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What Makes Startup Economies Tick?

Patrick McAnaney

MA Candidate, Johns Hopkins SAIS

It’s no secret that San Francisco is the world leader in startups. But what makes the Bay Area so special?

As it turns out, it’s more than just easy access to venture capital.

Last week, we published our Innovation that Matters report, which examined the state of civic entrepreneurship in eight U.S. cities. Our findings focus on three areas: a framework that explains the ecosystem of actors in entrepreneurial communities; an index that highlights the progress each city has made in building this ecosystem; and insights from a listening tour of all eight cities focusing on the overall opportunities, challenges, and solutions for driving civic innovation.

During our listening tour, we convened groups of entrepreneurs, industry experts, government leaders, corporations and investors in each of 1776’s core sectors: education, energy, health and smart cities. In addition, we convened representatives of the general tech industry for a broader discussion about the local startup economy. These more general roundtables focused on exploring the city-specific environment and what major opportunities and challenges exist for tech entrepreneurs. We asked participants to share their views on the overall strengths and weaknesses of the local tech scene.

 So what did we find? What are the defining features of startup economies?

The following graphs show the primary themes that emerged from the eight “Startup Economy” roundtables, and the percentage of roundtables in which that theme was mentioned as a strength or weakness of the local ecosystem:

startup economy strengthsstartup economy weaknesses

In some roundtables, the local community perceived particular topics as both a strength and weakness. For example, participants in most discussions mentioned that talent was a major issue; however they also noted that their cities were better than most when it came to finding qualified workers. For any instances in which participants expressed mixed opinions on a topic, we recorded it as both a strength and weakness. Thus, in some cases, the percentages for a given topic in both graphs add up to over 100 percent. Conversely, in some roundtables particular themes were not mentioned at all, and thus do not reach 100 percent.

Here are our top three takeaways from the graphs and discussion:

  1. Community Networks and Quality of Life were the two major positive aspects of all the ecosystems we studied. Community Networks refers to the open, connected nature of local startups and support groups, as well as their willingness to help each other. Quality of Life refers to the general experience of life in the city and how much local residents enjoy their lifestyle. The prevalence of this theme highlights the basic approach civic leaders should take to turning their cities into startup hubs: build a cohesive, supportive community, and make the city a great place to live. We emphasized these themes in our framework within the Innovation that Matters report in our sections on “The Network Effect” and “The Platform: Environmental Building Blocks.”
  1. Talent and Capital are a mixed bag. Possibly the two most talked-about features of startup communities, talent and capital emerged often in our discussions. The general consensus across cities was that each community was doing well in both areas, but the situation was still less than ideal. The tech skills gap is a frequent topic of discussion in the startup world, and our roundtable discussions confirmed the reality of this challenge. However, because our listening tour focused mainly on industry-leading cities, the general perception was that these communities were doing better than most in attracting and training sufficient talent. Similarly, participants frequently discussed the lack of well-established angel and venture capital communities in their cities (San Francisco being a notable exception), but explained that startup funding opportunities were increasing quickly.
  1. Diversity continues to be the Achilles’ heel of the tech world. Not a single participant in any of our roundtable discussions expressed the view that his or her local tech scene has done a sufficient job of building an inclusive community that is representative of the city’s broader population. This stood out as the one theme regularly raised during the roundtables exclusively as a weakness. There has been an increased amount of discussion in recent years about the lack of diversity in the tech world, and the frequency with which the issue was mentioned demonstrates communities’ growing awareness of the problem.

Patrick McAnaney

MA Candidate, Johns Hopkins SAIS

Before enrolling in his current graduate program, Patrick led 1776's research initiatives. He had also worked in business operations for Downtown Project in Las Vegas, where he opened the Downtown Container Park…