Tech startups helped drive the world’s last economic recovery, after the Great Recession. This time around, they’re poised to again fill a crucial role in job creation–and cities will play a major part in making that happen.
“Tech innovation has proven to be a very effective means of innovating ourselves out of crisis–creating new job opportunities, new business opportunities, even in a recession,” says Stephan Kuester, a partner at research and policy organization Startup Genome, which is based in San Francisco. He made those comments on Wednesday during a virtual event focused on building successful tech ecosystems. “Surprisingly, we’re getting many calls these days, from many places in the world, where politicians and policymakers in economic development are looking to jump on the bandwagon over the next 12 to 24 months.”
The event, hosted by Startup Genome and titled “How Your Tech Ecosystem Can Be Successful in Attracting Tomorrows Unicorns,” touched on a series of useful strategies and predictions for cities and policymakers– not just in the U.S., but around the world–planning for the post-Covid economic recovery. Here are the three major takeaways:
1. Don’t go all out for R&D
Heavily incentivizing software engineering or research and development is the obvious first step to building a tech hub. It’s also the wrong one, Kuester says, because today’s successful startup ecosystems require just as much emphasis on finding viable markets, commercializing products, and scaling companies over time.
He points to decade-plus declines in major economic metrics for startup ecosystems in cities like Seoul and Taiwan, which have reputations of going all-in on R&D, as evidence. And he says the corresponding upswings in regions like Silicon Valley, Toronto, and Vancouver are due to their healthy mixtures of technological development and business creation.
“These environments–Silicon Valley, Toronto, and Vancouver–are what we would call ambidextrous,” Kuester says. “Both hands coming together. Great research, great R&D capability, intellectual capability at universities and research centers. And on the other hand, entrepreneurs that can really take a concept from idea to market, and scale it to a successful company.”
2. Prioritize scaling over starting up
Especially in the Covid era, it’s easy to start a company from anywhere in the world–and plenty have. It’s no longer rare to find highly touted startups outside the country’s major tech hubs. But U.S. scaleups, which Kuester defines as private companies valued at more than $50 million, remain concentrated in a handful of major cities: San Francisco, Los Angeles, Seattle, New York City, Boston, and Chicago.
The key to building sustainable startup ecosystems outside those hubs, then, could lie in crafting infrastructure to encourage company growth rather than new business formation. While that might sound like the job of someone in an economic development organization, it’s also key for entrepreneurs themselves to be thinking about this, says Arno Nijhof, director of ecosystems at The Next Web, a Financial Times-owned media company that hosts a series of annual startup conferences. He recommends starting by asking a simple question: What are the strengths of the startups that already exist in your community?
From there, Nijhof says, you can build on those strengths. And the cities can build growth strategies around the burgeoning businesses, including both investing in promising companies and building out the ecosystem’s infrastructure. The result: a stronger set of resources for local entrepreneurs and a tighter-knit community of entrepreneurs who can help each other through tough situations. And the resultant large valuations and exits will, in turn, attract even more resources and deeper-pocketed startup investors.
3. Consider soft-landing programs
Entrepreneurs are always looking for an edge, even a geographic one. Nijhof says to consider creating a soft-landing program, where a local government pays entrepreneurs to move and launch a startup, or relocate an existing company, in their locale. Especially for smaller cities, it’s a costly proposition–but, Nijhof says, talent follows opportunity, and these programs can help separate growing ecosystems from stagnant ones.
A decade ago, Chattanooga, Tennessee, floated $169 million in bonds for its local utility company to create community-wide internet access at gigabit speeds, and launched a corresponding program paying entrepreneurs to start companies there. The investment led to a renaissance: Chattanooga ranked No. 36 on last year’s Inc. Surge Cities list of best cities in the country to start a business.
If every city does this, few can build an advantage. Nijhof recommends coordinating your efforts with other nearby cities, so each location can prioritize a different vertical or type of technology, depending on each city’s extant strengths and weaknesses. With luck, the effort could elevate an entire geographic region. The U.S. Small Business Administration has supported and even helped launch such efforts in the past, funding a pilot program of 10 “innovative economy clusters” in 2010.