In mid-October, an additional coworking space opened its doors. Savage Space has a vision “to create and grow a community of innovators, entrepreneurs, and creative freelancers who redefine Tulsa.” In the last two years, the community has seen spaces open across town, serving all kinds of entrepreneurs. Whether a creative in South Tulsa at The Hive, a foodie downtown at Kitchen66 or a budding entrepreneur in midtown at The Bridge or downtown at 36 Degrees North or Savage Space, there is a space for everyone in Tulsa.
It wasn’t just the new places on the block making an impact in 2016. The Fab Lab and The Forge, the most established of the physical spaces, continued to expand their programming and services offered and are consistently at physical capacity. Thirteen and eighteen percent, respectively, of survey respondents utilized these two resources this year.
Tulsa has excelled in the last several years at creating and maintaining spaces where entrepreneurs of all disciplines, community partners and service providers can collide to create a more vibrant ecosystem. In 2017, we look forward to that trend continuing as these newly established spaces deepen their roots and impact in the community, the established spaces continue to thrive and we welcome new spaces to the community.
The last two editions of this report stated the need to foster greater collaboration amongst the entrepreneurial community in Tulsa. When the first edition of this report was published in 2014, there was little communication between entrepreneurial stakeholders. Since then, individuals and firms have successfully come together to breakdown silos that exist within the ecosystem, which has led to greater cohesion within the entrepreneurial community.
Celebrating success is an important element of building a strong entrepreneurial culture and in 2016 there were many successes worth celebrating. Thumbtack Journal named Tulsa the best city for women entrepreneurs to start a business in 2016. Community resources for women entrepreneurs, such as Tulsa Women’s Business Breakfast, Girls Who Code and Women’s Coworking Day at 36 Degrees North, helped create this hospitable environment. Tulsa food entrepreneur and member at Kitchen 66, Remmi Smith, received national attention when she appeared on the Food Network’s Chopped: Teen Challenge. This past year also saw companies such as Los Angeles-founded, Wabi Cycles and The Audio Planet relocate to Tulsa.
Several programs brought new young entrepreneurs into the fold. One of the Tulsa Startup Series competitions was open only to K-12 students. Twenty-two students, ranging from elementary to high school age, submitted a sixty-second pitch video highlighting their business idea. Five students were selected to pitch live in front of a judging panel and the winner took home $2500 to launch their business in addition to a three-month membership to 36 Degrees North and a dedicated mentor for that time. In the summer of 2016, a non-profit called Girls Who Code, whose mission is to close the gender gap in technology by building the largest pipeline of future female engineers in the United States, hosted a week long coding camp for young girls at 36 Degrees North. Kitchen 66 partnered with a local high school to introduce a group of students to innovation and the entrepreneurial mindset through a workshop and hands on learning. Scholarships to Success continued to support high school entrepreneurs by offering awards for tuition to a postsecondary institution for those students running a business of their own or developing an idea for one.
As shared earlier in the report, physical infrastructure is a vital component of improving entrepreneurial culture. Since the 2015 report was published, three new hubs for entrepreneurs have opened, 36 Degrees North, Kitchen 66, and Savage Space. These spaces provide new opportunities for entrepreneurs to not only connect with each other but also with resources carefully curated to bolster their success.
Opportunities to connect with fellow entrepreneurs and share best practices allow entrepreneurs to support and learn from one another. In past reports, we learned that there was not a central place to identify such opportunities. Now, Cultivate918 and The Forge send weekly letters that highlight entrepreneurial happenings in Tulsa. 36 Degrees North also has a weekly letter as well as a substantial calendar of events that is updated monthly. The majority of people who completed this year’s survey shared that they felt connected to the entrepreneurial community and to help strengthen it, they had participated in events, mentored someone, offered services pro bono and joined a coworking space. In fact, out of the 120 people who took the survey, fifty-three percent had attended an entrepreneurial event within the last week, reflecting improved promotion of these events to the community.
When reviewing the entrepreneurial culture of an ecosystem, it is important to observe its socio-cultural and industry diversity. Research shows that diversity drives creativity, innovation and productivity in entrepreneurship. One study, which investigated links among socio-cultural diversity, innovation, entrepreneurship, and sales strategies in businesses between 2005 and 2007, found that companies with diverse management are more likely to develop new product innovations than are those with unvaried teams and that diversity is especially important for accessing international markets.
The majority of the 120 survey respondents ranked Tulsa’s diversity of culture in the entrepreneurial community as neutral followed closely by those who ranked it as diverse. Similarly, respondents described the diversity of industry in the Tulsa entrepreneurial community as neutral followed by diverse. Reviewing these survey responses, it is clear that there is room to improve the diversity in Tulsa’s entrepreneurial ecosystem. To increase diversity and thus Tulsa’s entrepreneurial competitiveness, stakeholders should develop organized efforts to support a wider variety of entrepreneurs and encourage participation from more sectors.
Overall, the creation for a shared vision within the entrepreneurial community has advanced and progress continues to be made in unifying the existing community. However, in the coming year, stakeholders should continue efforts to increase diversity in the entrepreneurial community. Looking forward to even greater collaboration, stakeholders should agree on a shared vision of what a vibrant entrepreneurial ecosystem looks like in Tulsa and how success should be measured. They should measure their collective impact and develop a shared learning agenda, which will enable them to access and repurpose lessons learned and prioritize efforts to fill gaps.
To spark the conversation on convening stakeholders to strengthen Tulsa’s entrepreneurial ecosystem, the Lobeck Taylor Family Foundation and 36 Degrees North will co-host an event featuring Greta Schettler, an expert on economic development and entrepreneurship, in the first quarter of 2017. Greta is Vice President of WeConnect International, the world’s largest certifier of women owned businesses and is the former Senior Economic Policy Advisor to the Office of Global Women’s Issues at the US Department of State. Greta was responsible for elevating women’s economic participation as a U.S. foreign policy priority and made groundbreaking efforts on economic participation in the G20, the G-7, the Trans-Pacific Partnership and the Global Entrepreneurship Summit. She also has considerable experience working across a variety of industries as a consultant in the United States, South America, the Middle East and Africa.
The 2014 Entrepreneurial Landscape report presented the robust network of business support services that exist for the Tulsa entrepreneurial community including incubators, bootcamps, contests, mentors/advisors and professional services but noted poor communication as a hindrance to these resources being maximized. The Help Desk, powered by 36 Degrees North, was cited in the 2015 State of Entrepreneurship Report as a potential solution to this problem. Launching at the end of 2016, the Help Desk lives on the 36 Degrees North website and provides quick access to a list of available resources in Tulsa. Separated by category, i.e. funding and industry groups, an individual can select a resource to learn more about the organization and also contact the resource directly. Additionally, if the resource needed is not listed, a form is embedded in the Help Desk that can be completed for 36 Degrees North to review and then connect the person to an organization in their partner network.
While disseminating information on available resources continues to be an ongoing area of improvement, we do know that ninety-five percent of 2016 survey respondents indicated that they utilized one or more business support resources this year. With almost seventy percent of those surveyed indicating they had leveraged this resource, 36 Degrees North was the most used resource this year. Rounding out the top five were 1 Million Cups with fifty-nine percent, Cultivate 918 with thirty-seven percent, i2E with twenty-three percent and SCORE with twenty-two percent.
A resource lacking for the Tulsa community, per the previous reports, was a nationally recognized accelerator program. The 2015 State of Entrepreneurship Report specifically mentioned the benefit for Tulsa to connect to an accelerator like BetaBlox in Kansas City and in 2016 BetaBlox expanded to its first city and selected Tulsa for that expansion thanks to a partnership with Oklahoma Innovation Institute. Lead investor for BetaBlox, Weston Bergmann, views Kansas City and Tulsa as sister cities for entrepreneurship and sees potential for a pipeline of funding, talent and resources between the two. BetaBlox opened applications for its first batch of companies in August 2016 receiving forty-five applications and ultimately selecting fourteen to begin the program in October 2016.
In 2016 we saw an increase in services for non-traditional entrepreneurs. In addition to Kitchen66, an incubator for food businesses, we saw several programs for artists of all kinds in Tulsa. National program Artist INC was offered in Tulsa in the spring, providing twenty-five local artists ranging from visual artists to musicians the opportunity to learn the business of art including marketing, finance, law and technology. In addition to teaching participants how to sustain their art, the program connects artists to local and national art business resources to create a larger art community. Additionally in 2016, the George Kaiser Family Foundation’s Tulsa Artist Fellowship brought twelve visual artists from across the United States to Tulsa to enhance its already flourishing local art scene. These fellows are provided an annual stipend in addition to free housing and studio workspace for up to three years as they immerse themselves in Tulsa’s local art community. Looking forward to 2017, the fellowship is expanding to include writers ranging from screenwriters to poets in addition to visual artists. Of the twelve fellows from 2016, seven have decided to stay in Tulsa for a second year of the fellowship.
The Tulsa StartUp Series updated the format of its competition in 2016 to better serve entrepreneurs across all disciplines. The bi-monthly pitch competitions created more entry points for participation and therefore more opportunity to be awarded both a monetary prize and mentorship opportunities through both i2E and TCC. Furthermore, this format provided additional opportunity for entrepreneurs to practice pitching, both on video and live, and receive beneficial feedback from judges specializing in their industry on how to take their pitch to the next level. These bi-monthly pitches spanned all industries, from tech to physical product to food and retail. Culminating in a Demo Day during Global Entrepreneurship week, five final companies representing the food, tech and creative industries have been selected to pitch live for over $20,000 in prize money.
This year the entrepreneurial community in Tulsa made great progress in providing both national and local programming to accelerate entrepreneurs of all kinds to their next phase of business. In 2017 Tulsa should continue to recruit programs with this focus, targeting specific and often underserved segments of the community like veterans and women. For example, Chicago based incubator Bunker Labs aims to integrate veteran entrepreneurs into the existing entrepreneurial ecosystems in their communities and support them through education, mentorship and funding opportunities. The City of Atlanta is supporting women owned businesses in their community through their new Women Entrepreneurship Initiative (WEI). WEI incubates fifteen companies for fifteen months while providing workspace, building community, creating mentor networks and curating valuable educational programming.
An additional program that could greatly benefit the Tulsa entrepreneurial community is an industry specific accelerator. The Sprint Accelerator in Kansas City and the Global Insurance Accelerator in Des Moines are two great success stories in our region. The Global Insurance Accelerator specifically was started by eight insurance companies that annually contribute funding to the program, a portion of which is used as seed money for the teams in the cohort and the remaining funds are utilized for program costs. Teams focusing on insurance technology solutions are recruited from across the globe to spend one hundred days in Des Moines participating in the accelerator. Upon completion, many of the teams elect to stay in the Des Moines area to launch their company. With established industries including manufacturing and energy in Tulsa, there is great potential to be realized by existing businesses and entrepreneurs alike by introducing this opportunity into the ecosystem.
The Tulsa community certainly recognizes the importance of mentorship and advising as it relates to the success and vibrancy of the entrepreneurial ecosystem. Many programs and organizations including The Forge, Kitchen66, BetaBlox, i2e, SCORE and Tulsa StartUp Series imbed formal mentoring as a primary element of their programs. While forty-six percent of entrepreneurs in the 2016 survey had a mentor in the past year, up from thirty-six percent in 2015, we know there is still work to be done in this space.
Of the fifty-four percent of entrepreneurs that did not have a mentor in 2016, sixty-five percent indicated that they would have liked one. Additionally, when asked which element of business support services were an obstacle to current operations of their business, the most cited obstacle among entrepreneurs surveyed was access to consultants and advisors with forty-three percent. The most significant reason for this being an obstacle was neither qualification nor affordability rather it was the ability to find these individuals that proved most difficult. By providing formal office hour opportunities with subject matter experts in the community on topics ranging from accounting to legal to human resources, 36 Degrees North has taken some steps to begin solving for this issue, but there is opportunity community wide for progress in this area.
While individual programs and organizations are excelling in offering mentorship, advising and consulting to members and participants, there still exists a need for the broader community to provide support and structure around mentorship. As more physical spaces that support entrepreneurship open in Tulsa, informal mentoring will naturally follow. However, the ecosystem could benefit significantly from a formalized process being established in 2017 for the community as a whole that connects prospective mentees to those individuals willing to mentor.
In the 2015 Report, it was noted that “the second-most cited obstacle for Tulsa in the survey was the lack of software developer talent.” Results from the 2016 survey were consistent as sixty-three percent of entrepreneurs that cited they had a human capital obstacle to current operations of their business specified that obstacle to be availability of skilled workers. When asked what could be done to improve those obstacles, responses centered on increasing the number of available developers, continuing to offer and expand coding bootcamps and to connect the startup community to local universities for a talent pipeline.
While the dearth of quality developers in Tulsa continues to be an observed obstacle, many organizations are working to overcome it. In 2016, several new tech groups started up including Tulsa Data Science, Tulsa JS, Tulsa Ruby, TulsaPy and OK Game Developers. Averaging between fifteen and thirty attendees each at their monthly meetups, these organizations are growing the tech community in Tulsa and providing opportunity for developers to grow and hone their skills.
One existing organization, the Tulsa Web Devs, supported the Tulsa developer community through their biweekly meetups- one meeting and one hack night each month- that each averaged forty-five attendees. Another fixture organization, Code for Tulsa, continued to support the developer community and community at large in 2016. While solving for civic problems, developers are provided an opportunity to use their existing skills and learn new ones from their peers. For example, this year Code for Tulsa created a student friendly guide to Tulsa Transit’s bus system as part of the #TPSRIDES partnership between Tulsa Public Schools and Tulsa Transit. A new website will be launched and an email guide sent to all students in December 2016. Additionally, the organization is working with the City of Tulsa to redesign the city’s open data portal. The 2016 200 OK conference hosted at 36 Degrees North received over one hundred speaker submissions and ultimately selected thirteen presenters from Oklahoma, Texas, Missouri, California and New York. The event sold out with one hundred attendees.
The developer community continues to make strides in Tulsa year after year, but the largest perceived gap exists between the universities and the startup community seeking developer talent. As seventy percent of Tulsa entrepreneurs cited in the 2016 survey that they recruit all of their talent locally, this pipeline is of the utmost importance.
In 2016, the Oklahoma Innovation Institute (OII) launched a new workforce development program addressing the need to build and retain a stronger talent pool of technical employees and to create visibility to interesting high-growth companies in Tulsa. OII’s new Work in Tech program is a targeted intervention to build a stronger connection between area universities and hiring technology-based companies. Work in Tech was started as a result of local companies identifying a perceived lack of a talent pool as their primary concern for growth in region, while consequently hearing lack of employment opportunities as the number one reason for students leaving Tulsa after graduation. OII brought together leadership from university partners through its Tulsa Research Partners program to help address this critical issue. Each of the six universities in this partnership (The University of Tulsa, the University of Oklahoma- Tulsa, Oklahoma State University-Tulsa, Tulsa Community College, Oral Roberts University and Northeastern State University) recruited their top fifteen students who had the required skillset that did not currently have a job offer and were interested in staying in Tulsa. Seventy-five students met with the CEO’s of four local technology companies for a reverse pitch event where the CEO’s sold the students on why they should stay in Tulsa and work for their organizations. As the event was a success for both the companies and the students, OII is identifying additional industries in Tulsa with high impact jobs where they can replicate the methodology in 2017.
The Mine, a social innovation fellowship run by the University of Oklahoma’s Center for the Creation of Economic Wealth (CCEW), is honing in on this issue with one of their two fellowship projects for 2016–2017. Partnering with Techlahoma, five Mine fellows are spending nine months exploring how to create a pipeline of coders from kids to adults in Tulsa. In order to achieve their ultimate goal of developing a strategy for execution, the fellows will benchmark national models for coding education pipelines and research both the needs and interests of underserved populations in regards to coding. While this effort is certainly a significant step toward solving for this gap, undoubtedly it is only one step as part of a much larger initiative.
The Commons in Milwaukee, WI, an entrepreneurial skills accelerator for college students, has an excellent model for creating engagement between higher education partners, existing businesses and the startup community. In each cohort students are split into two groups- one half works on corporate challenges presented by program sponsors and partners while the other half tackles startup challenges which are startup ideas generated by the students themselves. The accelerator has created a large mentor network comprised of over 130 professionals from both education and industry and has active cross disciplinary student participation from more than twenty local universities and colleges. Tulsa could greatly benefit from creating this general pipeline of innovative and entrepreneurial thinkers into its workforce.
As stated in previous reports, access to capital remains a major challenge for startups in Tulsa. Eighty percent of entrepreneurs surveyed this year said that the early stage investment market in Tulsa was at least a moderate obstacle to the current operations of their business. The two most common current finance obstacles for operations to their business were equity finance and access to grants. Although there is room to improve finance options for Tulsa startups, noteworthy progress has been made.
A new early stage capital opportunity was introduced to Oklahoma entrepreneurs this year through i2E’s Oklahoma Angel Fund, which invests in companies with high-growth potential that require capital to assist with proof of concept and scaling, introducing new products, and expanding into new markets. This $2,500,000 fund focuses on early to growth stage companies in Oklahoma as well as other states in the region. The Oklahoma Angel Fund differs from i2E’s other funds in that it is comprised entirely of private dollars raised from individuals, family offices and foundations throughout the state of Oklahoma. Since its launch in April 2016, the fund has invested in three companies, all of which are based in Oklahoma. The maximum investment per company is $250,000 and i2E hopes to invest in eight to ten companies within the first two to three years.
Fifty-four percent of surveyed entrepreneurs said they attempted to raise capital in 2016, which is more than double the amount reported in 2015. The most common source they attempted was friends and family. Thirty-eight percent of those who attempted to raise outside capital were successful and the average amount raised was $119,000. Half of the respondents who successfully raised outside capital received some Oklahoma investment dollars, the most common sources coming from Tulsa Economic Development Corporation and friends and family.
The average gross revenue for entrepreneurs’ companies in 2016 was $141,000 and their total average revenue since founding was $267,000. Of the sixty-five companies who took the survey, fifty-two were less than five years old and sixty-two of the sixty-five companies had less than ten employees. The Securities and Exchange Commission (SEC) FORM D filings show that non-oil and gas technology companies in Tulsa raised $622,000 so far in 2016. Two-thirds of these companies were tenants at either The Forge or 36 Degrees North.
Dustin Curzon, 36 Degrees North’s Executive Director, shared his observation that many companies are beginning to use convertible notes, an investment tool often used by seed investors investing in startups who wish to delay establishing a valuation for the startup until a later round of funding or milestone. Convertible notes are structured as loans with the intention of converting to equity, which removes the necessity of reporting debt capital. It is important to note this trend as it is possible additional 2016 capital was raised by Tulsa startups, but not reported.
In last year’s report, we suggested that the community create an educational investor and entrepreneur series focused on early stage funding. Another recommendation in 2015 was the development of a program that connects entrepreneurs with appropriate funding. Similarly, the report encouraged a program that focuses not only on the development of products but also the funding of the development of the products. Although conversation continues to highlight these financing needs, there is no progress to report.
The Lobeck Taylor Family Foundation has identified two finance gaps to address in 2017. The first gap is the one that exists for entrepreneurs seeking small amounts of start up capital. Food entrepreneurs, for example, often struggle to procure bank loans or other traditional means of startup funding. For those wanting to start food carts or have an idea for a packaged product, a micro loan of only $10,000 can make the difference in accelerating their business to the next level or scrapping the concept all together. The Foundation is researching potential solutions to this obstacle and looks forward to taking steps to solve for this in the new year.
The second finance gap the Lobeck Taylor Family Foundation will focus on exists within Tulsa’s creative economy. Creative startups are essential to economic development and community vitality. They create jobs, new services and products and inspire innovation. They can safe-guard cultural heritage, strengthen a community’s cultural identity and improve quality of life, thus achieving inclusive economic development that is rooted in people and place. While it can be difficult for small enterprises to obtain startup capital, it can be even more challenging for creative startups. Realizing the economic and social potential of supporting the creative economy in Tulsa, the Lobeck Taylor Family Foundation is exploring a creative economy fund to give small grants to enterprises that have a creative triple-bottom line, which includes the pursuit of artistic or cultural expression, financial profit and positive social impact.
Access to Markets
Access to markets is consistently one of the top challenges startups face. This year, survey respondents most cited access to local markets as an obstacle to current operations of their business followed by availability of market information, access to national and international markets. Entrepreneurs who completed the survey shared that business to business (B2B) and business to consumer (B2C) referrals as well as sharing aggregate market information could mitigate the challenges they face in accessing markets.
Growing corporate involvement in Tulsa’s entrepreneurial ecosystem is crucial to increase B2B transactions. The Forge Tulsa, a business incubator, startup hub and coworking space, is taking the lead in facilitating B2B referrals through Beta Pen, a program projected to launch in Q2 of 2017 that will offer Tulsa-based companies and organizations the opportunity to commit to making a difference in advancing local startup companies by providing access to the testing of their products and services in a corporate environment. 36 Degrees North will also focus on enhancing corporate involvement in Tulsa’s entrepreneurial ecosystem in 2017.
To improve access to local aggregate market information, community partners should work together to make this information easily accessible to entrepreneurs. Scaling up Beta Pen’s model and 36 Degrees North’s efforts to increase corporate involvement is a good strategy to make a larger impact on expanding the local market for Tulsa startups. Additionally, the entrepreneurial community should promote Tulsa entrepreneurs and programs on a national level, which would help increase market access by widening the pool and giving more credibility to Tulsa businesses.
Research and Development
For many reasons, capitalizing on the research being done at our exceptional institutions of higher education and turning them into high quality Oklahoma jobs is challenging. Commercializing research is not the first priority of these institutions, it’s educating students. Accordingly, allocating funding and other resources to the process of commercializing this research is also not a priority. Coupled with the reality that it’s also costly, and frankly cost prohibitive at many times, to streamline this process, one begins to understand the limitations of higher education to prioritize or execute well on this tech transfer process.
The University of Chicago is structured in such a way that its process, Technology Commercialization and Licensing (TCL), is managed by the Polsky Center for Entrepreneurship and Innovation. The Polsky Center also directs an accelerator, operates an innovation fund of more than $20 million and runs a coworking space and fabrication lab open to students, faculty and entrepreneurs in the broader community. As the Polsky Center is the university expert on both the commercialization process and the entrepreneurial community, it has poised itself to most efficiently and effectively support researchers with transforming their product or technology into a viable business. The undertaking to streamline and execute this process was certainly costly, however, the results are effective as they have “launched more than 90 research-based startups, enabling faculty, students and researchers to apply their technologies to critical problems impacting society.”
While much less formal, but far more economical, universities have an opportunity to create this pipeline for their researchers by spending more time engaged with local entrepreneurs in their community. Whether having an office at 36 Degrees North, a coworking membership at The Bridge, or attending some of the monthly developer meet-ups in Tulsa, universities can begin to develop the network and partnerships required to support the commercialization process simply by meeting the people in the community that have the skillset to develop the technology and those that have the business savvy and drive to be a company founder.
Understanding the limitations faced by higher education institutions, in 2016 the Oklahoma Innovation Institute (OII) also made big strides in creating a process to support commercialization and technology transfer out of the university campuses. OII is leveraging the strong relationships through its Tulsa Research Partners which includes the University of Tulsa, the University of Oklahoma- Tulsa, Oklahoma State University-Tulsa, Tulsa Community College, Oral Roberts University and Northeastern State University, to build a community engagement tool for accelerating projects both on and off university campuses. The OII platform will act as a community asset map for high-tech entrepreneurship and research collaboration while providing a resource for teams to identify solutions to barriers keeping them from progressing. The OII platform will leverage community engagement to identify project needs and curate the appropriate resources for the project at the right time. Whether its equipment needed that one campus in their network has or a funding source that they can make a match with, OII is overlaying this platform with existing academic and research infrastructure to complement rather than reinvent. OII was awarded a grant from the Economic Development Administration (EDA) and additionally procured matching funding that has progressed the creation of this platform to the prototype stage with an anticipated alpha launch in early 2017.
State and Local Government
The United States has a startup problem that encompasses how many startups are being born, where those births take place and the demographics of who gets to participate in the startup economy. Recently released data from the Census Bureau show that startups are reaching all-time lows when it comes to their share of both the U.S. business community and total employment. The total number of new startups has also declined even as the economy grows larger and larger. Only 404,000 new firms were created in 2014, compared to an annual average of 498,000 from 1977 to 2008. To put that into perspective, in 1977 the U.S. economy generated ninety-five startups per $1 billion of GDP. By 2014, that ratio had fallen to only twenty-five startups.
The United States not only needs more new businesses in more regions, but it also needs to expand access to entrepreneurship as a career path. According to the Census Bureau’s newly-released Annual Survey of Entrepreneurs, African Americans owned only two percent of the nation’s companies with employees in 2014, and women owned only twenty percent. Women and minority entrepreneurs have historically received less than ten percent of the country’s venture capital. For every nine men that raise equity financing to start and scale their business, only one woman does. A less entrepreneurial economy is one with fewer opportunities to achieve the American Dream. EIG’s Distressed Communities Index found that business openings, job growth and economic well-being are intertwined down to the zip code level. Mayors must be at the vanguard of making U.S. entrepreneurship more demographically and geographically inclusive. In tackling America’s startup problem, mayors should emulate entrepreneurs themselves: be bold, move quickly and embrace new ideas.
Perhaps the most important change in local policy for Tulsa in 2016 will be the swearing in of Mayor-Elect GT Bynum. Elected in June, Bynum will be sworn in as 40th Mayor of Tulsa in December. During his campaign, Mayor-Elect Bynum was quick to note that the days of a city being able to count on a few major employers to always be there are over, pointing out that in 1958, the average S&P 500 company had a lifespan of sixty-one years but by 2012, it was only eighteen years. The increased velocity of creative destruction, Bynum believes, is an opportunity to educate its workforce and foster entrepreneurial activity to create new jobs that will propel our local economy forward.
Bynum will create direct access between entrepreneurs and the Mayor’s office by officing out of 36 Degrees North once every month. He will also re-launch the Economic Development Commission which was shuttered under the previous administration, acknowledging that the sum of all wisdom in Tulsa on economic growth does not stop at City Hall.
Refreshingly, Mayor-Elect Bynum also pledged to prioritize entrepreneurship as an economic development strategy and prioritize education to foster greater entrepreneurial activity. As Mayor, Bynum will have an uphill battle to reinvest in public education as the Oklahoma state government decimated the education budget by fifteen percent. The state common education budget lost $58 million and higher education lost $153 million during the 2016 legislative session. Although the Legislature gave itself an extra $9 million (or an increase of 184 percent), the state’s two job creating arms: the department of commerce, tourism and workforce development and Oklahoma Center for the Advancement of Science and Technology (OCAST) lost about $2 million each. OCAST is the state’s only investment in science, advanced technology and future economic development, and its budget has nearly been cut in half in the last eight years.
The 2014 State of Entrepreneurship Report referenced multiple studies concluding that government’s role in fostering entrepreneurship should focus on the “levers in its wheelhouse: leadership, communication and regulation.” Mayor Bynum’s commitment to foster communication between entrepreneurs and the city will be a breath of fresh air for startups in Tulsa who feel unheard and underappreciated.
Regulation presents an excellent opportunity for improvement under Bynum’s administration. The Ash Center for Democratic Governance and Innovation at Harvard Kennedy School is the preeminent voice for innovation in government and has excellent white papers and case studies that advocate for collaboration between city departments and streamlining licensing and permitting to assist entrepreneurs. For example, the City of Boston published permitting and licensing processes online in a searchable portal called “Permit Tracker”, including the pertinent contact information, timeliness for completion at each stage, cost and number of procedural steps related to each process on their City’s website. To those who have never applied for a permit or license, the topic of reforming the permitting process may seem unnecessary, but for those who spend weeks or months reaching out to different departments (and often receiving contradictory information), understand how vital this reform could be for economic growth as “a labyrinth-like permitting process is a huge barrier to growth for entrepreneurs who are starting small businesses.” This process is easier for big developers who have been through the process, but it is often a death knell for small startups whose greatest asset is their time.
Along with streamlining processes using technology, Boston is also using data analysis and performance management to increase improvement, resulting in a seventy-five percent increase in on-time permit issuance (up from fifty-six percent in March 2014), 12,500 more permits issued in the year following implementation and a decrease in backlogged building complaints from 3,500 to 212!
The City of Denver is using technology to provide an online roadmap for small businesses to use when launching a business in the City and County of Denver. The process, from planning to celebration, is captured in twelve steps that are explained in two pages. Checklists are posted online and in multiple languages and small businesses can track requirements and progress as well as submit online.
In 2014, Chicago appointed a Special Deputy for Regulatory Reform to liaise between the Mayor’s Office, city agencies, small businesses and residents. This Deputy is responsible for a “regulatory look back” to review Chicago’s municipal code with an eye to eliminating outdated regulations and ordinances and to advocate on behalf of small businesses when problems arise and ensure small business recommendations and feedback are incorporated into the development and implementation of city priorities.
One tangible example of complicated and outdated policy in Tulsa revolves around licensing for food trucks. Mobile food vending dates back to as early as 1866 with the creation of the “chuckwagon” to feed roaming cattlemen in Texas. With the ability to market through social media, the comparatively low startup cost and the advantage of mobility, food truck popularity has exploded in the 2000s. According to a 2012 forecast by Intuit Inc., the food truck industry is projected to account for approximately $2.7 billion in food revenue by 2017, making it a substantial player in the foodservice industry. As food trucks have grown in popularity, many city officials wrestle with how to update regulations to mitigate any negative externalities. For many cities, existing regulations applied to mobile food vendors were originally narrowly defined for ice cream and hot dog vendors. In Tulsa, starting a food truck requires an application to the Tulsa Health Department (with fee), a fee paid to the state health department, a city permit, an inspection, an application to the Oklahoma Tax Commission and sometimes more, depending on the type of food truck and how much is prepared on the truck versus a licensed commissary kitchen (which requires an additional application and licensing inspection and has to be repeated if the business changes kitchens).
Tulsa should look to Boston for an example on streamlining licensing and permitting for food trucks. Since food trucks became popular in Boston’s dining scene in 2011, the City has been active in promoting the industry’s growth while focusing on ensuring a healthy and sustainable industry. Boston established an Office of Food Initiatives and the Boston Food Truck Initiative to streamline the permitting process and bring healthy food trucks hosted by the city to food deserts. To help food truck vendors navigate the process of starting up a food truck business, the city has an Office of Food Initiatives as well as a Mobile Food Truck Committee. As required by ordinance, the Mobile Food Truck Committee includes representatives from the Department of Public Works, the Transportation Department, the Inspectional Services Department, the Police Department, the Fire Department, the Director of Food Initiatives, and the Assessing Department who collaboratively review and approve food truck applications. Since 2012, the City of Boston has implemented a Live Lottery to provide new and existing mobile food vendors with equal access to all city-approved public sites. In 2015 vendors entered into a lottery to select from over 500 shifts available for the upcoming vending year, which begins April 1, 2015. In Tulsa, City Parks are off limits for food trucks, except for a lucky few. When other food trucks inquire about providing food service at popular parks without existing food service, like Turkey Mountain, they are told the Parks Department is not capable of regulating food trucks in the parks. Implementing a lottery system for food trucks in Tulsa parks could be a great opportunity for Tulsa to embrace the food truck scene and increase visits to our city parks.
Many of these cities with more progressive food truck policies piloted their streamlined programs with solutions created at hackathons or roundtable discussions with small business owners and entrepreneurs. Tulsa’s regulatory maze could certainly benefit from streamlining the process and developing an online checklist for better understanding which permits a startup needs and how much they cost, as well as the average time it takes to receive them.
“More and more, we are counting on cities to deliver smart solutions to big challenges — and increasingly, city governments are counting on entrepreneurs to birth those solutions in their locations. Local government shows lots of promise for serving as efficient crucibles for learning how we make the path easier for those doers and makers of things in our local communities.” Entrepreneurs and The City of Tulsa alike would benefit greatly from increasing communication and cooperation between City Hall and entrepreneurs and streamlining regulatory and permitting processes and bringing them online.
In his 2016 State of the Union address, President Obama remarked “we’re in the middle of the longest streak of private-sector job creation in history.” More than fourteen million new jobs were created in the last few years: many by startups and small businesses, many out of necessity (as was the case during the recession) and many because of a growth in technology. Perhaps the largest boost to entrepreneurs during President Obama’s term grew out of the nearly $1 trillion from the two American Reinvestment and Recovery Acts that played a major role in assisting depressed regions and bolstered the economic health of small business owners.
Also in 2016, the U.S. Department of State and Kiva, the world’s largest crowdfunding platform for loans, have joined forces to launch the Women’s Entrepreneurship Fund, which aims to help crowdfund loans to one million women entrepreneurs over the next five years. The Fund has a special focus on women entrepreneurs in the growth phases, offering loans greater than the average microfinance loan. To date, an estimated $500,000 has been pledged with commitments from corporations and foundations.
Although the 2015 State of Entrepreneurship report celebrated the change to crowdfunding rules under Title III of the JOBS act, the reform did not go into effect until May of 2016 so it is still too soon to tell if it is increasing the number of early stage, high risk investments. However, some states, like Illinois, have chosen to adopt their own, less stringent standards for crowdfunding (operators of crowdfunding portals can choose whether to work under federal law or relevant state law) with hopes to encourage local investment in small businesses like restaurants by patrons and neighborhood advocates. Oklahoma could greatly benefit from adopting a law like Illinois’ state equity crowdfunding law that went into effect in January as a means to increase local investment in early stage startups.
Reflecting on 2016, much was accomplished to add to the momentum propelling Tulsa’s entrepreneurial community forward. More people were mentored and attempted to raise startup capital this year than the one before. A new angel fund was created as a pipeline for developer talent from the universities to local employers. Doors opened at new spaces aiming to create community and programs launched with the goal of helping entrepreneurs accelerate their businesses to the next level. Creative entrepreneurs and student entrepreneurs alike found new opportunities geared for them specifically. More than 150 people applied to local incubator programs and the Mayor-Elect committed to coworking with entrepreneurs once a month. The entrepreneurial community should be proud for all it accomplished in 2016 and remain committed as it looks ahead to the new year.
In 2017, the Tulsa entrepreneurial community has the opportunity to make a significant impact by working to:
- Identify prospective companies within an industry to support an industry specific accelerator
- Increase sociocultural and industry diversity
- Recruit and/or create programs to support underserved entrepreneurs including women and veterans
- Formalize a process to connect prospective mentees to individuals willing to mentor
- Provide programs that equip software developers for immediate employment with existing and startup companies locally
- Promote Tulsa entrepreneurs and programs on a national level to help increase market access by widening the pool and giving more credibility to Tulsa businesses
- Connect academic researchers to the entrepreneurial community to turn their ideas into viable businesses
- Streamline licensing and permitting for food trucks
- Increase communication and cooperation between city hall and entrepreneurs
- Streamline regulatory and permitting processes and bring them online
- Pursue legislation like Illinois’ state equity crowdfunding law that increases local investment in early stage startups
- Create an educational investor and entrepreneur series focused on early stage funding
- Explore alternative funding strategies including creative economy and micro loan funds
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