Stephen Nellis

Today is my final day at the Pacific Coast Business Times. By the time you read this, I’ll be working at a startup in San Francisco. But for the past seven years, I’ve had the pleasure of covering technology and innovation in the Tri-Counties.

I’ve reported on everything from semiconductor firms that have been in business since shortly after the birth of the integrated circuit to software startups founded by students. I’ve seen companies scale up to hundreds of millions of dollars in revenue only to collapse a few short years later.

Along the way, I’ve gained some insights into how innovative companies launch and prosper along Highway 101. What follows are my observations, a few predictions and some advice.

• They’re from the government, and they’re here to help. When I became technology editor in 2007, city and county governments in the region viewed the tech sector with indifference at best and antagonistically at worst. That has changed completely as government officials have recognized that tech companies provide head-of-household salaries and a light environmental footprint.

These days, Santa Barbara and Goleta officials are sparring to lure startups to one city or the other, while Ventura points out that its city-backed incubator is cheaper than either and half your employees probably live there anyway. On the Central Coast, San Luis Obispo city and county officials are now calling me with news tips when a company is on the rise.

By and large, these are good developments, but there are some pitfalls. Red alerts should sound any time government tries to pick winners and losers. The only certainty in tech is that there will be losers. Business leaders need to ensure that government leaders understand that companies will rise and fall, but that a strong technology cluster will benefit the community in the long run.

• We’re on the map with institutional venture investors, but not investment bankers. As has been reflected in various rankings over the past seven years, the Tri-Counties punches far above its weight when it comes to venture capital dollars raised per capita. And much of that capital has come from big names such as Benchmark, Kleiner Perkins, Google Ventures and the like. But it’s important to note that most of the capital has gone to a few big startups.

What we need now are exits, preferably IPOs or mergers with public companies. In my seven years, only three companies born and bred here — Inogen, Ceres and Inphi Corp. — have gone public. Only Inogen’s stock has appreciated considerably over its opening price.

Some of the biggest M&A deals, such as Clipper Windpower and Eucalyptus Systems, have been either outright failures or de-facto flops. While one could argue that major financings at Lynda.com and Sonos served some IPO-like functions, the region needs some headline deals to prove to Silicon Valley and New York that it’s the provincial gem it purports to be.

• The region has a distinctive startup style that should become its signature. The Silicon Valley method of starting software firms follows these steps:

1. Get a billion users.
2.  ?????
3. Massive profits.

The tri-county style is almost exactly opposite. Heavily influenced by the sell-design-build school of market validation, it focuses on the shortest possible time to revenues by solving real problems for real customers who really will pay.

• San Luis Obispo is becoming the regional powerhouse it always should have been. Seven years ago, tech leaders in SLO talked about “brain drain” — the exodus of talented Cal Poly students to the Bay Area and Southern California. Cal Poly has largely solved its part of the puzzle by integrating many of its well-regarded programs under the banner of the Center for Entrepreneurship and Innovation. The business community contributed support for Tech Pitch and the SLO Hot House incubator.

And government leaders such as 1st District County Supervisor Adam Hill and  SLO City Economic Development Director Lee Johnson are actively working to pave the way for headquarters to house new jobs and sensible development to house the new employees.

Business, academic and government leaders around the region should study SLO’s example.

• Ventura County has a secret weapon — Los Angeles sucks, and Santa Barbara is expensive. It’s true that Ventura County lacks a strong engineering university such as UC Santa Barbara or Cal Poly. But it’s a great and more affordable place to live with a reasonable office space market that can pull from both Santa Barbara and Los Angeles for talent.

• Housing costs are still the big challenge. Every business in the region faces this problem. The counterweight is the quality of life. Right now, even Santa Barbara is cheaper than the Bay Area or the livable parts of Los Angeles. Ask your prospective hires: If you have an 8 a.m. meeting, can you leave the house at 7:52 a.m. and make it on time? Here you can.

• Agriculture and health care are the next frontiers. These are two huge sectors of the American economy that are largely untouched by the powerful forces of innovation. There will be culture clashes, but the players who figure it out will be rewarded.

As a final note, I’d like to thank all of you who, through patient explanation, taught me how startups and the technology sector work. In case you’re curious, I’ll be joining a digital news startup called The Information. You can reach me there at steve@theinformation.com or follow me on Twitter at twitter.com/stephennellis.