Silicon Alley, Silicon Beach, Silicon Prairie, even Silicon Roundabout (just doesn’t have such a sexy ring to it, does it?). Cities across the country and the world are jumping on the entrepreneurial bandwagon, trying to nurture startup communities and stoke the flames of new business creation.
And why not? Silicon Valley, the origin of all these Silicon knockoff names, is a economic marvel, forging both millionaires and innovations at an impressive rate. But wait, that’s a good question, if startups are so obviously economically beneficial, why are more countries and regions not having success in nurturing them?
Or to put it another way, what holds regions back from fulfilling their dreams of becoming the next Silicon Whatever? A recent and fascinating Quartz article by professor, founder and author Daniel Isenberg digs into the problem in detail, explaining the social costs of fostering entrepreneurship and offering four reasons why many places that hope to become hotbeds of innovation fail:
Income inequality. It is easy to show that in the short run, successful entrepreneurship creates income inequality in a specific region. Just imagine the impact of 1,000 multi-millionaires or billionaires from the Facebook IPO: increased housing prices, costs of some services, potential flight of children to private schools and so on (good things happen too).
Social friction. One of the key reasons entrepreneurship in Singapore suffers is that the government and the culture discourage non-conformity and independent thinking. Years ago Guy Kawasaki said “Israel has 5 million people, 6 million entrepreneurs, and 15 million opinions. Singapore has 5 million people, 6 entrepreneurs, and 1 opinion.”
Challenge to authority. Closely related to nonconformity is challenge to authority and to autocratic systems. I have often said that the “role” of the entrepreneur is to look across the courtyard and determine the most effective path. That frequently means cutting across the lawn, despite the fact that some central authority has determined where the sidewalks should be.
Social mobility, up and down. Aspiring entrepreneurs in numerous countries believe that the deck is stacked against them because of their age or gender, their status, their race or ethnic background, or just because they were not born with the with the right connections. The doors of entrepreneurial opportunity are jammed shut for many. But for entrepreneurship to flourish, mobility has to be based on merit, not birth. The flip side of a move to meritocracy is that those who previously succeeded through family connections or royal entitlement will have to be susceptible to market forces and risk possible failure.
Entrepreneurship is an undoubted good, but Eisenberg’s thinking is a healthy reminder that if we really want to encourage it, we can’t look at it with rose-tinted glasses, blind to the reality that it does harm some segments of society (at least in the short term) and comes with inherent challenges to a status quo some folks would very much like to maintain.
What other challenges do regions and cities face when they try to nurture a local startup ecosystem?