How Washington, D.C., Is Working to Nourish Its Hidden Assets

Many cities have unique assets that help drive their economies: social, cultural or competitive clusters that provide foundations for growth. New York moves on finance and fashion while Los Angeles is entertainment, and when we think technology and startups we think San Francisco.

Washington, D.C., of course, is the federal government, with its region home to the thousands of federal workers and contractors who keep our nation ticking. Most of the time, anyway. I met with the city's mayor, Vincent Gray, on the day last fall when the federal government wanted him to determine which of his city's services were nonessential and could be halted during the federal shutdown. The shutdown drama seemed to only invigorate Gray more in his efforts to lessen his city's dependence on the federal government.

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With a new emphasis on technology entrepreneurship and innovation to grow the local economy, Gray is working to uncover and nourish the city's hidden tech assets while leveraging the city's unique government-oriented economic base. A few months ago, Gray released the city's five year economic development strategy, which identified economic diversification as a key goal.

Economic development initiatives such as the one Gray is pushing inevitably lead to the question of tax incentives, and mayors face difficult choices when using tax breaks to attract business growth. They need to decide whether the company would expand locally anyway without tax incentives, how catalytic the company's investment might be, and what potential effects there might be on similar entities already doing business in the city. That calculus is notoriously complicated. While San Francisco's tech-focused tax breaks have helped bring new life to the city's Mid-Market area over the past year, for example, they remain targets of strong criticism -- primarily that the companies that were attracted to the area haven't delivered on all of their promises.

Mayor Vincent C. Gray

D.C. flipped things around. Rather than give tax breaks now and hope that companies fulfill all their promises in the future, Washington has put in place over $30 million in five years of tax breaks for the daily discount online service LivingSocial, but these only begin in 2015 if the company meets certain benchmarks. It's hard for cities to pick and choose winners, requiring a degree of market-analysis expertise that most cities don't have. LivingSocial currently faces growth challenges, but in its case the city won't be giving out those incentives without getting its due in return first. With no loss of funds, the city can simply try again to cultivate these hidden assets and develop this nascent sector. Another novel approach has been using government partnerships for needed services as a way to incentivize key firms to remain in the city. When newBrandAnalytics, a company that builds customer feedback mechanisms for the private sector, was thinking about leaving D.C., Gray thought to utilize the firm's approach to build Grade.DC, a platform allowing residents to rate city services. As a result, the city not only retained an innovative firm but, even more importantly, built a new framework for data-driven performance measurement of its 15 agencies.

The city also is experimenting smartly with various incubator models. 1776, an independent, city-backed incubator, has received $200,000 in government funding. 1776 is collaborating with the city's new Digital Commons, 11,000 square feet of computers, resources for entrepreneurs and collaborative space located within the main Martin Luther King Jr. Memorial Library.

D.C. is working on developing a complete tech ecosystem based on its unique assets and talents and on doing that better, faster and cheaper through new and varied approaches. Striking that unique balance -- between targeting particular industries while remaining permeable and inclusive and appropriately sharing risk with the startup community -- is, as is always the case, a challenge. D.C. will be a city to watch as it tries to build something new that grows out of the city's long-standing identity.