Local Governments & Startups: Strategies for Overcoming Risk

Local governments & startups have different needs, priorities and incentives, which can make it tough for them to collaborate. Here are strategies for overcoming those barriers from 40+ city managers and a dozen startup representatives.

This week, I facilitated a roundtable about how local governments and startups can work together better at the annual ICMA conference in San Antonio, TX. Participation was fantastic: over 40 city/county managers and about a dozen folks from startups or otherwise innovative companies. Together, we brainstormed about priorities, incentives, challenges and opportunities.

To kickoff the session, I shared some context:

  • Local governments are on the front lines of tackling the world’s toughest problems (e.g. climate change, inequality).
  • The world’s brightest will have to work together to solve those problems.
  • Some of the best talent and best ideas are in the private sector, especially small/niche/startup companies.
  • Unfortunately, there are a lot of barriers to partnerships between local governments and innovative companies.

But we must figure out how to overcome those barriers, because the futures of our cities depend on it.

Roundtable discussion in progress!

Here were some of the highlights:

On priorities-

As they entered the room, I asked everyone to think of a headline they’d like to see in their local newspaper in 2025. As we kicked off the session, we went around the room and shared our headlines. It was striking how different the headlines of the government officials were from the headlines of the startup representatives. Here are two examples:

1. “[City] attracts 10,000 new jobs; becomes tech innovation capital of the Midwest.” — From the City Manager of a Midwestern City.

2. “[Company] expands into 200 U.S. cities with its game-changing technology.” — From a startup’s head of business development.

There could not have been better scene-setting for the discussion that was about to take place.

On incentives-

When a local government enters into a partnership with a startup, what’s their motivation? Here were some of the answers:

  • Spur economic development (i.e. create jobs!)
  • Provide better services for citizens
  • Steward taxpayer money (i.e. save time & money)
  • Fill a capacity gap
  • Minimize risk

When a startup enters into a partnership with a local government, what’s their motivation? Again, here were some of the answers:

  • Generate revenue
  • Sell product
  • Achieve mission
  • Scale

On the challenges of working together-

For local governments:

  • Risk of failure
  • Evaluating products & services
  • Speaking in practically different languages
  • Impossible to gauge price without a product demonstration
  • Bombarded by irrelevant sales emails
PC: Twitter

For startups:

  • Uncertainty
  • Identifying the right person to talk to at the right time
  • Governments move much more slowly than startups
  • Procurement challenges (e.g. least-cost bidding)
  • Regulatory issues (e.g. prohibition of design-build contracts)

One statement stood out to me:

“When you say ‘long-term’ to a city, they’re thinking 20–30 years. They’re thinking about climate change, inequality, housing supply. When you say ‘long-term’ to a startup, they’re thinking about needing to make payroll next month!”

On specific opportunities to improve collaborations-

  • Publishing challenges, competitions, prizes
  • Requests for Ideas
  • Performance-based procurement
  • Startup in Residence, a la San Francisco
  • Open data
  • Partnerships between startups and larger, more established companies to minimize risk
  • Learning networks focused on innovation, like MetroLab Network
  • Using The Atlas Marketplace to identify innovative solutions, technologies, and partners (duh)

One statement that stood out to me here was from a city manager from a city with a thriving technology scene, a city that others look to when it comes to spurring innovation. She deemphasized the importance of procurement and said:

“If you can prove that your solution solves an urgent problem we’re trying to solve, we will work with you to find a way to buy it.”

The room literally erupted into applause.

In our brainstorming, two questions emerged that weren’t resolved:

1. Is local government’s predilection to support local businesses (for economic development purposes) inherently anti-technology, when the explicit goal of so many startups is to create global platforms that transcend specific localities?

2. A lot of the local government officials that participated in the roundtable wanted to attract startups to locate in their cities, but were hesitant pursue business with the startups themselves. From a completely unscientific survey of cities, I am struck by this thought: the cities that startups are flocking to have shown willingness to do business with startups themselves. This is true of cities like Boston, Austin, Denver and San Jose. What do y’all think about this: chicken or egg?

Would love to hear your thoughts. Please share in comments below.