“The Internet is ushering in a postinformation era, one in which the machines have already taken over and are waiting patiently for us to catch up with them. This postinformation era is one in which man and machine are interwoven.
“In this world, the network dominates in both the online and the physical world. Throughout the network are nodes, each of which began as a startup. Nodes are continually emerging, and a rigid, top-down hierarchy no longer dominates. The energy, activity, and innovation in society is diffused across the network and concentrated in unexpected places that often didn’t exist before.”
“How important is high-tech employment growth for the US labor market? As it turns out, the dynamism of the US high-tech companies matters not just to scientists, software engineers, and stock holders, but to the community at large,” wrote economics professor Enrico Moretti, author of The New Geography of Jobs, in the Bay Area Council Economic Institute’s 2012 tech industry employment report. “While the average worker may never be employed by Google or a high-tech startup, our jobs are increasingly supported by the wealth created by innovators. The reason is that high-tech companies generate a growing number of jobs outside high tech in the communities where they are located. My research shows that attracting a scientist or a software engineer to a city triggers a multiplier effect, increasing employment and salaries for those who provide local services.”
This is why I see entrepreneurship as the key to fixing America’s stalled economy. It takes creativity to uncover new markets and create demand for new products, but that’s what we’re going to need to drive economic growth down the road as legacy industries like manufacturing, brick-and-mortar retail, and financial services shrink over the next several decades. This is where growth will be happening in the near-term.
“There’s an oversupply of innovation in America and an under-supply of rare, truly gifted entrepreneurs,” Moretti writes. “To fix this, we need to make identifying entrepreneurs as intentional as we do finding kids with genius IQs or recruiting the next football, basketball, and baseball stars.”
It sounds flippant, but this stuff matters in the big picture of the US economy, as evidenced by the fact that President Obama addressed the growing importance of the startup economy in his 2012 State of the Union address.
“You see, an economy built to last is one where we encourage the talent and ingenuity of every person in this country,” Obama said. “That means women should earn equal pay for equal work. It means we should support everyone who’s willing to work and every risk-taker and entrepreneur who aspires to become the next Steve Jobs. After all, innovation is what America has always been about. Most new jobs are created in startups and small businesses. So let’s pass an agenda that helps them succeed. Tear down regulations that prevent aspiring entrepreneurs from getting the financing to grow. Expand tax relief to small businesses that are raising wages and creating good jobs. Both parties agree on these ideas. So put them in a bill, and get it on my desk this year.”
According to the US Bureau of Labor Statistics (BLS), there were about 6 million Americans working in high-tech jobs as of 2012, up 3.3 percent compared to 2011, and that number is expected to grow by 16.2 percent by 2020. For computer and information technology occupations in particular, the market is expected grow by 22 percent by 2020, adding more than 750,000 jobs, while the market for computer systems design and related professionals is expected to increase by 47 percent in that time.
None of this is anything new, of course. According to the Bay Area Council Economic Institute, since 2004, employment growth in the tech sector has outpaced growth in the private sector as a whole by a ratio of 3:1, and this trend is on track to continue until at least the end of the decade. All this while employment for the country overall is expected to grow by just 13.3 percent. What’s more, the average tech industry worker earns between 17 and 27 percent more than a comparable worker in another field, meaning tech jobs are more valuable to the economy than those in other industries.
“A strong and vibrant technology industry is critical to supporting an economic recovery, and while the tech industry has weathered the downturn better than most, we can’t take its strength for granted,” says former TechAmerica Foundation president Jennifer Kerber in response to the BLS job growth numbers. “Global economic and market forces continue to put the technology industry in a position of intense competition—a competition for innovation, where labor and intellectual property provide the foundation for growth. America can only realize the full promise of an innovation economy with smarter public policies focused on developing and attracting the best talent, investing in research and development, and growing and securing our information infrastructure.”
Despite the title, this book is not intended to be an indictment of Silicon Valley culture or success. Nor is it intended to question or otherwise shed doubt on the economic forces that have been working quite effectively in the Bay Area for the better part of a half century. The fact is, the Silicon Valley region is home to the most vibrant and effective technology ecosystem in the world, bar none. There’s no taking away from that achievement or the innovations that still come out of the Bay Area on a daily basis.
Rather, the idea here is to shine a light on all of the interesting things that are happening everywhere else—away from the spotlight, away from the big money, and away from the unique cultural advantages that have made the Valley what it is. It’s one thing to build a multimillion-dollar company in Mountain View, but it’s another thing entirely to do that in a place like Downtown Detroit, or Central Texas, or off the Las Vegas Strip. These are cities without the built-in advantages that come with a Bay Area address, and, as a result, exiting in one of these off-the-beaten-path markets is a lot more difficult.
Those that are able to pull it off say it’s a get-your-name-in-the-paper, your-photo-on-the-news, cement-your-position-as-a-pillar-of-the-local-startup-ecosystem kind of a big deal, and with good reason. Sure, the exits are usually (but not always) smaller than the eye-popping deals that happen in Silicon Valley, and they happen less often, but the economic impact on these cities is very real. A $100 million startup in Durham, North Carolina, that employs fifty people? That’s an important part of the local economy, not to mention a pretty important part of the lives of those fifty employees.
This isn’t happening everywhere yet, though that is likely coming sooner rather than later, but a number of US cities have emerged as startup hubs in recent years, each with their own unique challenges and advantages. Over a period of about ten months in 2013, I visited seven of them—Boulder, Colorado; Kansas City, Missouri; Detroit, Michigan; Las Vegas, Nevada; Raleigh, North Carolina; New York, New York; and Austin, Texas—talking with entrepreneurs, meeting with investors, touring incubators and accelerators, and generally getting a hands-on feel for what being a startup founder or employee in each city was really like. This book is the result of what I found to be a universal truth among all of these startup ecosystems: Sometimes it’s about money, sometimes it’s about community, sometimes it’s about individual leaders, but the driving force behind every startup ecosystem comes down to one thing—a city’s culture.
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“Detroit still has assets that appeal to investors. The resources in terms of the people, the businesses, the history, and the culture are all here to have a great city in the future.”
—Warren Buffett, November 2013
MARCH ROLLS IN COLD in southeastern Michigan. And breezy. It isn’t necessarily a snowy time of year, though that depends on how tight the Midwestern deep freeze holds on through the winter, but what snow there is tends to linger, piling up in parking lots, along highways, and tucked into out-of-the-way places. The sky is steel gray and overcast.
