ComebackTown is published by David Sher to begin a discussion on a better Birmingham.

Today’s guest blogger is Bob Crutchfield.  If you’d like to be a guest blogger, please click here.

Don’t you wish Birmingham had a Michael Dell like Austin Texas?

A Jeff Bezos like Seattle Washington?

Or a Sam Walton like Bentonville Arkansas?

Austin didn’t recruit Dell Computer to Austin—Michael Dell founded it and grew it in Austin.

Jeff Bezos founded and grew Amazon in Seattle.

And Sam Walton founded and grew Walmart in Bentonville.

We in Birmingham are just beginning to get a taste of what is possible.

Birmingham landmark events

Birmingham has enjoyed a string of landmark events.  We elected a new, charismatic, thoughtful and strategic-thinking Mayor in Randall Woodfin. He is unifying the people of Birmingham and our City government by reaching out to the City Council and the County Commission in a truly collaborative fashion, and he is shaping new thought and vision for what Birmingham could, and should, be aspiring to.

Following Mayor Woodfin’s election, the voters of our State chose leadership and growth over polarity and politics. Doug Jones’ historic victory was an expression from the people of our state that Alabama is moving forward, and his victory is another win for economic development and growth opportunities for Alabama.

Shipt sold to Target

And to cap off the trifecta, on the morning after we elected Jones, one of the fasted growing e-commerce companies in the country, Shipt, headquartered in Birmingham, sold to Target, a Fortune 50 Company, for $550 million.  Shipt, less than three years old, has expanded to 72 markets in the US, has nearly 200 full time employees in Birmingham, 75 more in San Francisco, and thousands of contract Shipt Shoppers around the country.

Bill Smith, the CEO, is a repeat entrepreneur, born and raised in the Greater Birmingham metro area. I had the opportunity to lead this Investment for Harbert Growth Partners and serve on the Board of Directors of the Company. I can attest that Bill, at 32 years of age, is one of the best young start-up talents anywhere in the world. Under his continued capable leadership post-transaction, Shipt will be rolling out to all of Target’s 1800 locations in 2018.  This provides great potential for significant job growth in Birmingham, and is a predicate for what is possible, provided we keep them here for the long term.

We must have a strategic model for startups

With all of the good things that are happening in Birmingham to give us hope, I believe it is critical that we seize upon these opportunities and develop a strategic model for advancing the growth, recruitment and retention of startups in our city, county and state.

But in order to develop a complimentary strategy to our recruitment of large industrial and manufacturing businesses that can be executed in a predictable and repeatable manner, it is important to understand how startups differ from small businesses.

How a startup differs from a small business

The words startup, entrepreneur and small business are often used interchangeably.  However, they are very different.  Startups focus on large addressable markets, fast growth of revenue, and generally involve the use of technology in the product offering and/or to enable more rapid customer adoption.

Because a true startup is built for sale, accelerating revenue growth is the primary key to value creation at an exit, which is most often a purchase by a large corporation.  Contrary to how most people view successful businesses, startups rarely achieve profitability prior to being acquired.  This means that startups are burning cash, and in order for them to continue to achieve rapid revenue growth, they have to have access to capital.  In the early growth period, this is usually private capital from family, friends, individuals and angel investors.

As these companies begin to scale, the private capital comes from professional, or institutional, investors called venture capitalists.  Without both of these sources of private capital to fuel startup growth, a robust startup environment cannot scale.

Four components necessary for startups

There are four fundamental variable components to the ecosystem in every market where startups are flourishing:

• Organized capital
• Data
• Entrepreneurial talent
• Economic development incentives targeting startup growth

Nashville, Chattanooga, Atlanta, Greenville and New Orleans each have constructed long view strategies using some formula tied to these variables.  Birmingham can, and is, beginning to develop our own equation for success.

Birmingham’s assets

We are fortunate in Birmingham to have organized early stage capital with the Alabama Capital Network and the Alabama Investment Management Group.  These are complimented by a number of sophisticated and experienced individual investors who have been supporting startup growth for some time.

We also have a growing community of entrepreneurs, thanks to startup successes like Daxko, Influence Health, Atlas RFID, HospiceLink, Swell, TicketBiscuit, and now, Shipt. 

Successful companies spinoff new entrepreneurs, and because we have a globally recognized incubator in the Innovation Depot, there is a physical place for companies to launch and thrive.  As a result, great startups are emerging in Birmingham like Fleetio, Inflcr, Covalence and Planet Fundraiser, among others.

Finally, the Alabama Drug Discovery Alliance between Southern Research and UAB, along with the UAB Faculty Accelerator provide additional commercialization pathways university-based research.

But we need to do more work on data development, venture capital formation focused on Birmingham and Alabama, and developing aligned economic development incentives at the city, county and state levels that can be easily understood and accessed by entrepreneurs.

What has happened in the Birmingham metro is positive, but it has been the result of early entrepreneurs starting businesses in Birmingham because they want to live here, not necessarily because it is a market offering the ideal tools and support for success.  Yes, we have very some very successful entrepreneurs, but most will say they have been successful in spite of the market, not because of the market, and this is what Innovate Birmingham is trying to change.

Birmingham must become intentional

How do we become intentional?  First, data is a key piece of being intentional. Today, Innovate Birmingham is working on a data project to inventory all of the startups in the Birmingham metro area and the state.  It is critical that we know who and where these startups are, how they have been financed to date, their customer targets, revenue growth rates and job creation numbers.  Without this baseline data, we are not able to accurately measure the economic impact of startups or provide assistance to startup companies with access to capital, customer adoption and talent recruitment.

We are complimenting this inventory of startup companies with a survey of the large corporations in Alabama, in which we are attempting to identify their customer facing needs and infrastructure needs that technology can solve.  These two data points will allow Innovate Birmingham to be intentional with guiding startups to solve for these statewide commercial needs and market opportunities.

In addition, we will connect startups that are beginning to scale with corporations that may be able to use their tech-oriented products and services.  Finally, we believe that we can begin recruiting startup companies to Alabama using our defined market demand for their products and services as a motivator to relocate.

Innovate Birmingham is also working with our city, county and state economic development leaders to begin discussing ways we may be able to amend existing economic development incentives so that they can be easily accessed and used by startup entrepreneurs, not only for incentives for growth in the early years of commercial launch, but also for retention as the most successful of these startups get acquired.  An intentional startup strategy can actually drive a market presence of Fortune 500 companies into Birmingham.

Finally, Innovate Birmingham is exploring strategies for building a venture capital funding strategy that will provide early-stage growth capital to accelerate growth for quality deals, assist in bringing outside investment capital into Birmingham through leading investments and forming investment syndicates on high-growth deals, and be used as a recruitment strategy to bring high-growth startups to Birmingham, when used in concert with defined customer growth opportunities and economic development incentives.

Exciting times for Birmingham

 There is a lot of work that is currently underway, and many activities and work products that are in our workflow plan.  Because of this, I have much confidence that Birmingham, and Alabama, are going to be successful in developing an executable strategy for fostering startup growth that will not only make us competitive with our neighboring states, but will allow us to be one of the top leaders.

There has been no better time for startup entrepreneurship in Birmingham, and I believe it is going to continue to improve.

As Shipt has demonstrated, Birmingham really is the Magic City.

Bob Crutchfield is the Executive Director of Innovate Birmingham, which is focused on building a technology-based economic development strategy to advance and accelerate the pace of startup growth in Birmingham.  Prior to Innovate Birmingham Bob was a venture capitalist with Harbert Growth Partners. 

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David Sher is Co-Founder of AmSher Compassionate Collections.  He’s past Chairman of the Birmingham Regional Chamber of Commerce (BBA), Operation New Birmingham (REV Birmingham), and the City Action Partnership (CAP).

Invite David to speak to your group about a better Birmingham. dsher@amsher.com