February 12, 2014 - From the January/February, 2014 issue

Zack Zalon: Metropolitan Los Angeles Is a Happening World Center of Innovation

The Los Angeles County Economic Development Corporation’s January 15 Board of Governor’s Meeting featured a presentation by Zack Zalon, Co-Founder and Managing Partner of Wilshire Axon, a digital product and design firm. The discussion, printed below, focused on research that overturned misperceptions of Los Angeles with hard data to prove that the city is, in fact, a vibrant center of innovation. From transportation to strengths in tech fields to art and culture, Los Angeles remains at quiet leader in the United States. 


Zack Zalon

“We see that it’s not just people that move along these corridors—it’s ideas and interactions. We find that all of the innovation zones and venture capital zones start integrating once all these rail lines go live. That’s a positive sign that the future is brighter from an innovation standpoint in Los Angeles.” -Zack Zalon

I’ve spent about 18 years running innovation-oriented businesses around Los Angeles, and in that period of time, one of the things that I have noticed is that Los Angeles doesn’t get a lot of respect in the innovation community, even within LA, and especially outside of LA. 

About a year and a half ago, I was talking to a Wall St. Journal reporter about something digital, something innovative, and he went off the record with me. What he explained was that he feels like something’s happening here in Los Angeles, but he wasn’t exactly sure what it was. Every time he would go to his editors to attempt to write a story about the culture of innovation that was happening here in LA, his pitch would get shot down. The editors would literally say, “There’s nothing happening in LA. Go focus your energies on a place that actually matters.” 

And that editorial perspective personally bubbled my frustration to a pretty extreme level. In speaking with a few other innovative-technology executives locally, we felt that perhaps we could do something about that attitude. Perhaps we could prove our thesis that innovation is actually much more powerful across the landscape of Los Angeles than it gets credit for—that there’s a wide gap between the perception of Los Angeles, both in and out of LA, and the reality of Los Angeles from an innovation standpoint. 

Together, we first reached out to city hall. In the waning days of Mayor Villaraigosa’s administration, we asked for his support in helping to prove what we believed. That was the first thing that we did. The second was that we asked 25 business leaders across a landscape of innovation-oriented companies to join us in helping to figure some of this stuff out. They helped bring to light our vision for not only what Los Angeles could be, but also what Los Angeles already is, with authority and with data that actually backs that up.

The companies that joined us are all over Los Angeles. PwC also decided on a pro-bono basis to help us research. We formed, together with Mayor Villaraigosa, what we called the Los Angeles Mayor’s Council on Innovation and Industry. We’ll talk about how the Council now ties into the LAEDC in a few minutes, but that’s what we put together. 

Instead of just gathering in a board room and talking about our thoughts on Los Angeles, we decided to really put data to the test. We wanted to be able to talk about Los Angeles from a position of truth, and to get there, we asked all the Innovation Council members to really give of their time. 

And they did, with well over 2,000 hours of actual research done, with 4,000 pages of reports and studies that we got from all over, especially from PwC. There were honestly over 700 hours spent in working sessions. These are the CEOs of very serious and senior companies here in Los Angeles in the innovation space that were getting significant in their time—and a huge amount of caffeine consumed alongside of it. What I want to share today are some of the outputs from the research that we did, and then we can talk about what we’re going to be doing with that.

What we learned, broadly speaking, is that LA is incredibly bright. Innovation-wise, it’s unbelievably bright. Much more so than anybody even inside LA gives it credit for. But, what we also learned is that what’s coming down the line for Los Angeles is even brighter. 

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Let’s now talk about how we got to that conclusion. 

We focused on five subjects. The first is narrative—how we talk about Los Angeles. 1) What’s the common language that we share about innovation? 2) Policy—how we could be working with City Hall to do better things here in Los Angeles. 3) The network here in Los Angeles. 4) Education, which is an incredibly important part of it. Finally, and maybe the most important part, especially for start-ups and entrepreneurs, is 5) capital. Where are we with regards to capital? What does it mean to us, and what could we do to better attract capital?

Let’s start with the narrative part. Let’s start with what we first thought, which is that the perception is very different than reality. Here’s what we have, perception-wise. In terms of safety, broadly speaking, in and out of Los Angeles, Los Angeles is considered 34 out of 34 major cities in terms of safety. We were considered the least safe city out of large cities. In terms of public transportation, we are considered dead last—35 out of 35 large cities in terms of access to public transportation. This is the perception, remember, but it’s not based on absolute, clear data. In terms of intelligent people, we are considered 34 out of 35. I’m not sure where the 35th is—my guess is that it’s somewhere in New Jersey. In terms of doing business, we’re considered the 61st best city in America. And finally, in terms of the arts—this one actually did surprise us—we’re considered 12th out of 25 major cities. It seems like we should even be perceived to be doing much better than that. 

In terms of safety—we are, by some measures, the second safest large city in America. But, in actuality, there are a series of new reports that have come out recently showing that perhaps we are actually the single best city from a safety perspective. Our crime rates are lower on a per-capita basis than any other large city in America. That’s fantastic. 

In terms of access to public transportation—this did surprise us—we’re actually the best. It’s most likely because of the bus system that we have, which is pretty incredible. But, realistically, we are—if you look at it from a data perspective—the best city in America for access to public transportation. 

In terms of intelligent people—actually, we’re number one. We have more PhDs residing in LA than any other city does in America. 

In terms of cities for doing business—we all know that there are challenges to doing business in Los Angeles. There are challenges to doing business anywhere in California. But, realistically, we’re the sixth best city for doing business in America, and in terms of the arts, we are, behind New York, number two. I would probably even argue with this, but again, the data doesn’t seem to lie. So, we’re the second best city in America for the arts.

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As you probably know, we’re the largest port in the Western hemisphere. A full 50 percent of all the goods manufactured elsewhere come through Los Angeles, making us the main arterial connection to the rest of the country. Where other people manufacture, we actually bring it in, we distribute, we’re a massive part of the supply chain of the global community. In addition to bringing other people’s manufacturing in, we’re the largest manufacturing center in America. Again, this is something you may already know, but most people that we talk to are stunned when we say, “We’re bigger than Ohio. We’re bigger than Michigan.” We are huge in terms of manufacturing, and there’s a tremendous amount of innovation that’s happening in the manufacturing space right here that’s being driven by Los Angeles. 

Additionally, fundamentally, we all feel that we’re the creative capitol of America, but what most people don’t know is that there are over a million people presently gainfully employed in the creative spaces here in LA. That’s a huge number—if you actually think about it, that’s a staggering number just focused on creativity. 

The results, from our perspective, are really a legacy of creative land innovation that intersects every part of people’s lives here in America and around the world—everything from the Mars Rover, to the space shuttle, to the Internet. Most people don’t know this, but the first ever Internet node was not at Stanford in San Francisco, it was not at MIT in Boston—it was here at UCLA in 1969. The Aeron chair, of course, the aerospace industry, the electric guitar, the Frisbee, the pushup bra, and the Cobb salad, which I didn’t know about—there really is an unbelievable legacy of creative innovation that’s happened here in Los Angeles, and as you’ll see, we believe really strongly that that’s actually only the beginning. That’s a foundation to be built upon—it’s not just a legacy that we can be proud of. 

From a policy standpoint, we learned something very quickly. We learned that there’s not actually all that much that we can do with government to help innovation to grow. In some respects, all we really need is for government not to stand in the way of innovation and entrepreneurship. But, in some respects, there were things that we found from working with city hall that did actually surprise us. One of the things was that Los Angeles actually has a tremendous amount of real estate that’s available to us to be used as innovation zones. We found that there’s 1.1 million square feet of unused or underutilized real estate right now along the Expo Line, within a five-minute walk of either side of the tracks. We don’t exactly know what that means yet, but what we think it could mean that there are unbelievable real estate development and expansion opportunities. 

One of the great things about a place like San Francisco is that it’s pretty well-connected. One of the problems with Los Angeles is that we’re so widely geographically dispersed. It’s one of the things that makes us a great city—that we have so many different parts to us, we have so many different sides. But, we also have so much distance. And one of the incredible things that we’ve learned is that the infrastructure investments over the past 10 years are going to start having a serious effect. If we follow the trends that other cities have seen when they implement new infrastructure investments, this city is actually on the cusp of an explosive expansion in networking opportunities between the innovation zones that we already have. 

If you look at the map, and you look at all the different areas where infrastructure is going in, where light-rail lines and subway lines are going in, and then you actually map it against what we have, which is an overview of startups, entrepreneurial-like companies, innovation-like companies, incubators, and venture-capital firms, you start to see that the infrastructure going in today connects all these different zones to each other. That’s a big part of what we believe has been missing here, and it’s a big part of what’s necessary to take these innovation zones and start moving them together. We see that it’s not just people that move along these corridors—it’s ideas and interactions. We find that all of the innovation zones and venture capital zones start integrating once all these rail lines go live. That’s a positive sign that the future is brighter from an innovation standpoint in Los Angeles. 

Having addressed narrative, policy, network and how they all overlap—we turned to education. It was pretty stunning to us when we learned that Los Angeles educates and graduates more engineers than any other city in America—software engineers and otherwise. More than Boston, more than San Francisco, more than anywhere else. We have all of the talent that we need to grow a huge future of innovation right here in our backyard, but more than 50 percent of those engineers leave the day after they graduate. That is, in fact, a problem. Part of the reason why, we think, is that the perception and the reality of Los Angeles are disconnected from one another. 

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As an example, there are 25 members on our council. We wanted to do an informal poll—there was not enough data that we could find available to show us where the jobs actually were in the innovation and entrepreneurship fields. So we just asked the 25 council members, “How many engineering jobs do you have open today?” And the answer was shocking to us: over 500, just from the 25 companies that were represented on the council. You have to be able to extrapolate that. Even if you discount it back and say we have a lot of fast-growing companies—maybe we over-represent in terms of how many people are needed for each company—but if we discount it back, that’s still an enormous number of innovation-based jobs that are available here, and yet we have half of our engineers leaving. 

Something’s wrong there. Something has to change. We need to start building bridges between the entrepreneurial companies that exist today and the engineers that are graduating today and leaving tomorrow. In fact, that’s why we are so unbelievably exited about what Bill has been working on with the Blackstone Group. This represents not just $3.5 million of funded efforts. What it really represents is the first attempt to get into the universities themselves and start educating students today, before they leave, on what starting an entrepreneurial company means, why it’s a really legitimate way of living your life, and why—this is the important part—Los Angeles is the place to do it. These are our universities. If we can grab the students before they’re attracted by the next Facebook up north, or the next Boston, New York, or Austin-based company, we win. We just need to keep those students here. This is actually a huge achievement in terms of setting the ground, setting the foundation for what tomorrow’s LA-based innovation companies are going to look like.  That’s the education-based side of it.

Finally, capital. LA is not known as a rich hotbed of early-stage investment activity. We have some great firms here that do later-stage large investments, and we have some very large corporations here, but we don’t have a legacy of venture capital or private equity for smaller-innovation based companies. But, we do have capital. We have more millionaires—almost 270,000 millionaires when you take out real estate value—than anywhere else in America. We are the richest city in America. Los Angeles itself is the 15th largest global economy. We do not in any way lack for capital. It’s right here in our backyard, just like the engineers that we need for innovation companies. That’s a great sign. 

The biggest challenge for Los Angeles has been the actual lack of investment. We believe that if the capital is here, the engineers will stay. If the capital is here, the next Facebook gets built here in Los Angeles. It’s the capital being here that really matters. 

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© 2014 The Planning Report | David Abel, Publisher, ABL, Inc.