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A Startup Vision for American Cities

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This column is part of an ongoing series, originally published by McKinsey & Company, about how entrepreneurs are making a societal impact around the world.

 

 

 

Earlier this year, I asked an audience in San Francisco to think about what would happen if everyone in Silicon Valley moved to Detroit. After a bit of back and forth, we came to the conclusion that there would be a rush of startup activity out of Motor City, including cars that turned into snowmobiles and new kinds of personal-warming devices. Although I’ve seen the incredible innovation and revitalization happening in Detroit and cities like it, an influx of talent at that level would likely turn Detroit’s 8 Mile Road into the new Sand Hill Road virtually overnight.

Human and intellectual capital drive innovation and attract financial capital. Yet most of the time we operate as if only the reverse were true. Other cities look admiringly to San Francisco, New York, and other metropolitan hubs as they try to spur their own innovation-led economic growth. Of course, the Silicon Valley model is easier aspired to than replicated. What distinguishes these cities’ innovation ecosystems from so many others are the depth and breadth of talent, the culture of risk taking and acceptance of failure, the presence of leading firms, and the large population of accomplished company builders who reach back to invest, advise, or build again.

For a new enterprise to take form and succeed, it needs a combination of talent, financial resources, market opportunity, persistence, community infrastructure, and maybe even some good fortune. Even with all of these pieces in place, the failure rate is high. The vast majority of new businesses fail within several years, and professional investors -- including those in Silicon Valley -- expect most of their investments not to work out.

Building a new company that will prosper and create significant value is brutally difficult. I know this firsthand: in 2000, I cofounded a startup company that failed. We were forced to wind it down a couple of years later, and our investors lost their money -- a total of about $250,000. It doesn’t seem like much now, but at the time it seemed like all the money in the world. It’s unsurprising that efforts to spur entrepreneurship meet with uneven results.

A decade and several companies later, I resolved to try and make heading down this path easier for talented graduates who aspire to be entrepreneurs. In 2011, I founded Venture for America (VFA), which has recruited and trained 108 fellows from Harvard, MIT, Princeton, University of Pennsylvania, Yale, and other top schools to work at startups in Baltimore, Cincinnati, Cleveland, Detroit, Las Vegas, New Orleans, Philadelphia, and Providence. The goal is that these smart and enterprising young people will help early-stage companies expand and grow to hire more people. In the process, our fellows will see what it takes to build a business and potentially do so themselves one day. Our immediate goal is to help create 100,000 new US jobs by 2025, driven by the expansion of partner companies and the long-term exploits of our fellows.

Tim Dingman is a case in point. Tim recently graduated from Brown with a master’s degree in electrical engineering. He joined VFA and started working at Accio Energy, a next-generation wind-turbine company outside of Detroit. On the side, he cofounded Rebirth Realty, which has raised $20,000 to buy and rehab foreclosed properties in Detroit. If Accio succeeds, it will provide an efficient way to channel wind energy and will hire many more people.

Tim has eschewed short-term financial rewards to learn how to build something and potentially contribute to the renewal of a great American city. Accio’s not a sure thing, but Tim being there helps its chances. And Tim is the sort of person who wants to start a company of his own down the road. His choice shows what’s possible.

Near Accio, there are startup offices in downtown Detroit filled with similar optimism and energy. After graduating from Harvard, Nathan Labenz and Jay Gierak worked in San Francisco, cofounded an Internet referral company, Stik, and then moved it to Detroit in 2012. Now they’re up to more than 15 employees and they’ve raised over $2 million, mostly from within the region.

It’s a similar picture in New Orleans and other cities that are capitalizing on their native resources and attracting smart young people from outside as well. America faces significant challenges, and it’s heartening that smart people are rising to meet them by launching innovative companies.

Imagine if the same talented young graduates who now tend to pursue law or finance careers on the coasts were instead joining startups and early-stage companies around the country. Even allowing for a high rate of failure, I think we would see dramatic results with regard to new-company formation and innovation in these cities. In turn, these new companies would give urban economies a much-needed boost.

Andrew Yang is the founder and CEO of Venture for America, a fellowship program that places top college graduates in startups for two years in low-cost US cities to generate job growth and train the next generation of entrepreneurs. His first book, Smart People Should Build Things, will be published by Harper Business in February 2014 and is available for pre-order now.

This article was originally published on McKinsey & Company's Voices, voices.mckinseyonsociety.com. Copyright (c) 2013. 

Last updated: Nov 11, 2013

VOICES FROM MCKINSEY & COMPANY | Columnist

In Voices, McKinsey & Company showcases expert thinking on some of the world's most pressing social problems. The latest series of Voices features on-the-ground stories of how entrepreneurs are making a societal impact across the world. Contributors range from trailblazers in fragile states to founders of multinational companies to forward-thinking millennials.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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