Is New Orleans America's Next Great Innovation Hub?

National Journal

This article is part of a weeklong America 360 series on New Orleans.

In the wrinkled edifices of the French Quarter and the worn-out storefront walls along Canal Street, a legacy of decay in New Orleans intrudes on the mossy city. It is a sense of things that have nearly fallen apart and stayed nearly-fallen-apart for decades.

For much of the last 20 years, the city was wilting in plain sight. In the 1990s, a period during which the U.S. added 21 million jobs, New Orleans didn't just lose jobs; it also lost people. With tourism filling the void left by manufacturing, wages fell way behind the national average. It was place to bring a bachelor party, but not a bachelor's degree, and certainly not a business.

And then, in 2005, Hurricane Katrina hit.

Days later, 80 percent of New Orleans was underwater. More than 1,200 people were dead. In a year, the city lost more than 90,000 jobs -- more than the number employed by the local education, transportation, and manufacturing sectors, combined -- and $3 billion in wages disappeared. A city already in decline had suffered perhaps the worst natural disaster in American history.

There are three ways things could have gone. In the first story, New Orleans slides into its own wet grave, another urban tragedy of geography and economics. In the second story, New Orleans rebuilds itself as it was before -- a sleepy southern belle of a town serving up wet weekends of intemperance. In the third story, Hurricane Katrina somehow kickstarts an age of innovation and an economic renaissance in a city written off for dead.

The Big Easy has chosen the third path -- the hard path, and the struggle has revealed both the tantalizing allure, and the deep challenges, of reinventing a city.

'To Hell With It, We're Going Home'

Kenneth Purcell is evangelical about New Orleans. This makes him more or less like every other person you meet in New Orleans. When Hurricane Katrina struck, the tech entrepreneur with shoulder-length hair watched from a high rise on Lafayette Square as the water overcame the streets. "Like every other good redneck, I said 'I'm not leaving,'" he told me. Ten days later, he left.

Purcell moved his budding start-up to New York, where he stayed for the next two years building iSeatz,com, a service that lets shoppers book multiple travel arrangements on one website. But in the undertow of national fatalism about the city's future, Purcell found himself pulled back home. He wanted to prove a point, to make a stand.

"I got so pissed off at the headlines about the city, with company after company leaving, that I said, 'To hell with it, we're going home,'" he told me just blocks from Lafayette Square, at New Orleans Entrepreneur Week (I attended and spoke at the conference last month). "And it was the best decision I ever made."

iSeatz has grown its platform from $8 million in gross bookings in 2005 to $2 billion in 2013. It's clearly one of the city's biggest homegrown tech breakthroughs. Then again, it is also one of the city's only homegrown tech breakthroughs.

Purcell is a member of New Orleans' boomerang generation -- a group of proud, young- to middle-aged reformers who came back to New Orleans in the wake of Katrina to find the city flattened. The city didn't have the jobs they wanted. So they built their own. After 2005, the start-up rate in New Orleans doubled in just three years (this graph, and others, comes from data provided Greater New Orleans Community Data Center).

New Orleans needs more than start-up enthusiasm. It needs start-up success stories. Breakout success stories. "How do we get from this nascent state of having a lot of bubbling petri dishes to seeing some things really culture out, and having a sustainable ecosystem to support them?" Purcell said. In other words, how does New Orleans, a great city to get away from business, become a great place to start one?

How to Build a City

Jean-Baptiste Le Moyne de Bienville was drawn to the crescent city in the crook of the Mississippi River in 1718. He mistakenly believed the land, most of which is under sea level, to be properly shielded from the stormy Gulf tides. "Paris on a swamp." It was a good elevator pitch.

Nature's feedback was harsh. Four years after La Nouvelle-Orleans was founded, an inauspicious hurricane destroyed every home, shop, and makeshift chapel. A reasonable person might have relocated. Instead, Bienville rebuilt. One hundred years later, New Orleans was the largest city in the south.

The history of New Orleans is that of a city always rebuilding itself. But unlike past efforts, the current makeover isn't funded by on an economy of sugar or oil, but rather an economy of people and ideas. When you cast your eye across the country's leading high-tech cities -- the San Francisco area, Seattle, Boston, Washington, D.C., and New York -- a rough blueprint emerges. These are large, dense, mixing-pots of people and businesses.

All five regions have a long history of government investment, especially in science and technology. All five have built clusters of commercial activity, ranging from apps and airplanes to government and software. All five have national universities that provide a steady stream of talent and research that can be injected into companies. All five are home to companies and organizations--Google, McKinsey, Congress--that serve as national talent magnets for young people with degrees from prestigious universities.

New Orleans has some of this. There is Tulane University. There are the energy companies. There are the studio outposts that lend it the name "Hollywood South." And, unlike the country's richest cities, New Orleans has cheap living costs to attract graduates with debt. But on the high-tech radar for young graduates, New Orleans registers faintly. When the Martin Prosperity Institute, led by Atlantic senior editor Richard Florida, ranked the 20 leading high-tech metros, New Orleans didn't place. Huntsville, Alabama -- home to NASA's Marshall Space Flight Center and the United States Army Aviation and Missile Command -- finished 15th.

New Orleans is one of the great cultural brands in American cities with a rich history of art, music, and food. But it is not one of the country's great business brands. It doesn't have a rich history of Fortune 500 companies or national media-darling start-ups. The term "Silicon Bayou" exists, but the term is more hopeful than descriptive. Currently, the city's economy would be better suited to mining silicon than manipulating microprocessors. When you compare New Orleans and, say, San Jose the cities could not be more different by industry specialization. San Jose has 96 percent fewer mining jobs than the average city. New Orleans has 240 percent more. San Jose's share of information workers is three-times the national average; New Orleans is still below average.

So why are some investors so optimistic about New Orleans?

First, the price is right. "It is massively cheaper to do a start-up in New Orleans," said Jim Coulter, the co-founder of the private equity firm TPG Capital. "The cost of living, of labor, and of office space, is much lower." And then there are the tax incentives. One particular tax credit, which covers 25 percent of companies' production costs and 35 percent of payroll expenses for local employees, has been credited with growing the city's tech jobs by 19% between Katrina and 2012, six-times the national rate.

The flip-side of cheap labor is a dearth of tech talent. "There is a definitive hiring challenge here," Purcell said. "[Hiring] quickly is hard. Looking for developers is hard all over the country, but we have a steeper climb here."

But there's something else New Orleans has. Katrina has been a surprising force for renewal. The storm demolished the city's storefronts, infrastructure, and tax revenue. But it also shuffled some of the old order in New Orleans in ways that give it a unique advantage.

'I Don't Feel Like We're Fighting Anymore'

It would be wrong to say the hurricane destroyed New Orleans public schools, because there was so little worth saving even before the storm hit. Orleans Parish was the second-worst-performing school district in the state, plagued by an abysmal drop-out rate.

Demolishing the city's schools, the storm inspired an start-up mindset in the parish that has created perhaps the most-watched petri dish of education reform in the country. Today, there is no major city where a majority of public school students are in charter schools -- except New Orleans.

Before the hurricane, fewer than 30 percent of New Orleans students were in passing schools, according to Alison Plyer of the Greater New Orleans Community Data Center. Now it's 68 percent. "There's been a concentrated effort by the entire community to improve the schools," she said, "led by charters and Teach for America."

It'd be easy to assume the explosion of entrepreneurial activity was merely born of necessity. But it was about "more than just rebuilding the city," Medbery said. "It was about re-imaging it as a place for big ideas."

Gary Solomon, Jr., had a big idea, too, he just didn't know where to take it. Born in New Orleans, he studied lighting design at NYU in order to work on Broadway. But after Katrina, "there was a calling to come back home," he said.

"There was no industry here [in New Orleans] for what I do," he told me. "Our opportunity was to create it." So he teamed up with two unlikely partners: Steve Fink, the longtime production manager at the Superdome, and Jonathan Foucheaux, an entertainment tech wiz from Six Flags Theme Parks.

In 2009, the company, called Solomon Group, had three employees. Today, they have a staff of more than 100, with eight figures of revenue. They've designed complex installations for museums and arena-sized events. The exterior lights of the Superdome? They designed that. When CBS hosted the Super Bowl here this year, the network shot from ten "broadcast environments" throughout the city. Solomon Group built eight of the ten.

"While New Orleans has an awesome foundation and history and way of doing things, this feels like the first time the old guard has been willing to listen to new ideas," Solomon said. "Pre-Katrina there was no changing anything that had been done for 100-plus years. I don't feel like we're fighting anymore. There is a desire to change and do new things."

More Than 'Most-Improved'

Twelve years ago, a group of New Orleans-born tech guys met at Loa Bar, just off Canal Street, to share war stories and gripe about the decline of the city. They wanted New Orleans to be a place where entrepreneurs would flock. That boozy meeting led to the creation of a non-profit, the Idea Village, which has tirelessly lobbied the city to support start-ups. It has fought through bureaucracies and hurricanes and a Gulf oil spill to build Entrepreneur Season, a nine-month annual program to support new start-ups. The capstone Entrepreneur Week conference last month ended with 1,700-person vote for start-up of the year, the largest crowd-sourced investor pitch in the country. It was literally a street party. Kind of like a Start-Up Mardi Gras.

If New Orleans has a competitive advantage, this is it: A reputation for fun, along with a culture of engagement and a civic awareness sharpened by recent tragedy. Organizations like the Idea Village will be pivotal to building a city culture that celebrates and encourage entrepreneurs, who are, by their nature, ambition yet alone, independent-minded and dependent on the support of others.

In the last five years, the city has won an astounding number of city awards, but many of them are a variation on the "most improved player" theme. In 2011, the Wall Street Journal named it the most improved metro. Forbes has dubbed it the Number-1 metro for IT job growth. CareerBuilding said it had the third-fastest wage growth in the country. Just last week, the Brookings Metropolitan Policy program named it the number one recovery city in the country. But since Brookings measured growth compared with the aftermath of Katrina, this is as much recognition of how far New Orleans has come as it is recognition of how far New Orleans had fallen.

After losing up to 10 percent of its population, New Orleans is growing again. The parish ranks behind only Austin and suburban Washington, D.C., as the fastest-growing large counties in the U.S. As the city has filled up again, the number of blighted homes has fallen by more than half since 2008. Crime is falling, and the share of bachelor's degrees is rising.

But there is no getting around this central fact: The city isn't merely miles behind San Jose and Austin in attracting the nation's top talent. It's behind the national average. The share of New Orleans young adults with a bachelor's degree has increased from 23 to 26 percent since 2000. That's not just below the average city, but also it's growing slower than the average city.

New Orleans' most critical challenge in the next five years will be to win the mind-share of young entrepreneurs -- whether by building a city-wide wifi network, hosting a major corporation's bureau, or launching a nationally celebrated consumer-tech company. "For all their individualism, entrepreneurs tend to flock," Jim Coulter said. "There's a network effect. Flocking drives more entrepreneurs. The coffee shops become the discovery points. That's what happened in San Francisco, it's happening in Austin and it's beginning to happen in New Orleans."

Just beginning. Still beginning. Sometimes a start-up city is just a city getting started, again.

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