and cons of starting a business in one of these new tech cities. For example, Rich Winley, the cofounder of independent restaurant discovery app No Chains, has written widely on the distinctions between the startup ecosystem in the Bay Area versus the rest of the country. He started his company in his hometown of Greenville, South Carolina, before eventually moving the operation to Houston.
“I’ve heard the founders of some of the iconic companies in the Valley say things like, if you want to be a politician go to DC, if you want to be in fashion go to NYC, if you want to be an actor you go to Hollywood, and if you want to be in tech you need to be in the Valley,” Winley wrote on his blog in late 2013. “Now, this statement has a great deal of validation, of course, and I’m not arguing that your chances of succeeding are probably a bit higher if you live there. My problem with the statement is that it can make an aspiring tech entrepreneur feel like he or she can’t make it anywhere but the Valley. So, in my humble opinion, I think statements like that hinder the creativity that we [tech entrepreneurs) are infamously known for in this world. Don’t get me wrong, I know we have small bubbles of tech in other areas of the country, but what do you think really drives a successful tech community? I think it’s based on who’s been there, done that, and exited.”
The real issue, he argues, is that Silicon Valley has a long history of innovation and success backing it up, with dozens of successful companies and founders that have exited and reinvested their capital back into the local community. So when a founder sets up shop in that area, they have access to all of that expertise, funding, and mentorship. And when they eventually exit, they’ll often give back to the community themselves. In short, the Bay Area has an ecosystem that has been refreshed and reinforced over and over again through the years by early players like Hewlett-Packard and Intel to more recent success stories like Facebook, Google, and Twitter.
“So all of these VCs and angels on Sand Hill Road came from being early in a company or exiting out of a company in the Valley ecosystem,” Winley writes. “What makes it work is that they invest back into that community. So with all that being said, it’s hard to build a community like the Valley unless you have some major wins.”
Having that community matters, especially for startup founders, because by definition they are getting started in a business that doesn’t come with a game plan. There’s no template for creating a successful startup; it’s a different kind of business than most, and part of the startup experience is figuring out a way to find success without a map.
“If you’re going to start a real estate brokerage, there’s a template,” explains Darius Dunlap. “It’s very much known, it’s very controlled by laws, and there’s a way you go about it. And, other than the subtleties of it being a relationship-based thing, other than actually running the business and making it successful, you know what business you’re in and you know what the value proposition surrounding it is. You know what you’re going to sell. With a startup, by definition, at least some of those things are unknown, and you’ve got to figure them out as you go, so a community can be really helpful.”
The flipside, of course, is that entrepreneurs need to give back to their community once they find success of their own in order to keep the ecosystem going. That’s the grease that keeps the system running year after year, everywhere from Silicon Valley to Muncie, Indiana: that culture of reinvestment and giving back to the city and community that helped you get where you are. It enables future founders to get a foothold in the market and, over the years, keeps the ecosystem together, that spirit of “give before you get.”
That’s the driving force behind Boulder, Colorado–based venture capitalist Brad Feld’s 2012 book Startup Communities: Building an Entrepreneurial Ecosystem in Your City and his general approach to ecosystem development overall. There are cultural elements at play in every startup city, he argues, many of which are unique to that area, but the importance of community and inclusion are universal.
“Startup communities need both leaders and feeders,” Feld wrote. “The problem comes when the feeders try to lead or when there is an absence of leaders. If the startup community has a culture of inclusiveness, it will constantly have entrepreneurs step up into leadership positions. . . . The entrepreneurial leaders also need to be inclusive of any feeders who want to participate.”
According to Feld, the startup community needs to be a big tent, open to anyone and everyone who wants to participate. But it also needs to have enough structure and leadership in place to ensure that it survives over many years. Investors need to be at the table alongside serial entrepreneurs, job-seeking developers, business mentors, and wannabe founders. The primary rule? The entrepreneurs themselves need to be the leaders of the ecosystem and the ones to decide where the scene is going.
“Today, we are in the midst of a massive shift from the hierarchical society that has dominated the industrial era to a network society that has been emergent throughout the information era,” he wrote. “The Internet is ushering in a postinformation era, one in which the machines have already taken over and are waiting patiently for us to catch up with them. This postinformation era is one in which man and machine are interwoven.
“In this world, the network dominates in both the online and the physical world. Throughout the network are nodes, each of which began as a startup. Nodes are continually emerging, and a rigid, top-down hierarchy no longer dominates. The energy, activity, and innovation in society is diffused across the network and concentrated in unexpected places that often didn’t exist before.”
“How important is high-tech employment growth for the US labor market? As it turns out, the dynamism of the US high-tech companies matters not just to scientists, software engineers, and stock holders, but to the community at large,” wrote economics professor Enrico Moretti, author of The New Geography of Jobs, in the Bay Area Council Economic Institute’s 2012 tech industry employment report. “While the average worker may never be employed by Google or a high-tech startup, our jobs are increasingly supported by the wealth created by innovators. The reason is that high-tech companies generate a growing number of jobs outside high tech in the communities where they are located. My research shows that attracting a scientist or a software engineer to a city triggers a multiplier effect, increasing employment and salaries for those who provide local services.”
This is why I see entrepreneurship as the key to fixing America’s stalled economy. It takes creativity to uncover new markets and create demand for new products, but that’s what we’re going to need to drive economic growth down the road as legacy industries like manufacturing, brick-and-mortar retail, and financial services shrink over the next several decades. This is where growth will be happening in the near-term.
“There’s an oversupply of innovation in America and an under-supply of rare, truly gifted entrepreneurs,” Moretti writes. “To fix this, we need to make identifying entrepreneurs as intentional as we do finding kids with genius IQs or recruiting the next football, basketball, and baseball stars.”
It sounds flippant, but this stuff matters in the big picture of the US economy, as evidenced by the fact that President Obama addressed the growing importance of the startup economy in his 2012 State of the Union address.
“You see, an economy built to last is one where we encourage the talent and ingenuity of every person in this country,” Obama said. “That means women should earn equal pay for equal work. It means we should support everyone who’s willing to work and every risk-taker and entrepreneur who aspires to become the next Steve Jobs. After all, innovation is what America has always been about. Most new jobs are created in startups and small businesses. So let’s pass an agenda that helps them succeed. Tear down regulations that prevent aspiring entrepreneurs from getting the financing to grow. Expand tax relief to small businesses that are raising wages and creating good jobs. Both parties agree on these ideas. So put them in a bill, and get it on my desk this year.”
According to the US Bureau of Labor Statistics (BLS), there were about 6 million Americans working in high-tech jobs as of 2012, up 3.3 percent compared to 2011, and that number is expected to grow by 16.2 percent by 2020. For computer and information technology occupations in particular, the market is expected grow by 22 percent