When Steve Case founded AOL, he says, headquartering in northern Virginia rather than Silicon Valley was a distinct advantage, because it allowed the company to be more in touch with mainstream America. Today, his investment company, Revolution, makes a point of supporting startups outside of the country's main tech hubs.
Case's Rise of the Rest Tour visited nine Midwestern cities last year to promote entrepreneurship and hold pitch competitions. And now he's announced a new Southern tour for 2015 that will hit Richmond, Raleigh-Durham, Atlanta, New Orleans, and Charleston.
Case spoke with Inc. at Austin's South by Southwest Interactive conference about the advantages of launching in a secondary city.
Investments last longer
"Places like San Francisco, New York, and Boston are great cities, but there are issues like cost of living and schools that can make it hard for entrepreneurs and their employees," Case says. "If you raise money there, it doesn't last as long. You have to pay more in rent, you have to pay your people more. So there's an economic advantage to being somewhere else."
Employees stay longer
"Recruiting is both easier and harder [in secondary markets]," Case says. "It's hard to get people out of larger companies or universities in a city like Des Moines, because they tend to be risk-averse. But it's easier because, once you get them, they tend to stay longer. You end up with more stability, continuity, and loyalty."
Hometown industries can help out
"This isn't the case everywhere but, for example, in Cincinnati we see Procter & Gamble funding some consumer product companies," Case says. "A lot of people went to work at P&G and liked the city and didn't want to leave, so they've built an ecosystem around that sector. Similarly, I wouldn't bet against St. Louis, because Monsanto is there. There are a lot of really smart engineers who will end up doing startups there in ag tech. The fact is, most of the Fortune 500 companies are in the middle of the country. That can be a great recruiting tool: 'You should come here because...'"
The next revolutions won't be in California
"People forget but Silicon Valley is actually a recent phenomenon. It used to be Pittsburgh, which created the Industrial Revolution. At one point the most innovative place in the world was Detroit. The next major upheavals will be in health care, education, transportation, energy, and food, and there are places other than California that will drive those."
You can be closer to your customers
"For AOL, being in northern Virginia, not Silicon Valley, was important because we were able to bring a more Main Street sensibility. We'd say, "How do you make it easy enough for my mom to use?" She never liked that, but it made the point. It wasn't just about what's technologically possible but what is the right framework for consumers. Not being in that tech bubble was an advantage."