Spokane's startup scene is growing, but some major challenges remain

An interesting thing happened in 2020: While many businesses took massive hits that will in some cases prove to be the death knell for companies, applications for new businesses skyrocketed across the country in the second half of the year.

Applications for new employer identification numbers — required for companies to hire employees — hovered around 860,000 per quarter in 2018 and 2019, according to Census data, then surged to 1.6 million applications in the third quarter of 2020 and another 1.1 million in the year's last quarter.

What's more, despite the pandemic, venture capital firms invested a record $130 billion in U.S. companies, according to CB Insights, which analyzes startup and economic data.

Meanwhile, the Inland Northwest's startup scene has been undeniably growing over the last several years, with local incubators and investors helping small, local startups raise more than $16.8 million in 2020 alone.

Success stories include many health and medical-related companies that can easily draw on Spokane's wealth of health experts. But there's also been growth in companies pitching everything from spice blends to products that will keep utility workers and first responders safer while they work.

Still, even as entrepreneurs and tech startups are starting to find more support in the Inland Northwest, some challenges remain as Spokane tries to pitch itself as a place where people should start and grow their companies.

Indeed, one issue was acknowledged right in the #HackingWashington campaign started in 2019 — a pitch to Seattle-area businesses to move east: There's not a lot of tech work here.

Applications for new employer identification numbers hovered around 860,000 per quarter in 2018 and 2019, according to Census data, then surged to 1.6 million applications in the third quarter of 2020 and another 1.1 million in the year's last quarter. - U.S. CENSUS BUREAU / BUSINESS FORMATION STATISTICS
U.S. Census Bureau / Business Formation Statistics
Applications for new employer identification numbers hovered around 860,000 per quarter in 2018 and 2019, according to Census data, then surged to 1.6 million applications in the third quarter of 2020 and another 1.1 million in the year's last quarter.

"Attract talent without having to compete with the tech giant next door," the campaign quipped. "Raise your profits by lowering the cost of everything."

In those two ideas, the campaign both acknowledged one of the Inland Northwest's greatest perks — affordability — and one of its biggest pitfalls: a lack of software developers and highly skilled computer science workers ready to apply for jobs.

Tom Simpson is perhaps the best-known figure among local entrepreneurs, since he's both CEO of the incubator Ignite Northwest and president of the Spokane Angel Alliance, which invests in fledgling companies. He agrees that the lack of developers in the area is one major limitation.

But when it comes to selling businesses on the perks of Spokane and the Inland Northwest, he's far more likely to end with the note about the cost of doing business here than to start with it.

"When we talk about the virtues of the region, we often lead with affordability. 'Come to Spokane! It's affordable. it's cheap,'" Simpson says. "I don't like leading with that because you attract companies that aren't, frankly, profitable."

Simpson is passionate that this region is not only a good place to start but also to grow, whether you're telling a major tech company that their employees can better enjoy their lives here — where the commutes are short, the mountains are close and the lakes are closer — or you're telling a startup that $1 million will last them 10 months longer here than in Seattle.

Indeed, several companies have either moved to or opened offices here in recent years, including CloudEngage, which provides artificial intelligence customer service for websites in addition to other services, the global money transfer service Remitly, and GoToTags, which helps take cellphone users directly to information about products or experiences they're having.

Still, there are limitations to this "small big city," including a small pool of investors and a lack of diversity that's felt more keenly by some than others.

In fact, for one Spokane company with apps geared to help those who are transgender, some of the region's drawbacks encouraged them to relocate to Austin, where they see the opportunity for greener pastures.

Euphoria chief creative officer Patrick McHugh, left, and CEO Robbi Katherine Anthony pack up for their move to Austin. - YOUNG KWAK PHOTO
Young Kwak photo
Euphoria chief creative officer Patrick McHugh, left, and CEO Robbi Katherine Anthony pack up for their move to Austin.

TURNING AWAY FROM SPOKANE

In a way, moving to Austin could be considered a sort of homecoming for Euphoria, a company founded in Spokane by development team Robbi Katherine Anthony and Patrick McHugh.

It was during an LGBT hackathon there in 2019 that the two launched the idea for their flagship app, Solace, which helps people who are transgender set and reach goals and keep up with legislation and news that might affect them.

While they started out with the goal of housing that app under a nonprofit, the team has since founded parent company Euphoria. Under that umbrella they created another app, Clarity, to help people better identify who they're attracted to and how they identify, and they're working on another called Bliss that will seek to help trans people invest their money (with help from financial experts) as they save for costly surgery and other goals they might set in Solace.

"It's great to have your 15 goals in Solace, but you also need to know how to afford them," Anthony says. "There's a better way to save for this. Let's abandon the stashing of cash in a mattress, and invest [via] an app."

The team received early support from the Spokane area, including a short-term incubation period under the nonprofit Smith-Barbieri Progressive Fund.

"There's been an immeasurable amount of good in Spokane," Anthony says of the support they received after winning the hackathon.

But with the need to pivot to fundraising and a for-profit model as they grow, Anthony says they quickly ran into walls here. It seemed like you had to already have money to get anyone interested, she says.

In entrepreneurial circles it's often said that you'll hear 100 "nos" before you get to one "yes." Anthony says she understands that and was happy to keep working to meet the metrics that might make investment look more intriguing. But the pool of potential investors in Spokane is small, making it hard to get to that "yes" if you're essentially pitching to the same people.

"Spokane is a little big city. Everyone doesn't know everyone, but everyone knows someone who knows everyone," Anthony says. "It's hard because so many good ideas in this town die without ever getting a fair shot."

Anthony says that as a trans woman, she's also dealt with stereotyping and bias. At one point, she and McHugh designed a dating app, and potential investors assumed it was geared for LGBT people (it wasn't), asking repeatedly how they could potentially pitch the product to a straight market, she says.

In another instance, Anthony says someone told her after a presentation that they'd assumed she was going to bomb the pitch until they actually heard what she had to say.

"My thought is, 'You knew nothing about me, just what I looked like,'" she says.

But while working with peers at the hackathon in Austin, the team got to see what it was like when the quality of their work was judged before they were, Anthony says.

"It was a very sobering moment. It was like, 'Oh my god, this is how life should be,'" Anthony says. "I want to be known as an entrepreneur, not that trans woman who once ran for county commissioner."

So in mid-January, Anthony and McHugh traveled to Austin to finalize their search for apartments and coworking space. They've since relocated to the Lone Star state and continue to work on their next fundraising goal after raising more than a quarter of a million dollars for Euphoria so far. They hope to encounter a larger test market and become part of the growing tech scene.

"Being in a bigger market, we've got more latitude to experiment," Anthony says. "One hundred investors down here in Austin will tell us, 'Absolutely not' and never write us a check, but they'll tell us why, and that's fair."

Still, those involved in helping grow Spokane's startup scene are quick to note that the grass can always look greener on the other side, and the Inland Northwest has started improving on some of its challenges.

click to enlarge Tom Simpson, CEO of the incubator Ignite Northwest and president of the Spokane Angel Alliance. - YOUNG KWAK PHOTO
Young Kwak photo
Tom Simpson, CEO of the incubator Ignite Northwest and president of the Spokane Angel Alliance.

WHEN CLOSE-KNIT WORKS

Simpson, who notes that he did fund an early project of Anthony's, says that no matter how good a region is, you'll still find some companies that want to move away.

"I wouldn't necessarily look at one company or one team or one entrepreneur choosing to leave as being indicative of a broader trend," Simpson says. "I can think of probably six or more similar companies that chose to open up here over the last few years."

He acknowledges that the region isn't very diverse, noting at least one startup recently opted not to move here last year due to a lack of diversity.

There are many things drawing companies to the region though, and importantly, Simpson and others are working to support homegrown talent.

Through Ignite Northwest, Simpson helps mentor entrepreneurs and brings in speakers who've got experience building companies to provide insight through free lectures (currently presented online due to COVID-19). Also through Ignite, startups may get the chance to pitch to the Spokane Angel Alliance or the Mind to Market fund from Greater Spokane Incorporated (GSI), which helps people create their minimum viable product.

It was through an Ignite incubator course (that's no longer offered) that Margie Bensching, founder and CEO of Golden Sherpa, got her start. Golden Sherpa provides a database of assisted living facilities that is geared both to help people find a safe, reliable place to move their parents and to help assisted living homes find new clients faster.

"Senior living communities commit thousands of dollars to find leads and fill empty beds," Bensching says. "Our product is an online space that bypasses traditional costs," which can run into the thousands for a single contract when those facilities go through traditional means of finding new clients.

Bensching says Ignite's incubator course, which lasted about 14 weeks, helped her not only hone her idea, but helped her get involved in entrepreneurial groups around the state.

While she acknowledges the investment pool in Spokane feels small, she says she's also noticed the same people over and over again at investment competitions in the Seattle area, too. It's not just a Spokane thing, she says.

"You can work and grow your company here, and it's a great place to live," Bensching says, noting that her team includes tech workers who live across the country and can work together remotely. "We're staying in Spokane; we don't need to leave."

Simpson notes that while the pool of tech engineers and developers is somewhat lacking here at the moment, there's a large pool of educated workers who are consistently coming out of regional universities.

"We have a diversity of training programs in our community that is a huge opportunity for these startup companies," says GSI CEO Alisha Benson. "As much as we want to market the region externally, we have to market it internally and create that stickiness for graduating talent in our area. There's a perception that to find those tech jobs they have to go to a larger market."

But the pandemic proved just how many jobs can be done anywhere with an internet connection. And, Benson notes, the community has done a lot of legwork in the last few years to make connections between entrepreneurs and people with experience getting companies off the ground.

"There's greater employee stability in places like Spokane. You find people want to stay."

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"We've been able to build this knowledge network for entrepreneurs," Benson says. "The growth we've seen in the last five years is significant, but there's still gaps in that ecosystem. Part of it is, how do we build that critical mass for entrepreneurs to be successful and access that talent they're looking for?"

Something worth noting for companies, Simpson says, is that Inland Northwest workers tend to be loyal, unlike in the Bay Area, where it's more typical to sign on for bonuses, work a few years and move onto another option.

That sentiment is echoed by Spiceology CEO Chip Overstreet, who commuted from Spokane to the Bay Area for the better part of a decade before joining the spice blend company two years ago. Even during the pandemic, the company has been able to retain employees and pivot its sales to reach a wider audience.

"One of the biggest problems in the Bay Area and Seattle and Boston: The average tenure is two years in tech. You're fighting for talent all the time," Overstreet says. "There's greater employee stability in places like Spokane. You find people want to stay."

The success of companies that have started here is also breeding success for others.

Steve Rector, CFO of Cowles Company who leads their investments in early-stage startups under Cowles Ventures, agrees that the pool of local investors is small and so is the ability "to write 'big' checks." But Rector also notes that more investment has been coming into the area from Seattle and other venture capital firms, too. Plus, he says, those investing here tend to work together.

"Spokane is a small place, and the investment community here is even smaller," Rector says by email. "But, having said that, the active investor base here — we're all aligned with the same goals, and we're always willing to collaborate. ... Those of us who are active investors in this region don't see us as competing against each other for deals. Rather we actively share deals and see how we can all collectively make it a successful effort." ♦

About The Author

Samantha Wohlfeil

Samantha Wohlfeil covers the environment, rural communities and cultural issues for the Inlander. Since joining the paper in 2017, she's reported how the weeks after getting out of prison can be deadly, how some terminally ill Eastern Washington patients have struggled to access lethal medication, and other sensitive...

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