Reigniting the American Innovation Engine

By Mike Quinn

Can the creation of more startup hubs, in the image of Silicon Valley, reignite American innovation? This problem is of personal importance to me because I’m originally from Detroit, which has obviously faced its share of economic hardships the past few years. Many people, including me, believe that attracting startups to Detroit is one of the best ways to revitalize the city. However, Fred Wilson’s suggestion that it takes 20 years for a city to reach the critical mass necessary for it to become a startup hub made me question whether this could really be a viable solution. Plus, Fred’s propensity to invest in companies that are located near his VC firm raises the question of how easily startup hubs can take hold in new cities.

What does it actually take for a city to become a startup hub? Is it predictable where these hubs emerge? Does it really need to take two decades for the process to complete?

Key Success Factors Necessary to Create a Startup Hub

There are four main elements that are critical to the development of an entrepreneurial hub: technical talent, a critical mass of (successful) startups, access to capital, and an entrepreneurial environment. All four of these elements interact to create a virtuous feedback cycle, allowing us to analyze the probable success of potential startup hub locations the same way that we analyze network effects in traditional online businesses.





Predicting the Location of Startup Hubs

The same fundamental “chicken and egg” mobilization problem that affects startups in markets governed by network effects also affects cities attempting to mobilize a startup ecosystem. A region can’t attract startups without having access to sufficient sources of capital, but VCs will not locate in a region that doesn’t already have a sufficiently large number of startups. However, universities may solve this fundamental problem by providing an established base of talent that can be used to ignite the positive feedback loop. The map below shows evidence of a very strong correlation between the location of top engineering schools and the location of the highest volume of startups. 


Seven out of the top ten startup cities have emerged around at least one, and usually multiple, top engineering graduate schools indicating that it is possible to predict the likely location of startup hubs.

However, it will be interesting to see how dispersion of information resulting from open education solutions, such as MIT Open Courseware, reshapes regional access to technical talent, and therefore, the potential for the creation of startup hubs in more diverse areas throughout the country.

Can the Process of Creating a Startup Hub Be Accelerated?

Even though historically it has taken cities approximately two decades to become a startup hub, I don’t believe that today’s cities are relegated to the same timeline.

First, the speed of innovation has increased exponentially due to easier and less expensive access to computing resources. Second, the emergence of companies such as TechStars and YCombinator has accelerated the time necessary to start, grow, and exit a venture. The combination of these factors enables a feedback cycle that generates a critical mass of startups much faster than in the past, thus accelerating the pace at which a city can generate the environment necessary for startups to flourish.

Implications…

So, back to my fundamental question… Does Detroit have a chance of attracting startups? Yes. Metro Detroit is one of the few areas with a top university that is not already recognized as an emerging startup hub. Since access to talent is the critical success factor to reignite innovation, there is huge growth potential for the city as entrepreneurs, engineers, and investors discover the opportunities the city provides.

The success of New York has proven that from a business model standpoint, building a startup ecosystem is not a “winner-take-all” market and there is a great opportunity for other cities to replicate Silicon Valley’s success. Cities that already have access to engineering talent have the potential to start a virtuous cycle that fuels entrepreneurship. Now it’s up to VCs and accelerators to invest in areas that may be undervalued but have significant raw potential. After all, aren’t you supposed to buy low and sell high?



[1] “Where the Startups Roam – Top Startup Cities in the US.” http://yuval.bar-or.org/blog/2011/08/where-the-startups-roam-top-startup-cities-in-the-us/. Sourced from Techcrunch Crunchbase.

[2] “Best Engineering Schools.” U.S. News and World Report. http://grad-schools.usnews.rankingsandreviews.com/best-graduate-schools/top-engineering-schools/eng-rankings.

[3] “Top 15 U.S. Startup Accelerators and Incubators ranked.” http://techcocktail.com/top-15-us-startup-accelerators-ranked-2011-05.

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