The Pacific Northwest as the Global Hub for Digital Business (And Why It’s Not the Next Silicon Valley)
Tim Goggin - CEO and Erik Wirsing - Chief Content Officer, Sappington
There is a lot of talk about the Pacific Northwest becoming the next Silicon Valley. When I first heard this, I was excited: Seattle is getting recognition for the progress it’s made as a technology center. After some time for this to soak in, my perspective changed. I can certainly recognize the temptation to compare the two places, but it is my belief that the Pacific Northwest is different. This region has a special set of resources and realities that best position it as a major contributor to the future of business.
I believe that the Pacific Northwest will become the global hub for digital business.
Before we dig into this lofty topic, I think it’s important to look at the history and background of both regions to understand why the Pacific Northwest has such a unique opportunity.
GOING TO CALIFORNIA
When I was growing up in St. Louis, the state of California dominated popular culture. Like most Gen-X youngsters in the Midwest, I loved everything about the Golden State; Hollywood, movie stars, surfers, skateboarders, E.T., the Eagles, Journey, and the list could go on and on.
But it wasn’t just the pop culture that affected me—it was the technology. This is where Atari consoles were created. This is where Apple was born (I am still nostalgic about the Macintosh product launch—remember the 1984 Mac commercial?). That draw became stronger as I continued to read literature about the area—books like East of Eden—and learned about the special harmony between beauty and opportunity in California.
Then, in my twenties, the dotcom boom happened and the rise of a little place called Santa Clara Valley, dubbed “Silicon Valley” by tech heads and day traders. And we all know the rest of the story.
What I didn’t know was that something else was quietly happening hundreds of miles north. Though it began centuries ago, it’s only just playing out today.
IN THE SHADOW OF THE VALLEY
The Pacific Northwest (PNW) didn’t come to mind when I was deciding where to make my mark. There’s a good reason for that. First of all, California overshadowed everything. Second, as a kid in St. Louis, we didn’t hear much about the region. To a lot of folks east of the San Andreas, the PNW was a mystery. Places like Washington, Oregon, British Columbia, and Alaska were seen as forbidding. It was the place where mountains unexpectedly erupted, where killer whales hunted in the waters, and where Kodiak bears roamed the woods. One of the first PC games, “The Oregon Trail,” was littered with dangers like dysentery, smallpox, and wagon wrecks (how often did you actually make it to the end of the game?). Think about how dark and dangerous the movie Goonies was (set in Astoria, Oregon). And even though California has more serial killers per capita, it’s the PNW that’s most famous for them—Ted Bundy, Gary Ridgway, and the I-5 killer, to name a few.
It seemed like the PNW had a big sign stamped on it that read, “Enter at your own risk.”
Funny then, this region is now drawing more and more talented people—from startup entrepreneurs to corporate moguls, and from nimble developers to tech-savvy marketers.
A TALE OF TWO GOLD RUSHES
In 1803, when Mexico controlled California, two explorers were on their way to a place that America had acquired, but had not yet even named. It was a rugged, untamed swath of land that would later come to be known as the Oregon Territory and the Pacific Northwest. If you’ve read any of the accounts of Lewis and Clark (take a moment to re-read Undaunted Courage by Stephen Ambrose), you were probably as surprised as I to learn that they made it back from their expedition in one piece. From the beginning, in all those journal entries, the territory earned its reputation as hazardous and disconnected from the world; a destination for fur-trappers and lumberjacks.
It would be decades before much else happened up here in the area by way of commerce, and it would take something momentous to draw attention from the rest of the country. That something was gold, and this valuable commodity is another example of California outshining the PNW. We’ve all heard of the 1849 Gold Rush—it even has a pro football team named for it—but far fewer know anything about the Klondike Gold Rush of 1896-1899.
So while things were going one direction in California, another kind of trail was being blazed in the PNW. If we look at the regions in a side-by-side comparison of chronological events, a pattern begins to emerge.
Take Clinton C. Filson. He was a former Nebraska homesteader who saw an opportunity to help some of those fortune hunters get outfitted for the Alaskan wilderness. While the League of California was proposing the installation of statewide electric lighting in 1898, Filson was setting up shop in Seattle and providing high-quality gear for camping, fishing, and logging. Today, anyone carrying a Filson bag will almost always hear about a happy Filson product experience from a passerby on the street. Famous for its customer service, Filson ownership is a point of pride.
It was about this time that a determined logger named Frederick Weyerhauser was looking for his own gold in the form of trees. As the first ship-to-shore wireless signal was being sent in San Francisco in 1899, Weyerhauser was making his way to Washington State where he built a lumber empire that now employs 15,000 people and controls six million acres of timberland.
In 1901, about the time Stanford University was starting to carve out a tech niche for itself in Palo Alto (it had been founded in 1891), a Swedish immigrant and former Klondike gold-rusher was opening a modest shoe store in Seattle. Fervently dedicated to its customers, the store expanded, grew into a chain, and has become one of the most renowned retailers in the country. We know it as Nordstrom.
Close to the time noted technologist Lee de Forest was relocating to San Francisco to start the North American Wireless Corporation, James Casey was in Seattle creating the American Messenger Company. Today, that company is known as United Parcel Service (UPS) and delivers more than 15 million packages a day.
In 1916, while the Santa Clara Valley inhabitants were busy building a technology stronghold, William Boeing was incorporating his airplane manufacturing plant and it now serves all the major airline carriers and armed forces.
Around the time William Hewlett and Dave Packard were graduating from Stanford University and tinkering in their garage, funded by venture capitalists, a humble pilot by the name of Linious “Mac” McGee was flying runs between Anchorage and Bristol Bay in a three-passenger aircraft. This little airline made sure medicines, food, and other essentials were delivered to people in remote towns in Alaska in what they still call “Milk Runs” to this very day. It grew to become Alaska Airlines.
The list keeps going: 1930 – Eddie Bauer; 1938 – REI; 1964 – Nike; 1971—Starbucks; 1975 – Microsoft; 1994 – Amazon.com; 1998 – Lululemon; 2010 – Zulily.
So what do these ventures have in common, besides being founded in the PNW? The pattern that emerges here is that most of them didn’t start out as technology companies. They are all supply chain companies that were being formed in response to customer needs, at the same time technology was quickly advancing in California. Finally, all these companies cited above still exist today and most remain enormously successful.
EDUCATION VERSUS DETERMINATION
Dr. Timothy Sturgeon of MIT and Berkeley wrote in 2000, “The strongest thread that runs through the [Silicon] Valley’s past and present is the drive to 'play' with novel technology, which, when bolstered by an advanced engineering degree and channeled by astute management, has done much to create the industrial powerhouse we see in the Valley today.”
Stephen B. Adams points out in his “Regionalism in Stanford's Contribution to the Rise of Silicon Valley,” that:
“A very powerful sense of regional solidarity accompanied the rise of Silicon Valley, since from the 1890s, Stanford University's leaders saw its mission as a service to the West and shaped the school accordingly. At the same time, the perceived exploitation of the West at the hands of eastern interests fueled booster-like attempts to build self-sufficient indigenous local industry. Thus, regionalism helped align Stanford's interests with those of the area's high-tech firms for the first fifty years of Silicon Valley's development.”
By now, I think the thread is becoming clearer. Silicon Valley and the PNW are vastly different today because they were vastly different from the beginning—at their very roots.
Unlike Silicon Valley, commerce in the PNW—likely due to weather challenges, remote geography, and even down to the types of people who settled the area—was founded on grit, determination, and the desire to meet immediate customer needs. It was never a playground for experimentation. Instead, the PNW was a place where you had to survive and thrive. The Frederick Weyerhausers and John Nordstroms of the world came here to start companies that simply had no choice but to make it. There was no playing with “novel technology” for them. There was also no PNW equivalent to Stanford driving an academic fervor for economic development or an entrepreneurial spirit. In the PNW, you cared for your customer first.
The strong sense of solidarity in Silicon Valley encouraged exclusivity and self-protection, and was largely fueled by an academic pipeline—it was no coincidence that this would become the cradle of the dotcom boom. On the other hand, any solidarity in the PNW came from flourishing in an isolated region and a difficult climate where you simply had to be scrappy—it’s no coincidence that this was to become the cradle of Grunge and flannel. And in the atmosphere of the young PNW, you often had to take care of one another and band together to do well.
This means that both regions are equally isolated, but in their own unique ways.
THE CASE FOR THE CUSTOMER
If you were to ask anyone what comes to mind when they think of Silicon Valley, you’re going to inevitably hear terms like “stalwart startup culture,” “academic powerhouses,” and “fierce, cutthroat competition.” This isn’t to say that California doesn’t have some history of traditional supply chain companies—one only needs to mention enterprises like Gap, Pottery Barn, Sephora, and Apple.
Yet Silicon Valley tends to be more popularly characterized by ventures such as Facebook, Twitter, PayPal, Uber, and Airbnb more than anything else. These are all startups that were born in the cloud and offer platforms as their products. After all, Airbnb is the largest hotelier in the world, yet owns and operates not a single hotel. Uber is one of the most profitable transportation companies in the world without owning a single car.
The obvious difference between these tech startups and PNW mainstays like Amazon, Starbucks, and Nordstrom is that the latter are supply chain companies that manufacture or distribute tactile goods.
However, there is another important (and often overlooked) contrast that needs to be called out: PNW companies are among the strongest in customer service. Amazon, for instance, recently took a lashing in The New York Times because of how much emphasis they place on their customers over their employees. The Nordstrom brand is defined by its white glove customer service, and has been since the early 20th century. Starbucks locations are crowded every day all over the world, not because of the quality of the coffee, but because of the customer experience they offer. Alaska Airlines has won the JD Power customer service award for eight years in a row.
Now take Uber. The company has a reputation for strong-arming city governments. Drivers are constantly complaining about income. The surge rate Uber levies on its customers is highly unpopular and punitive. If you go to their website you won’t find a customer service line. We might say the same thing about Twitter, Facebook, and any number of Silicon Valley tech giants. It just isn’t an area of focus for them.
Now imagine if Uber were started by a PNW company like Nordstrom or Amazon and you can’t help but wonder how different it might be. If the customer truly came first, would there be such a thing as surge rates? Would it be easier to find a customer service representative? Would the overall experience be better?
This brings us to the popular topic of digital business transformation and the huge opportunity for the PNW. What is a digital business exactly? We’re all looking for the definition, but let’s see what researchers at Gartner have to say about it:
“Digital business is the creation of new business designs by blurring the digital and physical worlds…”
“The emerging digital world requires human-centric digital leadership. Digital humanism is the notion that people are the central focus in the manifestation of digital businesses and digital workplaces.”
That’s interesting. Why would digital need to have anything to do with physical? This certainly isn’t the case with most Silicon Valley startups. As stated before, companies like Twitter, Facebook, Uber, and Airbnb don’t need to worry about the physical realm. It’s because traditional enterprises that deal in supply chain, merchandising, manufacturing, or even software have to undergo a transformation to stay competitive. Even Microsoft and Amazon—usually thought of as tech companies—were built on supply chain principles and have a lot of physical products to think about, whether software discs, Xbox consoles, or books.
At the end of the day, the journey to becoming a digital business applies more to conventional enterprises than to born-in-the-cloud startups. The digital burden falls on older companies to modernize their technology capabilities to forge stronger relationships with their current and future customers in the digital space. And they have to do this while connecting with existing systems already in place like manufacturing, supply-chains, employees, etc. This is what Gartner means by blurring the lines between digital and physical worlds.
The other point Gartner makes clear is the need for human-centric digital leadership. This is another way of saying that everything we do as businesses has to be laser focused on the customer. This will always be the case. That is until our customers stop being humans.
SURVIVING AND THRIVING IN A DIGITAL WORLD
The PNW is already building a strong reputation for digital business transformation among traditional enterprises.
Starbucks has fully embraced the blurring pf physical and digital worlds. They’ve deployed an app that lets you order coffee before you get to the store. They’ve hired a Chief Digital Officer who works in tandem with the CIO and CMO to optimize the customer experience. They’re rebuilding and reinvesting in their legacy systems while at the same time introducing new innovation to make sure the customer experience remains unparalleled, both in store and online.
Every day the smart people at Amazon are getting more creative about how to please the customer. Prime memberships are popular and profitable. Supply chain practices are improving all the time. Amazon is in the business of getting products to people all over the world—they don’t care where you are. They’ve been bullish in their investments and innovations around shipping, from Prime’s free two-day shipping to one-hour delivery of food and beverages. All of this takes constant digital innovation.
Nike is considered a digital master by MIT. This Oregon-based company is hailed as a leader in fusing the digital experience of apps and software with the very physical experience of running, boxing, cycling, or any other sweat-inducing activity. While companies like FitBit and JawBone are focused solely on the digital hardware and software, Nike is intimately familiar with the human experience that feeds into them because of their physical products that range from shoes to fitness gear.
Nordstrom, in an effort to win digital customers, overhauled and consolidated its buying process, merged its in-store and online presence, and purchased Trunk Club to make stronger connections with customers who may not want to shop at the stores. These investments help them reach a wider range of customers and deliver the award-winning customer experience in the digital realm. In essence, they have fused the physical and digital experience by allowing their male customers to choose customized clothing packages online and have it elegantly delivered to the front door.
And these are just a few examples that showcase the thriving, customer-centric spirit of the new, digital PNW.
THE POWER OF PARTNERSHIP
The thing to keep in mind about the PNW is that it’s not one-dimensional. It’s not just a pasture full of inventive, old-school enterprises meeting and embracing the digital revolution. It also happens to be a land of startups. Investors and accelerators like Madrona, Ignition, Atlas Accelerator, and Galvanize are just a few of the outfits fueling innovation among tech startups here.
There is no shortage of startups in the PNW that were born in the cloud. Redfin, Expedia, Zulily, Apptio, Zillow, PayScale, and SmartSheet are just some of them.
What I think makes this region so unique, and so well-positioned for being a digital business leader, is that it has a rich mix of established enterprises and fledgling tech companies. All of them—from the largest to the smallest—are trying to carve out their digital niche.
So what is the big opportunity? For one thing, there is a perfect blend of old and new—traditional and cutting edge—that makes healthy partnership possible. Large, established enterprises can teach startups a lot about customer service and survival, while startups have a lot to teach enterprises about how best to implement technology. Amazon has created Launchpad, its own Kickstarter-esque platform, to help startups get the funding they need (while of course getting a cut). As mentioned before, Nordstrom recently purchased Trunk Club so they didn’t have to build a similar model from scratch.
In this vibrant ecosystem, startups can also band together to create better offerings and enterprises can work together instead of competing to create amazing customer experiences. We can see that in the case of the Microsoft band and Starbucks in-store payment, and the famously deep partnership between Boeing and Alaska Airlines (unlike the other major carriers, Alaska only keeps Boeing aircraft in its fleet).
When we stop and think about the day-to-day and play-by-play of a human being, it’s easy to see siloes. For example, one silo would be clothing—the act of trying them on, ordering them, or returning them. Another silo would be travel—the act of buying tickets, booking hotels, or renting cars. Another one would be food and entertainment—the act of planning, going out, or eating. There are dozens of other siloes: fitness, work, healthcare, education, insurance, philanthropy and volunteering, and hobbies. What about city governments? They’re involved in our lives too, particularly when it comes to taxes, construction, and parking, to name a few.
A human life is complex. It’s a frenetic adventure in multitasking. Companies can use technology all day long to empower their customers and claim that they are making experiences better, but they are still doing it in siloes. Uber for transportation. Airbnb for accommodations. Nordstrom for fashion. Amazon for shopping. And so on.
If digital business transformation is going to continue heading in the direction of the customer (which it will)—and if technology will continue to empower the customer (which it will)—then the future won’t be about customer experiences as we know them today, forcing people to leap from lily pad to lily pad to navigate their needs. It will be about a unified life experience brought to the customer by an alliance of cloud-based and supply chain companies using cutting-edge technology.
And with every digital and physical need covered by a range of small and large companies, the customer-centric yet tech-savvy stronghold of the PNW is best positioned to connect the dots of the human experience. It just requires opening up to partnership, even with traditional competitors.
DIGITAL FOR HUMAN’S SAKE
In the end, digital business transformation is gritty. It’s hard work. Many companies won’t make it. It’s about surviving and thriving through very tough conditions. It’s also about being ardently customer-centric and recognizing the humanity through the digital haze.
Humans are naturally tactile creatures. While we like our apps for how they solve problems, we still love the feel of the phone they’re delivered on. No matter how many innovative experiences Starbucks offers, we will still always need the coffee in our hands and enjoy the sense of being in the café. And while we might find ordering from Nordstrom’s website convenient, it’s the shoes, clothes, and makeup that we want. The best digital businesses will ensure the best customer experience and that means using technology elegantly to ensure people get what they desire.
In many cases, Silicon Valley’s inventive and academic culture is to create the technology and then find uses for it that produce a profit. In the PNW, the culture is to find out what customers want and build the technology and digital investments to make the customer experience the best it can possibly be. Silicon Valley relies on technology innovation to build profitable platforms. The PNW is moving rapidly toward technology integration and blurring the digital and physical worlds. Neither one is necessarily better or worse than the other—both regions generate plenty of revenue and success—they’re just as different as a valley and a mountain.
At the end of September, we will be releasing an interactive, audiovisual version of this story at www.sappington.co/LORE. We hope you enjoy it as our monthly installment of LORE.
Visionary and Strategist
I’m proud to say that I’m a gainfully employed English major, which is my proof that a strong liberal arts background pays off. I believe in the transformative benefits the humanities play in the enterprise business world, especially the new business world where every company is a technology company. My mantra is that effective communication and understanding will separate the successful businesses from the rest. I have the great honor of working with the brightest minds in technology, business, communications, marketing, design and storytelling.
Chief Content Officer
I have one of the best jobs a guy could ask for. I get to use my passion for writing and storytelling to help clients communicate their sometimes complex value propositions to their customers in human ways. Every day I get the opportunity to collaborate with our very talented internal creative team to deliver materials with soul and staying power, whether decks, sales tools, thought leadership or other collateral.