5 lessons U.S. startup communities should learn from 2017

At Engine, we spend our days championing policies and initiatives that support startups. As we entered 2017 amid a new presidential administration and a flurry of media coverage over the economic distress of Middle America, we wanted to share the stories of the thriving startup communities that have already taken root across the country. Through our #StartupsEverywhere campaign, we wanted to help lawmakers understand where things are going right.

And while, admittedly, this year has brought us setbacks such as an imprudent net neutrality proposal from the FCC, misguided immigration-based executive orders from the President, and potential legislation that would undermine the intermediary liability provisions enshrined in Section 230 of the Communications Decency Act, there have also been several bright spots.

In this charged political climate, #StartupsEverywhere is our insurance policy on the innovation and progress of the past decade. Through it, we have created a dialogue with policymakers and voters about the flourishing startup ecosystems around the country that are offering important developments in numerous industries. Our goal has been twofold: to determine the crucial inputs that have enabled startup growth outside of Silicon Valley and New York City, and to highlight the incredible startups and ecosystem builders who often fall in the shadows of those cities on the coasts.

Over the past year, we’ve profiled 28 different entrepreneurial ecosystems in 22 states and we are nowhere close to finished. Going forward, though, we believe there are already a number of lessons to be learned from the communities we’ve talked to over the course of 2017.

1. Access to tech talent is a challenge

An overwhelming number of the startup leaders we spoke to said that the inability to find existing talent within their ecosystem was their primary challenge. This complaint was especially prevalent among smaller cities like Santa Fe, New Mexico and Fargo, North Dakota. As Scott Phillips of Tulsa, Oklahoma explained, “As early-stage startups attempt to scale [here], they often struggle to find and attract technologists and software developers. We have to find a way to fix this or we are not going to be able to compete with other ecosystems.”

The talent shortage is not a problem that’s easily solved in the short term. But a few ecosystems have taken it upon themselves to train the next generation of talent. For example, in Phoenix, Arizona, Seed Spot Next is bringing social entrepreneurship education to middle and high school students. Their programs operate at a range of school types, including public, private, charter, and Montessori.

2. Research universities spur innovation

Unsurprisingly, a number of the startup cities we spoke to credited nearby research universities with a role in their recent growth. Entrepreneurs in Honolulu, Hawaii and Madison, Wisconsin identified their local academic institutions — the University of Hawaii and the University of Wisconsin, respectively — as one of the most impactful institutions in their ecosystem. But of all the cities we profiled, it was evident that Lafayette, Indiana, a town with a population of just over 70,000, benefited the most from its connections to the local academic institution: Purdue University.

According to local ecosystem builder Stuart Gutwein, at Purdue, anyone who develops an idea using the university’s resources has first right to commercialize the intellectual property. This means that students generally own their own creations, giving them “full control of the idea and potential business — an approach than differentiates it from most universities.”

3. It’s vital to foster a culture of entrepreneurship

A frequently cited obstacle to ecosystem growth among #StartupEverywhere participants was a local culture that was sometimes at odds with the risk-taking entrepreneurship entails. A number of people expressed concern that the residents of their city didn’t see their hometown as a place where new ventures could thrive. As Lisa Garner from Jackson, Tennessee explained, “While being in a small community has its advantages, it also means that we haven’t had the record of success seen in Silicon Valley or even Nashville or Memphis. There’s a tendency towards thinking, ‘I’m in West Tennessee, sometimes I don’t even have access to the internet, how could I create a successful startup here?'”

Milwaukee, Wisconsin has developed an answer in the form of The Commons. The organization is the result of a collaboration between all 24 colleges and universities in Southeast Wisconsin, along with several dozen local corporations and the entrepreneurial community. The flagship program, the Entrepreneurial Skills Accelerator, is a nine-week program for 75 students from across the region. The students form teams to build new companies or a new product for an existing company. Throughout the program, the teams are mentored by over 300 local professionals, helping them to build their professional networks. Cofounder Joe Poeschl says, “A collaboration of this magnitude is the only way we will compete in the future economic environment, and it may very well be the safest bet we can make, as we’ve assumed responsibility for keeping everyone actively engaged and distributed support across a large number of stakeholders.”

4. Buy-in from local governments is invaluable

Several of the startup communities that we spoke with expressed that the support of their local and state governments, both financial and legislative, had been fundamental to the growth of their ecosystem. In Portland, Jess Knox told us about the Opportunity Maine tax credit, a student loan repayment program that helps talented individuals with student debt try their hand at entrepreneurship. Matthew Marcus from Kansas City credited the Kansas Angel Investors Tax Credits Program (KAITC) with the creation of 343 local companies, and consequently, 1,427 jobs. And the iHub, the center of regional innovation in California’s Coachella Valley, was originally conceived of and funded by the state government.

5. Startups care about many policy issues

In AOL founder Steve Case’s book The Third Wave, he explains that today’s startups have the power to entirely transform entrenched industries. In order to do so, Case argues that entrepreneurs and lawmakers will need to form strong partnerships on core policy issues. From these profiles, we can confirm that startups around the country have an interest in and appetite for this type of engagement. The issues we predict will continue to be top of mind for startups in 2018 include:

  • Patent reform: Kyle Ashby from Santa Barbara, California explained that entrepreneurs in his region have become concerned about patent reform. “In 2013, local startup Find The Best (now Graphiq) received a demand letter from patent troll Lumen View Technology. This elevated the issue of patent reform within our community,” he said.
  • Immigration: We also heard from ecosystem builders across the Midwest that immigration policy was an issue they were paying attention to. Sara Woldt in Madison told us, “32 percent of gener8tor‘s portfolio companies have a founder that is an immigrant or child of an immigrant. We want the world’s best and brightest to be able to start and grow their companies here in the U.S., generating wealth and jobs for Americans.”
  • Access to capital: With 76 percent of all startup investments concentrated in California, Massachusetts, and New York, we were not surprised to hear from entrepreneurs that they continue to support policies that enable increased access to startup capital. The passage of the JOBS Act, particularly the equity crowdfunding provisions, was widely applauded by the ecosystem builders we spoke to.

Heading into 2018, we remain committed to telling the story of American startup ecosystems, as well as the people and institutions that enable them.

Monica Laufer is the community engagement manager at Engine, a research and advocacy organization that represents high-growth startups in government. In her role, she participates in outreach to policymakers in Washington, D.C. and helps to engage and build Engine’s network of startups around the country.

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