How small states like New Mexico can compete in business

Mark and Betsy Montgomery on top of NM – October of 1993

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I first studied the New Mexico (NM) economy about twenty-two years ago as an independent consultant through formal business and market audits, which was followed by covering the region in our incubator and venture capital firm a decade later. Six years ago my wife and I chose to move to NM from the Bay area, bringing Kyield with us.

So I thought it might be useful to contribute my perspective to the recent efforts to transform the NM economy into a more dynamic entrepreneurial economy. Hopefully this format is an appropriate method, offered in good faith with no conflict or investment other than as a local entrepreneur and citizen shared in much the same way I would have presented to a client in a verbal counseling session following a formal process, though hopefully also reflective of a great deal of expensive lessons since.

One commonality found in many flyover states and countries is a culture suffering from low self-esteem, which is often well earned by toxic macro economic policies or other factors. My sense of this since living in NM is that victimization is deeply rooted, and was quite strong during and after the peak of the global financial crisis. In a state that has never experienced a significant business success, especially in an era of historic financial consolidation, it’s understandable that NM would be a bit cynical.

However, although NM’s history is peppered over the centuries with strategic blunders in far-off capitols, it’s important to avoid allowing moral hazard to further harm NM in the future, as the state needs to reduce dependencies and create an economically diverse economy. Private sector growth and diversification are particularly important at this point in NM’s history given the fiscal projections of the federal government, which could threaten a significant portion of the NM economy in the near future. In addition, disruptive technical threats to oil and gas are maturing rapidly.

It is therefore not only important for NM to understand that it has the capacity to compete with anyone, but it may be imperative to do so, which should translate to a very high priority for accelerating private sector diversification.

During my earlier years assisting other entrepreneurs and communities we developed a comprehensive list of fourteen ingredients regional economies needed to be successful, eight of which we considered essential, though weak areas can be shored up in a variety of ways to meet minimal viability—short of luck of course.

The most important lesson every state can learn is that each has more than sufficient capacity to achieve a robust economy, provided the community is willing to do just a few things well. The following are a few essentials from that list that clearly need work in NM.

1. Work as a team.

As difficult as it may seem in our polarized society, ideological and partisan disagreements must be substantially removed from the process of competing in business. A personal case for me was as a young entrepreneur and member of ‘Team Washington’ in the 1980s, which produced an environment where several global business leaders emerged as well as many smaller companies. Of course Washington is only one of dozens globally that should be considered, and every region should perform their own tailored SWOT analysis to guide adaptive action plans, but a few similarities exist that NM and other regions should consider.

The Puget Sound economy had become far too dependent upon the federal government and the Boeing company in the post WW2 era, both of which experienced devastating cut backs in the 1960s and early 1970s reflected by the famous billboard in 1971 sponsored by local real estate brokers: “”Will the last person leaving SEATTLE — Turn out the lights”.

A decade later the informal team effort I played a small role in included members from all sectors of the regional economy led by a few of the more experienced in business ranging from the largest to the smallest in close collaboration with local and state governments, universities, and non-profits. Although the Puget Sound economy enjoyed considerably more strength than NM, it was a small community compared to leading capital centers with a relatively small group of dedicated leaders providing much of the heavy lifting.

While Seattle and the U.S. have changed greatly since the 1980s, we didn’t discuss politics much in the civic minded business building endeavors. With few exceptions I wasn’t even aware of party affiliation of the other members I met. The focus was economy, business building, community building, winning, and having some fun along the way.

Among the most important takeaways from Washington and many other engagements since is that individual and team efforts may or may not be personally rewarded. While communities should work diligently to support those who support them, the nature of modern economic growth is like life itself—quite dynamic and not always just. The broad impacts from a few may not necessarily be appreciated.

2. Keep it clean

Given the recent history of D.C., Wall St. and the famously incestual nature of Silicon Valley, this may be shocking or even unwelcome, but the governance breakdown in power centers is precisely why it’s so important for regional centers to rebuild on strong foundations. Trust and integrity are critical to entrepreneurial cultures. The corrosive cost of corruption is well understood by those who study global economics and markets.

In my first several meetings in NM with officials and professionals I was warned of this systemic unmentionable problem, some of which I had observed in earlier audits, but it was still shocking to see so many felony cases involving public entities in NM. Of course different types of corrupted systems and processes exist, not all of which are illegal—abuse in government contracting is a good example, but are still toxic to the type of entrepreneurs smaller markets need in order to become more dynamic and diversified.

States like NM that have a poor track record with investors need to make an especially robust effort in improving governance, transparency, and honest trade. While progress has been made in NM in recent years, it takes time and effort to improve reputations.

3. Enhance strengths, mitigate weaknesses

If NM hasn’t performed a SWOT analysis led by a seasoned business consultant with relevant skills and knowledge it should do so, as should each state and local community that desires to improve competitive outcomes. The process itself has considerable value. Among the most important aspects of becoming a competitive business or regional economy is in raising the bar to the competitive level. While this includes continuous learning by and for business leaders and entrepreneurs, it’s just as important for local institutions, employees, and communities. Almost everyone in a community has numerous untapped opportunities to improve the regional economy.

A common misunderstanding today across the U.S. and EU—including NM, is that success is born only from direct strategic interests. In fact diversified economies require just the opposite. If the team effort is restricted even primarily to personal or institutional strategic interests, most competitions will be lost. For example, while benefiting a great deal from behind the scene support by many and direct efforts by a few, Microsoft, Costco, and Starbucks were not products of local institutions, though benefited from community support. The same is true for most successful businesses I’ve been close to in my career.

The critical part of modern economic success through business building is the ability to identify and match opportunities and talent with appropriate resources, which is a continual never-ending process in conjunction with the constantly changing economy. While every business has unique qualities, each has essential needs that simply must be met. NM is unusually challenged with lack of customers and corporate headquarters, which simply means significant focus must be placed on overcoming those weaknesses. It’s rather obvious, but if few local customers exist and many of those that do are government, a competitive private sector marketing effort becomes essential.

Although NM has strength in corporate relocation, tourism, film, art, and agriculture, which could no doubt be further leveraged across sectors, a certain degree of conflict exists between states and federal institutions, which is reflected in organizational and regulatory structures and extended to tech transfer and spin outs. While governance challenges, institutional conflicts, strategic venturing and dependency on fossil fuels and government are not unusual, the impacts in NM are more significant than most.

Though more critical in NM due to a few large institutions, competitive regional markets must learn how to play together well on the same team even if primarily extra curricular, civic minded and informal, though still high priority. Informal civic-minded team efforts should be supported by institutional sponsors with appropriate pressure applied if necessary, but should not be considered alternatives for highly sophisticated business intelligence methods found at any competitive organization today.

4. Support local ventures

Economists have labeled this phenomenon ‘regional bias’. It became somewhat out of vogue in the U.S. during the rapid expansion of globalization in part apparently due to a combination of the growth needs of leading corporations and consolidated wealth in the hands of a few who had both financial and ideological interest in moving industry abroad. While global trade is mutually beneficial, scholars generally agree that the trend was overdone. Although we’ve experienced some recent improvement in regional efforts in the U.S., my personal experience suggests functionality has not returned to levels enjoyed during peak performance or to the degree found in other parts of the world, including Europe, Asia and in U.S. capital centers, which have very large, highly sophisticated strategic ecosystems.

The lack of sufficient capacity for proactive regional growth represents what I believe to be the single most important reason why NM has had little success. Smaller regional economies must become much more proactive and sophisticated in competing in the new normal that is the global economy, even if within a single company. This is particularly true with deep tech ventures that represent one of NM’s biggest strengths, which requires highest-level b2b marketing and sales sophistication, consultative sales and relationship management. While it’s true that young inexperienced entrepreneurs need boot camps, mentors and training, seasoned professionals of the type required for competitive businesses at growth stage need competent partners and strong allies.

Businesses across much of the U.S. have also experienced a significant spike in regulation and ‘NIMBY’ (Not In My Back Yard), the combination of which has resulted in a great many business ventures becoming economically infeasible, including in NM. In personal communications some people in NM seem more concerned with avoiding the impact of a Microsoft on the regional environment and quality of life—including a few who are charged with the responsibility of economic growth. Predictions early in the life of companies on future economic impact are rarely accurate, including those by Microsoft. Attempting to project such divinity in venturing by communities has proven unwise, though quite common in underperforming markets.

The best that can be done is to identify rare talent and ventures with significant potential and get behind them and then work very closely through every stage of planning to mitigate negative impact in an attempt to achieve a balance that can best serve the interests of citizens. A good example is Intel, which has a small headquarter footprint in CA with operations dispersed globally, including of course NM. Another example is Nestle in Switzerland, though a great many emerging small to mid-sized companies are distributed today. The talent, experience and wealth corporate headquarters bring to communities should not be underestimated, particularly for tax base, economic security and nonprofits of every type, including charities that struggle for funding in NM.

A widespread trend across the U.S. in recent years is to rally primarily around incubators. While community incubators and accelerators are wise for many, the quality of entrepreneurs and management teams combined with community functionality and the quality of their networks all contributes to success. My definition of a functional regional community is one that can identify and support in a relevant manner mutually beneficial entrepreneurs and ventures, regardless of whether spun out of an institutional lab, dorm room or garage. The priority should not be about proving the success of a public program or to expand institutions—which tends to consolidate power rather than diversify, but rather should only be focused on the actual needs of the business and their customers with the understanding that it is a dynamic process that can be nurtured, influenced and even guided at times, but not controlled. Early flames are easy to smother or blow away into the welcome arms of competitors with ample fuel.

Several people involved in the NM entrepreneurial economy have requested that I share actual cases to compare and learn from. The following cases represent failures I have experienced first-hand over the past six years. Names and affiliations have been withheld in an attempt to provide anonymity—the goal is to share and inform, not to blame or prosecute. In some cases it may have been just a bad day, though others were tested multiple times, representing a clear and consistent pattern.

• Federal institutions that hide behind regulation and blame the community for their lack of ability to play a decisive role in growing regional business for the long-term. A common problem recently highlighted in D.C. by visiting Google engineers, using regulation as an excuse to fail has much greater impact in NM due to the lack of other powerful entities. To their credit, many individuals working for federal institutions go above and beyond in an attempt to assist, but obviously lack relevant tools or skills to do so—otherwise NM would have had a much more diverse economy long ago. It is a very frustrating situation for many. NM needs new and better models for deep tech manifesting into a few regional headquarters. At a macro level, U.S. R&D badly needs to be brought into this millennium through structural reforms, appropriate governance and modern systems.

• Public employees at all levels charged with various elements of the economy who are either unqualified and/or lack the passion to achieve success. In one meeting I was given a clear message that economic success wasn’t welcome in NM unless it was in the form of government growth. In another the individuals didn’t seem to have any understanding that economic development isn’t a jobs program, but rather the outcome of growing successful businesses.

“If government didn’t fund it”, one key person said they had “no idea what to do”. Well, their roles were funded—that’s why their jobs exist! Most functional business development efforts are not just funded programs, but rather results of many actions taken by a community in deploying every type of resource they have for the benefit of their own community. Such a culture is found almost anywhere that has a thriving entrepreneurial economy. The most important role a community can provide for emerging companies is assistance in attracting customers at the critical early stages.

Public employees should be a catalyst to regional business success, not a barrier. Leaders should help communities understand that each and every effort may be leading to new customers, tax payers, future employers for their children or neighbors, or a future funder of much needed local services.

• Senior managers in regionally headquartered organizations that demonstrate little to no interest in the success of others, even if to materially impact their own success. This shocked me more than any other type of negative experience.

1) CEO of a regional private company which has a mandate to engage with business as one of their primarily responsibilities. When I sent an invite to connect in a social network we belonged to, the individual responded ‘not interested’. The irony in this case is mutual invitations were sent and accepted by more than a dozen of their competitors in other states and countries, including companies 100x their size.

2) Senior management in a large business unit of a state funded entity with important synergies failed to respond to multiple attempts to connect in various ways while their peers and competitors not only accept, some assist and others have reached out to us in several states and countries.

3) Multiple non-profits with stated missions that include some element of community economic empowerment including in two cases specific missions to collaborate with private sector businesses, yet seem primarily engaged in fund raising, projecting personal ideology and sustaining their own lifestyles with other people’s money.

4) Almost every large organization in NM I’ve encountered including public, private and non-profit, most that would benefit directly and significantly from the success of my or a similar company here behave in a manner that serves primarily the interests of competitors to NM.

This list goes on, representing a systemic if fragmented problem in NM, which is a small economy that simply can’t afford not to have every leader and organization fully engaged at this point in history. These experiences clearly speak to the need for leadership training, education of board members and proactive peer pressure regarding personal and organizational responsibility for the economic health of their communities.

Of course we could have done a better job of working with NM, though NM entrepreneurs are so busy overcoming these kinds of regional obstacles in addition to what is an increasingly challenging task with no additional obstacles, so the administrative class needs to step up, roll up their sleeves, get to work and help win some battles. Bottom line is many entrepreneurs in NM have relocated with significant success while none in NM have achieved even a modest success by universally comparable standards. Of the few successes that exist, multiple have no customers in NM or have ever received the kind of growth support competitors enjoy in their regions.

Those who think they are too busy to engage in the extra curricular work required in building and sustaining healthy economies should try personally paying for the pleasure of being a soldier in the economic war on behalf of a community that doesn’t support them in a meaningful way. I’ve met quite a few such entrepreneurs in NM. Leadership priorities need to be recalculated to the new normal economy that will likely include far fewer subsidies and more performance based compensation. Get onboard.

5. Become early adopters, disrupters and defenders

I never confirmed whether the story was true, but one of my first meetings in NM was with a nice couple in their home in downtown Santa Fe. Both were academics, one a native NM professor at a local university, the other a researcher in a different discipline. The professor told me that he once asked his university to acquire an innovative software system only to be told by his administration that state law required public entities to use a certain ubiquitous product we are all very familiar with.

Organizations are only as innovative as the systems employed allow them to be and ubiquitous systems provide no competitive advantage, but then that’s obvious right? I have confirmed that professional IT lobbyists for incumbents are located in tiny NM, which may be instructive on why the regional economy exports hundreds of millions of dollars annually for technology. While exceptions exist, most tech companies gain initial customers regionally and then expand globally, including those locations where NM sends its budgets. If members of the regional economy are not encouraged to support each other, as incumbents obviously intend—they are likely not to make the attempt.

In a perfect world companies in far off places that benefit from regional purchases would find more ways to reciprocate, but in practice mature companies are under severe pressure to improve quarterly profit growth. Entrepreneurs are often left little choice—if to succeed many are forced to take a disruptive path, which requires special talent, guidance and assistance.

While it may be difficult for NM institutions to think and act in a manner that may seemingly misalign with corporate relationships, we only need look at the results for guidance. NM and other flyover states need to learn the art and science of disruptive innovation, which also means exploring unobvious alliances with customers, other industries, and distributors—perhaps in other nations. The bar for deep tech is especially high as are the stakes for all concerned and should be treated accordingly.

6. Allow experience to act as a guide

A common problem across the world in underperforming markets, which has increased in much of the U.S. and EU in recent years is also found in NM—allowing ideology, popularity and/or unhealthy business relationships trump experience in leading strategy and execution that impact business and economic competitiveness.

While most environments suffer from this problem to some degree and networks are very important, the reason why those networks exist is the relevant factor. A million followers in consumer social media can be of no value in b2b, while one trusted relationship can be invaluable. The core of functional global business is experiential knowledge that has been demonstrated over time in multiple environments. Those in government and academic cultures rarely understand that the entrepreneurial process is the most expensive education in the world, and top-tier performers are the most valuable. Regions that fail to understand this and listen to experience do so at their peril.

I will offer two recent cases of tragic failure in NM as examples of what to avoid.

1) During my first year living in NM I attended several local networking functions, primarily for social value and to explore methods to assist, including angels, innovation, associations, etc. During one such event I met a recently retired senior tech executive who shared multiple professional relationships in an industry that is very important to NM. As the event intended, our private discussion soon turned to NM, including our experiences, so after answering a few of his questions about my activities I listened to his.

In a very mature, respectful manner this still vigorous exec shared how he had intended to find a way to assist NM when retiring here, as his knowledge and network were still obviously strong and fresh, but after two years of frustrated efforts he gave up. I think he has since relocated out of state. He painted a picture of a culture that believed in a hypothetical economy rather than navigate successfully in the real-world economy and markets. He was visibly disappointed, representing one of few failures in his career. Over the next two years his experience would become my experience in an almost identical confirmation, so I retreated and focused primarily on my own company, which requires even more energy and sacrifice because of this situation.

2) A very successful retired entrepreneur and executive and I have long shared an interest and relationships in a NM non-profit. He and his wife retired in NM part-time due primarily to this commonality, and much like the case above he attempted to boost the entrepreneurial economy with expertise, investment capital and his extensive network. In fact he and his wife invested a significant amount of money, time and credibility in support of non-profits and venturing, but within a few years became frustrated by what he considered to be a failed effort. They sold their home and relocated out of state.

The tragedy these two experiences represent is that each is highly respected across large global networks, which no doubt gleaned similar stories. And both were from industries NM has long sought to grow with considerable investment and energy to attract the attention of precisely these same individuals and their networks. These were two of the most experienced tech execs I’ve met in NM, were badly needed in every sense I understand about the regional economy, but were chased away. As a business and economic consultant during my first visits to NM I would have diagnosed this behavior as self-destructive, requiring intervention by professional specialists and credible, trusted leaders.

Closing thoughts

In the many conversations with business leaders I’ve had over the course of the last 22 years about NM, it may be surprising for some to learn that in every case I recall we all wanted to see NM become more competitive, dynamic and diverse, and in so doing provide more opportunity and economic security for its citizens. Most share NM’s view on the environment, science, art and culture—indeed in many cases this brought them to NM.

However, none of us are magicians—we can only help those who are driven to help themselves and learn from their own mistakes as well as others. While failure is common in business building—even celebrated in pop culture today however inappropriately, repeated failure to act on lessons learned is rarely tolerated in business, whether by investors, lenders, partners, customers, or employees.

Speaking for myself as well as perhaps many of my fellow entrepreneurs, I sincerely hope NM grasps its future firmly in its hands and sculpts it into a more vibrant, diversified, dynamic and sustainable future.

Mark Montgomery is founder and CEO of http://www.kyield.com, which offers an advanced distributed operating system and related services based on his patented AI system.