Last week, Apple announced that it would spend $1 billion to build a new location in Austin, Texas. This came shortly after Amazon's selection of New York City and suburban Washington for its next locations. These announcements have drawn attention to the geography of growth in the United States. It is this geography that Inc.'s inaugural Surge Cities Index highlights.

Even amidst a national economic expansion, growth is not even. Some places are surging; some places aren't. As it happens, Austin tops the Surge Cities list, with its rapid growth in population and jobs and a dense collection of high-growth companies on the Inc. 5000 list. Apple's choice will add more energy to this surge.

The leading Surge Cities--Austin, Salt Lake City, Raleigh, Nashville, San Francisco--are adding jobs, people, and new businesses at a faster pace than other regions. Can we learn anything from these and other surging cities? And, where might the next hot spots be?

Identifying the surge

To put together the Surge Cities Index, Startup Genome and Inc. calculated scores and ranked metro areas using an equally-weighted average of seven variables. They are: high-growth company density (based on the Inc. 5000 list), population growth, rate of entrepreneurship, net business creation, job creation rate, wage growth, and early-stage funding deals per capita. These metrics capture the importance of entrepreneurship--especially the critical role of fast-growing firms--to regional economic development.  

"Economists have known for decades that entrepreneurs are critical to growth--creating meaningful new forms, and producing value where none existed before," Ian Hathaway, research director at the Center for American Entrepreneurship, said. "What was perhaps less understood, but has become glaringly obvious with time, is the importance of geography as a means of production in the information age. As the Surge Cities data shows, today's entrepreneurs are increasingly clustering in America's largest and best-educated urban areas."

There is always more to measure, but these high-level variables capture the essence of a Surge City: more startups and more scaleups will create more jobs and more wealth.

What do Surge Cities have in common?

It's always tempting with these types of rankings to point to specific characteristics of the best-performing places and lecture other places on how they can copy the leaders. What jumps out on first glance at the list, however, is the apparent diversity of Surge Cities. Just among the top 10 metros, for example, eight different states are represented--11 in the top 15. Some of the leading metros are attractive for their natural amenities, such as Salt Lake City, Denver, and San Diego. Some are more permissive toward growth and development than others. In fact, at a high level, the biggest commonality among the top 10 is that half of them are state capitals.

Yet as Hathaway suggests, fast-growing metro areas share certain features, such as high levels of educational attainment, that drive growth. Most of the rapidly surging cities invest in and maintain a high quality of life. Austin's Sixth Street needs no introduction, and the Portland, Oregon, metro area is well-known for promoting amenities such as bike lanes.

The places that will surge next

In 2001, during the nadir of the dotcom bust, few people likely predicted that San Francisco would be surging thanks to entrepreneurs 17 years later. After the housing bust in 2008, many people wrote off the economic future of the Phoenix region--it was hard to foresee that the metro would, in just a decade, be resurgent. Within the seven variables in the Surge Cities Index, is it possible to glimpse where the next surge of American growth might originate? If you're an entrepreneur looking to capitalize on the next hot market before it begins to warm, can the Surge Cities Index help?

Perhaps. Let's take a look at what might be some of the more surprising findings.

  • Only three metros ranked in the top 10 for both net business creation and wage growth. One of them, San Jose, is not a surprise. The other two? Milwaukee and St. Louis.
  • Strong industry concentrations clearly lurk underneath the results. Among the top 10 metros for rate of entrepreneurship, for example, we find biomedical hubs such as San Diego and San Francisco. Another with a booming life science scene? Oklahoma City.
  • Only two metro areas ranked in the top 10 for job creation, population growth, and wage growth. No, not Austin. Not Nashville. Jacksonville and Las Vegas.
  • Venture capital funding is highly concentrated in three states--California, New York, and Massachusetts--with additional strength in Texas and Washington. This is reflected in our measure of early-stage funding deals per capita, where the top eight metros are in those five states. Rounding out the top 10 is Pittsburgh, which has become a hotbed of deep-tech startups and joins Austin in attracting investment from Apple.
  • In every metro, tomorrow's big employers are today's startups and scaleups. If you're an investor, where should you be looking for those scaleups? The top 10 metros, sure. But check out Tampa where, thanks to the hard work of organizations such as Tampa Bay Wave, high-growth company density is higher than top Surge Cities like Orlando, San Jose, and Nashville.

So let's enjoy the broad growth that leading Surge Cities are helping drive. But keep an eye on those further down the list. The beauty of the surge is that it's not easy to predict. Maybe you or your company will be key to the growth of the next Surge Cities.

Published on: Dec 18, 2018