Startup Communities: Building an Entrepreneurial Ecosystem in Your City

by Brad Feld

To change this, I encourage the business school students interested in entrepreneurship to go out across the campus and find the inventors, rather than wait for the inventors to come to them. Forward-looking universities realize this and put the entrepreneurship center on the other side of campus from the business school.

As a feeder, the university can be a great convener of entrepreneurial activities. Universities have great spaces to work, large conference and auditorium facilities, and lots of students and faculty interested in entrepreneurship.

Remember, universities are a source of fresh blood, new thinking, and additional potential leaders to your startup community. If you look at the startup communities around MIT and Stanford, you see an ever-evolving cast of entrepreneurs who came from these schools providing intellectual, emotional, and functional leadership for the startup community over a long period of time. Embrace and include the university, but don’t rely on it to lead.

INVESTORS

The phrase “there is not enough capital here for startups” is heard all over the world, and it is as much of a cliché as “money will go to where the good deals are.”

One of the classic problems is that some investors view themselves as gatekeepers to a startup community. This is especially true at the early stages where investors, especially local VC firms, position themselves as the first source of smart capital.

MENTORS

Mentors are experienced entrepreneurs or investors who actively contribute time, energy, and wisdom to startups and can be a key part of a startup community. Often the terms advisor and mentor are conflated. An advisor has an economic relationship with the company he is advising. In contrast, a

“give before you get”

Mentors are counting on their contribution of good karma coming back around at some point, in some way, without a predefined expectation.

SERVICE PROVIDERS

Every startup community has service providers. These are the lawyers, accountants, recruiters, marketing consultants, and contract CFOs who help startups in many different ways. Some of these service providers are significant companies; others are individual consultants.

The best service providers invest their time and energy for no charge in early-stage companies. As these companies develop, the service providers are rewarded with long-term business relationships with fast-growing companies. In some cases, smart service providers will invest in early rounds, and occasionally the returns from these equity investments can dwarf the fees paid to the firm over time. In addition to focusing energy on the startups, great service providers can help with the growth of the startup community. Many of the more established firms have marketing budgets that can underwrite entrepreneurship events or they have physical infrastructure, such as a large office, which can be used to host startup events. Some partners at law or accounting firms love working with startups at the very early stages and often have broad networks that can be brought to the table. In all cases, if the service provider is taking a long-term view and looking past the next monthly fee, it can have a very positive impact on the development of the community.

“give before you get” philosophy

LARGE COMPANIES

Large companies can play an important role in any startup community. However, there is often much confusion, from both entrepreneurs and the employees of the large companies, about what an effective set of activities is.

The two most powerful things large companies can do for the startup community are (1) provide a convening space and resources for local startups, and (2) create programs to encourage startups to build companies that enhance the large company’s ecosystem.

Many large companies are standoffish to the startup community. They worry that if they engage, the startups they interact with will recruit their employees. Although this can happen, having the opportunity to interact with startups enhances the quality of the employee’s job.

THE IMPORTANCE OF BOTH

LEADERS AND FEEDERS

Startup communities need both leaders and feeders. 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 existing leaders need to be welcoming of these new leaders or else the startup community will have the “patriarch problem,” which I’ll describe later. The entrepreneurial leaders also need to be inclusive of any feeders who want to participate.

These cheerleaders are both the leaders and the feeders, because everyone in the community should be proud of what they are doing and shout it from the rooftops.

There are four key attributes to leadership in a startup community. The leaders must be inclusive. They must realize they are not playing a zero-sum game. They need to be mentorship driven and recognize the continual power of a mentor-mentee relationship. Finally, they must embrace porous boundaries. I’ll explore these in more detail in this chapter.

BE INCLUSIVE

For the leaders of a startup community to be effective, they need to be inclusive. Anyone, regardless of experience, background, education, ethnicity, or perspective should be welcomed into the startup community if they want to engage with it.

PLAY A NON-ZERO-SUM GAME

For starters, fully embrace the notion of increasing returns. The goal of everyone in the startup community should be to create something that is durable for a very long time. Although ups and downs with individual companies will always happen, view the startup community as a whole entity. If there is more startup activity, this will generate more attention to the startup community, which will generate even more activity. View the percentage of your local economy that the startup community contributes as its market share. If the macro environment gets better, so will the overall dynamic of the startup community. The macro cycles are unpredictable, but these up-and-down swings will likely only have impact on the overall macro. During downturns, there are actually opportunities for the startup community to gain market share of the local economy.

BE MENTORSHIP DRIVEN Mentorship, when done correctly, is magical. A great mentor has no expectations of what she is going to get out of the mentor-mentee relationship when she embarks on it. Rather, the mentor is focused on a “give before you get” dynamic, with a willingness to let the relationship go wherever it takes her. The best leaders can be incredible mentors. They recognize that being a mentor is a key part of the role of a leader and allocate their energy accordingly.

Leaders should be focused on mentorship at several levels. They should be mentoring other leaders, working with anyone who wants to be a leader in the startup community to help them become a leader. They should be mentoring other entrepreneurs, especially those early in their careers who are searching for new mentors. And they should be mentoring each other, because the best mentor-mentee relationships come when the relationship turns into a peer relationship.

HAVE POROUS BOUNDARIES The best startup communities have porous boundaries. It’s acceptable for people to flow from one company to another. Leaders talk to each other and share strategies, relationships, ideas, and resources. When someone leaves one company for another, they aren’t shunned. When someone moves to town, they are welcomed. When someone leaves town, they are missed, and celebrated every time they come through for a visit. Although some communities have factions, over time the short-term benefit of the factions are often outweighed by porous boundaries.

GIVE PEOPLE ASSIGNMENTS People approach me on a daily basis and ask how they can get involved in the Boulder startup community. These requests come in many different forms and with various levels and amounts of background information. It’s impossible for me to spend the required time filtering out who is serious and who isn’t, so I’ve come up with a simple approach that I use both in dealing with these offers to get involved and with anyone else who wants to engage with me in something I’m involved with. My approach is to give the person an assignment. The assignments are straightforward. I try to quickly think of something the person could do that would immediately be helpful. Often the actual assignment is trivial, but it does require that the person do something. These are always assignments that can be completed within an hour, and often within a few minutes, with minimal specific knowledge.

Giving people assignments works as a tool for figuring out who are doers and who are leaders.

EXPERIMENT AND FAIL FAST The phrase fail fast is used throughout the startup ecosystem and has come to encapsulate the notion of continually trying new things, measuring the results, and either modifying the approach or doubling down, depending on the outcome. Eric Ries in his book The Lean Startup and the corresponding activity around the lean startup methodology has recently popularized this. This approach is a key attribute of vibrant startup communities. Think of your startup community as a lean startup—one that needs to try lots of experiments, measure the results, and pivot when things aren’t working. It’s not that you should fail fast across the entire startup community; instead you should fail fast on specific initiatives that don’t go anywhere, attract little interest, or generate no impact.

THE PATRIARCH PROBLEM The first of the classical problems that stall progress in a startup community is the patriarch problem. In moments of frustration, I call this the old-white-guy problem. At its core, it’s one of the key challenges of a hierarchical organizational model, one in which the most powerful people are the ones at the top of the hierarchy. In many cities, especially in the United States, these patriarchs are the old white guys who made their money many years ago but still run the show.

With each new generation there is a new wave of leaders.

there is no question that the leaders of yesterday encourage and embrace the leaders of tomorrow, mentor them, and comfortably make room for them in the ecosystem.

Interestingly, I did notice the patriarch problem when I engaged with the Denver startup community. It was something that stood out early on; Boulder operated as a network and Denver operated as a hierarchy. In Denver, it mattered who you were, where you went to school, where you had worked, and who you knew. In contrast, the only thing that mattered in Boulder was what you did.

When people ask me the solution to the patriarch problem, I offer two answers. First, I suggest that you just have to wait for a bunch of people to die. Although this is harsh, it’s often hard to change the behavioral dynamics of people who are stuck in a hierarchical model, and as a result you just have to wait them out. Next, the leaders of the startup community should simply ignore the patriarchs. Go do your thing without getting the approval of the patriarchs.

Lead, and let them come to you if they want. Some will, and when they do they’ll love what they see.

COMPLAINING ABOUT CAPITAL I’ve been an entrepreneur and investor for the past 27 years. I’ve lived and invested in Dallas, Boston, and Boulder and have invested in companies in many other cities throughout the United States including Seattle; San Francisco; Los Angeles; San Diego; Chicago; Austin; Portland; Denver; Washington, DC; Atlanta; New York; New Jersey; and some I can’t remember. Over and over I hear one thing from entrepreneurs: “There is not enough capital here.” My message is the same for entrepreneurs—let it go. There will always be an imbalance between supply of capital and demand for capital. The whole idea of “enough capital” is nonsensical, and complaining about it doesn’t actually impact it. Many startup communities have specific initiatives to attract more capital to their area. Some of these are government led, such as state funds-of-funds to invest in VC funds that commit to making investments in a specific region. Others are university-sponsored VC funds or university startup grant programs. Although some of these programs are effective and have impact on funding new companies, they don’t actually solve the fundamental supply/demand imbalance.

BEING TOO RELIANT ON GOVERNMENT Although government can play a constructive role in startup communities, a reliance on government to either lead or provide key resources for the effort of building a startup community over a long period of time is a misguided view.

First, government often has less money to apply to things than people think it does. As a result, there’s often a big mismatch between expectation and reality when it comes time to actually fund something. Next, very few people in government have a background as entrepreneurs, and, as a result, they don’t really understand startups in any depth. Consequently the language, the activities, and the interactions are awkward and often ineffective. Government also moves at a much slower pace than entrepreneurs and, when it’s in a leadership role, it stifles the individual leadership that emerges. Finally, government runs on a very different time cycle—typically two to four years—than entrepreneurs do.

Entrepreneurs live in networks. Government lives in a hierarchy. Although mixing the two isn’t fatal, having a network depend on a hierarchy is, as Oliver Williamson (professor at University of California, Berkeley and recipient of the Nobel Prize in Economics) explains in his classic book, Markets and Hierarchies.

MAKING SHORT-TERM COMMITMENTS When I talk to groups of people about startup communities, I begin by asking which of the people in the audience are entrepreneurs. I give a short explanation of how the people with their hands up are the ones who have the potential to be the leaders for the startup community. I then ask them to keep their hands up if they plan to be here 20 years from now.

The 20-year timeframe signifies a generation to me. It takes a generation of effort to get a startup community up and running in a sustainable way. The first few years of renewal, which many startup communities are going through right now, are exciting, and progress is easy to measure. However, after a few years, the rate of change often slows, macroeconomic dynamics overshadow whatever is going on locally, the political infrastructure changes or simply is less fresh and exciting. This is when the real work happens—day after day, week after week, month after month. Entrepreneurs continue to build their companies, and the ones who have taken on the additional effort of leading the startup community just stay after it.

HAVING A BIAS AGAINST NEWCOMERS A key principle of startup communities that I discussed earlier is the importance of welcoming anyone new who shows up in the community, either temporarily or permanently. Historically, many cities ran as hierarchies and newcomers had to earn their way into the hierarchy. This is dumb, and the exact opposite of what you want to do with a startup community.

ATTEMPT BY A FEEDER TO CONTROL THE COMMUNITY In many communities the feeders masquerade as leaders and in some cases try to control what’s going on in the startup community. This is a syndrome I refer to as feeder control, and it stifles short-term growth and long-term health of the startup community. VCs are some of the worst offenders of this. As I mentioned earlier, VCs are important feeders, but it’s very hard for them to be leaders. Although there are exceptions, many VCs, especially in smaller cities or regions that are not as well known for entrepreneurship, position themselves as gatekeepers for people outside the startup community. Phrases similar to “we know all the interesting things going on” or “we see all the best deals” reinforce this position yet are almost always false. This is a classical hierarchical view of the world and simply doesn’t work in a widely networked startup community.

Many of the best entrepreneurs are turned off by this type of attitude and

consciously avoid engaging with these VCs. More importantly, many VCs sit back and wait for the entrepreneurs to come to them, rather than engaging deeply in whatever is going on around them, regardless of whether they have an investment in a particular company. Either way, this kind of behavior rarely accelerates the growth of a startup community. Government is another instigator of feeder control. Although this happens at a federal, state, and local level, it’s most obvious at a state level. A new governor is elected. After the typical six-month settling-in process, he and the recently appointed head of economic development declare that innovation is a key driver of economic growth for the state and they convene an “innovation council.” This innovation council takes another six months to get going while it recruits the appropriate high-profile members. It then creates a set of high-profile public events to spread innovation across the state. Everything is abstract, filled with pomp and circumstance, and usually disconnected with whatever is actually going on in the startup community. Many people involved use it as a way to generate more visibility for their company, their cause, or their agenda and very little work actually gets done. Before you know it, it’s time for another election cycle and the initiatives fade into the background as the governor focuses on getting elected again. Another example is the university that tries to position itself in the middle of all the...