What It Really Takes to Foster an Entrepreneurial Ecosystem
Innovation and entrepreneurship are the engines of economic growth. For decades now, cities and communities across the United States have tried to infuse themselves with those two properties by emulating Silicon Valley, a never-ending quest to become the next Silicon Somewhere.
Brad Feld’s terrific new book, Startup Communities, takes us inside the real ecologies of innovation and entrepreneurship. Feld, co-founder of venture capital firm Foundry Group, serves on the boards of numerous high-tech companies. He recently chatted with Cities about his new book.
RF: First off, tell us the key elements of a startup community?
There are four, which I call the Boulder Thesis. First, entrepreneurs must lead the startup community. Second, the leaders must have a long-term commitment, at least 20 years. Third, the startup community must be inclusive of anyone who wants to participate in it. And fourth, it must have continual activities that engage the entire entrepreneurial stack.
You’re based in Boulder, Colorado. Bloomberg BusinessWeek named it America’s No. 1 place for startups a couple of years ago, and it also ranked first on the latest iteration of my own Creativity Index. What’s going on there that we should know about?
Boulder is a phenomenal example of what you would define as a creative class city. While it’s small (only [about] 100,000 people), is has an extremely high concentration of smart people. This is a function of a university (University of Colorado, Boulder), national labs (NREL, NCAR, NOAA), a hippie/creative accepting culture dating back to the 1960s, and many decades of independent and entrepreneurial thinkers.
The openness of Boulder to weirdness is well known and other Coloradoans often refer to Boulder as '25 square miles surrounded by reality.' This combination of smart, independent, and weird is a beautiful recipe for an incredibly entrepreneurial community. Add in an extremely inclusive ethos and you get magic.
There was an old joke in Silicon Valley that went something like this: "How do you make the next Silicon Valley? Take one part great research university and two parts venture capital: Shake vigorously." You note that even though a great university is an asset to a startup community that you "reject the premise that the startup community is dependent on the university. It's from this perspective that I categorize universities as feeders to the startup community." Tell us more?
A university is a great input into a startup community, but it can’t be the leader, or controller of it. Startup communities are networks with all of the participants as nodes on the network, connecting them together. Universities are hierarchies. In a startup community, if you have hierarchies trying to lead, or control, you’ll have failure, because the long term goals and motivations are so fundamentally different.
So, I encourage universities to engage actively with the startup community through a variety of mechanisms, which include many of the classical ones such as acting as conveners for entrepreneurial activity, attracting smart new people to the community, spinning off research into companies, and building bridges between students and the startup community. But, if the entrepreneurs rely on the university to lead the startup community, there will be disappointment.
What are the leading myths about building more effective startup communities?
There are there common ones: 'We need to be more like Silicon Valley,' 'We don't have enough capital,' and 'Angel investors must be organized.'
For decades, cities have been proclaiming themselves the next Silicon Valley. That’s nonsense — cities — and the entrepreneurial leaders — should focus on creating the best startup community for their city, based on the unique attributes of their city. Learn from the amazing things in Silicon Valley, but instead of trying to be like Silicon Valley, be the best Boulder, or best Chicago, or best New York, or best Portland. You already have an identity as a city — you don’t need to be Silicon Alley or Silicon Slopes.
Next, there never is a balance between supply and demand of capital. Entrepreneurs shouldn't worry about this — instead they should focus on creating amazing companies. Capital will always find amazing companies. While there are many things that can be done over time to attract more capital to a region, the biggest thing is for entrepreneurs to actually go create some significant companies.
Finally, related to this is the notion that angel investors should be organized into formal angel investor groups. While this can be helpful, it’s often extremely harmful and stifling, as many angel investor groups try to look like small venture capital firms rather than acting like helpful angel investors.
You write that two key attributes of successful startup communities are "inclusive" leadership and "porous boundaries." Can you explain?
For a startup community to be successful over a long period of time, it has to be inclusive of anyone who wants to engage in any way. Leaders have to be inclusive of new leaders, leaders have to be inclusive of feeders, and everyone participating in the startup community has to be inclusive of everyone else.
You have to approach this as a non-zero sum game — there are no winners or losers. By being inclusive, you build a much more powerful and connected network, which grows, evolves, and accelerates over time.
Furthermore, you have to have very porous boundaries. When someone moves to town you need to welcome them. When they move away, you need to celebrate their involvement and stay connected, as they extend the network to a new city.
It turns out that cities that have more movement of people — both in and out — are the most vibrant startup communities. This is true around the companies — it's well known that non-compete agreements and the corresponding lack of mobility of employees between companies actually slows down the spread of innovation and entrepreneurship.
One thing that interests me is the emergence of urban startup communities in locations like downtown New York or San Francisco. Are we seeing something of a shift from the suburban nerdistan model of office parks toward startup communities in more diverse, mixed-use, higher-density urban areas?
There has been a delightful shift back to cities away from the soul-crushing boredom and sameness of office parks. This reurbanization applies to entrepreneurs, and when combined with the importance of 'entrepreneurial density,' is an extremely strong driver of the phenomenon. I define entrepreneurial density as the number of entrepreneurs plus the number of people working for startups divided by the total working population. A city like Boulder has one of the highest entrepreneurial densities in the world — much of the Boulder startup community is located in a 10x5 city-block area in downtown Boulder. This is similar to the entrepreneurial density around Union Square in New York City, SoMa in San Francisco, or the incredible entrepreneurial density in Kendall Square near MIT or Palo Alto near Stanford.
Some say startup communities emerge organically and that they cannot be planned or even nurtured. Do you agree? Can places accelerate the development of startup communities? If so, what are some of the key things they can do?
Central, top down, planning — like the economic strategy of communist Russia, doesn't work. Hierarchical planning, whether driven by government, university, or other hierarchical organizations doesn't work. There is no president of a startup community. There is no vice president of membership, or vice president of education.
Startup communities are networks — glorious in all their messiness and chaos. However, they aren't simply organic phenomena. You have to have leaders who are entrepreneurs. They have to have a long-term view. They have to be inclusive of anyone who wants to engage. And they have to create, and have, activities and events occurring on a continuous basis.
This interview was edited for clarity and length.
Courtesy images, from top: Wiley Publishing; Scott Cejka