May 7, 2020

Tech Industry’s Resilience Underscores The Opportunity For Economic Diversity In Charleston's Economy

Mike Sottak  /  Post and Courier
Wired Island's, Mike SottakWired Island's, Mike Sottak

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An abbreviated version of Mike Sottak's commentary has been published at the Post and Courier. The full version is below.

"...the COVID-19 pandemic will encourage people–-entrepreneurs, investors, and employees–-to consider opportunities outside of the coastal tech hubs. People who have been considering a move, to tap into the sector expertise that exists in many parts of the country, or for a lifestyle change, or to be near family and friends, may choose this moment to relocate, accelerating a talent boomerang, and helping emerging startup cities rise,"  _Steve Case, Tech entrepreneur and investor

Two recent headlines in the same issue of The Post and Courier caught a reader's attention for the seeming dichotomy in message. One story reported on the mounting job losses in Charleston's tourism and hospitality sector as a result of the pandemic, while the other spoke about a locally based tech company whose business was barely impacted by the Covid19 crisis.

In the case of the latter, no jobs were cut and the company quickly pivoted to a work-from-home model to maintain business continuity. On the other hand, we know all too well the situation with the hospitality and services industry which is so critical to our local economy, and a source of pride and enjoyment for us who live here.

The situation plays out the same on a national level. While unemployment figures set new records, largely fueled by layoffs and furloughs in services and retail, the tech industry has weathered the storm with far less damage. The site tracks tech layoffs and shows roughly 44,000 job losses nationwide from tech startups since March 11. This compares to more than 30 million jobless claims nationwide in the same time frame. In tech, many established Silicon Valley stalwarts have leaned on deep cash reserves to adopt a no-layoff policy and others are actually hiring to address opportunities presented by the crisis.

To be fair, the economic impact of the pandemic is still unfolding and many sectors of the tech industry will undoubtedly suffer. Recent layoffs at locally based Benefitfocus serve as a poignant reminder no company is completely immune. But generally tech companies are better positioned to withstand the Covid19 challenge (See recent earnings from the likes of Facebook, Google, Microsoft and Amazon), and indeed emerge stronger through opportunistic innovation and nimble operating models. Others that contract or fade away will do so largely as a result of a 'thinning of the herd' effect that has always guided tech's Darwinism ethos.

The services industry is valuable but vulnerable

Here in Charleston, the services industry situation is difficult and personal, albeit unavoidable during this unprecedented time. Almost everyone likely knows someone who has lost a job at a restaurant, bar or hotel here in town, probably more often than knowing a victim of the virus itself. Much credit is due to the local industry's stellar internal support infrastructure and creative thinking already being applied to help ease the pain. From ambitious take-out offerings to innovative fundraising schemes, the industry is showing grit and resolve that is admirable.

There's still no telling how big an impact the Covid 19 crisis will have on our tourism economy but estimates of a $500 million hit or more are not unrealistic, especially considering the pandemic hit during a peak visitor season. Further frustrating matters, unlike previous high impact events such as storms, this situation is global and Charleston's recovery will be paced largely by factors beyond our control – restrictions on travel and social interactions, the health of airlines, government economic recovery programs, and indeed the unpredictable course the virus itself continues to take. This not only impacts workers sidelined by closings, but also the city coffers which rely on this golden goose to fund needed services, programs and infrastructure. Recent estimates predict that close to $30M in direct tourism-related income for the city could be lost.

Economic diversity is key

While we all want our hotels, restaurants and attractions back and running as soon as possible, we were heartened to see Mayor Tecklenburg's 3 Step pandemic recovery plan call out the need to embrace a multi-faceted economic development strategy, with a focus on "delivering more resilience through greater diversity."

In particular, continuing to develop a robust tech and digital economic sector is not only wise, but especially timely and necessary given the current circumstances. Indeed, Charleston is well positioned to take advantage of a number of trends being accelerated by Covid19 and that line up well with the needs of an innovation economy:

Flight from big cities: The coronavirus has caused many urban dwellers to rethink the appeal vs. risk of living in crowded environments, which are both costly and, during times like this, more susceptible to health risks. A recent Harris Poll showed that 39% of urban dwellers said the COVID-19 crisis has prompted them to consider leaving for a less crowded place. Factor in high cost of living and quality of life factors, and places like Charleston become even more appealing in the post-pandemic world. For tech specifically, large concentrations of tech savvy workers in cities like New York, Boston and San Francisco may use this as an excuse to look for more attractive living options (Mark Zuckerberg famously said recently that if were to start Facebook all over again today, he wouldn't do it in Silicon Valley). In fact, some states are offering cash incentives to families who move to their locales and work remotely.

  • Distributed working has been proven now. The number of people who work from home or remote from their employer has been growing steadily in recent years, but the virus forced a new wave of workers out of their offices. And most evidence so far shows the shift has worked reasonably well, especially in the tech sectors where distributed working, even occasionally, is more commonplace anyway. Familiarity with tools like Zoom, Slack and Teams combined with high-speed connectivity allow dispersed teams to work productively. It's likely that working remotely will be more broadly embraced by companies post-Covid19. On the flip side, remote working has the potential to lower companies' operating costs, significantly reducing an expense that is typically the largest one on their budgets: space (rented or owned). Cost-effective co-working spaces are now common in Charleston with more coming on-line.
  • The rise of the digital entrepreneur: Today's innovation economy is not defined by physical constraints, much the way hotels and restaurants are. The barriers to entry for a digital entrepreneur are much lower than a brick-and-mortar business and the economic value created is more fluid and can be orchestrated from just about anywhere. So why not Charleston? A recent study by the University of Iowa and Arizona State University shows that not only is the traditional clustering of tech firms in "superstar" cities a diminishing trend, smaller sized communities tend to benefit more from small tech businesses than other types of businesses (the research found that each highly active digital venture per 100 people added $331 to the growth in the median household income in a county over a two-year period). The study's authors point out that "Trying to lure a big tech company with tax breaks to make an investment may be misguided. A better option for most communities could well be programs geared to helping tiny ventures and skills development."
  • Spontaneous innovation to address crisis opportunities: Winston Churchill famously said, "Never let a good crisis go to waste" and the tech industry is taking that to heart. The epidemic will change how we live, work, study and play for a long time, if not forever, and technology will underpin much of that. From distance learning and working technologies (see: Zoom) to telehealth platforms, to ways to monitor people and information, there are a range of issues that the virus has exposed which opportunistic entrepreneurs can look to develop solutions for, often without a lot of capital investment required.

Building on the Charleston tech foundation

These and other trends argue in favor of doing even more to position Charleston as a welcoming and supportive partner in furthering the technology ecosystem here. A recent article in the Harvard Business Journal outlines three key ingredients to a tech-friendly development strategy:

  1. Invest in institutions of higher education as engines of innovation and job creation, particularly leveraging their ability to attract international talent.
  2. Foster diverse communities, utilizing untapped talent to drive higher economic returns as well as greater equity.
  3. Build basic infrastructure to ensure future growth and to retain a highly-trained local workforce

Charleston already ticks a lot of the boxes, with a strengthening computer science department at the College Charleston (and an already strong pipeline from nearby USC and Clemson); a diverse talent pool that can be developed and/or attracted to build a more complete workforce; and some needed steps in motion to improve infrastructure (which includes upgrading to 5G, sorry conspiracy theorists). While there are a growing number of other viable options in our region to set up a tech shop or relocate yourself (e.g. Raleigh, Atlanta, Nashville, Orlando), Charleston's position is enviable and rich with opportunity.

And the onus should not just be on the government. In fact, the same HBR article points out that "business leaders interested in having a civic impact should instead roll up their sleeves and collaborate with political leaders to invest in basic infrastructure and leverage diverse talent to help foster vibrant ecosystems."

On top of that, let's face it: it's a pretty great place to live. That alone is a differentiator for Charleston's attractiveness and an ace in the hole for efforts to create more economic diversity. We can thank the services industry for a big part of that allure and charm, as it serves as a hook to attract talented people who can increasingly live and work anywhere.

To be sure, great progress has been made with initiatives at the city, regional and state levels, and on both the public and private side. One need only look to the success of the Charleston Digital Corridor to see the potential of developing a true tech community here that can feed off itself and fuel further growth and entrepreneurialism. On top of enabling important resources such as skills training, job listings and professional development, the CDC is a good bellwether for the health of the tech community here, tracking nearly 500 local tech operations. Among its most telling statistics is the rise in average tech salaries locally – reaching $93,000/year in 2019, double that of the average general salary in all other industries in Charleston.

The Charleston Tech Center rising from Morrison Ave., due to open by year's end, is another tangible sign of more progress and a physical testament to the economic value potential of such use of space. It will stand as a beacon to entice more tech investment to Charleston and we hope it's not the last structure of its kind to stand alongside the many hotels and apartment buildings piercing our downtown skyline.

The hospitality and tourism industry will always be the heart and soul of Charleston and quite literally put our city on the international map. But the current crisis shows how vulnerable it can be, warning us of the danger of becoming too reliant on one engine. And, by having other resilient economic drivers, it will also help accelerate the recovery of our bread-and-butter industries which are suffering now. Investment and growth in other sectors provide us with needed diversity that can help us weather storms such as the one we are in and strengthen our economic foundation for the long term.

Mike Sottak is a veteran technology marketing and business development professional and entrepreneur. He has consulted with national economic development initiatives in Europe and advised dozens of tech start-ups on marketing and growth strategies. Contact him at