Kauffman Report: It Takes Decades to Build a Startup Hub

9/11/13Follow @wroush

The Kauffman Foundation caused a stir in economic-development circles last month with a report showing that high-tech startups are more evenly spread across the United States than many people assume.

When researcher Ian Hathaway, an economic advisor with the advocacy group Engine, ranked metropolitan areas in terms of their per-capita density of high-tech startups, his top-25 list included a number of seemingly surprising names like Boulder, Fort Collins, Loveland, Colorado Springs, and Grand Junction in Colorado; Cheyenne in Wyoming; Corvallis and Bend in Oregon; Huntsville in Alabama; and Provo and Orem in Utah. (See map, above right.)

Blogs and newspapers in cities from Burlington to Cheyenne to Dover to Sioux Falls trumpeted the findings as proof that traditional high-tech hubs like Silicon Valley, Boston, and Seattle don’t have a lock on startup activity, and that it’s possible for smaller cities to come from behind and build their own thriving startup ecosystems.

Not so fast, says a second report from the Kauffman Foundation.

Dane Stangler, director of research and policy at the Kansas City, MO-based foundation, says that when he dug deeper into the data in the appendices of his colleague’s paper, he found that most of the cities being portrayed in news reports as novel startup hubs actually have a long history of high-tech industrial activity and a strong culture of entrepreneurship. The foundation released his follow-up article on the subject, “Path-Dependent Startup Hubs,” last week.

“Some of the coverage of Ian’s paper really annoyed me,” Stangler tells Xconomy. “Ian’s paper was a really good starting point, but one thing it didn’t show was a comparison over time between cities, and by size class. If you look at these ‘new’ startup places, a lot of them were already there in 1990.”

In particular, many commentators marveled over Hathaway’s data on Boulder, which boasts the nation’s highest per-capita density of high-tech startups. It’s 6.3 times greater than the national average, outpacing even the San Jose-Sunnyvale-Santa Clara metropolitan area (aka Silicon Valley), where startup density is only 2.6 times the national average.

Most media reports attribute Boulder’s prominence as a startup hub to the arrival of venture firm Foundry Group and the creation of Techstars, a startup boot camp, both in 2006. But when Stangler compared regional high-tech rankings from 1990 and 2010, the lists were strikingly similar. Among small- to mid-sized metropolitan areas, Boulder was already ranked first in the nation in 1990, likely thanks to the presence of high-tech institutions like the University of Colorado, the National Center for Atmospheric Research, and the National Institute of Standards & Technology, as well as the legacy of 1970s-era anchor companies like IBM and StorageTek.

“What you never hear people says is, ‘Yes, Boulder’s great, but it was also great 25 years ago,’” Stangler says.

Boulder topped the list of small- to mid-sized cities with high startup density in 1990 and again in 2010. Source: Dane Stangler, "Path-Dependent Startup Hubs: Comparing Metropolitan Performance: High-Tech and ICT Startup Density," Ewing Marion Kauffman Foundation, September 2013.

Boulder topped the list of small- to mid-sized cities with high startup density in 1990 and again in 2010. Source: Dane Stangler, “Path-Dependent Startup Hubs: Comparing Metropolitan Performance: High-Tech and ICT Startup Density,” Ewing Marion Kauffman Foundation, September 2013.

In fact, it’s not Techstars that’s boosting Boulder, Stangler suggests—it’s probably the other way around. The presence of startup accelerators and other entrepreneurship programs “is less a cause of startup activity than an indication of the underlying strength of the region and a base of talent that these regions can build on,” Stangler wrote in the paper.

Overall, Stangler found that all of the large cities that ranked among the top 10 startup hubs in 2010 were already among the top 20 in 1990. And only one city that was in the top 10 in 1990 had dropped off the top-20 list by 2010 (Houston). “The biggest observation that jumps out,” Stangler wrote, “is how much persistence there is across time—at least over this two-decade period.”

It’s easy to make too much of data that ranks regions by per-capita startup density, Stangler goes on to argue. One difficulty is simply that smaller cities simply have smaller populations—the denominators in density calculations. That means that if just a few new startups come to town, it can change the numerator and create the appearance of a dramatic increase in regional startup density.

Among large metropolitan areas, Stangler points out, the city showing the biggest increase in startup density between 1990 and 2010 was … Next Page »

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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  • bespoked

    Thank you for yet another great article, Mr. Roush. Equally interesting to me would be what “dark matter” might be behind the the downward trend of any given area. For example, the Santa Cruz area no longer appears in the Top 10 list for small-mid areas. Back in 1990 or so, they had not only Borland, they also had Segate, SCO, Plantronics, and Intel, to name a few. Of that bunch, only Plantronics remains.

    • http://www.xconomy.com/san-francisco Wade Roush

      Yes, that’s one of the big themes I explored in my recent three-part look at Santa Cruz. (Part 1 is here: http://www.xconomy.com/san-francisco/2013/07/30/santa-cruz-the-city-over-the-hill-builds-its-own-startup-culture/ ) The last tech heyday in Santa Cruz was just too long ago to make much of a difference now. Some of the folks who started or worked at those anchor companies are still around, but the window for building strong cross-generational connections is pretty much closed, so today’s startups are having to build an ecosystem from scratch.

  • Jerry Jeff

    2 of the top 10 in the DC area = next location for Xconomy hub?