An economic & political overview of Northern Nevada: It’s time to ask the hard questions

After the great recession of 2008 a lot of people had to reinvent themselves and think about what was next.  I was in that same position after the investment bank firm I was working for in Lake Tahoe shut its doors.  I was left with that terrifying yet exciting question of what was next.  As I was weighing different offers in a broad range of cities from New York to Mumbai, the economist in me kept reminding me of the nature of economic cycles.  The deeper the dive the greater probability of recovery and that location happened to be in my back yard – The Biggest Little City!  At that time it was still known more for Reno 911, $2.99 prime rib dinners, and legal brothels.  It also happened to be one of the worst hit cities in the recession.  The contrarian and economist in me ultimately won the argument and I set out in 2010 to make Reno my next career move and new home.

When I made this decision to focus my life and career in Reno I had two objectives in mind: to attract outside capital for Nevada based companies and to help those companies grow and eventually exit at high multiples. This new wealth creation would help flatten the wealth and power disparity in the state.  I think all major issues from education to state revenue can be solved through this goal.  Below is my current view of the Nevada economic and political state, specifically Northern Nevada, and why we have struggled over the decades to become a diversified and first-rate economy.

Nevada Wealth & Power Concentration:  Nevada’s history is the epitome of innovation and free market opportunity; its policies and culture were rooted in libertarian and free market thought.  We all know the story of Virginia City, the gold rush, and the wealth creation in that small town was unprecedented in the history of the world.  Soon after, the emergence of gaming as an industry has completely changed the landscape of hospitality and how adults are entertained.  It does not seem like it in present day, but Nevada historically has been a very innovative state that has historically been able to produce new wealth regularly.  Unfortunately, during the last few decades in Northern Nevada there has been a concentration of power and wealth that has made the economy stagnant and political landscape less than progressive.

For me, this is all rooted in the fact that we have had no new wealth creation and specifically for the middle class.  Silicon Valley is a perfect example of why new wealth creation creates a robust and diversified economy.  Essentially, Reno has had no major exits or a culture that promotes the building and sharing of wealth.  As a result, we have exported all of our natural resources and wealth to companies and players outside of Nevada and the large companies in Reno have held their ownership closely with no sight on exits.  Furthermore, we are selling our state’s wealth and revenue for the promise of job creation (i.e. Tesla).  This has created a simultaneous flight and concentration of wealth, which has lead to what I believe to be a major power struggle and an inequity in the market.  The young upcoming generation is tired of this and as a result has left the state to pursue opportunities in more vibrant and diversified economies.  This has lead to a very comical yet sad display of politicians and the major closely-held business owners trying to continually justify their power.  No amount of tax breaks, regulations to keep out competition, or economic development deals will fix this problem.  The entire power structure and its intentions must be questioned and a lot of the current leadership must be replaced.

As I watch the results of the 2015 legislative session and the strategic decisions of our economic development leaders, I am highly underwhelmed.  The basis of logic, which separates us from animals, is rooted in the law of non-contradiction.  In Carson City the leadership is in complete contradiction of what they say their policies and principles to be, and ultimately, what their voting record illustrates.  As a results driven thinker I can only deduct this to two conclusions: either there is a complete lack of logic and reason in Carson City or there is only self-interest at work.  Both of these options are a major problem and we have to hold these individuals accountable. I am tired of hearing that this is how politics is done.  In order to truly change this economy we need to start asking the hard questions and demanding coherent and consistent answers from leadership.

I first came across this when I supported SB75 in the 2011 legislative session which was a bill drafted to carve out $50 million from the state permanent school fund for an in-state private equity program.  My prior career was helping institutional investors like permanent school funds and public pension plans allocate capital to high quality investment mangers.  Knowing that Nevada desperately needed capital to diversify its economy and create new wealth to flatten income disparity in the region I was in full support of this bill.  When I got involved, I was really surprised to see the Republican caucus in complete opposition of the legislation.  A bill that would ultimately increase returns for the permanent school fund and help fund private business in Nevada was fairly textbook Republican legislation.  Democrat Treasurer Kate Marshall was the sponsor and showed a lot of courage in taking this bill through the process and even though I lean Libertarian/Republican my logic and worldview told me that I must support this legislation since it would result in a stronger economy.  This was my first taste of how disingenuous and illogical Nevada politics had become.  Ultimately, logic prevailed and SB75 passed with one minute left in the session as well as AB449 to re-haul economic development and both pieces of legislation have had a positive impact on our economy.

Sine 2011, there has been positive growth and we have gone from Reno 911 to a newly branded Biggest Little City that is seen as the emerging super star.  This has been mainly driven, in my opinion, by young grassroots leaders in our market that have had enough of the power and wealth concentration.  This is all positive and I could not be more pleased with the change, but what I am seeing in the moment is causing me great concern.

Reno and Northern Nevada is starting to believe its own hype and our decisions are becoming more and more illogical and ultimately we have stopped asking the HARD QUESTIONS.  All great military and business strategists agree that controlling the mind and emotions is crucial in succeeding in any campaign and that means becoming even more skeptical when a strategy is resulting in success.  History is riddled with failed empires and campaigns that lost sight of their discipline and started believing their own hype at the height of their success.  I would like to layout a few examples of where we are making what I believe to be strategic errors in our growth path and why we need to be asking the hard questions and holding our leaders accountable.

Political Economic Maneuvers:  I am firm believer in the free market and although there must be some government control this must remain consistent on a coherent and logical platform.  What I am adamantly against is government picking and choosing winners through benefits and incentives.  Again, I point to the basis of logic, which is abiding by the laws of non-contradiction.  So, lets start with the recent Tesla deal that everyone is up in arms over and why that has ultimately lead to what I would call a very illogical decision on the part of Nevada political leadership.  As an entrepreneur, I applaud Elon Musk in how he strategically played multiple states against each other to negotiate an incredible deal and one that he needed in order to take on this massive risk for his company.  I won’t get into the details of why I believe from an infrastructure perspective we are not prepared for this massive project, what I am more concerned with is the $1.25 billion tax abatement that Tesla received in the name of economic development for the region.  Most would say and the studies probably state that this will create new jobs. I’m sorry but who cares, our economy has recovered and we already have jobs.  This does not create new wealth for the middle class in our region, which is all that matters to break down the current power and wealth structure and create real revenue for our state.

As we export wealth again in a similar fashion to what we have done with the mines and our natural resources the Governor and State Senate want to push that tax liability onto the small businesses of Nevada in the name of education.  So not only are we exporting our wealth in return we are putting additional liability on the only sources that can create new wealth for the middle class and true revenue for our state.  This is a major contradiction in coherent and consistent logic, in one instance a tax break is in the name of economic development and then the next a tax liability is in the name of education.  We are picking and choosing winners on a whim rather than building strong strategic plans that result in new wealth creation for the middle class.

I am the first to agree that we need to support education and we need revenue in order to do that, but at what expense?  If we eliminate Nevada business then what is left for those educated in our states?  There might be high paying jobs from companies not operating in Nevada but there is no opportunity for new wealth creation for the middle class and the smartest and brightest will leave the state creating the same cycle we are currently in now.  In the end, we become a cheap temp labor and tax agency for the biggest companies in the world.  As a Nevada business owner I find what Nevada leadership is doing is wrong and unfair, if you want me to cover my fair share then those that come and play in our state need to share that same burden and in fact they should share a greater burden because their wealth will be exported out of our state.

Flippant Entrepreneurship:  Entrepreneurship is being romanticized right now and it is the latest buzzword similar to flipping homes was in 2006 and we all saw where that took us as a country.  As an entrepreneur, I am the biggest fan of entrepreneurship for creating new wealth and diversifying economies through innovation.  Currently, there is no better time for entrepreneurship.  Companies like Kickstarter and technologies to support businesses has never made it easier for small disruptive companies to change the status quo.  With that said, the free market is a ruthless companion and no one knows that better than Silicon Valley.  In order to be great you have to be a hardcore realist and companies need to fail or succeed quickly and that talent must be redistributed through the eco-system.

I love the new entrepreneurial activity in Reno but my impression is that again we are believing our own hype and not asking the hard questions.  There is a lot of back patting going on rather than harsh critical thinking, we can’t treat our entrepreneurs with kid gloves or we will never have major exits and create new wealth for the middle class to break down the power structure.  Many small markets trying to play the entrepreneur game fall into the trap of subsidizing start-ups through a plethora of accelerators, government programs, and centers and this ultimately is doing a huge disservice to the entrepreneurial community.

Again, I can’t emphasize this enough that the free market is an entrepreneur’s best friend and critical feedback is the breakfast of champions.  I see a trend of start-ups that are being subsidized by the community that never fail but never obtain a customer and this has to stop, we need to recycle that talent and resources to the concepts and companies that are succeeding in the free market.  I also believe that many politicians are waving the entrepreneur flag as a distraction from the real problem of the power and wealth concentration, it is a way to show support of free enterprise without really having to give up power.

Stagnant Business Structures: There are a lot of great family-owned businesses in Reno that do amazing things for our community and employ a ton of good people.  This is a good thing for our community and I am grateful for them. With that said, we still need to diversify our business structures to fix the current problem and create new wealth for the middle class in the Northern Nevada economy.  That means growing up as a market and building high-growth innovative companies through outside capital and sharing the capital structure among employees.  Holding all the ownership closely and allowing for no growth capital is a zero sum game, it will create wealth for a period of time for a small group of people, but eventually due to the nature of the free market and other competitors that are taking on capital and sharing wealth to recruit better talent will eventually win out in the end.

Our company, Bristlecone Holdings, is intentionally structuring our company similar to the likes of Google and Facebook so that every employee we hire has full health benefits, stock options, above market pay, and unlimited vacation.  It is our goal to acquire and recruit every talented individual in this city. We hope that this will raise the bar in our market.  The major goal is for broad new wealth creation. When Facebook went public it created over 1,000+ millionaires and 10 billionaires, which have then gone on to pour money into their economy and start new businesses and ultimately flatten the power and wealth structure. This is economic development at its finest and this is how we get to better education, jobs, and infrastructure.

We are really early still and will not be as big as some of the Silicon Valley companies, but we have already created new wealth based on our most recent valuation and we want nothing more than a major exit and to create dozens of millionaires in our market.  We are currently attracting major sources of outside capital and growing at an exponential rate with our eye on a strategic exit or IPO, this is what our team set out to do and hope that we can serve as an example of why this model works.  If we do not succeed then we will recycle this talent to what is working and try again until we hit a major exit and succeed in new wealth creation.

Its Not About Job Creation:  We are completely getting the economic development game wrong – IT IS NOT ABOUT JOB CREATION! AGAIN, IT’S NOT ABOUT JOB CREATION! IT IS ABOUT NEW WEALTH CREATION FOR THE MIDDLE CLASS.  Its getting exhausting hearing politicians and economic development leaders use this buzzword, it just shows the world that we don’t understand what we are doing.  We have recovered and the job market is strong, but the middle class continues to be pinched and needs wealth creation. We are exporting our wealth at the expense of job creation! We have it backwards.  We are selling off our resources and our revenue for high paying jobs that can go away when the next politician a few states over sells his state off in the name of job creation.  

All the stuff we want – better education, high paying jobs, and good infrastructure are lagging benefits of new wealth creation.  When a broad range of individuals have the opportunity for new wealth creation they are ultimately more willing to pay their fair share which is illustrated in Silicon Valley, which is far from a low tax environment.  It is when there is a wealth and power concentration that does not allow for new wealth creation that there is flight and resistance to tax increases.  Individuals and the marketplace want a fair playing field that does not have a central power picking and choosing winners.  I believe we are putting the cart before the horse and until we stop and start putting together a strategic plan for new wealth creation for the middle class we will continue to be a second rate economy that companies use for low taxes and cheap labor.

I hate to over simplify a complex marketplace but at the end of the day this all comes down to new wealth creation for the middle class and how we are utilizing our resources at hand to support the endeavor of new wealth creation.  Without new wealth creation there is no revenue for a market to get the great things we want like education and infrastructure and there is no incentive to attract and retain talent.  It is a never-ending cycle of chasing our own tail in hope that we might just catch it some day. I believe once we stop believing our own hype and start asking hard questions it will lead to better decisions, which is my goal in putting my thoughts out there to the world.  Let’s face it, we have to ask the question of why similar markets like Salt Lake, Boulder, Boise, and Austin are regularly experiencing new wealth creation and Reno is not.

Innovation is the specific instrument of entrepreneurship: The act that endows resources with a new capacity to create wealth.

I obtain no value in writing these thoughts and the safe decision would probably be to just grow my business and eventually move it out of Nevada and not care.  We have been asked by investors to move our business to different locations numerous times, but as a third generation Nevadan I want to see a better economy and place to live for my friends and family.  This is why I am committed to Reno and Nevada and why I’m taking a hard stance on my views of current leadership and the marketplace.  I assure you that when you dig into this power structure in Northern Nevada and the politicians in Carson City you will see that there needs to be change and like the free market we need to mix things up and certain power struggles need to be broken down.  We all thought Blockbuster and Radio Shack would never go away but now we stream videos live at home and buy our electronics with one click thanks to those that questioned the status quo.  Please join me in challenging the power structure and questioning the status quo, I promise you it is a very freeing experience.  This also goes for me, if I’m going to question people and decisions I also welcome those to question me and lets spar it out in a way that will lead to better more logical decisions.