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What ‘s next for Cleveland? Featured

9:44am EDT July 22, 2002

Cleveland is a manufacturing town. From its early industrial days through the new millennium, the economy has been molded from the huge, noisy, industrial machinery that pumps petroleum products, electricity, finished metal and mass-produced steel into the marketplace.

And while Northeast Ohio clings to a heritage imbedded into its institutional memory, one might be left with the erroneous impression that the rest of the world has rushed to embrace the latest technologies as Cleveland chokes on its cyberdust.

But, though the region’s businesses may not be creating the technology that drives this new economy, make no mistake, efforts are underway to bring the area into the 21st century. Many of the traditional industries have embraced technology with open control panels and an eye toward a more efficient future.

Little research exists to provide hard evidence about the types of new businesses entrepreneurs are creating, but a quick survey of those who work with new companies suggests that Northeast Ohio has slowly begun the shift toward a larger base of technology-based businesses.

One number that sticks out comes from the Weatherhead 100 list of fastest growing companies. In 1988, 53 percent of the companies comprising the list were manufacturers. That number dropped fairly steadily to 23 percent in 1998 and 26 percent in 1999. Conversely, 40 of the 100 companies on the 1999 list were technology businesses.

Northeast Ohio might never be mistaken for Silicon Valley, but that doesn’t mean that the region doesn’t hold up its end of the Internet revolution.

“When we really look at the new economy, we’re not talking about just using a piece of technology,” says James Cookinham, executive director of Northeast Ohio Software Association. “We’re not talking about programmable controllers or using the various digitally controlled numeric machines.

“We’re talking about everybody in the plant using e-mail. We’re talking about communicating with all your customers electronically. We’re talking about having your sales guy in California being able to go online and see the status of a job right now.”

The difference between Northeast Ohio and Silicon Valley, though, is that while the region embraces the technology, its businesses aren’t the manufacturers. Instead, they are end-users. That distinction has made existing industries more efficient and more profitable, but the regional economy isn’t currently driven by the creation of technology.

“We’re just not leading edge in terms of all these start-up software companies that are creating so much wealth,” Cookinham says. “But my sense is that the curve in Northeast Ohio is going up. We’re making great advances. The question is, at what rate are other areas’ curves going up?

“Are we going up at the same acceleration or are we falling behind? That’s the challenging question.”

One area in which change is quite visible is in the influx of capital into start-up ventures. Many angel investors, unfamiliar with the ways of technology, traditionally tend to shy away from the tech-related start-ups. But, explains Charles Burkett, director of minority assistance at Enterprise Development Inc., as they become more savvy, investors are willing to invest more of their money into these ventures.

And it all builds upon itself. As the ventures become successful, those tech-savvy owners will readily invest in even more new deals, perpetuating capital investment in regional start-ups.

Another trend brightening the picture is that West Coast money people are looking to the Midwest as a place to sink their funds.

“There is so much money chasing too few deals on the West Coast,” Burkett says.

Investors can get a higher equity percentage for less money by coming here.

“That is embracing the new way of doing things,” Cookinham says. “It is true that we have no Microsoft, but I think there are plenty of companies here that are implementing and figuring out how to make an e-company work — make some of these old companies do things in new ways. I think that’s a big challenge.

“If we could get good at that — if we could brand ourselves (as) the rust-belt software capitol, then that would be a good product itself. If we could say we are the one that has helped the manufacturing industry make this transition, it would be nice if this region could be known as the region that is doing that.”

One technology company doing just that is TMW Inc., which writes software programs for distribution companies. There’s no one else doing that, says Benjamin R. Keller, program director for the EDI. It entrenched itself in a niche, which while not huge, is nearly all its own.

Other factors contribute greatly to the growth of our area as cybercenter.

“The quality of life has been a driver for the success of these companies,” Burkett says. Combining that with the area’s world class educational institutions producing the necessary talent should make this an attractive site for start-ups, which are already beginning to seep in as smaller, but powerful, drivers for both employment and influence in the regional economy.

Next month: A look at Northeast Ohio’s start-up economy, and some of the organizations that make the region conducive to entrepreneurial growth.How to reach: James Cookinham, (216) 592-2257 or on the Web at www.NEOSA.org; Enterprise Development Inc., (216) 229-9445 or on the Web at www.enterprise-development.org

Daniel G. Jacobs (djacobs@sbnnet.com) is senior editor of SBN.