Startup Communities: Building an Entrepreneurial Ecosystem in Your City

by Brad Feld

the Boulder Thesis.

Studies show that the geography of innovation is neither democratic nor flat.

Economic geographers, however, observe the opposite effect. Evidence suggests that location, rather than being irrelevant, is more important than ever.

This explanation focuses on economic concepts as they apply to location. One is that companies co-located in an area benefit from “external economies of scale.” Emerging companies need certain common inputs—for example, infrastructure, specialized legal and accounting services, suppliers, labor pools with a specialized knowledge base—that reside outside the company.

Companies in a common geographic area share the fixed costs of these resources external to the company. As more and more startups in an area can share the costs of specialized inputs, the average cost per startup drops for the specialized inputs. This provides direct economic benefit to companies located within a startup community.

network effects,

Network effects operate in systems where the addition of a member to a network enhances value for existing users.

The Internet, Facebook, and Twitter are examples in which network effects operate powerfully. These services may have some value to you if there are just 100 other...

horizontal networks,

Regional Advantage: Culture and Competition in Silicon Valley and Route 128

Saxenian persuasively argues that a culture of openness and information exchange fueled Silicon Valley’s ascent over Route 128. This argument is tied to network effects, which are better leveraged by a community with a culture of information sharing across companies and industries.

Entrepreneurs must lead the startup community. 2. The leaders must have a long-term commitment. 3. The startup community must be inclusive of anyone who wants to participate in it. 4. The startup community must have continual activities that engage the entire entrepreneurial stack.

The most critical principle of a startup community is that entrepreneurs must lead it.

Unless the entrepreneurs lead, the startup community will not be sustainable over time.

In virtually every major city, there are long lists of different types of people and organizations who are involved in the startup community including government, universities, investors, mentors, and service providers. Historically, many of these organizations try to play a leadership role in the development of their local startup community. Although their involvement is important, they can’t be the leaders. The entrepreneurs have to be leaders.

small businesses tend to be local, profitable, but slow-growth organizations. Small-business people are often “pillars of their community” as their businesses have a tight co-dependency with their community.

LONG-TERM COMMITMENT

These leaders have to make a long-term commitment to their startup community. I like to say this has to be at least 20 years from today to reinforce the sense that this has to be meaningful in length. Optimally, the commitment resets daily; it should be a forward-looking 20-year commitment. It’s well understood that economies run in cycles. Economies grow, peak, decline, bottom out, grow again, peak again, decline again, and bottom out again. Some of these cycles are modest. Some are severe. The lengths vary dramatically. Startup communities have to take a very long-term view. A great startup community such as Silicon Valley (1950–today) has a long trajectory. Although they have their booms and busts, they continued to grow, develop, and expand throughout this period of time. Most cities and their leaders get excited about entrepreneurship after a major economic decline. They focus on it for a few years through a peak. When the subsequent decline ultimately happens, they focus on other things during the downturn. When things bottom out, most of the progress gained during the upswing was lost. I’ve seen this several times—first in the early 1990s and again around the Internet bubble. All you have to do is think back to the nickname of your city during the Internet bubble (Silicon Alley, Silicon Swamp, Silicon Slopes, Silicon Prairie, Silicon Gulch, and Silicon Mountain) to remember what it was like before and after the peak.

This is why the leaders have to first be entrepreneurs and then have a long-term view.

If you aspire to be a leader of your startup community, but you aren’t willing to live where you are for the next 20 years and work hard at leading the startup community for that period of time, ask yourself what your real motivation for being a leader is.

FOSTER A PHILOSOPHY OF INCLUSIVENESS

A startup community must be extremely inclusive. Anyone who wants to engage should be able to, whether they are changing careers, moving to your city, graduating from college, or just want to do something different.

This philosophy of inclusiveness applies at all levels of the startup community. The leaders have to be open to having more leaders involved, recognizing that leaders need to be entrepreneurs who have a long-term view of building their startup community. Entrepreneurs in the community need to welcome other entrepreneurs, viewing the growth of the startup community as a positive force for all, rather than a zero-sum game in which new entrepreneurs compete locally for resources and status. Employees of startups need to recruit their friends and open their homes and city to other people who have moved into the community. Everyone in the startup community should have a perspective that having

more people engaged in the startup community is good for the startup community. Building a startup community is not a zero-sum game in which there are winners and losers; if everyone engages, they and the entire community can all be winners.

ENGAGE THE ENTIRE ENTREPRENEURIAL STACK Startup communities must have regular activities that engage the entire entrepreneurial stack. This includes first-time entrepreneurs, experienced entrepreneurs, aspiring entrepreneurs, investors, mentors, employees of startups, service providers to startups, and anyone else who wants to be involved.

PARTICIPANTS IN A STARTUP COMMUNITY

Leaders of startup communities have to be entrepreneurs. Everyone else is a feeder into the startup community. Both leaders and feeders are important, but their roles are different. Leaders of a startup community must have a long-term commitment, welcome everyone to the startup community, and help create things that engage the entire entrepreneurial stack.

There is no “leader of the leaders.” The best startup communities are loosely organized and consist of broad, evolving networks of people. By having inclusive philosophies, it’s very easy for new leaders to emerge organically.

Furthermore, there are no votes, no hierarchy, no titles, and no specific roles. Since the leaders are entrepreneurs, they are used to ambiguity as well as a rapid and continuous evolution of the community.

I like

to think of a startup community as an evolving organism, rather than a well-defined structure.

Once the organism starts evolving, as long as it retains its inclusive gene, it will continue to evolve as new leaders get into the mix. Feeders are everyone else in the startup community. This includes government, universities...

Historically, many of the feeders thought of themselves as leaders.

ENTREPRENEURS

At the beginning of its arc, a startup community needs only a few leaders. In Boulder, I can point to half a dozen people that ignited the entrepreneurial revolution the city has been enjoying. Over time, the number of leaders grows, roles change, and some leaders take a backseat to other leaders. This is critical; without evolution, the startup community will stagnate.

I don’t believe that people motivate other people; rather they create a context in which others are motivated.

The startup community is always evolving. If the entrepreneurial leaders try to control this evolution, they will fail and undermine their previous efforts. Instead, entrepreneurial leaders should embrace this evolution, encourage and support new things, people, and ideas, and recognize that other entrepreneurs’ leadership is additive to the system. Rather than view it as a zero-sum game, in which there’s a leader on top, they view it as a game with increasing returns, in which the larger the number of entrepreneurs involved, the more great things happen.

GOVERNMENT

“How many of you are entrepreneurs?”

For starters, the cadence of government is out of sync with a long-term view. Government runs in short time cycles, usually less than four years. It often feels like we are in an endless campaign cycle and, in some cases, at

least half of the activity of government leaders feels like it is around the process of getting reelected. After an election, there is often a three-month lame-duck period where nothing happens, followed by a six-month period as the new administration gears up, puts new leaders in place, makes its plans, does its studies, writes its reports, and then launches its new initiatives. That’s nine months of a four-year cycle wasted. Startup communities can’t wait—they are growing and changing every day. It is well known that government can inhibit business activity. The easy things to pin on government are overwhelming regulatory activity, misguided tax policy that stalls investment in entrepreneurial companies, shortsighted tax policy that drives entrepreneurial companies to neighboring cities or states, and constrictive zoning rules, especially in downtown cores, that drive rents up and lower inventory of office and living space. At the minimum, these types of behavior make state and local government look stupid to entrepreneurs and directly contradict the entrepreneurs-are-important message that government often is trying to get out there. Other state laws, like those around noncompete agreements, stifle entrepreneurial activity. Historically, noncompete agreements were viewed as necessary to protect employers and companies. However, noncompete agreements have long been unenforceable in California and are often cited as one of the drivers of the health of the Silicon Valley e...

Many government employees don’t understand entrepreneurship.

High-Growth Business Administration.

Government exists to support, yet many local and state governments believe they can create. This is true in good economic times when government is investing in growth and in bad economic times when government is cutting back, yet investing in recovery. Government is great at shining a bright light on things and using its bully pulpit to stimulate agendas, but it is terrible at investing in and creating new entrepreneurial activity. This is true at both the state level and the local level. However, if you work for city government or for the mayor’s office, and your title is Economic Development Liaison or Small Business Development Director, by definition you believe your job is to help companies grow.

Finally, if you work for the government and are excited about entrepreneurship, don’t be afraid to engage deeply as a participant in the startup community. This will be after hours and on weekends, just like everyone else. But you’ll be welcomed. And who knows, you might decide to be an entrepreneur.

UNIVERSITIES

Universities have five resources relevant to entrepreneurship: students, professors, research labs, entrepreneurship programs, and technology transfer offices. The first two resources, which are people, are much more important than the last three, which are institutions. The idea that people are always more important than institutions is fundamental to creating a healthy startup community. Students are by far the most important contribution of a university to a startup community.

Every year, a new crop of eager freshmen arrive on campus. Some of these freshmen are destined to become entrepreneurs; others will work for startups. Regardless of what they end up doing, they all bring new ideas and fresh perspectives to the community. Additionally, each year brings new graduate students to the community. These graduate students are almost always a net positive contribution to the intellectual capacity of the community. Some will engage in entrepreneurship, either through starting companies around the work they are doing or joining startups that are interesting to them. In each case, new blood in the system is powerful.

Professors come next in importance. In universities that have a culture of entrepreneurship, many professors themselves are entrepreneurs. In some situations this entrepreneurial activity is around their own research; in others they are simply captivated by ideas from their students and join in on the entrepreneurial journey as co-founders, advisors, and mentors. Sometimes the fundamental innovation comes from professors, but often the professors merely create a context for an independent thinker to come up with something new and amazing.

Many universities have entrepreneurship programs. These programs are often located in the business school, which is exactly the wrong place for them.