Economies are hurting. Even prior to COVID-19, healthy economies were limited to a few metro areas. The pandemic has accelerated and exacerbated the situation. All across the country, communities need to jump start and rebuild their economies. How?
Research has shown that most new jobs come from young businesses. And yet, our economic policies espoused by governments and traditional economic development approaches continue to focus on attracting big businesses. This focus needs to stop. It’s time for a radical rethink in how we do economic development.
We need to shift our economic development strategies to startup community building, (also referred to as entrepreneurial ecosystem building), as the primary approach to rebuilding our cities’ economies.
The research and evidence supporting the impact and value of startup community building is strong. The logic is simple and straightforward. There is a simple theory of change for civic, business, and community leaders to adopt.
- Economic growth or expansion (or recovery) depends on business dynamism
- Startups are key to business dynamism and strong economic growth
- Startups and entrepreneurs need ecosystems and communities of support to be successful
- Ecosystems need to intentionally build and nurture a startup community
Let’s explore each of these.
Economic growth or stagnation depends on business dynamism
Economic dynamism, which tracks the rate of new business starts, is a key indicator of economic health. Economic data shows that as the rates of new startups fall, economic growth falls as well.
The startup rate in the U.S. has continuously fallen since the late 1970s and the Great Recession exacerbated the trend, damaging business dynamism and as a result, economies. In their paper, Dynamism in Retreat, the Economic Innovation Group (EIG) found, “The Great Recession touched off a true collapse in new firm starts. It marked the first time on record that…