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What's Going on in Chattanooga?

How a little city in Appalachia is blossoming into an impressive startup hub.
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Unless you're a native of the region, if you think of Chattanooga, Tennessee at all, you probably picture a sleepy Appalachian city known for its impressive natural scenery and not much else. There's no arguing that the area is a mecca for outdoor enthusiasts, but if you think that's all Tennessee's fourth-largest city has to offer, you're in for a surprise.

Chattanooga was one of the first cities in the country to offer 1 gigabit-per-second Internet speeds citywide, branding itself "Gig City." Local initiatives to draw technical folks to the town through economic incentives and a surprisingly active circle of investors in the area have rapidly transformed Chattanooga into more of a startup hub than a sleepy southern burg.

Just ask Brian Trautschold, co-founder of Y Combinator-backed startup Ambition, which is based in Chattanooga. The co-founders are on their third business together in the city and have witnessed its transformation up-close. Three or four years ago, when the team first got started in entrepreneurship, they were one of the only startups around. "Now, I know there's 30+ startups who are located here or have some type of presence here," Trautschold told Inc.com in an interview.

Hiring for Less

The buzz (and the initiatives that helped create it) isn't just inspiring founders and attracting journalists, it's also bringing more talent to the city. Take a project called WayPaver, which is designed to attract the best-and-brightest digital talent to Chattanooga, for example.

"Part of their work is conducting a series of experiments that are constantly evaluated and iterated upon, including a housing incentive that subsidizes a portion of a recruit's rent for up to a year. Additionally, they've been recruiting junior developers who don't quite have the necessary skill set to be immediately hirable, and putting them through a three-month accelerated apprenticeship that pairs them with a senior developer," Jack Studer, partner at local VC firm Lamp Post Group, explained to Inc.com in an email.

Combine this institutional support with the inherent attractions of the area's natural charms and its increasingly high profile, and that's great news for hiring for the likes of Ambition, who have managed to scale up 14 local employees--most of them technical--in a matter of 15 months. All at one-fifth the cost of what it would take to manage the same feat in a coastal startup hub, Trautschold estimates.

"You can pay people less, and they can keep more money, and they're probably just as happy," he says, pointing out that the mortgage on his house in Tennessee is less than the rent on the one-bedroom apartment the company rented while completing Y Combinator's entrepreneurial incubation program in the Bay Area. "Raising a seed round from Silicon Valley and New York investors, their money is probably going four times further in Chattanooga, and we're getting stuff done much more quickly, because we have more people here than if we were in Palo Alto or SOMA. For us, it's a legitimate part of our business strategy."

No BS

So, what sorts of companies are taking advantage of these cost savings and lifestyle amenities? While the local area boasts natural beauty and lightning-fast Internet, it still lacks the density of startups that one finds in the Valley or New York. A fact that impacts the sort of scene that's developed, according to Trautschold--for good and ill.

On the plus side, there's a genuine feeling of community and mutual support. "People actually care," Trautschold reports. "There's a lot of lip service in other cities. Here, there's a really good community," he says, crediting Lamp Post Group with being particularly nurturing of up-and-coming founders, and he also notes that local small businesses are incredibly willing to demo startups' products. (3D printing startups are also being drawn by the superfast Internet, which they appreciate for its ability to transfer huge design files quickly.)

Less unambiguously positive (depending on your perspective and startup idea) is an atmosphere that's less conducive to growing giant consumer companies that lean heavily on extreme buzz and viral growth. Local investors are more interested in business nuts and bolts than listening to long-shot fairytales. This isn't, for instance, the place to go if you want to found Yo.

"We tried to start a consumer company outside of the Valley, outside of New York, and I think it's really hard. That connective tissue there makes it a really good place to start a FourSquare or a Path. In Chattanooga, people want to know how your company is going to survive, how it's going to make money," says Trautschold. And while investors aren't incredibly risk-averse or pessimistic, "there's a little bit of a no-bullshit attitude: Are you actually going to be able to sell that service to people, or are you just expecting four million people to sign up tomorrow?"

Chattanooga Forever?

While Ambition may eventually open another office on one of the coasts to take advantage of the density of the startup network there, the company is planning to stay firmly rooted in Tennessee. Actions speak louder than words, so it's a decision that says a lot about the vitality of the scene.

As do the plain facts of the local startup scene's achievements, Studer points out. "It's always important to see results. And in the startup game, the results are pretty obvious. Chattanooga has gone from zero venture capital in 2009 to more than five organized funds with investable capital over $50 million in 2014. And in the same timeframe, we've seen multiple exits. Quickcue to OpenTable, Access America to Coyote, Neuronex. And we've seen multiple companies raise follow-on rounds (Ambition, Bellhops) from outside investors," he says.

"Nothing breeds success, like success," Studer concludes. If that's true, the future is currently looking pretty rosy for Chattanooga.

IMAGE: Getty Images
Last updated: Aug 13, 2014

JESSICA STILLMAN

Jessica Stillman is a freelance writer based in London with interests in unconventional career paths, generational differences, and the future of work. She has blogged for CBS MoneyWatch, GigaOM, and Brazen Careerist.




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