Fairytale of New York

By Ben Thompson, Senior Editor

When Mo Berkowitz lost his job as a trader at First NY Securities last October, his first reaction was one of shock. “My whole academic and professional career up to that point had been geared towards working in finance,” he recalls. “I was happy with what I was doing in financial services, and I thought that’s what I was going to be doing for the rest of my life.” Along with thousands of others, however, Berkowitz was in for something of a reality check.

“New York's greatest strength has always been and will continue to be the innovation, drive and work ethic of New Yorkers”
-Michael Bloomberg

Last Fall's economic meltdown hit the financial services industry hard. More than 20,000 securities industry workers in New York have lost their jobs since the recession started, and the outflow threatens to turn into an exodus over the next two years with the Independent Budget Office forecasting another 30,000 job losses in the securities industry alone - or 25 percent of the city's best-paid workers. By 2011, total financial job losses could surpass 77,000, when revised headcounts at insurers and other institutions are included. Indeed, the pictures of laid-off financial services workers leaving Wall Street with their careers in company-monogrammed cardboard boxes have provided some of the most enduring images of the human cost of the recession.

The problem for Wall Street's former Masters of the Universe is that many of those jobs just aren't coming back. With many of the biggest casualties of the crisis - such as Bear Stearns, Lehman Brothers, Merrill Lynch and Wachovia - being assimilated into bigger, more stable rivals, headcounts have inevitably suffered as a result. Countless smaller firms have disappeared altogether. "People are just not getting rehired," confirms Andrew Lubow, a former compliance officer at Bank of New York Mellon who was laid off last November in response to deteriorating market conditions. "They're either giving those that are still employed their hours back, or doing more with less; the economic recovery's not really affecting those that were made unemployed at the height of the crisis." As a result, many former bankers, brokers and traders now face the fact that for the next few years at least, the financial services world is going to be a much smaller pond than it was before.

Such a scenario poses a significant challenge to a location such as New York, given its reputation as a financial services hub, the huge numbers of people affected and the potentially devastating impact it could have on the city's economy. "I think there are two challenges when you have a vibrant industry come to such a screeching halt," explains New York Deputy Mayor Bob Lieber, head of the city's Economic Development Corporation. "One is the potential displacement of workers, and then the other is the potential displacement of revenues generated by those workers. Approximately 10 percent of the private sector workforce in New York City generates 35 percent of our payroll tax, and so losing those high earners is a big blow. The other thing is that for every one worker in financial services, there are approximately two others in the economy who are directly affected by what happens in that industry."

Lieber's team identified three basic challenges brought on by the financial services crisis. First, the shrinking of financial sector jobs and loss of institutions like Lehman Brothers and Bear Stearns reduced the critical mass of financial services entities in the city. Second, the sector of the financial services industry in which New York has particularly excelled in recent years, capital markets, was the one hit hardest by the downturn, and its recovery is likely to take several years. And third, the massive layoffs in the financial services industry raised the prospect of a potentially catastrophic loss of a talented portion of the city's workforce. The industry has been central to the health of the US economy, but for New York it is especially critical, contributing 348,000 jobs to the private sector in 2007 - a not insignificant nine percent of the total workforce.

In response to this threat of a damaging brain-drain of smart, ambitious people, the Bloomberg administration is spending over $45 million to turn former Wall Street bankers into entrepreneurs by offering them training, office space and even funding for their startups. "Many of the folks who are in that industry are energetic people - what I call Type A people - who can do a lot of different things," says Lieber. "We've worked with a number of different entities to find locations and provide training to some of those displaced financial services workers, so they're in a position to take the skills and knowledge they have and redeploy it in a different way."

Jumpstarting the recovery

If anyone knows how to stimulate growth it is the city's charismatic leader, one of America's most successful businessmen. "As someone who started his own business, Mayor Bloomberg knows better than most the impact that entrepreneurs can have on job creation and economic growth," says Carl Schramm, CEO of the Kauffman Foundation. "His plans should give New Yorkers the tools and training they need to start and grow successful businesses."

One such initiative is a program called JumpStart NYC that aims to harness the unique skill-sets of financial services workers and put them to use in another area New York is famous for: the entrepreneurial sector. Launched in partnership with the State University of New York's Levin Institute, the program offers an entrepreneurial training 'boot camp' designed to show participants how to apply their knowledge, skills and abilities in opportunities beyond financial services, after which they are offered a 10-week unpaid internship at a start-up company with the potential of converting to full-time employment at the end of the placement. "It's really a two-sided program," says the Levin Institute's Tom Moebus, co-founder of JumpStart. "Part of it is to help people make the transition from their existing roles, and then another part of it is to make talent available for other budding industries."

The scheme has been a big hit with both individuals and participating companies alike. "The program forces us to use all of our business skills, financial skills and marketing skills to really dig deep to discover what other opportunities we can help create," offers Rodneyse Bichotte, a former corporate banker at JPMorgan and recent JumpStart NYC alumnus. "Even though it's an unpaid position, it allows us to get back out there and use our minds to help make something."

Berkowitz, another recent graduate of the scheme, agrees that it has been invaluable in terms of both helping him come to terms with having his chosen career cut short and opening his eyes to new opportunities. "I think any layoff comes as a surprise, and there's a lot of anger and resentment that usually goes along with it," he muses. "But after about a week I began to see it as an opportunity to take a step back from my career and reflect on what I was doing. And I found that what really excited me was not the pursuit of money, which had been my goal in the past, but more the pursuit of knowledge about my own skills and abilities. I've always been fascinated by how businesses grow from a one‑person firm to a 5000-person firm, so that's what led me to consider getting involved in entrepreneurship."

After his initial boot camp at JumpStart, Berkowitz was placed with a small start-up that designs and develops solar support structures called Solaire Generation. "I did a fair amount of analytical work as well as finance, but I primarily did business development and marketing work for them," he explains. "There were only six staff when I started, but during the time I was there that increased to 10, with three of us from the financial world. We helped put together a business plan, we did some audit and analytical work for them and we also built some predictive models too, so I think collectively we brought to the table a fair amount of analytical skills."

The placement lasted for an initial period of 90 days, but so mutually beneficial was the collaboration that Berkowitz stayed on for a further two months on a full-time basis and still does project consultancy work for them now. "My passion for the financial markets came from analyzing companies and understanding how they worked, what made them succeed or fail," he says. "But I realized I could get the same sort of return from looking at a company I was involved in myself."

Lubow, who interned at digital entertainment start-up MediaMorph, is another to benefit from the opportunities afforded by the program. "It showed me that I can bring my skills to other industries, that I'm not just limited to finance," he says. "It helped me broaden my horizons and sort of take off the blinkers. Startup companies often lack the analytical rigor that you get from working in the financial services industry; it's a bit of a generalization, but they usually don't go into detail so much because the people are very creative and preoccupied with ideas. By analyzing their operational capabilities we were able to introduce a number of process improvements, and that was what I was able to bring to the table."

Redeploying skills

Harnessing those abilities is key to the administration's plans for retaining key knowledge workers and providing an environment that is conducive to starting - and nurturing - emerging businesses and industries. Alongside JumpStart, the city is also partnering with academic institutions, property management companies and commercial landlords to establish high-quality, ready-to-use office space that comes with basic business services and administrative support to serve as what Lieber calls "business incubators"; creating several funds totaling $9-10 million to make angel investments of between $20,000 to $250,000 to New York-based start-ups; launching a business training program called FastTrac to help emerging entrepreneurs, including those displaced from the financial services sector, start new businesses and help existing entrepreneurial business owners run their companies better; and establishing a central information clearing house and support network for entrepreneurs and start-up companies.

Such a wide variety of initiatives reflects the city's desire to diversify into other emerging industries alongside its traditional focus on finance. "I think that it is important for New York City to remain a global financial services center; we don't ever want to deemphasize the importance of financial services," admits Lieber. "But what we do want to do is continue to grow some of the other sectors, whether it be in fashion, greentech, medicine, biosciences, media, entertainment, or other industries. We believe all those can be very complementary with our financial services sector."

And if the program is successful, there is no reason why it can't be expanded to help workers in other struggling industries retrain in order to make the successful transition to a new role. The Levin institute's Moebus believes the newspaper industry is just one sector that could benefit from the application of a similar approach. "You've got this high-end talent pool of people who've been working in the traditional media area, which is an industry that is shrinking rapidly," he explains. "Well, what are they going to do to meet that challenge? Can they learn something in mid-career to transition into a different working environment? It's about figuring out how can you add value in whatever environment you go into, and I think programs like ours are incredibly useful in identifying those skills and giving people the confidence to make that change."

Ultimately, the initiatives are an investment in the city's most important resource: its people. And thus far, it has proven to be a great success. "The greatest asset that we have here in New York City today is not our manufacturing capability. It's not our baseball teams. It's the human talent that resides here, and we want to make sure that we continue to be the place where smart, intelligent people have the opportunities to launch and develop careers and work with other smart, intelligent people," concludes Lieber. "We have a number of different industries aside from financial services that help provide that kind of inspiration. For example, our academic and medical center environment is one of the strongest in the country. We're also the fashion center of the world as well. We want to retain the talent, the creative minds, the creative energy, so that other creative entrepreneurs want to locate and grow their business here."

Incubating economic growth

The fiercely competitive nature of New York coupled with extremely expensive rental costs make the Big Apple a notoriously difficult place to start a business; throw in recessionary conditions and it becomes even harder. But on the 12th floor of 160 Varick Street in the very heart of downtown Manhattan, a new initiative is looking to kick-start the nation's economic recovery.

By acting as a so-called business incubator, New York is encouraging entrepreneurialism by offering 27 fledgling companies - handpicked from more than 300 applicants and representing a cross-section of different industries - desk space at an established address, along with access to some of the city's brightest business brains. To help the 27 succeed, the incubator - the result of collaboration between the City of New York, Trinity Real Estate and NYU Polytechnic Institute - gives them access to business seminars, mentoring services and business networking opportunities. Vitally, the companies are also given access to angel investors and venture capitalists.

The main focus of the project is to stimulate the economic recovery through job creation, as the incubator's director Bruce Niswander explains. "We selected companies who would benefit the most from what we had available and who could, in the quickest time possible, start creating jobs," he says. In order for the companies to be selected, Niswander says that each had to prove its "investibility and longevity" with a 24-month plan, addressing products, operations, marketing, selling and staffing. Niswander also meets with each company every month to focus on tasks, budgets and cash flow.

Companies pay as little as $200 per month per desk, a fraction of market value, offering an outstanding opportunity for enterprise-level office solutions at low-level market prices. "We want to make sure as many of them [new businesses] as possible start and grow in New York City," said New York Mayor Michael Bloomberg in a recent briefing.

A culture of innovation

Alongside its stated goal of retaining and growing financial companies and institutions in New York, the city also hopes to promote business innovation through entrepreneurial activity.

"We are taking aggressive steps to put the city in the best position to capture growth, and we're doing it by promoting one thing more than any other: innovation," said Mayor Bloomberg on announcing the city's new initiatives to kickstart the economy back in March. "New York's greatest strength has always been and will continue to be the innovation, drive and work ethic of New Yorkers. Time and time again, history has shown that our city rewards those who have the courage to pursue their dreams and launch new ideas."

Of course, the city has a longstanding entrepreneurial spirit. "Aside from the robust infrastructure, entrepreneurs come to New York for its most abundant resource: smart, ambitious and innovative people," says SecondMarket Founder and CEO Barry Silbert. "This collection of raw talent is what first drew me to the city over a decade ago and also prompted me to establish my company here. New York can become a real hotbed for innovation and entrepreneurship."

Other business leaders agree. "The vibrancy of New York City from a business and cultural perspective is a key factor in attracting the best technology talent in the world to our organization," says Bob Greifeld, President and CEO at NASDAQ. "The city has many innate advantages, including its energy and spirit of innovation. I believe there is a great opportunity for New York City to take the lead in redefining future markets."

Indeed, the city can attract some of the biggest and most innovative companies in the world. "New York City is one of the world's best incubators for innovative businesses and Google's success here is living proof," adds former Google Americas Operations President Tim Armstrong. "Due to the depth and diversity of talent in the city, Google has thrived in New York, building up one of its largest engineering centers and making it the heart of the firm's North American advertising business."