A listing of nine high-growth neighborhoods in and around older, slower-growth cities.
Some of America's fastest growth occurs within our slowest-growing cities
Sometimes -- so it seems -- INC.'s annual ranking of metropolitan hot spots can get pretty boring. Aren't the same areas always near the top of the list? Such cities as Orlando, Atlanta, and Anaheim ranked high last year, rank high this year, and will probably rank high again next year. Chicago, Cleveland, and New York City, similarly, are always lost in the list's bottom half. Ho hum.
But before you fall asleep, ponder a couple of questions: why does Pittsburgh have more rapidly growing companies than Tampa? Why does Detroit have more than Dallas, and St. Louis as many as San Diego?
A moment's reflection will persuade you of a simple but often-ignored truth. The perennially top-ranked cities are up there not because they are better but because they are newer.
Different metro areas have matured at different points in our history. Cities in the Northeast began taking shape before the Industrial Revolution. Rustbelt regions boomed in the nineteenth and early twentieth centuries. Walk around some of the decaying industrial sections of Baltimore or Buffalo. These areas still house a lot of industrial and commercial baggage -- older companies, many of them stagnant or declining. That hurts their averages.
The newer areas have come to maturity just since the end of World War II. (Only 167,000 people lived in Phoenix in 1946, for example, as compared with 2.2 million today.) As a result, they inherited little of this baggage. They house relatively few older Fortune 500 factories; they've scarcely been touched by the 3.5 million jobs eliminated by the 500 since 1980. When it comes to averages, the new cities have lots of ups and very few downs. No wonder they score high.
But the mixed-bag economy in the older cities has already produced a strong counterforce: a legion of talented, energetic men and women who have benefited, so to speak, from the experience of the past 100 years. No longer enamored with life in the large corporation, they are seeing niches the giants can't touch. They're developing technologies that are economical on a small, entrepreneurial scale. And as INC. readers well know, they're creating a host of fast-growing companies. Maybe the Fortune 500 eliminated millions of jobs in the past decade -- but more than two-thirds of those losses have been replaced by smaller companies within the manufacturing sector.
Geographically, this new breed is settling in neighborhoods somewhat different from the haunts of their old-economy ancestors. Some are building their businesses out on the far fringes of the metropolitan area, often near an airport or a new highway. Look up Chesterfield, Mo., on a map and you'll find that it's quite some distance from St. Louis. Others are recapturing run-down industrial districts, such as East Cambridge, Mass. (see "The Most Entrepreneurial Place on Earth," [Article link]). A third group -- like the new service businesses sprouting up in midtown Manhattan, Chicago's East Loop, or Pittsburgh's central business district -- are squeezing themselves in amidst the high-rise headquarters of much larger companies.
What these entrepreneurs have created is a new set of boom areas in older cities. You won't find them in the rankings [ [Article link]], because INC.'s annual listing focuses only on metropolitan areas as a whole. But they're every bit as vital as Las Vegas or San Jose.
To get a better handle on this phenomenon, my colleagues at Cognetics and I created a new business geography, breaking the United States up into nearly 1,300 "metropolitan neighborhoods." New York or Los Angeles contains 50 or 60 of these subareas. Smaller cities might contain 15 or 20. The areas are designed to isolate different kinds of economic activity, and to distinguish between growth and decline.
"Boom Neighborhoods" (below) lists several of the fastest-growing neighborhoods in older cities, chosen from the top 25 (ranked by number of high-growth companies). Just below the top 25 -- but still in the top 10% of all metro neighborhoods -- are sections of Kansas City, Cleveland, Milwaukee, and Cincinnati. In fact, when you print out a list of that overall top 10%, you find that exactly half are in older cities.
What kind of businesses are found in places like Melville, N.Y., Northbrook, Ill., and Livonia, Mich.? They are companies such as The Softa Group, 25 miles north of Chicago in Northbrook. Softa -- #497 on last year's INC. 500 and still growing at 40% a year -- makes and distributes software for real-estate developers, managers, and investors. "Northbrook is a neighborhood where there's still room to grow," says Larry Zinox, a principal with the company.
In general, fast-growing businesses in these new boom neighborhoods are small. According to Cognetics's data, 70% have fewer than 20 employees and 93% fewer than 100. The majority are locally owned. And they're highly diverse. About 20% are in business and professional services, with another 16% in general manufacturing. High-tech manufacturing accounts for only 2% of the companies.
Most important from an international point of view, companies in these high-growth neighborhoods are competing successfully abroad. Nearly 5,500 are exporters. And surprisingly, most of the companies that ship their goods or services overseas are themselves quite small: about 85% have fewer than 100 employees. Examples? Galison Books, an INC. 500 company in midtown Manhattan with four full-time and six part-time employees, sells its address books and other products in France, Italy, England, Japan, Canada, Australia, and New Zealand. Qosina Corp., a Melville, N.Y., manufacturer of medical and cosmetics disposables, also has only four full-time employees -- but sells to England, Germany, and the Netherlands.
You can, if you want to, compare Orlando with Pittsburgh, or Anaheim with Chicago. And you'll find, year after year, that the newer Sunbelt cities score higher on the entrepreneurial averages than the older cities. But when you put the economic microscope on the older cities -- looking at neighborhoods and regions within the metro area -- you find at least as much growth and vitality there as in the high-ranking regions.
As with so many things in life, it pays to look below the surface.
David L. Birch is president of Cognetics Inc., in Cambridge, Mass.
Research assistance was provided by Lisa D. Royal.
BOOM NEIGHBORHOODS
High-growth regions in and around older cities (selected)
1. Melville-Smithtown, N.Y.
2. Elk Grove Village-Arlington Heights, Ill.
3. Bethpage-Farmingdale, N.Y.
