“Startup Hubs” Don’t Create Great Companies, Entrepreneurs Do.
Three reasons emerging tech scenes may flop, And how to avoid it
Let’s be honest, is there a city that does not have a bustling “tech scene” with millennials wearing wrinkled t-shirts to a workplace that has more yoga balls than staplers?
In the South alone word has it that Athens, Charleston, Chattanooga, Birmingham, Nashville and Charlotte are all the next “Austin, Texas.”
Ain’t happening.
I’ve worked at Lamp Post in Chattanooga in some capacity for almost six years- now managing day-to-day operations of our fund. I’ve been to startup events across the South and seen 99% of the ideas thrown out shrivel into real jobs at banks.
Startup hubs and the communities cheering them on are misunderstanding something very critical: if you are good enough, you will be found, funded and ultimately successful. Access to capital is not the problem — this is the United States of America. I repeat, access to capital is not, and never has been, the problem.
NBA teams and elite investors like Sequoia have something huge in common: they do not leave talent on the street courts of Jackson, Mississippi if it’s meant for Madison Square Garden.
The reason it seems like every city is becoming a hub for startups is because it’s easier than any moment in history to start a company, and for a lot of college grads, it’s the only way to make $50k per year. You have a decent idea, start a company, and convince some of your parents’ friends to loan you some money while you begin creating the next Facebook without the killer instinct, talent, or vision to start a dominant multinational company.
That vicious cycle repeats itself often in smaller, off-the-grid hubs for three reasons:
1. Even among elite middle-America universities, there is a lack of education about how to capitalize a company in 2016.
2. The standard for excellence is local, not global. Being the tallest midget means you’re still short.
3. There is a lack of sobriety about what the strengths of your city really are.
Look no further than Lowe’s in North Wilkesboro, NC and Walmart in Bentonville, AR to know that success doesn’t have a geographic bias. But free markets have a brutal talent bias. Wannabe startup hubs must accept this.
Times are changing, but the fact that only world-class entrepreneurs start world-class companies remains true.
Certainly the rise of Silicon Valley over three decades has caused a density of tech talent in the Bay Area. It has made it by far the best place in the world to start a tech company. But think about how many more programmers there are today than there were 20 years ago…or even 10 years ago. The benefits of proximity are fewer than ever before. As many tech investors are now admitting, it makes no sense for a business to relocate to be close to its capital is instead of its customers.
Bellhops has become the foremost tech company in Chattanooga, Tennessee. It is arguably the first local tech company to successfully raise a true Series A and Series B from SF and NY investors. Many people want to know how they have done it in a place like Chattanooga. Why did Binary Capital invest in Bellhops right before they invested in Snapchat? Why did Canaan Partners make an even larger bet on Bellhops a couple of years later?
The answer is brutally simple. Bellhops’ CEO Stephen Vlahos is a killer. His skill and tenacity make him one of a small group of people in the U.S. capable of scaling a tech-enabled company. He happened to grow up in Birmingham and attend Auburn University, but other than that he’s no different than the kid who grew up in Bakersfield and attended Stanford. He’s got what it takes, and as a result he’s raised all the money he needs and recruited all the tech talent necessary to grow a behemoth.
To know what this means for tech scenes off the beaten path, let’s go back and answer all three reasons the vicious cycle of unfunded, unsuccessful startups continue to disappoint.
1. Universities in middle America are not helpful to entrepreneurs today. I’m a proud graduate of the University of Tennessee, but I wasn’t taught how a mortgage works let alone how to finance a company if I chose to set off on my own. On the West Coast, Stanford underclassmen have the know-how to score a meeting with a venture firm investing from a thesis relevant to their side project. It’s night and day, and it’s time universities in the South, for example, catch up.
2. If your startup has $30k of MRR and 10 employees, you may be the most sought after speaker for the local Lions’ Club and have had six articles in the local newspaper. Meanwhile, you have a direct competitor in Seattle who just raised a Series C based on 100% MoM growth. You may be lucky to carve a lifestyle business out of what you’ve started, but only if you can cashflow and iterate. If you are going to stay in a small pond, don’t compare yourself to the other fish there.
3. Most importantly, and saved for last: the likelihood of your success in tech outside of San Francisco, San Jose, New York, Boston or Austin is directly connected to the institutional advantages of doing what you are doing in your city. Healthcare in Nashville. Fintech in Charlotte. Biotech in Raleigh. Logistics in Chattanooga. Silicon Valley got its name because there was a lot of silicon being used to make a lot of semiconductors. That proved to be an unfair advantage at the onset of the computer age.
Enough with the fiction that your city is the next tech hub to hit the map. There’s no doubt it’s possible that your city’s Stephen Vlahos may have just started a company that will eventually defy the odds. But long-term value is created when communities leverage their heritage industries in order to create a sustainable ecosystem of tech companies.
That’s what we are doing at Dynamo in Chattanooga. And considering Chattanooga is the city that first distributed Coca-Cola, Little Debbie’s, and sees more freight every day than any other city, we’re just fine being the “Next Chattanooga.”
How’d this sit with you? What’s your city got going for it? Share in the comments.
