Path Dependence, Housing Costs Breakdown, & New Jobs in NC
Small Cities Weekly | 05.03.2024
As part of the work we are doing on the Small City Segment, we send out a brief weekly post of thoughts, links, and research in progress that reflect the week’s work. I’d love to hear from you if you have any thoughts, questions, disagreements, or things to add. Please forward this on to people you think might enjoy reading it.
Path Dependence
The Chicago Times-Herald hosted the first automobile race in the US in 1895. The race was originally slated to be held July 4 but was delayed to Labor Day, and then again to Thanksgiving as competitors asked for more time.
Late November in Chicago brought what seems predictable to anyone from the Great Lakes region - 6 inches of drifting snow the night before the race. Of the 60 contestants that had registered, only six even made it to the starting line. Within a short period of time, the only electric vehicle in the race called it quits because of the cold’s impact on the battery. After 10 hours, multiple collisions with street cars and horse-drawn carriages, a winner of the 52-mile race was crowned - the gasoline-powered Duryea “motocycle”. The brothers who built it immediately started commercial production and sold 13 cars by the end of the next year. The automobile market was off and running, shaped by the results on that snow-covered course.
Almost 130 years later, Chicagoans are still dealing with the problem of electric car batteries in the cold. Is this because the problem is so difficult to solve? Maybe. More likely, it’s because over 130 years, we’ve built relatively few electric cars compared to gasoline-powered ones. We haven’t had the iteration cycles, the R&D, the market demand for the technology to improve. So here we are - 130 years later, many convinced that the electric car will be the future, but still in need of improvement to be reliable in the northern Midwest.
What if the race would have happened on July 4 as planned? What if instead of the Chicago Times-Herald, the San Francisco Chronicle would have sponsored the race in Northern California? Would we have a different car industry?
It’s hard to tell the outcome of these alternative histories. But the fact is, the race was held on a snowy, 30-degree day in November, in Chicago. The magnitude of its influence may be debatable - but that it was influential is not.
This reminded me of a conversation I had a few years ago with a regional bank executive about financial technology and innovation. I asked, “How do you think about technologies like PayPal, Venmo, and other fintech companies?”
He said, “With technologies like that, they generally take 6-9 months to make their way from the coasts here to Indiana. In that time, we just try to button down the hatches.”
Notwithstanding that I had (and still have) no idea what “button down the hatches” meant in this context, I don’t think the sentiment is unique. Places outside the big urban areas are generally seen as more conservative when it comes to trying new things. We at best are the “early majority” and usually the “late majority”.
What many people - especially those in the late majority - assume about technology is that once it starts, it is on an inevitable path. The best technology wins out in the end. We get to the most efficient solutions. You can just wait until it improves, gets cheaper, is more established, and less risky. Why go first when others can get beat up in the risky beginning on your behalf?
The reality is more complex than that. It’s more path dependent. Randomness matters. Small events shape technology’s path in unpredictable ways.
You can see this same tension in the discussion of early-stage startups. The lean startup, design thinking, and other frameworks can give the sense that innovation is a maze. That there is an answer - the question is how fast you converge upon it. Testing, experimentation, listening to the customer - all are an attempt to find the hidden, but pre-defined, prize of product-market fit.
Except I think this draws the wrong conclusion for why these frameworks are important. The frameworks are useful not because the customer knows what they want and are just waiting for you to discover it. They are important because innovation is an act of creation, not confirmation. The customer shapes what you think you can build and the problem you can solve, and you shape what the customer thinks is possible. This is part of the reason you can’t just ask, “What do you want?” It doesn’t work. You have to create what could be, together.
This makes early customers and pilots important to the ultimate path of a startup. Those early conversations, tests, experiments, and brainstorming are not with a cold, objective market oracle. They are with people, with their own unique constraints, their own bandwidth for creativity. Get a first pilot with one customer and maybe the startup goes this way. Substitute a different first customer and maybe it goes that way. It’s hard to say if those two paths will converge. They may, they may not. It’s not at all clear or predictable.
Solutions are shaped by early customers and customers are shaped by early solutions.
You know who doesn’t do a whole lot of shaping in those early days? Late adopters. It can be confusing to some why so many systems we have don’t seem to work for some subset of the population. The reality is that they probably weren’t built for them. Those customers probably represented an expansion market. An opportunity for growth. But expansion and growth built upon a foundation that they didn’t shape.
It’s not dissimilar to the old adage that the world is shaped by those who show up.
This is part of the reason that investing in early-stage companies outside of small cities, but which may have applications in small cities, is important to me. Exposing founders, in the early days, to the markets that exist here may shape their path.
Can we predict that it will always end up being applicable? Not with any certainty. But what we can say, is that showing up - being part of the conversation - gives us an opportunity to shape them. And over enough time, across enough startups, we should see some of these new systems reflect us.
Founders will build for the things they come in contact with. So we need to increase surface area. Come in contact more often. We can’t predict the paths they will go down, but we can’t be part of the conversation if we don’t show up.
Links
You can find links from this and all previous editions here.
What Makes Housing So Expensive?, Brian Potter, Construction Physics
Because of the enormous costs of housing, it's worth understanding where, specifically, those costs come from, and what sort of interventions would be needed to reduce these costs. Discussions of housing policy often focus on issues of zoning, regulation, and other supply restrictions which manifest as increased land prices, but for most American housing, the largest cost comes from building the physical structure itself. However, in dense urban areas — the places where building new housing is arguably most important — this changes, and high land prices driven by regulatory restrictions become the dominant factor.
This is a really thorough breakdown of what it actually takes to build a house and where the largest buckets of costs are. The takeaway seems to be that there are no obvious “big” buckets - and that even includes land costs. This is part of why it makes decreasing the costs so hard, there are no clear low-hanging fruit to attack.
These cities raised taxes — for child care. Parents say the free day care ‘changed my life’, Ariel Gilreath, Hechinger Report
But Richard’s life changed in the fall, when, thanks to a new city-funded program for low-income families called City Seats, she enrolled the three children at Clara’s Little Lambs, a child care center in the Westbank neighborhood of New Orleans. For the first time, she’s earning enough to pay her bills and afford online classes.
“It actually paved the way for me to go to school,” Richard said one morning this spring, after walking the three children to their classrooms. City Seats, she said, “changed my life.”
Innovation in child care is an area that we are really interested in. It’s a great example of the type of problem that needs a three-prong approach to really solve - policy, non-profits, and entrepreneurship. As these regulatory and government supported benefit landscapes change, it will be interesting to see what new entrepreneurial opportunities emerge to further decrease the cost and increase access.
Can a ‘Not Charlotte’ Recipe Revive a Region?, Santul Nerkar, NYTimes
The flurry of activity reflects new investments in a region of North Carolina that has lagged behind: the Triad. The average income in Randolph County, which includes Liberty, is $47,000, and some jobs at Toyota will offer an hourly wage comfortably above that. More people moving into the area could breathe life into Liberty’s downtown.
But the potential dividends for the area — which includes Greensboro, Winston-Salem and High Point, in the center of the state — depend on equipping its workers with the skills needed for those new jobs. Mr. Kidd worried that many local workers lacked the education and skills to work at the plant.
For those jobs, “they don’t write anything down — they put it in a computer,” Mr. Kidd said. “And if you don’t know how to do that, you kind of get x-ed out.”
At the same time, some residents and local leaders who welcome the new industries worry about maintaining the area’s character, lest it become like the rapidly growing — and expensive — sprawls elsewhere in the South.
“We don’t want to be Charlotte,” said Marvin Price, executive vice president of economic development at the Greensboro Chamber of Commerce, referring to the banking center 100 miles down Interstate 85. “We want to be the best version of Greensboro.”
The above four paragraphs illustrate the multi-dimensional tensions that economic development brings in areas with economic infrastructure and industries from 50 years ago. New jobs, but skill gaps. Opportunities for new industries and growth, but concern about costs of living and growth. This won’t be the first time that communities try to navigate these changes and certainly will not be the last.
If you…
are interested in building for the small city segment…
are already building for the small city segment…
know someone who might be/should be building for the small city segment…
want to contribute expertise to problem profiles…
or want to help us expand our network in small cities…
please subscribe and reach out at dustin@invanti.co.