The Industry Standard, August 14, 2000

Utah’s natural beauty isn’t the only incentive for companies to locate in Gov. Mike Leavitt’s state. A Mormon workforce is the other draw.

It’s a blistering June day and Gov. Mike Leavitt is campaigning through the
small towns of southwestern Utah. Sporting shiny loafers, a crisp, blue golf
shirt and a head of impeccably groomed brown hair – every follicle staunchly
defying the blasts of hot desert wind – he looks so well scrubbed it’s a wonder
he doesn’t squeak when he walks.

At every stop, a team of clean-cut young campaign aides plants signs reading:
“Mike Leavitt: Road to the Future.” By noon, Leavitt’s bus is roaring through
Moroni, population 200, a hamlet named after the angel who, according to Mormon
belief, gave the golden plates holding the sacred Book of Mormon to the prophet
Joseph Smith. With Mormons representing 70 percent of Utah’s population, and
nearly everyone in Moroni a believer, Leavitt (himself a member of the Church of
Jesus Christ of Latter-day Saints) is dutifully cultivating their support.

To non-Mormons, the town is better known as the turkey capital of the world:
Moroni produces 5 million birds every year, some of the choicest of which have
been barbecued for today’s lunch. After the picnic, the campaign moves to a
nearby town hall, where Leavitt lays out his plans for Utah’s future.

Sounding more like a visionary venture capitalist than a politician, Leavitt
describes the “E-Utah” program that will enable parents to keep track of their
children’s progress in school via the Internet and talks about the importance of
high-speed bandwidth for rural communities. Members of the audience nod
knowingly at his comments, since nearly every home in the area already has
access to a high-speed fiber-optic connection. Around here, Mormons and the
Internet go together as naturally as vanilla ice cream and hot apple pie.

In fact, Leavitt is on the campaign trail in no small part because of his
promotion of – even obsession with – computer technology. Despite being the most
popular governor in Utah’s history – he won re-election in 1996 with 75 percent
of the vote – Leavitt has been forced by the right wing of Utah’s Republican
party to suffer the indignity of a primary against a little-known challenger. In
an ugly May convention, he and Sen. Orrin Hatch were even booed. The right wing
was angry because, among other things, Leavitt opposed a referendum to permit
concealed weapons in churches and schools – a favorite issue among gun-rights
activists who argue that an armed student body might have averted the Columbine
massacre. And he had betrayed Utah’s libertarian convictions by advocating taxes
on Internet purchases – a proposal he made while a member of the Advisory
Commission on Internet Commerce. “Last year we said Utah’s Gov. Mike Leavitt
would enter history as the man who most wanted to tax the Internet in its
infancy,” warned a Wall Street Journal editorial. “He may exit the
for the same reason.”

In a state best known for skiing, Donnie & Marie, basketball and polygamy it
might seem strange that technology and Internet taxation would loom so large.
Strange, that is, unless you know that Salt Lake City recently nudged out San
Francisco as the city with the highest per capita personal computer penetration,
according to Scarborough Research, a market research firm. (Overall, Utah ranks
fourth among the most wired states in the union.) Home to Iomega, Novell,
WordPerfect and MyFamily.com, Salt Lake City has long played an important part
in the new economy. “Ten years ago, Silicon Valley, Seattle and Salt Lake were
the only three places in the world making high-quality software,” says Brad
Bertoch, head of the Wayne Brown Institute, a nonprofit venture capital
facilitator. Although Salt Lake has stumbled recently, largely because of
WordPerfect’s misfortunes, it may be poised for a comeback.

These days, when not groveling for votes in the wilds of Utah, Leavitt is
working on his Silicon Valley-Utah Initiative. He would like California’s
Internet and high-tech businesses to expand here, thus creating the tech-savvy
critical mass required to spawn new, Utah-based companies. “If we create a
Silicon Valley-like culture and become the vogue place for entrepreneurs to grow
out their companies, we’ll make Salt Lake not just a tech capital, but also a
venture capital,” he says between campaign events.

To this end, he has been making the rounds of Silicon Valley’s top tech
companies, dot-coms, and law and VC firms. Unlike other tech-hungry governors,
the consensus is that Leavitt actually knows what he’s talking about. “He was
very impressive and had a sophisticated understanding of the issues surrounding
the Internet,” says Kleiner Perkins’ Ted Schlein. A technology adviser to
erstwhile presidential candidate Bill Bradley, Schlein says he is a good judge
of politicians. “I would characterize myself as a Mike Leavitt fan. If he called
me, I’d call him back and see if I could help him.”

Actually, Leavitt believes Utah can help Silicon Valley solve a big problem.
Namely, how do companies – both large and small – continue to grow in the face
of soaring real estate and labor costs, crippling traffic, tremendous job churn
and a scarcity of engineers? To Leavitt, the answer is obvious. A short commute
to California (it’s a 1 1/2 hour flight to San Jose), Salt Lake offers
relatively inexpensive housing and labor, minimal traffic and access to three
top-flight research universities. With one of the earliest computer science
departments in the country, the University of Utah produced Internet
entrepreneur Jim Clark and Adobe CEO John Warnock, and both Novell and
WordPerfect were founded by its professors. Add the state’s exquisite natural
beauty and outdoor activities (skiing, hiking, biking, boating) craved by
lifestyle-minded dot-commers, and Leavitt thinks he has an enticing proposition.

But with Austin, Texas; Portland, Ore.; Denver and a host of other cities
also wooing these businesses (even the governor of Maine, Angus King, was
recently spotted prowling around Silicon Valley), Leavitt knows he needs to
offer something more. Utah, he tells anyone who will listen, has the
fastest-growing, best-educated, most technologically sophisticated,
hardest-working, and most family-oriented workforce in the nation. In short,
Leavitt’s secret weapon is Utah’s culture: Mormonism.

Mormonism as the solution to the new economy’s ills? An odd notion perhaps –
odd, that is, until you talk to people responsible for making these sorts of
decisions. According to them, Silicon Valley may be losing some of its luster.

“Our primary decision wasn’t to move to Utah, our primary decision was not to
be in Silicon Valley,” says Gary Kennedy, who worked at Intel and was president
of Oracle USA before becoming the CEO of TenFold, a producer of fixed-price
Internet business applications. The company has just completed a successful
round of recruiting, hiring 40 graduates from MIT, eight from Stanford and six
from Caltech. Two principle factors made Utah attractive to Kennedy: Utah’s
large population of good engineers, and Salt Lake’s low churn rate, which made
it likely he could keep them. “In Silicon Valley, for every good one you hire,
two go out the door. We were trying to build some very complex applications and
I didn’t want to be in a situation where every time it looked like we weren’t
going to deliver, half the workforce would leave.”

Similarly, popular auction site eBay had a 650-person call center to fill
when Leavitt, moving “at Internet speed,” he says with a wink, closed the deal.
Representatives of eBay met with his team on Tuesday, decided to come to Salt
Lake on Thursday, began hiring immediately and moved into a renovated facility
five weeks later. It certainly didn’t hurt that Leavitt, a self-described “eBay
addict,” was able to hold forth on the fine points of electronic auctions.

Bill McKiernan, chairman and CEO of CyberSource, is considering several
locations for expansion, but is leaning toward Utah because Salt Lake is a Delta
hub with lots of direct routes, while Austin is a three-hour flight away, among
other reasons. “Austin is probably only three months behind the Valley in terms
of traffic and infrastructure,” says McKiernan. “Utah is attractive because it
has a well-educated, hard-working labor pool. And we need a geologically stable
“earthquake-free” site for our data centers, so Utah is ideal.”

James Flash, a VC at Accel Partners, has directed a number of his companies
to Salt Lake. “We’re up against the stops in Silicon Valley. There’s an acute
shortage of talent and facilities, and the labor costs are out of control. I’ve
had no trouble recruiting people to go to Salt Lake.” But is Utah too
conservative for Internet types? “Well, things can get pretty crazy here in the
Valley, and they’re offering safe streets and natural beauty,” Flash says. “And
you can get a real drink there now, right?”

Salt Lake was bustling even before Leavitt’s initiative kicked into high
gear. New highways and buildings are under way in anticipation of the 2002
Winter Olympics, and 400 miles of fiber-optic cable – at a cost of $200 million
– are going into the ground. Currently Utah’s biggest employment sector,
technology and Internet-related companies have created 57,000 new jobs in the
last 10 years and have seen revenues soar from $1 billion to $12 billion in that
time. A number of small dot-coms have been springing up in business parks across
Salt Lake City and the Utah Valley. Intel is erecting an eight-building,
8,000-employee research campus. The $1 billion Micron Technology chip plant is
finally operational after faltering with the Asian flu. TenFold just broke
ground on its new headquarters and is planning to spin off several divisions in
the next year. DLJdirect is opening a new 1,000-person brokerage office, and
Goldman Sachs is opening a back office for its GS.com site.

Outsiders and insiders alike are encouraged by these developments. “A lot of
venture guys don’t really look beyond the local deal flow, so the state is just
beginning to get discovered,” says Spencer Tall, a partner at APV Technologies
in Menlo Park, Calif., who has invested in four Utah deals. Greg Warnock, a
partner at vSpring, a Salt Lake accelerator, already sees a big difference. “The
deal flow is increasing dramatically. We saw about 250 last year and are on
track to see over 1,500 this year.” Jim Dreyfous, a partner at Utah Ventures and
one of Salt Lake’s first VCs, sees a lot of opportunities for local seed
investors, who are able to cultivate deals and then partner with larger VC
firms. “The pot has been stirred up in the last few years and now it has to get
to the boiling point. We just need a few more success stories to stoke it. Time,
smart people and a long-term view are the most important things for Utah,” he
says.

But before California’s Internet millionaires load up their Range Rovers and
move en masse to Salt Lake, a few uncomfortable questions must be posed. Is it
possible to re-create the entrepreneurial conditions of Silicon Valley anywhere,
much less in the middle of the Utah desert? Does Leavitt’s “secret weapon” –
Mormon culture – cut both ways, attracting some companies, but repelling others
that judge it too repressive and homogenous for their multicultural, hedonistic
employees? And finally, is Gov. Leavitt – the national poster child for taxation
on the Internet – really the best candidate to lure dot-coms to Utah?

The first thing everyone in Salt Lake assures a visitor is that Mormonism
isn’t a big factor in daily life here, which is a sure sign that it is. The
most-cited evidence for its relative unimportance is that although the state is
70 percent Mormon, only about 50 percent of Salt Lake is – a mitigating factor
until you try to remember the last time half the population of a major American
city agreed on anything significant, much less an all-encompassing belief
system.

The fact is that Mormonism is everywhere in Salt Lake, although in a subtle
way. I arrive on Sunday and the streets are deserted – the only other cars I
spot are driven by two kids who are ignoring the red lights and drag-racing …
down Main Street. Although the laws that once kept Utah “dry” have been relaxed,
many restaurants still require you to get a patron who is a “member” of the
establishment to order your drink for you. In the course of a week, I see barely
half a dozen nonwhite faces, and they are tourists. That uniformity is
mirrored in the city plan. As designed by Brigham Young, the church leader who
took over after Joseph Smith died, Salt Lake’s streets are numbered according to
their distance from the main temple; every street is 132 feet wide – large
enough for an ox train to turn around comfortably. Even the PR flacks are so
community-minded that they regularly suggest a journalist visit their
competitors, even providing e-mail addresses and phone numbers. And since
Mormonism is a proselytizing religion (“Every member a missionary,” goes the
saying), one doesn’t have to wait long before someone will try to bring you into
the fold – in the nicest possible way, of course.

Virtually everyone in Salt Lake confirms Leavitt’s claim that Mormons are
hard workers. The state’s Mormon-inspired logo, the beehive, is an apt symbol of
their industriousness, which rests on the “principle of stewardship,” the notion
that everything belongs to God, including everything one earns. The good steward
is one who takes what he has and multiplies it. When a Mormon gives 10 percent
of his income to the church (required in order to take part in church life), he
isn’t really “giving” anything since it didn’t really “belong” to him in the
first place.

Mormans are also known for their bookishness: Utah ranks 13th among the
states in percentage of population holding bachelor’s degrees or higher; 11th in
percentage of civilian scientists and engineers; fifth in education technology,
based on number of classrooms wired for the Internet and teachers with
technology training; and fifth in business readiness, measured by the number of
commercial Internet domain names per firm.

With an estimated $30 billion in assets – $5 billion in annual income from
tithes alone – if the Church of Jesus Christ of Latter-day Saints were a
corporation, it would rank 243 on the Fortune 500. That’s somewhere between
Union Carbide and PaineWebber. The comparison is not merely hypothetical, since
the church is run like a large, hierarchical corporation. Church elders tend to
be successful businessmen and all members are trained to be good managers and
salesmen from the start. At age 19, members customarily embark on a two-year
“mission” to spread the word and recruit converts.

But the qualities that have traditionally made Mormons such good businessmen
may have hindered them in the fast-paced new economy. “The good news is that
they are real smart and work very hard. The bad news is that they tend to be
small businessmen, not large, serial entrepreneurs,” says Bertoch of the Wayne
Brown Institute. “It is the starvation mentality the state has always had: Be
self-sufficient, have your own business. It is particular to oppressed, isolated
people. If it’s not built, we’re going to build it. But we’ll do it at our own
pace. While in Silicon Valley they think in terms of 18 months to the IPO, in
Salt Lake we think in terms of one to three years.”

This worldview has made it difficult for outsiders to penetrate Salt Lake,
which has in turn created economic problems. “Why do we lack the capital and
infrastructure? The answer is culture,” says John Griffin, a political economist
at Brigham Young University currently completing The Silicon Desert Project, a
comparative analysis of high-tech development in Colorado and Utah. “Corporate
networks in Utah are generally closed: The insiders all know each other through
the church and other community ties. So if you’re a VC who wants to invest in
this emerging high-tech region, it is easier to go to Colorado than Utah. If
you’re not Mormon you hit a real barrier.”

The cultural role of Mormonism potentially creates as many problems as it
solves. After all, not everybody is attracted by the Cleavers’ values and
spotless streets. Many Salt Lake companies say that they have trouble
recruiting non-Mormons, especially those who are single. “There really aren’t
that many things to do around here if you are used to clubbing late into the
night,” says one dot-com executive. And Salt Lake’s identity as the capital of
the Mormon world can be uncomfortable for non-Mormons. “Every time you are in an
airplane and tell the guy next to you that you’re from Salt Lake, he asks if
you’re a Mormon. It’s embarrassing,” says a prominent non-Mormon businessman.

Just as outsiders aren’t always thrilled with Mormon culture, a significant
minority of Mormons are wary of technology and other aspects of modern life –
which makes Leavitt’s political agenda a high-wire balancing act. Perhaps
nothing better exemplifies Utah’s complex cultural politics than the state’s
attitude toward polygamy. With an estimated 40,000 to 100,000 fundamentalist
Mormons engaged in “plural marriages,” this is no small matter. In one notorious
incident, Leavitt – a descendant, like most old Utah families, of a polygamist
clan – speculated last year that polygamy might even enjoy certain
constitutional protections as a religious freedom. He soon corrected the gaff,
but the rumor that he is “soft on polygamy” still makes the rounds.

On the campaign bus, Leavitt talks about Tom Friedman’s study of
globalization, The Lexus and the Olive Tree, a book he is so enamored of that he
gave a copy to every governor and assigned it to his entire cabinet during a
recent retreat. Traveling through Utah’s small towns – some of which have
polygamist churches just blocks from schools with broadband Internet connections
– one is strikingly aware that Utah is a microcosm of the struggle Friedman sees
taking place between global innovation and local tradition. “The communities we
are going through are rural, natural resource-based economies that are suddenly
being subjected to global, macroeconomics they can’t control,” says Leavitt.
“When I introduced the idea of the Utah-Silicon Valley alliance, there was an
editorial in one paper saying that we don’t want to be ‘Silicon Valley Jr.’ We
like Utah just the way it is. Well, I like it the way it is, too. But I’d also
like my children to be able to have a future here. So the clash between the
Lexus and the olive tree is inevitable.”

Mike Leavitt’s olive tree is in Cedar City, the small town in southwest Utah
where he was born in 1951, the oldest of six brothers. His is a sepia-tone
American success story: An All-State baseball player and high-school
quarterback, he married his college sweetheart, Jacalyn Smith, with whom he has
five children. He got his degree in business and economics at the local college
and became an entrepreneur at an early age. Eric Leavitt, who is 10 years
younger than his brother, remembers one of his first business schemes. “Mike got
a contract from the Forest Service to remove garbage from the camp grounds. He
employed my brothers and me for three years, and in that time I don’t remember
him lifting a bag more than a few times. He was an expert delegator who
understood the value of being management.”

Leavitt’s father founded a property-liability insurance business that grew by
partnering with small insurance companies throughout Utah and Nevada. Mike
Leavitt had just bought his first 28L Radio Shack PC and taught himself Basic
when he joined the business. It quickly became clear to him that computers would
revolutionize insurance. “I saw there was real power in the network of small and
medium agencies. In 1982 we created a computer network connecting all our
offices together, using very expensive T-1 lines. Our phone bills were $12,000
to $15,000 per month.” In the nine years Leavitt and his brothers ran the
business it tripled in size to $100 million in sales. Today it has 75 offices in
12 states.

In addition to selling insurance, Leavitt’s father was a state senator. In
1976 he ran for governor and asked his oldest son, then 25, to manage the
campaign. Leavitt refers to it with entrepreneurial pride as his first failed
“startup” (they lost by six points). Over the next few years, he was a part-time
political consultant, running a successful campaign for U.S. Sen. Jake Garn and
consulting for Utah Gov. Norman Bangerter. In 1982, he managed Orrin Hatch’s
campaign, cementing an important political friendship. Technology was the
linchpin of Leavitt’s political operation. He used computers to collect and
collate opinion data with which to refine the candidates’ message. “We had these
big, cumbersome mainframes and key-punched in the data. Campaigns are like
businesses: You have to understand the market and have an accounting system for
revenues and expenses. The only difference is that the store is only open one
day,” he says.

When Bangerter retired in 1992, Leavitt ran to replace him. A virtual
unknown, Leavitt went door to door, cell phone in hand, meeting with every
legislator and party leader he could. He won with 42 percent of the vote to
become Utah’s 14th governor. In 1996, he was overwhelmingly re-elected. He has
been an active governor from the start, chairing the Republican Governor’s
Association, the Western Governor’s Association and now the National Governor’s
Association. Leavitt has assiduously cultivated a national profile, averaging
one trip to Washington per month. There are rumors that his buddy George W. Bush
is considering him for a cabinet or administrative post, and there is talk of an
eventual senate or presidential run.

A truly national reputation requires large ideas, and Leavitt has a ton of
them. In this respect, he might be thought of as a kind of Republican Al Gore: a
wonkish, technocratic politician with a soft spot for utopian (and
occasionally crack-pot) programs with slightly New Agey names. When a newspaper
dubbed him “Governor Moonbeam,” a la Jerry Brown, he wasn’t the least bit
offended, and even used the moniker himself.

After years of negotiating contentious land and water agreements, Leavitt
became frustrated with extremists always defining the terms of the debate. Might
there not be a more efficient way, he wondered? Thus was born “enlibra,” a set
of eight environmental principles – such as “use markets before mandates,”
“national standards, neighborhood strategies,” “reward results, not programs” –
to move environmental debates toward (“en”) balance (“libra”). “I wanted to
create a symbol for where you ultimately end up, to give words to the things we
discover only after millions of dollars and years of debate. This is not a
program, this is a philosophy. What did Gorbachev’s ‘perestroika’ mean? Nothing,
he made it up. My aspiration is that one day enlibra will be written about and
taught,” he says.

In a related proposal, Leavitt recommended to his friend Interior Secretary
Bruce Babbitt that opponents in policy disputes be made to camp out and see if
they could solve their problems while sitting around a fire, the theory being
that the burgeoning sense of community might help smooth over partisan
differences. At a recent meeting of the Aspen Institute, he suggested a kind of
Peace Corps for billionaires. “It would be a network of people who were willing
to give two or three years worth of their experience in the business world, a
combination of Mother Teresa and an ambassadorship,” he explains. When it is
suggested that it sounds an awful lot like a Mormon mission, Leavitt perks up
and smiles. “Yes, that wasn’t lost on me. It would be a renewing experience.”

The arena in which Leavitt best likes to flex his visionary muscles is
technology. The first thing he did upon taking office in 1992 was to create the
proprietary Governor’s Information System, an enormous database containing
addresses, names, profiles, commissions, boards and every other detail of state
government. Several other governors used Utah’s GIS as a model for their own
systems and it is still in operation today. In 1995 Utah became the first state
to use digital signatures (it didn’t hurt that two of the leading
digital-signature software firms were there), and in 1998 Leavitt launched the
Digital State Initiative, which mandates that all government agencies provide
services (driver’s licenses, permits and so on) via the Internet by 2002.
“E-Utah” already issues driving and fishing licenses and enables online delivery
of food stamps and other social services.

But the jewel in Leavitt’s crown – as well as the thorn in his side – is the
virtual Western Governor’s University, which he and Wyoming Governor Roy Romer
concocted in 1995. The idea was for 13 Western states to collaborate on class
offerings to ease overcrowding and minimize the expense of educating the
children of the baby boomers – which in Utah’s case is estimated will add
130,000 students to an already overburdened school system by 2010. The
university would also part with certain academic standards as criteria for a
degree, in favor of competency in a specific field. Launched with lots of hype
in 1998, the university has been a bust. The goal was to have 500 degree-seeking
students and 7,000 students in corporate training programs by this year; it
currently has only 200 degree-seeking students and hasn’t met its other
enrollment targets, lacks accreditation and is running at a deficit.

One afternoon, Leavitt pays a visit to one of Salt Lake’s most promising
educational startups. As it happens, this is also the day he will learn
whether his beloved university has finally cleared the first hurdle on the path
to accreditation. He (correctly) anticipates bad news and as he rides across
town in his limo, speaks with great frustration of his travails. “The virtual
aspect is no longer controversial. But what is new is the notion of competency
as opposed to academic credit,” he says. “The inspiration for this came out of
several conversations I had with the CEO of a major corporation who told me, ‘If
I miss one product cycle, I’m dead. That means every 15 to 18 months, I need a
new group of people trained with a different set of technologies. But it will be
18 to 24 months after, say, Java becomes state of the art before most
institutions will even start training students in it.’ So our competency-based
degree would essentially list the skills a student has demonstrated in
particular technologies. But it is very hard to get the higher-education
bureaucracy to divert from a system they have known for 800 years,” he continues
sadly.

Campus Pipeline represents the future Leavitt envisages for Utah. Founded by
Utah natives who brought on other executives who had gained experience in
Silicon Valley, it has raised $85 million in financing since June 1998 from
investors including Dell Computer, Hambrecht & Quist, Hewlett-Packard, Inktomi,
McKinsey & Co., Oak Investment Partners and Michael Ovitz’s Lynx Technology
Group. Campus Pipeline collaborates with colleges and universities to create and
service comprehensive intranets for coordinating academic and administrative
resources; it has also partnered with SCT, the largest seller of enterprise
software to universities, with about half the market. Campus Pipeline is housed
in a renovated 19th century hardware building that was at one time the largest
structure west of the Mississippi. The cavernous main floor was originally
designed to ensure that horses wouldn’t be injured if they reared while their
carts were being loaded with supplies. Long, curving shoots, resembling
amusement park water slides, wind down from each level to deliver the
merchandise to the customer. “That looks just like an e-commerce fulfillment
center,” chuckles Leavitt, obviously tickled that Utah anticipated the new
economy by a century.

The tour is led by CFO Rob Simmons, who shows off a wall of brightly colored,
triangular school banners representing Campus Pipeline’s clients, as well as a
map dotted with red pins that displays the company’s geographic reach. Wrapped
around a central atrium, it is a typical dot-com office, filled with carpeted
gray cubicles and exposed brick walls. Leavitt peppers Simmons with questions
about the technology before he stumbles, literally, onto one of the only things
the governor loves more than technology. “Is this a golf course?” he asks,
excitedly. When Simmons assures him that it is a full 18-hole course, he grabs a
putter, takes off his suit jacket and makes a perfect putt, glancing the ball
off a filing cabinet.

The next morning, I have breakfast with Simmons, a blond, fresh-faced man who
radiates Salt Lake’s trademark synthesis of wholesomeness and affluence. Born
and raised here, he went on a two-year mission to Italy before attending Brigham
Young University, which he paid for by processing American Express traveler’s
check refunds in Italian. His wife’s mission was to Argentina, so their four
children speak a smattering of Italian and Spanish. “Because so many people in
Salt Lake have been all over the world, we have a sense of world culture even
though we are land-locked,” he says.

Like many of his classmates, Simmons, 37, found there were no suitable jobs
in Salt Lake when he finished college, so he went to Los Angeles for a stint in
corporate banking before picking up an MBA at Northwestern University. He
joined Oracle’s corporate finance department in the late ’80s and eventually
left for Iomega. Much as he thrived in the hard-working environment of Silicon
Valley (Oracle went from $200 million to $2 billion in revenues while he was
there), Simmons says he is glad to be home. Although everyone works hard, Campus
Pipeline is a more relaxed, informal company, he says. They have a staff
magician (with stock options), every employee receives a golf putter when hired,
and company policy mandates a ski day whenever 6 inches of powder falls at
nearby Snowbird.

When asked what Salt Lake could learn from Silicon Valley, Simmons smiles
broadly and turns the question on its head. “Actually, I think the Valley should
look to Utah as more of a model for how to balance work and family. The reason I
missed your call last night was that I was at my son’s baseball game, which is
something that most Silicon Valley executives would probably miss. Look, the
entrepreneurial spirit is about working hard and being aggressive, but it’s not
about neglecting your family,” he says.

That word. “Family.” Spend any time in Salt Lake and you’ll hear a lot about
family. With population growth at twice the national average, families are
obviously central to Utah’s future. And because of the church’s extensive Family
Research Center, Salt Lake is the world center for all manner of genealogical
research and business.

A 45-minute drive from downtown Salt Lake, in a Provo office complex that was
once used by bestselling Mormon financial guru Steven Covey (Seven Habits of
Highly Effective People), is MyFamily.com. The company started out 17 years ago
as a successful genealogical publisher of books and magazines, before it
discovered CDs and, eventually, the Internet. The chairman of MyFamily is Curt
Allen, whose brother (the CEO) brought him in when the company decided to expand
its Net presence. A Provo native who previously worked at several nearby
high-tech companies, he is a consummate salesman and has an unnerving habit of
seldom blinking or modulating the fevered cadences of his
power-of-positive-thinking pitch. He talks about “family” the way a widget maker
might talk about “product.”

“Our mission is to create the largest and most active online community in the
world for families. So first and foremost, people here care about family.
Second, they care about creating cool technology and services. The result is
that we have a three-legged stool: a cause people believe in, interesting
technology and a business model that works. This has the potential to be the
biggest community play in the world. Why? Well, first, every person in the world
is a member of a family, so it’s pervasive. Second, it is persistent because,
unlike other hobbies, it is an affinity that never goes away. And third, it is a
profitable segment. Over $112 billion are spent on gifts in the United States,
and most of it takes place in the family context: birthdays, anniversaries,
Mother’s Day, Father’s Day, Valentine’s Day, Christmas,” Allen says.

Bluster aside, the model is impressive. MyFamily is an umbrella company with
several Web sites, as well as divisions that oversee books, two magazines, CDs
and the sale of genealogical paraphernalia. Over 200,000 members from 86
countries pay $60 to $100 per year for access to Ancestry.com, which aggregates
2,500 databases containing over 600 million names. MyFamily is free and provides
a password-protected community where members can post news, create photo albums,
chat and maintain a calendar of family events. It’s a double-pronged strategy:
The Ancestry site connects people to their past and the MyFamily site connects
them to their extended living family. Since the site’s 1998 launch, MyFamily
has received $75.5 million in investments from AOL, CMGIAtVentures, Compaq,
Intel, Kodak and Tango.

Allen agrees with Simmons that Utah’s attitude toward family is one of the
things that distinguishes it from Silicon Valley. He divides his time between
MyFamily’s offices in Provo, New York and San Francisco, taking more than 100
Delta flights per year. “When I’m on either coast, I spend a lot of time in
business meetings in bars or restaurants. That doesn’t really happen here
because people spend most of their off-hour time with their families,” he says.
Although Allen is single and has no kids, he likes hanging out with his nieces
and nephews. For him, work imitates life, and vice versa. “Technology has torn
us apart as families, and we’re using it to bring us back together.”

Utah’s state Capitol is an ornate, neoclassical rotunda perched high above
Salt Lake’s gleaming, white skyscrapers and long, wide boulevards. When Leavitt
invites me to lunch in his private conference room, I envision fine china and
crystal – if not filled with wine, then at least Perrier. So I am surprised to
discover that the governor doesn’t believe in the “power lunch.” Hell, he hardly
believes in lunch at all. As I unwrap my ham-and-cheese sandwich and pop open a
Pepsi, he picks a banana from a fruit basket and slices it into small sections,
which he eats one by one. Before lunch, he introduces me to Faux Paw, his bright
orange, six-toed office cat, who has been featured in Family Circle magazine and
on CNN. “Kids used to come to the Capitol to meet the governor,” says Leavitt
with mock outrage. “Now they just want to see my cat!” Among his official
duties, Faux Paw (“the techno-cat”) is the state mascot for Internet safety.

Leavitt is a classic “early adopter.” He loves gadgets and is in the midst of
a full-blown affair with the Internet. He reads four or five online newspapers
a day, shops for books and electronics, trades stocks and does his banking
online. Leavitt has even used eBay to teach his children about the market. “My
boys and I would go to one auction site and buy digital recorders and video
cameras in bulk and then break them down and sell them on eBay at a higher
price. It was a powerful learning experience, both for them and for me,” he
says, adding, “Frank Keating, the governor of Oklahoma, is also an eBay addict
and at governor meetings we sit around and talk about our ‘problem,'” he says.

His familiarity with the Internet often comes as a surprise to those who
assume only a resolute luddite could favor collecting taxes on e-commerce
purchases. Even his supporters are baffled by his unpopular stand. Rob Simmons
tells me it came up during Campus Pipeline’s last round of financing. “Our
investors asked me, ‘What’s up with the governor?’ They were pretty puzzled,” he
says.

Grover Norquist, the head of Americans for Tax Freedom and a longtime
Leavitt-watcher, has a theory. “He’s taken several stabs at playing on the
national stage, and this was supposed to be his national coming out. But why in
the world he thinks allowing states to interfere with interstate commerce will
make him popular in the Republican Party is beyond me.”

A fiscal conservative with a Reaganesque fondness for home-spun anecdotes,
Leavitt has signed 31 tax cuts, reducing the state budget by $1.17 billion. He
was once the darling of the Republican Party, but is getting it from both sides
these days: Liberals accuse him of tacking right, while conservatives say he’s
betrayed their ideals. The Wall Street Journal branded him the “e-Grinch” and
Steve Forbes denounced him as a “tax-loving politico.” As if that weren’t bad
enough, a scholar at the conservative Cato Institute compared his ideological
indeterminacy to Bill Clinton’s – the ultimate insult around these parts. When I
ask Leavitt what he thinks of his critics, he winces. “It’s not pleasant having
your views misrepresented,” he says tersely, making it clear that recent
experience has taught him the value of reticence.

Leavitt was one of the most vocal members of the Advisory Commission for
Electronic Commerce, where he floated several proposals to even out the
difference between traditional and electronic commerce. He even suggested a
voluntary e-commerce sales tax system, under which all states would gradually
adopt a single rate that a “trusted third party” would calculate and collect,
distributing revenues based on the purchaser’s location. It would be an
experiment for a system to eventually replace a sales tax system he believes is
archaic, unfair and, ultimately, unworkable.

Although Leavitt wasn’t popular on the generally antitax, pro-big business
commission – the chairman, Virginia Gov. James Gilmore, favors permanent
exemption for Internet sales, and often replied to Leavitt’s remarks with an
exasperated, “Whatever” – Leavitt received support from retailers. “We don’t
support creating new taxes on the Internet but, like most Americans, we believe
all sales taxes should be equally applied on all commercial transactions –
whether they are online or in a store,” David Bullington, a Wal-Mart VP and a
founding member of the e-Fairness Coalition, told Salt Lake’s Desert News.

As Leavitt likes to point out, e-commerce purchases are already taxed – it’s
just that, as long as an e-business doesn’t have a physical presence in the
customer’s state, it is rarely paid. Leavitt includes himself among the 3,400
denizens of Utah who voluntarily paid tax on their interstate purchases last
year, and he argues that a lot more money will be at stake in the future. In
1999, it is estimated that states lost $1.2 billion in taxes on Internet
purchases. By 2003 the loss will likely increase to $10.8 billion. Leavitt
argues that as this figure continues rise, such an enormous amount of tax
revenue will be lost that eventually the state or federal government will figure
out a way to collect it. And, aside from the sheer amount of money involved, he
believes the current system is a policy disaster.

He began to understand the problem one night when he wanted to buy a copy of
Will and Ariel Durant’s The Lessons of History. It was $16.95 at Amazon.com, and
the same price at a Utah online bookstore – plus tax. “Same book, same night,
same computer,” he says, shaking his head. “One has an obligation, and one
doesn’t. That is not good policy.”

But a tangled web of conflicting regulations and tax laws awaits anyone who
tries to collect taxes on online purchases. The staggering complexity became
apparent to Leavitt when he ordered groceries while he and his family were on
vacation in California. “I used Netgrocer.com and when we got home two days
later the boxes were on our front porch. Then I thought about the transaction: I
ordered in California, the Web site is in New York, the box was shipped out of
New Jersey and it was consumed in Utah. One transaction, four states – all of
which could make a reasonable claim that it occurred within its jurisdiction.
Now that really alarmed me because one day we might have multiple and
discriminatory taxes. But I realized the problem was much worse when I looked at
the individual pieces of the transaction. A bottle of peanuts, for instance, is
taxed in five states if they are raw. If they are roasted, they’re taxed in 11
states, and if they are honey-roasted they’re taxed in 21 states. Now take 7,000
tax jurisdictions, multiply that by the number of different products and
multiply that by the number of different definitions of taxable products! I
predict the system will eventually fail by virtue of its sheer incoherence,” he
says.

The states, he argues, are faced with a twin threat: a uniform federal sales
tax, or noncompliance by retailers. In the first scenario, the conflict between
different state tax jurisdictions will become so paralyzing that the federal
government will step in to collect (and spend) the tax itself – thus robbing the
states of one more facet of local control. In the second scenario,
brick-and-mortar retailers with a burgeoning e-commerce presence will grow so
fed up with the inequality that they will figure out a way to avoid paying sales
tax entirely.

“Nothing will happen before the election, but in November, right after we get
a new president and Congress, there will be another Christmas season – with
another 400 to 500 percent increase in e-commerce,” Leavitt says. “But this time
the major retailers, who have by then invested hundreds of millions of dollars
in online retailing will say, ‘Wait a minute. Why do we have to compete with
businesses that don’t pay taxes?’ And then next spring you will see the JC
Penney and Sears of the world storming Capitol Hill with one phrase on their
lips: ‘Level playing field.’ The successful retailers are going to be
click-and-mortars, it won’t be the stand-alone e-commerce providers. It will be
Wal-Mart, KMart, GM, the Gap, Ford. At that point, the issue becomes ‘level
playing field’ vs. ‘special privileges.'”

If the “special privilege” lobby wins, Leavitt predicts that the major
retailers will find a loophole that lets them define every purchase as being
“online” in order to compete with their e-commerce rivals. “And who can blame
them?” he asks.

The tide may be turning ever so slowly in Leavitt’s favor. Off the record, a
number of Silicon Valley VCs and entrepreneurs confide that they agree with
Leavitt; and a recent survey found that three-quarters of Americans say it’s
unfair that online retailers collect no sales tax, and 60 percent say they would
support sales taxes for online purchases. In June, Andy Grove told the
congressional Joint Economic Committee that Internet sales don’t deserve
exemptions from taxes – a remark that was so extraordinary, coming from one of
Silicon Valley’s elder statesmen, that it overshadowed Bill Gates’ testimony a
few moments later. Grove warned that inequality between offline purchases and
Internet sales would eventually exacerbate economic disparities, and said the
technical difficulties of collecting taxes across different jurisdictions were
minimal.

While it is still too early to judge if Leavitt’s Silicon Valley Initiative
is a success, the early reaction has been encouraging. Despite his Internet tax
baggage, Leavitt has turned out to be a good salesman and seems to have a
proposition that is attractive to Silicon Valley.

The big question is how much any state government can do – especially one
with limited resources with which to lure companies through tax incentives and
land deals – to attract Internet-related businesses. Brigham Young political
economist John Griffin is skeptical. “You can’t just say, ‘Let’s have a software
industry’ the way you can say, ‘Let’s have a big steel plant.’ Today’s markets
are too volatile for that,” he says.

Capital deficiencies have also made it difficult for Utah companies to get
sufficient funding. The state ranks an unspectacular 22nd in amount of venture
capital as a percentage of gross state product. And although the amount of
capital raised nearly doubled between 1997 and 1999, the total in the latter
year was a minuscule $93.5 million. Wayne Brown Institute head Brad Bertoch
assesses Salt Lake on a national scale: “We have about five great Internet deals
that are raising big money at any one time. Arizona will have 10, Tyson’s Corner
“in Northern Virginia” will have 50 and Silicon Valley will have 500. Right now
we want to be more like Tyson’s Corner,” he says.

In all of 1999 there was only one IPO, albeit a successful one. In Utah, most
dot-coms go public by merging with shell corporations and defunct public
companies – a less expensive, but also less remunerative, way of conducting an
offering. In his research for The Silicon Desert Project, Brigham Young’s
Griffin concluded that the Salt Lake area is at a distinct disadvantage to
Denver because it lacks the specialized law firms, VCs and other financial
institutions that these companies require in order to negotiate the volatile
startup year.

On June 27, Leavitt won the Republican primary and is anticipating an easy
November election. In the first week of July, he presided over his last
conference of National Governors, where the main topic of discussion was Gore
and Bush’s running mates. Leavitt says he intends to serve out his full term as
governor, but he’s also been helping the Bush campaign with position papers on
the environment – an activity some see as a prelude to a cabinet seat. If
Leavitt is seeking a higher profile, he’s certainly keeping the right company.
At a Sun Valley, Idaho, gathering of the so-called billionaire club in late
July, Leavitt mingled with Bill Gates, Paul Allen, NBA Commissioner David Stern
and Oprah Winfrey.

It’s a safe bet that Leavitt spent at least part of the day talking tech. He
can usually find a technology angle to most any topic – including campaigning.
He is particularly pleased by how many hits his Web site received during his
primary campaign. “I really think we combined traditional retail politics with a
high-tech twist,” he says with satisfaction. As he describes the constantly
updated Campaign Cam and RealAudio sound clips that helped him get his message
across to Utah’s voters, he becomes excited. “And then after the campaign, maybe
we’ll take it public and make a fortune!”