Evolving an Entrepreneurial Ecosystem, w/ Ian HATHAWAY (#31)
We discuss with Ian Hathaway — Senior Executive Director at Techstars, Senior Fellow at The Brookings Institution, and a Co-founder and Board Member of the Center for American Entrepreneurship and book author (latest book co-authored is called ‘The Startup Community Way’ ). In this episode, Ben and Ian discuss entrepreneurial ecosystems, what governments are getting wrong when they try to foster entrepreneurship and how they can create better outcomes
; why entrepreneurship can lead to bigger and better outcomes than direct engagement in politics
; why entrepreneurs are going to have more opportunities than ever during the pandemic and after it — and more.
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The difference between a small business owner and an entrepreneur is the ambition to grow.
[00:01:22.21] Ben: So, Ian, thanks very much for coming on the Structural Shifts podcast. We’re going to cover in quite a lot of detail your new book. But before we get started, I just wanted to ask you a broader question, which is, in what sorts of health do you think American entrepreneurship is today? Because we sort of get the impression, because there’s been so many world-beating tech companies that have come out of Silicon Valley that everything is rosy. Would you agree with that statement?
Ian: So I view entrepreneurship much more broadly than Silicon Valley, for sure. In my framework, I think the difference between a small business owner and an entrepreneur is the ambition to grow. That’s much broader than most people think about in tech, but to stick to the tech and venture-backed world, the US market has a long tail, right? A substantial portion of startup activity, venture-back startup activity happens, of course, in the Bay Area, but an even larger portion happens outside of it. And in those markets, the capital efficiency maybe is what we’re talking about here, is much better. So Silicon Valley is just a completely different place, even within the context of the United States.
[00:02:43.04] Ben: But I was reading some statistics. Actually, the number of new companies that’s getting started each year, has actually been going down. So I’m just wondering, you know, do we have the impression that maybe entrepreneurship in America is kind of doing better than it actually is?
Ian: Well, so, the Business Formation Statistics, which you’re talking about is covering business owners of all growth, ambitions, all sectors, right? That’s been on a steady decline since the late 1970s. And in fact, that’s a trend that has been carried across all of the OECD. I believe that’s more demographically driven than anything — as population growth declines and as society ages, business formation rates, overall, are reduced. Now, businesses are also getting much bigger. There’s no rule that says, if the business formation rate is subdued, that businesses must get bigger. And overall, the average business is getting much bigger. There’s a huge debate happening on what the implications of that are. I think it varies substantially across sectors. But one of the things that I and some other researchers documented back in 2014, is that the business formation rate, even in the high-tech sectors is declining as well, which will startle a lot of people. But it’s just because that denominator is so resilient, and the companies are getting so big.
[00:04:14.19] Ben: What was the rationale for writing this book?
Ian: Yeah, I guess I should go all the way back to 2012. My co-author, Brad Feld, wrote a book called, ‘Startup Communities’, documenting his experience as an entrepreneur turned venture capitalist and community builder while in Boulder. He moved to Boulder in 1995, didn’t really know anybody, had a successful career in Boston as an entrepreneur, started investing in the Valley, New York, East Coast — and wanted to just get involved in Boulder. There was a lot happening, but it wasn’t really concentrated. And so, he spent, you know, the next couple of decades doing that work. He felt that Boulder was unique in terms of the entrepreneurial output that it has achieved and that that collaborative spirit, that community was a big part of that reason. So he wrote that book.
First of all, the entrepreneurs must lead the community. Secondly, the entrepreneurs must have a long-term commitment.
Ian: We started talking in 2016 about ways we might work together and one of the things we discussed was an evolution on his Startup Communities book and the frameworks that were included in that. Given that my background before working on a full-time basis with startups, as I do today, and big tech companies, as I did, you know, over the last decade, I was a full-time researcher. So, I have a research background and an economics background. And that was one of the appeals, I believe, for Brad was, “Hey, look, we’ve got knowledge and interest in startups and ecosystems, we have different frameworks in our heads. Let’s bring those together and see what comes out of it.” And so, that was kind of the script. And we began work in the spring of 2017. We had a bunch of fits and starts, a couple of hiatuses, nonlinear progressions, which we’ll talk about, I’m sure. And the book was finally published this last summer. So three years in total, from start to finish.
[00:06:13.25] Ben: Maybe let’s talk about what the first book is about, right? Which is principally about the Boulder thesis. So would you mind just introducing us to that, the four principles of the Boulder thesis in creating a community?
Ian: Yeah, so the Boulder thesis is simple, but not easy. First of all, the entrepreneurs must lead the community. Secondly, the entrepreneurs must have a long-term commitment. So originally, in the book that said a 20-year view; that’s evolved to a 20-year view from today, which means it’s always 20 years ahead of you. So, you’d be thinking in generations not in, you know, weeks or years. The third is that it must be inclusive of anyone who wants to participate. And the fourth is that it must engage the entire entrepreneurial stack, which I interpret as a derivation of inclusivity — so people from various domains, roles, experience levels, and so on. And that that engagement is constant.
if you think about a city as a series of systems, the startup community is the beating heart of entrepreneurship in a city
[00:07:12.29] Ben: You know, when you talk about a long-term commitment — so generational commitment — and you, yourself acknowledge that these things are hard, and the outcomes are uncertain. I mean, how difficult does that make it to recruit the key actors for a startup community?
Ian: It’s very difficult because most people don’t work on those time cycles. But there’s nothing that can be done about it because these long feedback cycles are inherent. That’s one of the reasons why we wrote this new book, which we can dig into that a little bit more, and why we wrote it in the way we did, which is explaining these systemic properties of startup communities and entrepreneurial ecosystems. But taking a quick step back, it’s also why Brad emphasized why entrepreneurs should lead the community. That’s not to say that non-entrepreneurs cannot be involved in building startup communities, helping founders, and in fact playing leadership roles, right? In many nascent communities, it’s these non-entrepreneurial community builders, whether as a side hustle or as their full-time job they are catalyzing efforts because entrepreneurs are heads-down, doing what entrepreneurs do, which is building their businesses. So, it’s not to say that, that non-entrepreneurs don’t have a role, but it’s that the entrepreneurs who are committed to being in a place for a long period of time, building their businesses there, knowing that it’s a — you know, even a successful outcome it’s 10 to 20 years before that liquidity event occurs, and those resources can get recycled back into whatever comes next. That’s just the reality of the situation. And so, that’s why the emphasis on entrepreneurs leading. Not only because the entrepreneurs are the ultimate end-users of the startup ecosystem — if they’re not benefiting from it, or participating or engaging, then it’s not valuable to them, which happens in many communities. But it really is an acknowledgment of the long-term commitment that’s required.
The mistake that’s often made is looking at the factors that currently exist in successful ecosystems and equating that with what it takes to get there.
Ian: Now, to build on that quickly, one of the things we talk about is the difference between the community and the ecosystem. Quickly, I’ll just say, if you think about a city as a series of systems, the startup community is the beating heart of entrepreneurship in a city. It’s really the founders, it’s the people who work with them on a consistent daily basis, whether as their full-time job or maybe something that they do outside of their job — maybe they’re mentors, maybe they’re angel investors or something like that. It’s having a firm understanding of what the entrepreneurs do and what they need, but it’s more than that. It’s also this kind of kinship connection, right? It’s a common identity, it’s kind of a love of place and that sort of thing. The ecosystem is a broader construct, which is, of course, all of these resources and actors who bring them that can either accelerate or impede the progress of entrepreneurship in a community. They have different organizational structures that align or are misaligned to varying degrees with entrepreneurship and entrepreneurial communities, they have different incentives — so, people want governments to engage a great deal in the building of ecosystems, which makes sense, because, you know, ecosystems in startup communities are sort of like a public good for the benefit of entrepreneurs. But governments have a much bigger mandate, right? So, their mandate is typically around creating jobs and having economic vitality and safe and enjoyable cities. And so, because of not just the hierarchical, top-down structure of governments not being aligned with the behavior of startups and startup communities, it’s also very different incentives.
Ian: And so, back to this long-term arc, this concept we discussed is community ecosystem fit, and why developing a strong startup community must precede the development of a robust ecosystem. Part of the motivation behind that was something we observed in many cities, which is you pull in these ecosystem actors — whether it’s potential angel investors, corporations, governments, and so on — their response was, “Well, you know, the entrepreneurs aren’t any good. You can tell me all day long I should be more collaborative and helpful and focused on the needs of the entrepreneurs, but all the entrepreneurs here suck. So why would I want to do that?” Now, we can push back on that and say, “Look, well, you know, what are you doing to help that situation? But fair point.” And so, once the startup community is producing a high rate of companies that are interesting, it then becomes a resource attractor that pulls those things in. And so, that’s a very long answer to your question about, you know, how do we get around that — this need for a long-term view — and my answer is that the entrepreneurs will be the ones who will create the interest by producing interesting companies.
[00:12:30.20] Ben: Is it not slightly a Catch-22 situation, where, when you’re trying to create a new startup community, we don’t have successful entrepreneurs? Because, you know, in a way, the community depends on being led by successful entrepreneurs and if they don’t exist, then it makes it harder to create that community, right? How do you overcome that challenge?
Ian: The mistake that’s often made is looking at the factors that currently exist in successful ecosystems and equating that with what it takes to get there. The resources, the actors, they co-evolve along with success. We’re going through the early days of a boom cycle, right? If you believe there has been this outward shift in technological opportunities, there has been a shift in certainly the supply of venture capital into these ecosystems. But these are emergent systems. And so, we can’t just force success. We can’t say, “Okay, these seem to be the ingredients of success. Let’s just place them here and then innovation will happen.” The reality is what’s valuable will emerge. There will be certain principles that apply across geographies, but it truly will be unique to each time and place. That’s an inherently uncertain process and when that gets choked off, progress is stifled. So, that’s the frustrating thing. The Catch-22 is really about that we want to manufacture success, but it’s the attempted manufacturing of success which is actually what can impede success from emerging from the bottom up, principally led by the entrepreneurs.
you can improve the odds that your company will succeed by being more collaborative and engaging in a community, regardless of where you live
[00:14:22.14] Ben: I want to talk a bit about what’s different, or what changed versus the 2012 book. So, you talked a bit about, you know, how you wanted to talk more about what you’d learned from Boulder. But I think also, this whole notion of an adaptive ecosystem is new in the second book. And then also, I think you took a much broader lens, right? So you wanted to look at the startup community and ecosystem through a broader lens, which included some of the geopolitical events that we’ve lived through in the interim. So, can you just talk about that — what evolved versus the original Startup Community book?
Ian: Yeah! So, our process is actually pleasantly recursive of a complex adaptive system. The process itself evolved. Our mission emerged from our process of discovery. So, the 2012 book was really about Boulder and Brad’s perspective of here’s what the situation was, here’s what we did, here’s what worked, here’s what didn’t, here was the outcome — of course, with it being about one place. You know, I thought that book was very principles-oriented. It was very actionable too. There were tangible ideas that people can go and try this thing or that thing. But because it’s about one place, it’s inherently limited. It was so early. I mean, Brad is really a pioneer in this thinking. And so, people in lots of places adopted the principles and the practices from that book. They found varying degrees of success with that because their city was so different from Boulder, and that’s the main criticism, that this is an idealized state of the world. If you’ve been to Boulder, it’s teeming with talent, large institutions, it has a huge entrepreneurial spirit, the community is so collaborative. I actually think the collaborative nature of the Boulder startup community is reflective of the entire Boulder community, rather than the other way around. And it’s just this fantastic place. So that was kind of the main criticism is like, “Look, try going to Paris where people undermine each other.” Nicolas Colin, our mutual friend, he wrote a book review of the Startup Community Way, saying, “There’s kind of this Kumbaya spirit emanating from Brad and then also Brad and Ian, which didn’t really apply in Paris.” And so, that’s fair.
Ian: But I still think, even if you view Boulder, which is not perfect as the idealized state of collaboration, there’s still a lot that can be learned from that. Why the evolution was, as startup communities, entrepreneurial ecosystems garnered more attention over the last decade, the scope and scale of ecosystem actors increased, right? Governments, corporations, universities, other actors, and so on, have been putting more resources, getting more involved in more places. And one of the things they were looking for were tangible frameworks, right? It’s very difficult to convince those actors without sufficient evidence, and theory and frameworks to guide, that this bottom-up approach of experimentation — learning — adaptation, which is so familiar to entrepreneurs and entrepreneurial community builders, that that’s actually the way to do this work, because it feels a little hand-wavy, right? It feels kind of like it’s bullshit.
Ian: And so, our mission was to say — and I think that’s part of the appeal of working with me, someone with an economics and research background to say — look, let’s dress this up with some data, let’s dress this up with some more theoretical frameworks. And that kind of was the initial mission, to do that. But through, I guess, maybe we were four or five months in, we have 30,000 words written and just think of it as, you know, Startup Communities 2012 book with more evidence, theory, frameworks, from economics, sociology, economic geography, that sort of thing. But it was still a linear progression from the first book. As I talked to more people, I realized that it was just this complete disconnect, almost of mental models about bottom-up versus top-down, you know, planning and execution versus experimentation and adaptation. And so, we realized that we were on a different mission. I don’t have a background in systems science. My background is in political economy and economics, but I discovered complex systems along the way. And as soon as I — you know, having talked to lots of people, reviewed lots of work — as soon as that framework came into my mind, I realized immediately that this is what needed to be the centerpiece of our book, to explain the inherent uncertainty, the nonlinear behavior, the uniqueness of each place, and why that presents these challenges. So, we threw the first 30,000 words or so that we wrote away and we began a new — and so, that sent us down this path of explaining the behavior of startup communities and entrepreneurial ecosystems through the lens of complex adaptive systems.
[00:19:48.24] Ben: So, I’m trying to draw a parallel: in nature, you can’t control ecosystems. You can merely sort of seek to guide them, to influence them. And this is very much the same philosophy you take with startup communities and the attendant ecosystems. But what are some of the equivalents? How do you give an ecosystem the energy, the nutrients, the oxygen to grow? What can be done that’s replicable across different places?
Ian: This is not to say that the inputs don’t matter, right? It’s an empirical reality that entrepreneurship, especially in the knowledge economy, and especially if we want to talk about tech and venture-backed entrepreneurship, is concentrated in certain types of places, right? The distribution is very spiky. That’s an empirical reality. It is beneficial to have a density of highly-educated, ambitious people, right? It’s advantageous to be around other high-tech institutions, whether they’re businesses or universities, and so on. Those things matter, but they’re not enough. What our point is, it’s about the integration of those elements, right? If I view the process of starting and scaling a high-potential company, as a search — not entirely, but to a large degree, it’s a search for the resources you need to succeed. Many of them exist outside the boundaries of the company, right? So, whether it’s a key senior hire, it’s early-stage mentoring — we talk about investment capital a lot, right? It’s a relationship with the customer. All these things are dependent on the exchange of intangibles, fundamentally underpinned by relationships, which require trust.
Ian: And so, what we’re really talking about when we talk about integration, is building better relationships. And so, one of the points that we make throughout is — and this is the part that’s empowering, especially for people in places that don’t have all these resources, where people do have ambitions, and they do want to be better, and they want to stay where they are — is by building a community of like-minded people who are committed to a cause — entrepreneurship, technology, they’re committed to that place — if they could be committed to each other, create a critical mass of knowledge sharing, support learning, sharing contacts, expanding networks, we believe that the odds of success for any one company will be greater. It doesn’t guarantee success, it also doesn’t guarantee success to be in Silicon Valley. It just improves the odds of success. I mean, maybe we could debate that today, if that’s turned negative. But that’s the fundamental point we’re making is, you can improve the odds that your company will succeed by being more collaborative and engaging in a community, regardless of where you live.
[00:23:10.09] Ben: And how do you get some of those stakeholders to be collaborative, and to not want to take control? Because, as you said, they’re not the principal actors; the principal actors or the leaders have to be the startups. But you still need the participation of governments, universities, organizations that are typically very top-down driven, very hierarchical. How do you get them to behave in the appropriate, collaborative manner to really help the ecosystem?
Ian: Well, it helps to have individual champions from those places. And this is a subtle nuance that’s missed. Sometimes it’s a key individual or individuals who drive the whole thing in a community. Fred Terman’s role, from Stanford and Silicon Valley, has been talked about a lot. Brad Feld, honestly, in Boulder is sort of a local hero. There are a number of stories throughout. There’s even one from the Viking Range Company — I don’t know if you’re familiar with that — but high-end ranges in the United States, a small town in Mississippi, there’s a famous story about how the founder of that company created an entire local services economy to support high-end families who would come to purchase these ranges. This role of a local champion can be really important, whether that’s in an official capacity or non-official capacity. Too often, though, however, these institutions are disconnected from the entrepreneurial community. University towns are a great one in particular. Even in Boulder, which is a city of 100,000 people, it’s fairly densely populated for having a small city vibe. The university is just adjacent to downtown, but in my experience, it’s very disconnected from the startup community. So in an ecosystem ranking or a research report, it might say, “Well, this is an example of a research institution that’s feeding entrepreneurship.” In my opinion, it doesn’t. So, it’s more about the talent that it’s producing, it’s drawing interesting people to the community, it’s driving economic growth. But I wouldn’t say that, that university and countless other places, are driving the entrepreneurial community. And in worst instances — I’ve seen in a bunch of especially smaller, less-developed ecosystems — there are what I’ll broadly call entrepreneurial supports; these are innovation centers, incubators, co-working spaces, and so on. They’re almost always funded by the government, and the people leading it have no entrepreneurial experience. What they have experience doing is extracting, or I should say, getting these initiatives funded by the government and maintaining those relationships. They at best, are irrelevant, and at worst, harmful. They suck the oxygen out of the community, and they can be actually predatory to entrepreneurs in too many places.
what each city is going to find is that about 10% of the companies will create 90% of the value
Ian: Going back to one of the first things we talked about, which is, if you live in an environment like that, the best thing you can do is to build a critical mass of people who don’t behave that way, to help each other. One of the things that I’ve found, even more transactional — I mean, I know it’s very easy, the American way is to say, “Hey, be informal, be collaborative, be helpful.” That can be seen as a naive view towards many cultures. But what I have seen is that when people do embody those values — being helpful to others, without expectation of something in return, being less transactional, at all times — that shifts the dynamic, and people start to think in positive-sum terms, right? Like, “Oh, well, if that person does well, that’s good for me, too. This is going to grow our ecosystem overall and that’s a good outcome for me as well.” And so, you know, my message would be entrepreneurs creating a critical mass, in spite of those obstacles. It’d be great to unlock the power or the resources that some of those larger institutions have, but you don’t need it. And one of the ways to get around that is by creating a critical mass, creating successes, and then those larger actors have to adapt or die because they’re no longer the most important force in that ecosystem.
[00:27:41.23] Ben: Do you think is as present now as it was historic? I mean, is it more difficult to find people that will act in that way, and with that level of generosity?
Ian: I believe the startup communities in which I operate — so this could be a biased view, just because of my network — but I find that the entrepreneurs are fairly collaborative. The Startup Community community is fairly collaborative, more so than obviously, many other sectors of the economy. I do think that mentorship is one of the ways that this has manifested, I think mentorship around entrepreneurship has been adopted pretty much worldwide at this point.
[00:28:27.09] Ben: You know, you’re giving advice to governments around ecosystem development. And what should they be doing? Because you’ve already said they should not be necessarily investing in or funding incubators, and accelerators. So what should a government do to foster a startup community and then an ecosystem?
Ian: Well, it’s not that they shouldn’t do those things. It’s the way in which they do those things. So, the first order of business is figuring out what is needed. I can’t tell you how many times, whether it’s from a mayor in the US to a minister of innovation in country XYZ, that says, “Oh, we’re doing this, this and this.” And the question I always ask is, “Well, you know, where did that idea come from? What do the entrepreneurs think of that?” And they never know. They’ve never taken the time to say, “Well, what actually is needed here? And what can we do to see that?” So that’s the first principle, which, again, it’s super simple, but it’s not easy because governments aren’t used to acting in that way. The second thing, it’s not that they shouldn’t fund accelerators, incubators, and so on. Actually, there’s a super important role for government to catalyze those things, especially early on, but don’t do it in perpetuity. Let the private sector fill in eventually. And make sure that entrepreneurs are involved. I’ve done some survey work on a bunch of different dimensions. And the number one thing — at least in the way that I’ve structured these surveys, where I’m kind of generalizing between positive and negative — on the negative side, the number one thing is not involving entrepreneurs with any of the decision-making process and how money is spent. That doesn’t mean you want to have an entrepreneur, necessarily, who’s the CEO of an innovation center, a co-working space, something like that. But you should have entrepreneurs involved with the design, and from the governance perspective, on the board. That way, we ensure that it’s relevant. Over time, the entrepreneurs, the successful entrepreneurs who are in that community should begin to fund those initiatives. Otherwise, again, they’re not valuable.
the most powerful political actors in the United States, where I’m from, are the people who’ve had the major entrepreneurial successes
Ian: So that, I think is more kind of the role of government, right? Be smart, be agile, fund many things, not just one thing — that tends to happen as well. You know, they’ll pick winners, and everything goes to this, they try to consolidate. But actually, I think a better thing to do is fund maybe a handful of things over a two or three-year period, and then let them be self-sustaining at that point, see what works, see what doesn’t. Also, think about stage. So, it feels to me like there’s been almost an oversaturation of very early-stage entrepreneurial support, in most places in the world. We saw the S curve adoption for accelerators. Now, there’s pre-accelerators, pre-pre-accelerators. And I think that’s fantastic! I think we have more experiments that are going on. But what each city is going to find is that about 10% of the companies will create 90% of the value. So it’s the ones who have achieved that product market fit who have the traction, and maybe are unclear about navigating international markets, or what it means to be a CEO in a company that goes from 10 to 50 people overnight, that sort of thing. There’s a huge under provision of that and I think that’s where the industry of entrepreneurship support needs to really fill in that gap. Because we haven’t seen that yet.
[00:32:17.03] Ben: In the book, you say, these are things that measure the things that are least important, right? But you’ve got a government that’s clearly very keen to demonstrate progress, very keen to demonstrate they’re getting return on investment. So, how do you get them to think about the right metrics for success, and to apply a long-term vantage point to this, when again, you know, they’re hungry for short-term success?
Ian: Well, the first thing that I do is explain to them that any metrics must be oriented around whatever the program’s goal is. So, if their ultimate goal is about job creation, wealth creation, okay, I understand that. But too many people will sell them a solution saying, “Oh, yeah, this thing we’re going to do, this program that is supporting entrepreneurship, will create x jobs.” Oftentimes, governments will fund initiatives and the key metric is how many jobs did this create at this point in time? Which is the wrong metric. What I might be more interested in is what kind of lift do they give to the marginal company who participated, right? How did, let’s say, a top of funnel community catalyst program, what kind of relationships spun out of that, if that’s kind of the goal? Or, what kind of people did it pull into entrepreneurship? So making sure that it’s structured around what the programs actually do, having a clear value chain that explains, okay, if job creation is actually what you want, how we get there is having companies with better outcomes. Let me tell you how you help companies have better outcomes, and we can create that value chain. But making sure what you’re measuring is actually built around the program.
Ian: The other thing, too, is that I believe that system structure explains so much of the performance of an ecosystem. So we’ve been doing a bunch of network mapping exercises in a few markets where we’re looking at who’s influential. There’s some academic research, and also some policy research that supports this, that when the influential actors in the ecosystem are entrepreneurial, have had entrepreneurial success, or they support organizations that are heavily influenced and/or funded by entrepreneurs, those tend to be more productive ecosystems than those with less. So, there’s empirical support behind these theories that we’re talking about. And so, that’s one of the things that we do, we map out the ecosystem. Who are the businesses that have reached to scale, have had some success, and how are they integrated in? What are they connecting up with? Often what we find is that the most successful entrepreneurs are isolated. They’re not linking up with any of these support programs. So, the metrics, in this case, are outputs. How many companies participated in this program? How many people attended this event? What I want to know is, have the most impactful companies touched any of these things we’re paying for? Or who is this angel investor over here who seems to be connected to every high-impact company that has come out of this community in the last 10 years? How can we engage her more in our efforts? What do they think we could be doing better? And just by mapping that out, and not only who the influential actors are, but how they’re all connected through meaningful relationships — whether they’re investment, mentorship, program participation — that explains a lot. And then you have a well-informed strategy about, again, taking the system’s view of how can we better integrate these things and make sure that the most productive programs have the resources they need, and maybe the ones that aren’t, that are just sort of creating a lot of noise, but not producing tangible outcomes, high-impact outcomes — maybe you start winding those down. And that’s okay. That’s normal and healthy.
[00:36:16.27] Ben: We talked about the introduction of the whole complex adaptive systems framework. We’ve talked about developing what was learned in the interim period. But the other thing that strikes as different with the second book, is this idea of it having a broader context. Now you’re looking at startup communities through a broader lens, including a geopolitical one. And you talk about your experience of living in London at the time of Brexit. I suppose the question I wanted to ask is, like, you know, you mentioned Nicolas Colin, but Nicolas has this view that, you know, almost through entrepreneurship, you can make a bigger change than you can through engaging directly in politics, for example. So would you say that, that was a big motivation for writing the book? And do you subscribe to that view that entrepreneurship can lead to bigger and better outcomes than a direct engagement in politics?
I’m incredibly optimistic about the future of entrepreneurship in America, in Europe, globally. I think entrepreneurs are going to have more opportunities than ever, coming out of this crisis, during this crisis. And we’re going to need that
Ian: Well, I’ll answer the second one first, which is, absolutely, yes. In fact, you might say that the most powerful political actors in the United States where I’m from are the people who’ve had the major entrepreneurial successes. So, kind of reverse engineering math. You know, I’ve always been fascinated by geography. I’m committed to entrepreneurship, working with entrepreneurs, writing about entrepreneurship, explaining the importance of it to economic vitality, and, you know, to vibrant cities. I’ve just always been interested in these things. But it’s also personal to me. Although I’ve spent most of my adult life in California — well, I went to school in Chicago, spent time there — California, Washington DC, London, I spent a little time in Geneva, we talked about that a few weeks back. I grew up in a small, agricultural and industrial town, in the Midwest, in Ohio. It was part of the Detroit supply chain. And we didn’t have a lot of opportunities. I was born in 1980. That’s when manufacturing employment peaked in that region. We had a self-sustaining community. But I was born in the beginning of the decline. My father is a brilliant innovator. He has no college, no university degree, but he has, I don’t know, something like 50 or 60 patents in transportation logistics. And it’s always been this weird thing. It’s kind of like, my dad had these jobs, but he had these crazy hobbies in redesigning transportation logistics infrastructure. But he was not successful economically in these endeavors. He was not a successful entrepreneur. And what I had thought about was, well, what if instead of being from where we were, where we lived, if we were instead from Palo Alto, California, if you just changed that one piece, would my dad have had a very different outcome? Therefore, would I have had a very different life trajectory and so on? And I think the answer is not 100%, but I would imagine the odds of success would have been much higher. And I would like to see that equalized more.
Ian: I think we’re living through an era where there has been a massive proliferation of entrepreneurial high-tech activity around the world. People forget — you know, I know that Silicon Valley gets a lot of the attention, but people forget how fast activity has diffused. I did a report in 2018 with an urban economist named Richard Florida, where we mapped just over a decade and a half period, about the spread of venture capital, which we used as a proxy for high-tech entrepreneurship. Not a perfect one by any means, but it is a reliable data source for what it measures. And, you know, I guess, in 1992, the US got something like 97% of all venture capital. It’s now less than half. It’s 40%. And I think half of that decline happened in the last seven years. So, people forget how quickly this is diffusing in geographies, not only outside of Silicon Valley, but outside of the United States. And so, I feel like my soul’s mission in this work is so that entrepreneurs, regardless of where they want to live, can improve the odds of succeeding. That doesn’t guarantee they will, but if we can move the needle, and so that people don’t feel like they have to ride the train an hour and a half into London every morning, just to have a job in the industry they want to work in or, you know, face exorbitant housing or wildfires in San Francisco, and congestion. Like, I hope we can move the needle on that. And so, that’s what’s motivating me.
[00:41:18.07] Ben: The neoliberal kind of supply-side economics view was that people have to move to where the jobs are, right? We need to get mobility of labor. But, one of the downsides is that it’s very detrimental to happiness, because people have to give up their community links and so on. And so, what you’re saying, your philosophy in life is to take the opportunities to the people rather than vice versa?
Ian: Yeah. And also, the reality is that high-profile, high-tech successes happen in way more places than people realize. A successful company can be formed anywhere. The question is, how repeatable is that process? What happens after that success? I’ll use the example of my adopted hometown where my family moved to, on the central coast of California, called San Luis Obispo. It’s a 45,000-person town, small university, huge agricultural element, beautiful place where retirees and people on long-weekend holidays like to go from San Francisco and Los Angeles. In 2015, there was a company called Mind Body, which it’s been a unicorn exit. They were the first company to really get venture funding. Like, nothing happened and then it went from basically zero to a unicorn exit. Now the question is, what happens next? So, I just spoke to an entrepreneur down in Orange County, California — for people who don’t know, that’s between LA and San Diego — and he was saying, “We’ve had loads of exits. But then, people don’t reengage. There’s no community.” And so, what we’re after is we’re not going to predict where the next unicorn or 100 million or 500 million exit occurs. It’s, can you increase the odds that they will occur in your place? And when they do occur, how do we build a community of support around that so that the people will want to reinvest and stay engaged, rather than leaving or, you know, going off to the proverbial beach and disengaging? And that varies across geographies, significantly. And that’s really what this is all about.
[00:43:29.03] Ben: And that diffusion of startup success that you talked about, do you think that’s going to accelerate now, post-pandemic? I mean, do you think being physically close to the other actors in the startup community and an ecosystem is still as important as it was?
Ian: I feel like distributed work, there’s been a permanent shift on that, at least in the United States. Our cities are unsustainable, to a degree. You know, cities in Europe are unsustainable, but they’re just completely configured in a different way. I mean, the San Francisco Bay Area, Los Angeles, they’re almost unlivable, they don’t have the right infrastructure. So, I feel like there’s at least a permanent shift in some of that activity. But we have to remember that even the people who are moving to smaller cities — second, third-tier cities — they still spent years building relationships in those larger cities, they’re going to have a meaningful relationship with those places. I mean, I don’t want to be remote 100% of the time, I don’t want to work out of my house. So, I actually like the model of, you know, whether my colleagues sit next to me on a daily basis is irrelevant to me so long as we have the foundation and we come together when it’s needed. I do believe that the human element is important. Having said that, if you’re an early-stage company on rapid product iteration cycles, that’s hard to be distributed. I mean, I think it’s okay to have a distributed company, as long as it’s by teams, especially having engineering teams where people are completely isolated, that’s really hard to do rapid iteration. So I don’t think that will be permanent.
Ian: Another thing is, you know, there’s been all these announcements from big tech companies in San Francisco, like Twitter and Facebook saying, “Okay, permanent remote work.” The key indicator for me will be what happens to the executives. If the executives don’t leave, then it won’t be lasting, because it’s a strong signal that if you want to be promoted in the company, you still need to be at headquarters. And that’s been going on for a long time anyway, right? All these satellite companies. I know people in Europe feel that strongly that a lot of these American tech companies like, you know, you’re always second-class citizen if you’re in one of the satellite offices. So, we’ll see if that evolves. So yeah, I think, more importantly, though, that we’ve just gone through a massive shift in society and the structure of our economy. Entrepreneurs are best positioned to respond to that. Some people are being forced into entrepreneurship, maybe for the first time. So, I actually see a huge explosion in entrepreneurship happening overall and I’m incredibly optimistic about that.
[00:46:30.09] Ben: You wrote quite a lot about having a creative class, a spirit of rebellion. And there’s that great case study of Jerusalem in the book — great work with it — where the guys visited by a public official, saying, “Oh, we’re going to seed 200 startups.” He said, “You’d be better off seeding 200 rock bands”. Do you need to create the draw to bring people in, that will then create the foundations for community?
Ian: I think it’s extremely important. You know, in general, people go to places for three reasons: they go to a place for work or opportunity. Second, they go to a place for family or personal connections. The third is they go to a place desirable. So, if you’re a place that’s lacking on opportunities — family is sort of, there’s nothing you can do about that, right? Family and personal connections. But the third thing, making it a desirable place. Absolutely! Especially now, if you’re trying to attract people from the entrepreneurial class, knowledge workers that we’ve proven can more or less be based anywhere, if you have an airport or rail links that can get you into those major markets in a reasonable way, and the communities are desirable, they have social, natural, cultural amenities — I think that’s what people want. So I think it’s hugely important. And also, you know, additionally, this is something that people in the traditional institutional actors, the governments, the other civically-minded corporations and universities and so on, can do something about. It’s a little more in their lane.
Ian: One of the things that I tell governments often is, you know, they so desperately want to do the exciting things, you know, “Let’s create a huge startup campus!” I think they like going to ribbon-cutting ceremonies — that is like a tangible thing that’s exciting and fun. But then it’s like, just stay in your lane. Like, is this a great city to live in? Paris, fix your traffic congestion problem! You know, like, why don’t you start there? Taxation, regulation, all that. But a big part of it is, you know, making your community a place where people with options want to be. A big part of that, for me, is a healthy and vibrant small business sector, right? Quality restaurants and bars and that sort of thing. And so, yeah, I think it’s hugely important. I can say it in eight different ways, but absolutely, yes.
[00:49:05.19] Ben: Yeah. And I think the proxy sometimes, for success, is to build infrastructure, right? But infrastructure won’t bring companies by itself.
Ian: No. Well, today’s infrastructure is what? High-speed internet and interesting places to work.
[00:49:22.20] Ben: Yeah, exactly. Because I think, yeah, the definition of infrastructure is often defined in the industrial age terms, which is, we need new roads, we need new railways. I think you’re right. I mean, the actual kind of conception of what infrastructure should be, probably hasn’t been updated in many politicians’ minds.
Ian: Yeah, absolutely.
[00:49:42.13] Ben: What happens for those cities and those countries that can’t create a vibrant startup community?
Ian: They’re probably falling behind if they haven’t already. Entrepreneurship, in general, is important for a more vibrant economy and community, creates jobs, provides better services, increases productivity. In normal times, you know, creative destruction, even in the small business sector is super important. Kind of old, tired businesses move out while young, exciting ones move in. Everything’s updated and reflects the current demands of consumers and businesses, right? So, we want a healthy amount of that in general. So, if we focus on just the innovation-driven businesses, they’re the ones… Innovation-driven startups are shepherding in new industries, new sources of growth. Oftentimes, economic development initiatives are focused on the industries of the past and present — cluster analyses, you probably heard that terminology. Those are the strengths yesterday and today, but what entrepreneurs do is they look for sources of new opportunity. So, again, can’t guarantee success, but a healthy amount of that going on is really good for the long-term prospects, not only for those companies that achieve success but for the entire community.
Ian: One of the best books on economics I’ve read in the last decade, is called ‘The New Geography of Jobs’ written by Enrico Moretti, who’s an Italian economist at UC Berkeley. And his overall thing is, look, let’s divide the world into two types. Let’s divide the economy into two types of businesses. There’s the non-tradable sector, which produces local goods and services; this can be high value, low value, you know, everything from taxis and barbers, all the way up to lawyers and doctors. The tradable sector produces goods and services that can be bought and sold all around the world. Everything from agriculture — food — to the high-tech, innovative sectors. Within the tradable sector is the innovative sector. And his whole thing is, you know, you don’t have to work at a high-tech company, or a knowledge-intensive company that’s tapping into huge global markets, in order to benefit from that. What you need to do, if you’re destined to be a barista or a school teacher, you want to live in a community that has some amount of that going on, because those are well-paying jobs, those businesses are bringing revenue, and so income and wealth into that region is then spent to support the local services economy. So you want a healthy amount of that in your community to propel long-term economic vitality and opportunities for people.
[00:52:55.17] Ben: What’s your view on Europe? Do you think Europe has enough vibrant startup communities? Do you think Europe is building enough digital-age businesses to be successful or to have the same level of success in the future that has had over the last few decades?
Ian: Yes, absolutely. You know, I’ve mostly spent time in London. London, to me, feels top of the stack in terms of not only entrepreneurial activity, but collaborative spirit. I feel like people are generally helpful, interesting, people are weird. There’s that spirit of rebellion going on. I can’t say too much about many of the other places. But what I will say is, you know, the US is at an inflection point, and we’re definitely, because of our political dysfunction, our inability to address major challenges, putting aside outright hostility to foreigners — including high-skilled foreigners — we’re losing our edge. We have a major election coming up and I think the outcome of that could have a huge impact on the future of innovation here, as a talent magnet. Another great book to read on that — Harvard Business School Professor Bill Kerr wrote a book called ‘The Gift of Global Talent’, and it’s documenting how the US has been by leaps and bounds, a major beneficiary of foreign talent. Foreign talent has driven our innovation economy to a very large degree. So, you know, if you’re a European founder, entrepreneur, investor in the US, you know, depending on your embeddedness in this country, and you’ve had enough of our response to COVID, maybe you spent the last four months back at home and you realized, “Hey, life is better here!” Because it is. I think the European lifestyle is much better overall. And so, you know, I think that’s one dynamic at play — the US losing its relative position.
Ian: And, as I said before, Europe is a great place to live — I feel like that makes it a talent magnet — and a lot of progress has been made in a short amount of time. I think that that’s one of the things people forget. There’s a book that I read, called ‘100 Years of History in Silicon Valley’ — something like that; I forget the exact title — and it talks about how it was 100 years unfolding. You know, this didn’t happen overnight. People really do forget that. I think the first proper venture firm was founded in 1959 and the evolution of Silicon Valley’s technological prowess goes back much further. I recently realized that that book was written in 1996. And now, we’re 125 years in the making. As I mentioned before, we more or less can’t document the presence of venture capital in Europe before the mid-’90s, really. Early ’90s. Now, there were some, but it was very disparate. So, you know, that’s kind of a lot of progress in a short amount of time. So, I just want to frame it in that so people are mindful of how much has moved forward at a very, very rapid pace.
[00:56:22.06] Ben: Just to revisit the US election for a second. I mean, you paint this as a really pivotal moment, which I think most people would agree with, right? Do you think that entrepreneurs in the US — particularly those that have been very, very successful, and have major influence — do you think they’ve been sufficiently political or vocal?
Ian: I don’t want to paint with too broad of a brush, because people are so different. But I think the general bent for American entrepreneurs is to be more conservative, politically. The definition of that has shifted dramatically. Hardcore libertarian streak. Of course, the irony of that emanating from Silicon Valley is, you know, how propped up Silicon Valley was, and has been? Well, certainly, in the beginning, stages, how propped up it had been by government spending? And some of these entrepreneurs — you know, Elon Musk, in particular, has been a huge direct beneficiary of that. So, you know, the question, ‘have they been outspoken enough?’ I don’t know. It’s kind of all over the map. You know, I do see the private sector actually advancing cultural and moral causes more so than our government right now. It’s something I’ve actually been sort of thinking about, lately, that it’s remarkable how outspoken companies like Nike have had to be around the racial inequity crisis happening. Well, I say ‘happening in America today’ — it’s actually been happening for the last 450 years. I was watching a major league baseball game this past weekend. And I know most people in Europe might not be familiar with baseball, but on the pitching mound, there was a logo, it was #BLM — Black Lives Matter. And the fact that sports, major businesses, so many segments of our society are coming forward in support of that, and yet, our own government is actually hostile to that — you know, a portion of our government is hostile to that. I think that’s pretty remarkable. Really. A lot of businesses feel the need to fill that void.
Ian: So yeah, I don’t know, that’s kind of a meandering answer, but it’s a little bit all over the map. But I think in general, you know, people are stepping up. So, I’m incredibly optimistic about the future of entrepreneurship in America, in Europe, globally. I think entrepreneurs are going to have more opportunities than ever, coming out of this crisis, during this crisis. And we’re going to need that. I would encourage the entrepreneurs themselves, people working directly with them, whether you’re in consulting, podcasting, writing, mentoring, investing, wherever you are in that entrepreneurial stack, to be more collaborative and helpful. I think we’ve learned the importance of community by having it taken away from us. In some ways, my community is stronger, I will feel so much more gratitude to be in the physical presence of others in the future. But it’s really this positive-sum mindset. You know, we talk about ‘give first’, help people without the expectation of receiving something in return immediately. It’s not naive altruism. You expect to get something, but you don’t know when or from whom and in what form. You know, I believe if the global startup community is stronger, and I believe if entrepreneurs are doing better, that I will benefit from that too, because I’m a part of this system. This is like a time to just be grateful for each other, have humility, and build community, and you’ll be much better off if you do that.
[01:00:25.05] Ben: Amen to that! Ian, thank you very much for your time! That was a great discussion!
Ian: Thanks, Ben! It was a pleasure to be here!