Can startup ecosystems be manufactured?

December 27, 2019

If I had the answer to the question above, I'd likely have a different career. However, this question seems to be at the top of my network's mind as evidenced by a few articles that recently appeared in the Houston Chronicle being shared across email and social media. Given that I do believe the middle of the country needs more startup growth and is ready for it, it's also an important issue to have a framework around.

Can Houston Avoid Mistakes of the Past as it Tries to Build a Tech Scene?For startup ecosystems, perpetual death by a thousand headlines?The Problem Texas Business Leaders Are Afraid to Name - Houston's biggest industry is changing fast, can Houston lead the way?

This isn't my typical format as I wanted to organize my thoughts around ecosystems and what can make them grow over time and thought this list would be a good way to do so.It's not meant to be comprehensive or even written in complete sentences, but it is a simple outline for thinking through the signs an ecosystem is ripe for more capital with a specific lens on factors that I believe are over-hyped and those that aren't given enough attention / are harder to manufacture.

Over-Indexed Ecosystem Drivers

  • Density
  • Doesn't exist in the most active and vibrant startup ecosystem in the world - Silicon Valley has three main hubs - Palo Alto, Menlo Park, and San Francisco
  • Localized density matters - i.e. Santa Monica in LA
  • Could matter around particular sectors, but the evidence isn't there to support yet. Example, Houston doesn't have outsized advantage on energy tech yet
  • Cost of living and cost of doing business
  • There's an equilibrium here, but a sufficiently high cost of business or living means startups fail at the right rate or talent seeks jobs that are higher paying. Often, not always, higher paying jobs are associated with companies that are growing.
  • Healthy failure rate results in a redistribution of talent and capital to new or better ideas
  • Government policy
  • Founders usually have decided to live somewhere based on other factors like connections, family, and quality of life long before starting a company.
  • Founders tend to value talent and customer access. However, the dynamic here is changing due to the decentralizing workforce and tools that have been built to accelerate that change.
  • Policies are usually slow and change depending on the administration, hard to count on them for long-term growth advantage. Often slanted to bigger businesses and more geared to press than action.
  • The exception could be fund-of-funds like Renaissance Ventures, Detroit and Ann Arbor currently growing quickly with companies like Duo, StockX, and Rivian. However, secular trends are also at play, especially in the automotive industry.

Under-Indexed Ecosystem Drivers

  • Growth-tested talent
  • Silicon Valley has had this since Fairchild and Intel
  • Software and business talent that have scaled inside high-growth organizations is rare and can have outsized effects
  • Exits (yes, they're under-publicized and definitely the hardest to "create")
  • Create Wealth Ideally both deep (bigger individual wealth) and wide (several people become wealthy)
  • Frees up talent
  • New executives available
  • New startup creation
  • Active networks
  • Mutually beneficial introductions
  • Follow up on said introductions/promises is the norm
  • Diversity - talent comes from varied backgrounds, universities, cultures, etc... Gender and minority parity is still lagging behind in every metro, but ones that adapt quickly will likely have a competitive advantage
  • Universities with a history of technology or investing success
  • Not required, but help. Can be supplemented with large companies producing talent as Amazon and Microsoft have done in Seattle.
  • Silicon Valley = Berkley and Stanford
  • Boston = Harvard and MIT
  • Chicago = University of Chicago (Booth) and Illinois
  • Austin = University of Texas
  • Boulder = University of Colorado
  • Atlanta = Georgia Tech
  • Customers
  • F1000 HQ's or offices for enterprise software
  • Startups - great businesses are built off the growth of others, i.e. Twilio and Uber, PayPal and eBay, Salesforce Ecosystem
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