On this week’s episode of Inside Outside Innovation, we sit down with Martin Babinec, Co-founder of TriNet and author of the new book More Good Jobs. Martin and I talk about the importance of community dynamics, and the creation of new businesses and the changing trends, that are affecting building startup communities outside the Valley.
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Interview Transcript with Martin Babinec
Brian Ardinger: Welcome to another episode of Inside Outside Innovation. I’m your host Brian Ardinger and as always we have another amazing guest. Martin Babinec is the co-founder of TriNet and author of a new book called More Good Jobs: An entrepreneurs action plan to create change in your community. Welcome Martin Babinec.
Martin Babinec: Thanks Brian. Glad to be here.
Brian Ardinger: I wanted to have you on the show. As a lot of our audience knows, part of the stuff we talk about in innovation, it’s not just about startup innovation or corporate innovation, it’s about community innovation. And your book around how do you create jobs and how do you create new innovations outside of the traditional tech hubs, was quite interesting to me and obviously up my alley, as far as what we’ve been doing here in the Midwest as well.
You’re an entrepreneurial by nature. A few years ago, you started TriNet back in Silicon Valley and grew that to a, a major company, but you’ve got some interesting things about how you did that. Not only did you create it in Silicon Valley, but you commuted back and forth from your residence in New York. So, take us back to the early days of starting a company from scratch in Silicon Valley, and then we’ll eventually progress to talking more about the book.
Martin Babinec: I’m a very lucky guy because when I began my entrepreneurial journey in 1988 and living in Silicon Valley at the time, I didn’t realize how valuable it would be to be starting a company in what would be considered the most entrepreneur supporting place on the planet.
I had no appreciation for it at the time. It was a struggle. And when Tri-Net began, since in the late eighties, you couldn’t say the words HR and outsourcing in the same sentence and have people understand what you were talking about. We’re talking pre worldwide web. So, we didn’t have the connectivity that we take so for granted today. And like most entrepreneurs, I began with only the vision of trying to create a small business. I was tired of working in a larger organization. I wanted to be more in control of my destiny. And that’s a very common thing that prompts people to start companies. But what I did not understand is that the very nature of what we were creating a TriNet would depend on economies of scale.
And so as an entrepreneur, once I began trying to start this business and sell to other small businesses as a business to business kind of approach, we were not successful. And we were on the verge of going out of business, when I kind of made the decision to really do something counterintuitive.
Even though this is an economies of scale kind of business, it required having lots of scale for it to be successful. It was waning our direction towards saying we’re only going to sell to emerging world technology communities. It really changed my life and outlook as an entrepreneur. And then became for TriNet to over the entire 20 years of, as the CEO, that was the focus of our business initially in Silicon Valley and then on, from, as we expanded to other markets, still retaining that very tight focus.
By doing that, it brought me into the world of Silicon Valley in ways that made me appreciate how important was to get support from the community. And it wasn’t till I moved my family from Silicon Valley to my hometown in upstate New York, which is more like the Midwest in terms of culture. All right. It’s 210 miles from New York City and a small community.
I spent 10 years commuting from my Mohawk Valley home in Little Falls, New York. Back to Silicon Valley while still running the business. And it wasn’t supposed to be that long, but that’s how it turned out. Over that 10 years of commuting, I really began to think hard about the difference between my two valleys and Mohawk Valley and Silicon Valley.
And that’s what prompted then this journey to, how do we take the assets in a place like upstate New York or in a lot of places in the middle of the country that have a lot of intellectual capital that is underutilized. How important is it of a supportive community to help entrepreneurs start and grow companies? And that’s ultimately what led to the start of our nonprofit Upstate Venture Connect, which in turn led to writing this book More Good Jobs.
Brian Ardinger: This conversation has started about the rise of the rest and startup communities outside the Valley and that. What do you think started some of that conversation early on to even think about the fact that companies can be created outside the traditional tech hubs and that there was a yearning and a desire to actually create these ecosystems?
Martin Babinec: National recognition through Steve Case’s Rise of the Rest was illuminating for some, but for me, it goes back much earlier. As I talk about in the book, in 1995, my good friend, Brad Feld moved from Cambridge, Massachusetts, a hotbed of startup activity in the nineties, he goes to Boulder, Colorado. And at that point in time, Boulder was not a place VCs were flocking to, to find the next big thing. All right. Nice college town, but not a whole lot of action.
And here, even by 1995, TriNet’s businesses is a hundred percent focused on emerging tech. Brad Feld moves to Boulder and not much going on there, but I decided to open a TriNet office just because Brad Feld moved there. That’s how much confidence I had that this was going to be a game changer.
And lo and behold, those people that follow Brad Feld and are aware of his book Startup Communities that talks about how did Boulder transform to a community that then rose in the ranks to be second in the country on the metric of venture capital investment per capita, trailing only the San Francisco Bay area. I mean, how did that happen in a period of call it 10, 15 years, which is not a long period of time when we think about major transformation of a local economy.
So I had a ringside seat and watched that unfold. And meanwhile, still growing the company and it was long before I started the journey of trying to learn from Brad’s experience and the experience of TriNet in many markets where there was lots of startup activities since that was the focus of our company.
I was taking in a lot of what I saw elsewhere and all the times thinking about someday, somehow, you know, if I had the time and more resources, I could put into it, what could I, as one guy do to help bring about some transformational change in an area that I really love? Not just in my hometown, but more broadly, the more difficult challenge of how could we leverage the assets that are dispersed geographically across the broader region? Because that for me is what made the most sense. And it’s also a lot more difficult than just trying to grow a startup community in a single city.
Brian Ardinger: So, let’s go and talk a little bit about the book. The title is called More Good Jobs. And you really talk about how do you turn your community into what you call a magnet city. Unpack a little bit about what people can find in the book and some of the core nuggets.
Martin Babinec: We actually did some research and that research included what happens with cities that..like in upstate in New York, we’ve got a hundred plus colleges and universities. We flow a huge amount of talent that comes into our area to attend these colleges and universities. And then we watched them disappear as they move other places.
So we did some research and said, where are these people going? And as we talked about in the book, actually going through Crunchbase data and looked at where did people that were coming out of especially STEM programs, where were they going to? What cities? And lo and behold, the research showed that from upstate New York colleges, there was a consistent four or five cities that the majority of this talent that was then landing in the Crunchbase database, Crunchbase reflecting emerging world technology companies, where were they going after college? It was the same four cities.
It was Silicon Valley, New York City, Boston, Washington, DC. Same four cities. And it got 85% of the talent that we were able to identify. And so, we would look at those cities and others as magnet cities. We also did some research showing the growth in jobs in these cities that are attracting talent for these newer industries, had not only high growth rates of what we’ll call tech jobs, innovation economy related jobs, but because of the attributes of that workforce profile, it pushed up overall job growth in a lot of other jobs, even outside the tech community.
So those cities, which we refer to as magnet cities have the enviable characteristics that all of us want to be in cities where the best talent is flocking to these magnet cities. And they’re being exported out of the other end of the extreme talent exporting cities like Buffalo, New York, like Syracuse, like Rochester. Great cities that have some assets, but we keep waving goodbye to our top talent that are coming out of these universities.
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Brian Ardinger: Yeah, it’s almost like it’s flipped the old economic development model where you would try to attract a big company to put some headquarters in your backyard. And then that would attract talent. It’s now almost the reverse where the talent itself attracts those big companies to come and smaller companies to come as well as new companies to be created, in the scheme of things. So, talent seems to be the driver rather than the jobs itself.
Martin Babinec: Yeah. But even when you apply that lens, which our government frequently tries to do. New York state in particular, we spend billions and billions of dollars on economic development that would include taxes incentives for companies to come and open up a facility because we got all these great universities.
It sounds logical, but guess what? The numbers show it ain’t working. We’ve been doing that same approach for 50 plus years. And it hasn’t moved the needle, but we still keep doing the same thing. That’s been part of the inspiration of my wanting to write this book is say, let’s debunk this approach because it’s not working. The talent continues to leave.
So how can we change the paradigm here. And what we believe in what we were able to show, even in the 10 years we’ve been on the journey with Upstate Venture Connect as a nonprofit, is that, that top talent when they are early in their career, and before they’d had a chance to really develop a good personal network, the ability of the community to help that top talent get connected to the right resources locally that’s how you can change and begin that journey to go from being a talent exporting community towards becoming a magnet city.
So, we’ve spent a huge amount of energy, and this is what the book goes over in terms of a menu of different approaches. And how does a group of leaders, local leaders and community leaders, business leaders, government people, think of different stakeholders in the community. How could local leaders start orchestrating a more combined effort to help talent who have entrepreneurial aspirations or maybe are starting, even if they’re students or developing relationships while they’re still students, so that they can put some roots down in these talent exporting communities. And it’s the roots that will keep them. And that’s part of what we try to do in the book and explain how that works
Brian Ardinger: Absolutely. And one of the things I like about the book is it does go into some tactical ways that a community can foster this and start building that magnetism, so to speak. A couple of things you mentioned are increasing the volume of collisions and this idea of creative collaborations and that. More angel investors. Having the entrepreneurs lead the communities. Can you talk about some of the tactics that you recommend in the book for how communities can become more magnets?
Martin Babinec: What we believe is most of these cities have the right assets. Just like you mentioned, they have entrepreneurs, they have capital, they’ve got industrial resources that can be useful. So, they have the right assets. And why are they not producing the level of startups that a place like the cities that I mentioned in upstate New York have the capability to produce.
And it’s because too oftentimes in communities that have a strong industrial past, as we have throughout upstate New York, that industrial pass was also built on a notion of hierarchy rather than network. So, hierarchy, meaning that companies would get started and everything would be driven from the top down.
You know, once there was a certain amount of capital that powered the growth of a business, there would be that combination of government support, which is very top-down. And then even colleges and community organizations are kind of approaching things in a hierarchal way, serving only their constituency.
And there’s very little recognition of growing a network from the bottom up. So we know when we think of today’s digital generation in particular, they tend to look less about what’s the hierarchy. And instead, they say, I can go online and meet people. All right. Or I want to be out there with my peers.
The reason they move from talent, exploiting cities to magnet cities, because they want to hang out with other people that look like them. And when they’re there in a talent expert in community, and they don’t find any startups and they don’t find any things in new industries, they say that’s why I got to leave.
So what can people do to answer your question? It’s provide visibility to the assets that are there in these communities because traditional media, broadcast television, local print newspapers, they don’t provide much visibility to the activity in the newer industries. It’s been a super frustrating thing for us.
And so, by the way, the next generation, the digital generation, millennials, they don’t watch broadcast television. They go read print newspapers, right. And somehow, they pop into these magnet cities and they figure out, who do I need to meet? And that makes it inviting for them to go there. Even when they don’t know anybody, the day they walk in.
Okay. So here we had the assets inside these communities, and yet they’re siloed. They’re siloed by institution and they can be siloed by geography. So, the focus is finding the right tribe of leaders that can break down these silos and be thinking more about collaboration that includes crossing institutional boundaries instead of focusing only on their own constituency.
Let’s open things up a bit. Let’s provide some visibility to where are the kinds of events going on, where the right people can come together and bump into each other in what we call a creative collision. Cause this is how relationships often get started. And then when relationships get developed to a certain point and there’s trust in the parties involved.
There are also opportunities for especially experienced people, experienced entrepreneurs, and those with some capital to make referrals. And when you make a referral, by a have trusted source. This is such an important attribute that helps entrepreneurs in the newer industry, especially those earlier in their career that don’t have deep networks.
So, the more a community can do to help put those roots down, and form relationships, and be embracing of those with innovation, ideas, and growing businesses. This is what can change the direction for a local company.
Brian Ardinger: I’m curious to get your take on the COVID pandemic and maybe some of the changes and trends that we’re seeing as people move to more remote workforce and the ability to tap into networks no matter where they’re at. How does that potentially change the dynamic of a magnet city? What are your thoughts on that?
Martin Babinec: As we speak there’s no question. The out migration from some of these magnet cities that have shut down offices and just have people cramped in some cases in small apartments, without much contact other than virtual. Some of our talent exporting cities look really friendly by comparison. And so, we’re getting near term some benefit from that. Some people are now making life choices about what’s more important. And the fact that companies are now more embracing of the ability for our professionals to be productive on a remote basis.
I think it’s a game changer and that’s going to create some opportunity for what have traditionally been some talent exporting cities. But as we know today, maybe by April or May or sometime next summer, things are at some point going to start looking a little bit more normal as the vaccine becomes effective and we reach herd immunity and we put the pandemic behind us. Things will start reverting back to what we used to have.
And yes, there will be people flocking back to work in offices. All right. And there are reasons that the attributes of these magnet cities will power back up. So as good as it looks today. I think there will be some changes ahead, but it’s still we’ll leave the residual benefit of corporations and businesses of all kinds who will now have both the tools and maybe a little more confidence that work can be done on a remote basis. And that presents a tremendous opportunity for cities.
Brian Ardinger: Yeah. I think it provides an opportunity for communities to kind of reinvest and reset themselves as well for this new world. As well as more visibility, like you said, to alternatives that are out there that people may not have ever looked at until this pandemic came around. The last topic I want to talk about is this concept of capital. And one of the things you talk about in the book is how to increase more angel investors and ability to have people to bet on these early-stage ideas. Not only with cash, but also like corporations to bet on these new companies to use as beta customers or, you know, as customers themselves. What’s your take on the importance of venture capital, angel capital, in creating a community in a new city around this?
Martin Babinec: We devoted a whole chapter of the book to this very topic, chapter seven. And the key understanding that I’d share here would be that when it comes to institutional capital, like venture capital, once a company arrives at a stage where they can qualify for that institutional capital, capital increasingly gets more mobile. It’ll cross geography. Particularly when we get to what we call Series B level.
So, think of the capital stack beginning at the very start, the first money an entrepreneur typically gets comes from the three F’s, friends, family and fools. Okay. And that capital is pretty available almost anywhere. You can find the three F’s and so entrepreneurs can usually begin with that. Then the next stage is what we’ll call seed, up to and we’ll call it Series A.
So, seed capital is after they’ve exhausted the friends, family, and fool money. They move in and maybe get some angel investors who ideally pool their money together in a fund rather than operate as a network. They’ll oftentimes, angel investors that are in that three F category, are operating as wildcatters, which is not a good way to go. But when you pull lots of these angels together into a fund, as we explain it, the book that starts really now picking up into seed capital.
And so seed capital checks can be in that $150,000 to a million and a half. And sometimes more, depending on the opportunity. Then from seed capital, that first level of institutional financing Series A, which can be checks in that $3 million to $10 million range, that’s where more sophisticated money comes in.
So, the biggest gap in talent exporting communities is in that seed capital to Series A. We’re not going to attract Series A investors to come in, to start up shop as a Series A fund, until they see it’s in their advantage to do so. We worry less about attracting capital in that sense. And I focus my energy on that seed capital stage and building relationships with Series A investors, including those outside the local area.
So that when the right company has reached that stage, where they now qualify for a Series A investment, we have the network of relationships, including those, bringing us outside the area, to qualify Series A firms who then will value the opportunity to get into these companies. Because oh, by the way, when these Series A firms, which are oftentimes in magnet cities, where they’re a wash in dollars going into these companies.
If you’re in New York city or Silicon Valley, and you’re a startup that qualifies for Series A, the capital is almost irrational. Like if they get bid up, there’s so many dollars chasing the best deals. The valuations are really high. So, when you present a good Series A investor, with a great opportunity and an area of coming out of a talent exporting community and can show that, Hey, this thing can really work.
The valuation for the quality of the companies is oftentimes significantly lower than the equivalent company in a magnet city. And if you’re going to make money as an early-stage investor, as we say, basis matters. Meaning you pay too much. You really do reduce the opportunity for it to be a significant win at the back end. We explain that in our chapter on private capital. And it’s a great question.
For More Information
Brian Ardinger: I appreciate you coming on Martin Babinec to talk about the book and that if people want to find out more about yourself or more about the book, what’s the best way to do that.
Martin Babinec: Visit our site moregoodjobs.org where you can also not only get the introduction and some information about the book, but you can join our community. We created a community site. In which we welcome the opportunity to interact with others, not only about the book, but those that really want to help grow their startup community wherever they might be and interact with people that share those same values.
Brian Ardinger: Well Martin Babinec, I appreciate you coming on Inside Outside Innovation. I look forward to continuing the conversation and seeing where the world takes us.
Martin Babinec: Thanks so much, Brian. Appreciate being here.
Brian Ardinger: That’s it for another episode of Inside Outside Innovation. If you want to learn more about our team, our content, our services, check out InsideOutside.io or follow us on Twitter @theIOpodcast or @Ardinger. Until next time, go out and innovate.
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