There’s a startup renaissance underway — and it’s not happening in Silicon Valley. Or New York, Boston, Los Angeles, or any of the usual destinations for entrepreneurs with big ideas. From Lincoln to Phoenix to Madison, thriving startup ecosystems have emerged in the traditionally overlooked “flyover” states to challenge the “Silicon Valley or bust” narrative.
These days, entrepreneurs routinely bypass Silicon Valley’s rising costs and competition in favor of friendlier environments and steady, sustained regional growth in the Midwest, South, and Heartland before looking to the Valley to scale. This strategy paid huge dividends last month for Chewy.com, an online pet store that was acquired by PetSmart for over $3.3 billion after transforming itself into one of the world’s fastest-growing e-commerce sites — from Fort Lauderdale, Florida.
Chewy’s success is hardly an isolated case; it follows the explosive growth of companies like Domo (Utah), Magic Leap (Florida), and Cradlepoint (Idaho). In the last two years, according to a March study by the Progressive Policy Institute, regions outside the US’s top 35 major cities accounted for almost half of the country’s new companies. Compare that surge to the previous seven years, when they accounted for less than a fifth of all new establishments. In the decade I’ve been part of the entrepreneur community in Birmingham, Alabama, I’ve seen an explosion in innovation — particularly in the last three years — fueled by real estate development, friendly regulatory policies, and collaboration between like-minded business organizations.
There’s no better time to be an entrepreneur outside Silicon Valley. Here are a few ways entrepreneurs can use their local startup ecosystems to their advantage in navigating the path to growth.
Solve problems, don’t create them
Silicon Valley is criticized for creating solutions in need of problems, showering consumers with referral codes and discounts to gain traction. Entrepreneurs don’t have that luxury in secondary and tertiary cities, where typical consumers have different mindsets and needs from their coastal, urban counterparts. For the “rest of America,” immediate practicality matters just as much as long-term vision. Consider these tangible issues as you build your vision. Are you solving problems in people’s daily lives? Will they need you after the referral codes have run out? Consumers in these regions may not be as immediately receptive to new offerings, but less saturated markets present more opportunities to capture return users if you can prove recurring value at the start.
Broaden the fundraising net
Raising capital can be discouraging when Sand Hill Road isn’t just down the road, but Valley venture capitalists are actively looking to broaden their reach. In the last month, I’ve spoken with many firms who say they’re now doing more deals outside the Bay Area than in it. While California still leads the nation in venture deals, deal activity in Q1 this year has shrunk proportionally compared to deals in the rest of the country.
You may also find more tailored support through regional networks. Whether they be VCs or incubators, chances are these investors and mentors are more attuned to local culture and infrastructure than someone who lives across the country. They pass your customers on the street and stand behind them in line at the store. They’ll have a better understanding of the challenges you face in gaining traction with the local community.
VCs and incubators aside, look to your neighbors. We raised seed money and got pre-launch market validation for my company, grocery marketplace Shipt, by offering 1,000 annual memberships through a crowdfunding campaign on Tilt. We reached our goal thanks to word of mouth alone, which would be much harder in cities like San Francisco or New York.
Invest early in local talent
Emerging tech hubs can’t beat Silicon Valley in the size of their talent pools. However, you don’t have to compete constantly with Facebook, Google, or headhunters to build your team. Instead, take advantage of the opportunity to unearth, develop, and retain potential talent — even as early as high school. I was 16 when I got a job with a Birmingham technology company. Encouraged by the mentorship I received and the local connections I formed, I remained in Birmingham after graduation to start my own business.
You can also help attract talent to the area by mentoring up-and-coming entrepreneurs through networks like 1 Million Cups, local accelerators, or university-sponsored programs. In Birmingham, I meet countless graduates who are hungry for opportunities with progressive, tech-forward companies without having to leave their home state. A Pew analysis last year found Rust Belt cities like Baltimore, Pittsburgh, and St. Louis are experiencing a surge in millennials drawn to the “Brain Belt” by affordable housing, world-class research universities, and thriving startup scenes.
Work with your city, not just within it
Silicon Valley’s “move fast and break things” mentality has led to clashes between companies and local government as they attempt to enter new markets they don’t fully understand. Make it a point to connect with regulators and organizations as you scale — not after. Secondary and tertiary cities have a vested interest in strengthening their tech infrastructure, and, as a homegrown innovator, you can help them do so. Building solid working relationships with key local players enables you to take advantage of city grants, tax breaks, and networking opportunities. In the process, you might also have the chance to help shape favorable policies for the entire startup ecosystem.
Innovation can’t only belong to the coasts if the US wants to compete in the global economy. Silicon Valley remains the epicenter today, but we may be looking to Kansas City, Atlanta, or Akron to lead the way in the years to come.