Inc. magazine's editor-in-chief discusses how growth businesses are transforming the urban landscape; the hubris of the new Internet incubators; and a venture capitalist's view on bootstrapping.
FYI: From the editor
To me, there's nothing more interesting than identifying a trend before you can quantify it. Joel Kotkin has been helping us do that for more than 15 years, with groundbreaking articles on topics ranging from the travails of the venture-capital industry to the role of immigrants in revitalizing the U.S. economy.
This month he's back again with a compelling feature on "knowledge-value neighborhoods," which are springing up in cities across the country. In " Here Comes the Neighborhood," he shows how a new generation of companies, mainly in digitally driven industries like the Internet and the media, are reversing the historic drift of business from the city to the suburbs. In the process they're transforming once-decrepit urban areas into centers of commerce and culture.
Radical shift: Cool spaces in cool locales lure creative workers.
The article grew out of a conversation Kotkin and I had a few months ago. We both commented on the dynamic young businesses we'd come across that had chosen to locate themselves not only in cities but in certain types of areas within cities. One such company I'd been particularly impressed with, as I noted in a previous FYI (see " Design of the Times," December 1999), was Viant Inc., an Internet strategy and consulting firm. Its CEO, Bob Gett, insisted that the company's offices be set up in offbeat urban areas that had a lot of small-scale buildings. What's more, he would not allow any office to be loated above the fourth floor, to ensure a visceral connection to the energy of the street. Kotkin said he knew of other growing companies that were making similar choices. We teamed him up with freelance writer Mary Kwak to find out what was going on, and they identified a major new trend that had yet to attract national attention.
What I find most encouraging about the trend is its potential for restoring a vital link between businesses and the communities in which they operate. That link was often lost when entrepreneurial companies began abandoning cities for sterile development zones in the suburbs. You can't be part of the fabric of a neighborhood if you're in an industrial park. In such a location, businesses tend to lose sight of the role they can and should play in the life of a community. By returning to the cities, companies can reestablish the connection and help spark an urban renaissance capable of producing enormous social benefits well beyond the commercial realm.
The evolution of the incubator
Like most journalists, I've come to realize that change -- really significant change -- always begins at the margins of a culture and then works its way to the mainstream, never the reverse. When we first wrote about business incubators, back in the early 1980s, they were a distinctly marginal phenomenon. Typically, they were modest attempts by universities, development agencies, or well-meaning individuals to rekindle economic activity in a geographic area that had fallen on hard times. Whether such entities could turn out viable businesses was very much open to question.
How times change. These days incubators are all the rage. Since the emergence of Idealab, in the mid-1990s (see " The Start-up Factory," February 1997), they've become the start-up venue of choice for many Internet entrepreneurs seeking a fast track to the market. Meanwhile, colleges and universities are increasingly finding that they can't live without incubators.
I can't help wondering, however, how long the new crop of incubators will last. As associate editor Thea Singer shows in " Inside an Internet Incubator," a certain hubris has crept into the concept as it's moved into the mainstream. Many incubators seem to operate on the premise that entrepreneurship is easy -- all it takes is a combination of the right ingredients. Because the incubator owners provide many of those ingredients, they apparently feel justified in imposing the kind of terms that would make even the most predatory venture capitalist of the 1980s seem like an angel by comparison.
Yet, in fact, the record of the incubators is spotty at best. Many people argue that they actually hinder the development of sustainable businesses by depriving start-ups of the flexibility they need to find their niche and establish themselves in it.
That said, it would be a mistake to overlook what may be the true significance of incubators. We are fortunate to live in an era during which a growing number of people have a core competence in starting businesses. Incubators represent one way -- but not the only way -- to capitalize on that resource. The day will come, I believe, when we will look back on incubators as an early and important element of a much broader phenomenon: the development of mechanisms to make entrepreneurial know-how available to the population at large.
Still bootstrapping after all these years
As you can see from reading this month's Face to Face, veteran venture capitalist Ruthann Quindlen thinks that bootstrapping is passÉ. You may find her remarks puzzling in light of the stirring stories of bootstrapping success recounted in our cover package, " Great Companies Started for $1,000 or Less."
Much as I admire Quindlen, I must respectfully disagree with her on this one point. Her remarks apply only to companies trying to get started in an undeveloped corner of the Internet space, where there are significant advantages in being the first mover. That amounts to a very small percentage of the companies launched every year, and -- judging from past experience -- we can expect that only a few of those start-ups will ever mature into sustainable, long-lasting businesses.
On the other hand, I can readily understand how Quindlen might form such an opinion about bootstrapping. Given the millions of dollars that some Internet entrepreneurs can raise these days and the fortunes they can make by going public, it's easy for anyone to forget that 99% of start-ups are still self-financed and still pull themselves up by their bootstraps. That's no doubt why our annual bootstrapping package remains one of the most popular features we produce. It's also one of the reasons we keep producing it.