Yet, here Karlgaard sat.  Under the stuffed and mounted head of a longhorn.  Drinking a Moose Drool beer.  Taking notes while plying entrepreneurs Andrew Field of Printing for Less, Patrick Pitman of E-business Coach, and the rest of our dinner party with pointed questions about business life on the economic frontier.

The Makings of the Boonyack Comeback

Odd as it may sound, Karlgaard is serious about understanding the dynamics of business in, what he calls, the “boonyack.”  Like the rest of us, Karlgaard is sickened by the ego, greed, and corruption exhibited by some of the CEOs of once high-flying public companies.  He doesn’t believe, though, that the story of Enron or Global Crossing is the story of American business.  Rather, he views CEOs such as Dick Resch, who runs a contract furniture manufacturing business in Green Bay, Wisconsin, as today’s business heroes.  But, Karlgaard’s interests run deeper than a desire to be “contrarily optimistic.”

On second thought, it’s not surprising that Karlgaard is interested in the boonies.  After all, before decamping to Stanford in the 1970s, he grew up in Bismarck, North Dakota.  Since then, he’s been back to his hometown two or three times a year to visit family.  Over the years, he’s become increasingly aware of two trends.  First of all, the “sophistication gap” between places like San Francisco and Bismarck has been steadily declining.  A generation ago, Bismarck had two television stations, not a single good restaurant, nor timely access to a national newspaper.  To be generous, it was a provincial town.  Fast-forward 20 years, and the picture changes.  It might be a stretch to call Bismarck urbane, but it’s not as behind the times as urban snobs might imagine.  Secondly, places in the urban mainstream like the Bay Area have become more expensive, less convenient, and generally less attractive places to live.  Even if you make $100,000 a year, it’s tough to find a livable home in Silicon Valley when a kitchen remodel in Los Altos costs more than the purchase price of two typical homes in my Bozeman neighborhood.  A former partner of mine commutes up to six hours a day from Carmel Valley to San Francisco through a stretch of Highway 101 affectionately labeled “blood alley.”  It’s tempting to dismiss such anecdotes as apocryphal, but they are just too common to deny.

Put simply, Karlgaard has witnessed the erosion of the urban advantage.  Even so, through the late 1990s, the balance still tipped in favor of the big city.  As he explained to me earlier in the afternoon, the logic for, say, an engineer at Cisco, went as follows: “I’ll stick every nickel I make as salary into my egregiously high mortgage.  My stock options, with a $30 strike price, will pay for retirement, the beach house, and the kids’ college tuition.”  That worked when Cisco’s stock was trading at $75 per share, but those same options lost their sheen when the stock dropped by 80%.

Nevertheless, people abandon their dreams grudgingly.  Up here in the Northern Rockies, we call it waiting for the mill to re-open.  Per Karlgaard, the stock market “mill” isn’t going to re-open any time soon.  He points out that bull markets like those in the 20s, 60s, and 90s happen once a generation.  “We’ve seen ours,” Karlgaard says, “and in today’s political environment, you can forget about companies re-pricing options.”  Without a hot market for initial public offerings, “Silicon Valley venture capital as we've known it is dead.  Only the top 20% of firms is likely to survive.”

With the collapse of the stock market bubble and the concurrent evaporation of the IPO market, the VC-fueled get rich quick logic is bankrupt.  As a consequence, the erosion of the urban advantage has been laid bare.  That creates new opportunities for small and medium-sized businesses that can now compete more effectively than ever for mobile talent.

The Rediscovered Virtues of Bootstrapping

Not that long ago, Karlgaard didn’t believe it was possible for a startup to have too much capital.  His views have changed – 180 degrees.  Now, he says, “I’ll never again trust a business that hasn’t weathered hardship.”  When money is too easy, values get whacked and execution gets sloppy.  Karlgaard points to Google as a company that works today, in part, because it did not seek big bags of “free” venture capital when it was a rank startup.  Instead, it was launched with capital from credit cards, and the company grew up with a culture of uncommon restraint.

In Karlgaard’s view, “now is a great time to be a private company.”  He agreed with me that the private equity markets are likely to adapt with surprising agility to an investment environment that can’t take IPOs for granted.  The next generation of professional investors will figure out how to make investments in great companies – no matter where they are located – because there is money to be made.  I know that Tom McMakin, an operating principal at The Shansby Group who sat across from Karlgaard during dinner, is prone to agree.

Lessons Learned

The historian Arnold Toynbee wrote, “Society is a ‘field of action” but the source of all action is in the individuals composing it.”  During our conversations, Karlgaard expressed regret at the role he may have played in contributing to the hype as a high profile columnist.  I suspect he might see his errors as those of omission.  Intellectually stimulated by the intoxicating ideas surrounding the concurrent trends of expanding bandwidth and computing power, he may have forgotten, momentarily, that trends are but the backdrop – individuals and their actions matter.  People like Gary Winnick, the disgraced CEO of the bankrupt Global Crossing, can corrupt the promise of the telecosm.  On a more positive note, the potential that exists for small cities like Bozeman must be actualized by individual entrepreneurs who understand that making a buck is a necessary, but insufficient, condition for a truly great business.  That’s what makes entrepreneurship really hard.  That’s what makes entrepreneurs worthy of our respect and acknowledgement.

I, on the other hand, need to re-think my lapsed subscription to Forbes.  To be honest, my impression of the magazine came to be that it was the stuffy chronicle of big money and big corporations – two topics that fall outside of my interests and experience these days.  However, notwithstanding the obvious differences in the worlds that Karlgaard and I live in, I found a surprising and encouraging overlap in our perspectives.  Like Karlgaard, I believe that business – at its best – is a life-giving, honorable, and rewarding pursuit.  In addition, we share a belief in the power of optimism.  During an afternoon drive together through the Gallatin Canyon, I was reminded of another historian, David Landes, who wrote, “In this world, the optimists have it, not because they are always right, but because they are positive.  Even when wrong, they are positive, and that is the way to achievement, correction, improvement, and success.  Educated, eyes-open optimism pays; pessimism can only offer the empty consolation of being right.”