New Orleans: the rebirth of Sin City
By: Andrew Saunders | Management Today | 9/28/2015
Unless you had a very long summer holiday somewhere remote this year, you will already have been reminded that 29 August 2015 marked the 10th anniversary of hurricane Katrina, one of the worst storms ever to strike the US. The hurricane – which peaked at a 175mph category five but slowed to ‘merely’ a 125mph category three – made landfall on the brackish seaward fringes of Louisiana at 6.10am that Sunday, only a short blow south of New Orleans, birthplace of jazz, pleasure capital of the Gulf Coast and one of the poorest and blackest cities in the US.
The storm headed swiftly inland, and – compounded by subsequent man-made shortcomings, from the infamous failures in the city’s flood defences to chaotic, tardy and inadequate responses from government – went on to claim the lives of some 1,800 New Orleanians, displaced 400,000 more and left 80% of the city underwater for weeks. With a clean-up bill in excess of $100bn and counting, Katrina has become the costliest natural disaster in US history.
It’s a tale with a satisfyingly plunging narrative arc, but the drama has now moved on. After a decade in which the Big Easy never had it so hard, a new more focused city, slightly chastened perhaps but determined to prove the naysayers wrong, has emerged. Economic redemption is at hand, and what’s more the city’s growing band of ambitious and energetic entrepreneurs has played a major part in making it happen.
‘Katrina was a disaster, a huge setback,’ says Matt Wisdom, founder and CEO of 15-year-old digital animation marketplace Turbosquid, one of the city’s most successful and established tech outfits. ‘Only the high ground by the river didn’t flood, and if you drove off it, it was like a warzone. You could see just how far the city had fallen, every tree looked like a bonsai and the only sound was the noise of Humvees and military helicopters.
‘But it was a disaster that taught everyone that you can’t stay still, that you have to improve. For a long time before Katrina, things had only been getting worse in New Orleans. Afterwards, they could only get better.’
Like most residents, Wisdom had to evacuate his family and his staff (25 of them at the time) in the aftermath. Many business owners never returned, but having already struggled to get a start-up off the ground in what was then one of the least-entrepreneurial cities in the USA (‘For 30 years there were no new businesses here. Investors just said, “Why are you there? There’s no ecosystem, there’s nothing going for you”‘) he was in no mood to stay away.
Besides, when people did start to return, they weren’t always the same ones who had left. ‘It was a bit like the Wild West. The people who came back were young risk-takers who didn’t want a safe job with a big company. They wanted to start their own businesses, and they also knew that if you don’t evolve you will die.’
Precisely one such incomer is Sean Carrigan, founder and CEO of smartphone battery booster start-up MobileQubes. Based in a couple of small, utilitarian rooms in an office complex devoted to housing nascent firms (one of New Orleans’ big attractions for impecunious entrepreneurs is that space – both for working and living – is still cheap), he explains why he chose a city better known for jazz festivals and easy living than sweat equity, to bootstrap his business in.
‘The economy of New Orleans has always been driven by visitors, and Katrina showed us what can happen to that engine,’ he says. ‘But it also brought in younger professionals, people like me, who saw there was a chance to reinvent themselves and the city. Now there’s a subculture of ambition. There’s been a big change of mentality here and the entrepreneurial thing is really pushing that.’
Carrigan was born in Washington DC and spent seven years in New York before heading south to the fleshpots of Louisiana in 2011. ‘I was working for Dow Jones, it was a great job but what I was doing every day just wasn’t moving the needle. So I helped start a business and the New Orleans Startup Fund invested in it. Part of the deal was to come down here, open an office and start creating jobs.’
MobileQubes provides fully-charged battery booster packs for smartphones via specially designed vending machines (pictured below). Having launched locally last October, he and his three partners are masterminding a national roll-out from their Gulf coast HQ. It’s a great place to be a start-up, he reckons. Affordable, exciting, large enough to have critical mass but small enough to make meeting everyone you need to know a doddle.
News of the quiet rebirth of NOLA (New Orleans, LA) as a hub for tech SMEs has even spread across the Atlantic. MT was in town thanks to Newcastle-based financial software business Sage, which held its global customer conference, Sage Summit, there recently. With 7,500 attendees, it claims to be the largest SME conference in the world.
Why choose New Orleans, hardly a regular spot on the conference circuit? Well, many of the city’s 1,400 or so restaurants are Sage customers, plus ‘it’s a hotbed of start-ups, and we wanted to do our bit to help them post-Katrina, and to show our affinity for the great community of entrepreneurs there,’ says Sage CEO Stephen Kelly. His ambition is for Sage (which with twice the market cap of ARM is arguably the UK’s most successful tech outfit) to become ‘the voice of the little guy’ standing up for SMEs and doing the lobbying that they don’t have the time or money to do themselves. ‘We feel a tremendous responsibility for Sage to be part of the communities it operates in,’ he says.
Tech entrepreneurs who do decide to hang out their shingle in NOLA can rely on a juicy incentives package. As well as the aforementioned New Orleans Startup Fund (jointly bankrolled by state and federal government and local angel money), which invests between $25,000 and $100,000 a time in promising new businesses, there is a well-developed incubator programme and – the jewel in the crown – very generous tax breaks.
Drafted by none other than Turbosquid’s Wisdom (who is also on the board of the Startup Fund: in this town, everyone knows everyone), the Digital Interactive Media and Software Development Incentive provides a 25% tax credit on capital expenditure, and a 35% tax credit on every salary, to tech start-ups based in Louisiana. It’s a blunt instrument that must cost plenty of tax dollars, but it works. The city has rocketed up the various rankings for the best place to start a business in the US, and now has 64% more start-ups per capita annually than the national average.
‘What used to happen was that companies which started here, a year or two later they’d be out in Silicon Valley. They had to follow the money. But now we’re getting companies saying “we’re going to stay”,’ says Carrigan.
Even so he admits that the city’s rep as a great spot for a hedonistic weekend of downtime is proving hard to shift. ‘VCs and money from the coast are starting to look here, but when you do a pitch you still wonder in the back of your mind whether they are thinking “these guys are just a bunch of knuckleheads from New Orleans”.’
What’s needed is a $1bn-plus IPO or trade sale to validate the market, he says. ‘A couple of big wins would help, and there is a generation of companies on the cusp of doing it. That would say to the VCs, “Come on down to the bayou, you might find a diamond in the rough.”‘
Turbosquid is one of the favourites for just such a hefty ‘liquidity event’ – does Wisdom feel the heat? ‘It’s a big topic of conversation,’ he admits. ‘All the entrepreneurs are like, “Who’s going to be first?”‘
There are those however who look at the seemingly insuperable challenges faced and wonder if that $100bn and counting is really worth it. Even if a good chunk amounts to guilt money, an attempt to make up for the Federal government’s failure to properly grasp the severity of Katrina until it was, for those 1,800 victims at least, too late.
At 385,000 the population remains some 70,000 short of pre-Katrina levels. Crime is stubbornly high, and the city is divided perhaps even more than before along rich white/poor black lines. Although it is still a majority black African American town, many of the recent arrivals are white and middle class. They can afford to buy houses on the right side of town, and districts that used to be mixed are becoming whiter, more gentrified and more expensive as a result.
Meanwhile over in the districts that were worst affected by Katrina, parts of the infamous Lower Ninth Ward remain semi-derelict, as poor and black as ever and home to only 40% as many residents as there were in 2004.
‘Houston took the oil business, Atlanta took corporate HQs. Look at non-farm jobs growth since the 1960s. Atlanta grew by 200%. America as a whole grew by 80%. New Orleans grew by only 40%.’
What’s happened to the city post-Katrina, he says, is like a private equity takeover. ‘The city was like a business with great fundamentals but crappy management.’ So after the disaster, there was ‘a massive infusion of capital and the crappy management (elected officials like the mayor, state governor and police chief) was thrown out. Now it’s like a great-value stock, with a better combination of low cost and high culture than anywhere else in the country. It’s one of the great re-emerging economies of America.’
And don’t forget the latest environmental emergency – the vast and rapid coastal erosion in the Mississippi delta as a result of over-enthusiastic drainage, and canal building by the oil industry over the years. What luck then that the $17bn fines levied by the US courts on BP for the Deepwater Horizon disaster in 2010 should come along just in time to help sort out the mess? Fortunate for all those shrimp fishermen down on the bayou at least, if not for BP’s shareholders and British pension funds.
But this is a city that has historically polarised opinion, described by author Gary Krist in his new history Empire of Sin as a place looked upon by the rest of a poker-backed nation ‘with a combination of wonder, suspicion and often abhorrence’.
The fact that its culture and architecture have been so heavily influenced by decadent Europeans from Spain and France didn’t help any either. Buried safely down in the moist and steamy south, a long way from all those chilly east coast wasps, New Orleans was a service station for baser needs, best kept very firmly out of sight and mind.
The days of Storyville – the legendary vice-district peopled by musicians, prostitutes and criminals whose colourful doings made Damon Runyon’s Broadway look like Sunday School – may be over. But America’s moral ambivalence towards the Crescent City itself may linger awhile yet.
‘New Orleans was like the person you’d want to date but not marry. Great fun for a weekend but you wouldn’t want to take them home to your parents, or invest your family or business there,’ admits Michael Hecht, the CEO of Greater New Orleans, the NGO tasked with the job of selling the post-Katrina city to a more or less sceptical national and international commercial audience.
Part of his sales pitch is to paint a grizzly picture of just how bad things had got even before Katrina came along. Corruption, bad management and bad governance led to the one-time star of the Gulf coast, blessed with the biggest port on the Mississippi river, being sidelined by other better run neighbours, he says.
That’s not to say there aren’t still plenty of problems to tackle – schools remain a thorn in the city’s side (see ‘Schools in New Orleans’ section below). Hardly any major national corporations have offices in the city – GE is a notable exception, which has a global centre of IT excellence there. And international connectivity still leaves a lot to be desired – there’s no direct flight to London for example. ‘We’ve been in long discussions with BA and now Virgin and Air France. There are 480 people coming here from the UK every day. If we could get that flight it would change everything.’
Perhaps the way in which Gulf of Mexico veteran BP has been skinned alive by the courts – aided and abetted by plenty of locals – since that aforementioned Deepwater Horizon disaster might account for some reluctance here. It’s hard to escape the conclusion that had the well blown out on a US firm rather than a British one, the miscreant would be facing a substantially smaller settlement than the $17bn in fines that have been levied on BP.
‘I know there is a sense in the UK that the company got rolled,’ says Hecht. ‘There were mistakes made for sure but then the lawyers got hold of it. There was some support and sympathy here for BP.’
Either way, it’s all more cash for the region. Money which the city seems to be managing to spend without becoming hooked on further easy calories from the federal teat. ‘The mistake made with government aid is thinking that both the money and the plan can come from the centre. The money has to but the ideas and implementation must be done locally. That’s what the success of our turnaround says to me.’
There’s certainly no doubting the sense of growing self-confidence that is abroad in this once-battered fun town, now very much back in charge of its own destiny. ‘Ten years out from Katrina, we are further on than I thought we would be in my lifetime,’ says Turbosquid’s Wisdom. ‘It turns out that happiness is a positive trendline. You may struggle today but you will struggle less tomorrow.
‘People are now starting to think that living in New Orleans is a good idea, and it wasn’t clear they were ever going to think that again.’
SCHOOLS IN NEW ORLEANS
One of the biggest threats to the revival in New Orleans is the state of its schools, which even after a decade of reform remain firmly in the must-do-better league. Not least because the city desperately needs to attract more large employers. ‘In 2012, we asked Intel if they would build a chip fab (microchip factory) in New Orleans,’ recalls Matt Wisdom of Turbosquid. ‘They replied that they would never consider it, because our public (state) schools aren’t good enough, and they don’t pay private school salaries.’
Pre-Katrina, over half of Louisiana’s schools were classed as failing and critics compared academic performance to that of Haiti, one of the poorest nations on earth. Post-Katrina, all schools in the state are now charter schools, funded by central government but run and managed locally. Headteachers and governors have considerable autonomy, while students and parents can choose which school they want to attend and their funding moves with them. Failing schools tend not to attract many kids, and are closed without delay.
Has it worked? Yes, and no. ‘The schools have gone from an F to a C grade,’ says Wisdom. The deregulated model is controversial and although there are now only 6% failing schools and graduation rates are rising, New Orleans still has some of the worst performing school districts in one of the worst performing states in the country.
How long before they will be good enough to attract those all-important Fortune heavyweights? ‘It will take a generation or two,’ he reckons. ‘When kids who did well at school grow up and start having their own kids, that’s when it will really ramp up.’
Read the full article here: http://www.managementtoday.co.uk/news/1364808/new-orleans-rebirth-sin-city/