The Rise of Startups Outside of Tech Hubs
May 23, 2017 by Vanessa Zucker
Picture the founder of an innovative small business pushing the construction industry forward. Her company creates products and services that harness technology to make operations more efficient. She is talking to an investor who recently funded the company and has meetings with clients and vendors throughout the day full of presentations and complex problem-solving. She is not on Sand Hill Road in Silicon Valley, though. Instead, she works from Fargo, North Dakota, communicates via a mix of teleconferencing and virtual reality, and has no plans to relocate to a larger city. Her company is one of a growing number of startups outside of tech hubs.
This can and will be a more frequent reality as technology becomes ubiquitous across the US, both as a tool to facilitate business and a base upon which to build a company. Startups outside of tech hubs like Silicon Valley and New York have an increasingly fair chance of taking off as technology democratizes access to information and communications. Of course, these startups will continue to face challenges as recruiting, communicating, and funding evolve beyond tech hub borders.
Background: Moving Up & Out
In his report on startup economy expansion in the US, Michael Mandel of the Progressive Policy Institute shows the expansion of tech hubs beyond the traditional top ten to a list of 35 top tech hubs. The report concludes that more tech hubs are forming because technology “is transforming every sector and industry.” Thus, industries not usually associated with technology like education and construction benefit from tech while areas like Dallas, Madison, and Salt Lake City embrace startup culture, encouraging new business growth. This expansion of tech hubs will continue as more cities and towns embrace startup culture, adjust regulations, and attract and retain workers in an effort to grow their economies.
As technology comes to underlie all businesses regardless of their status as “tech” companies, most cities and towns will adopt tech at the level “hubs” do and thus none will be singled out as unique in their use of technology. A food truck in Albuquerque can use machine learning to produce custom dishes based on individual customer preferences just the same as a food truck in San Francisco. Executive Vice President of Spark, Tim Turpin, points out that enterprise companies with complex technology and little need for brand recognition like Descartes Labs are able to successfully locate in places outside tech hubs like Los Alamos, New Mexico.
Locations will instead become hubs by themes—e.g. a current or future dominant industry. Take into consideration, for example, Kentucky’s speculation that aerospace is its next big industry.
The line between strategy and execution is changing. More and more startups now consist of a core group of founders that turns to highly skilled strategists for advice and partners with small agencies for execution. To meet the diverse needs of a developing business, founders will need to find a comfortable mix of outsourcing, attracting employees from elsewhere, recruiting locally, and training existing employees. Further, teams are increasingly distributed not just across the U.S. but in some cases around the world. The CEO might live in San Francisco while the engineering team lives in Cambridge, UK, and the sales team operates from major cities around the world.
As they meld marketing, PR, creative services, and strategic consulting into comprehensive integrated plans, agencies are positioned to offer outsourced services that approach what are traditionally viewed as core parts of a business. After helping a startup form a strategy, these consulting agencies will pull tactics into a focused narrative approach by outsourcing to agencies and freelancers that specialize in specific technical skills. Platforms like Toptal and Upwork are already heavily used in tech hubs for marketing, public relations, and even software engineering during product development and will continue to grow in popularity.
Attracting from outside
While dense metropolitan areas like San Francisco suffer from skyrocketing costs, many small towns currently attract outside talent by emphasizing their lower cost of living. To truly differentiate themselves, towns and businesses will need to more sharply define that which makes them unique. Industry specialization may be key; For example, an engineer in a tech hub who wants to work in aerospace may consider relocating to Kentucky if Kentucky makes itself known as the place to be for aerospace. In order to retain talent once attracted, though, cities must grow a culture beyond the realm of work that allows outsiders to feel at home. This can include music, art, sports, and nightlife.
Many tech hubs are such partly because of the presence of a prestigious university churning out skilled workers. For example, Stanford and UC Berkeley feed the San Francisco Bay Area with engineers while MIT and Harvard do the same for Boston. However, more and more schools are offering tech-focused majors or incorporating tech into their current offerings. Even high schools and primary schools are teaching children to code. As local schools (and companies offering both training and internships) develop this curriculum and skills become more widespread, employers can find talent closer to home. Over time, other, sometimes brand new skills will gain more importance than they had previously. Skills like critical thinking, complex problem solving, creativity, and decision-making will be of utmost importance. Students should focus on these. Then, employers can snap these students up to prevent emigration or the students can become local entrepreneurs themselves.
With the rise of massive open online classes (MOOCs) and the rising quality of content on video sites like Youtube and Vimeo, anyone can learn a skill from any location, as long as they have an internet connection. Employees who need to gain skills can learn cheaply online. Also, large companies like Google and Facebook already train their employees through structured internal programs. More companies can offer deep training through both home-grown programs and partnerships with other companies and local schools in order to allow employees to gain these necessary skills.
An inherent part of locating a company in a town outside of a tech hub is the increased need to communicate with those distant from the company. Remote employees have nearly mastered the art of constant communication through phone, email, and work chat platforms like Slack. However, some parts of communication across these platforms continue to pose challenges.
Rosstin Murphy, VR Engineer at STRIVR Labs, lists aspects of communication missing on digital platforms: “Tactile is an obvious one but there are also micro-expressions that are lost by time lag. You can’t receive and respond to these subtle cues quite as well.” Perhaps because of this, group brainstorming and other creative tasks also suffer while using these types of platforms. Digital natives, who have communicated digitally their whole lives, may hold the key to overcoming these challenges. Perhaps the solution comes in the form of advanced technologies and adapting to different but standardized patterns of speech reserved for digital conversations.
As virtual reality and augmented reality continue to become more and more refined, employees will be able to communicate different types of information in ways not previously possible. For example, in addition to chatting over Slack and video conferencing, our construction startup founder could also receive other types of information communicated using technology, like viewing a prototype of a pipe from a supplier remotely using AR. The prototype could be virtually placed atop our founder’s real piece of equipment in her office to make sure the fit is correct. Without AR, our founder would either need to see the prototype in person or take her supplier’s word for it. Other communication uses unique to VR and AR could include the exploration of complex data sets with remote employees, touring a floor plan of an event space in another city, and more.
A crucial challenge for startups outside of tech hubs will be accumulating funding, particularly if VCs continue to cluster in geographic locations and favor local startups instead of focusing on potential value. Pedram Sameni, Founder and CEO of Patexia in Los Angeles, explains in this Tech.co article, “A lot of local VCs still follow the footsteps of Silicon Valley and wait for a lead investor from the bay before they jump in.”
Because of this, founders may still need to travel to these hubs in order to secure large funding rounds. However, founders can use this travel time to their advantage by expanding their contacts beyond their local networks. “We help founders use this time effectively by setting up media tours and funding meetings while the founder is in a large metropolitan area,” explains Christa Fogleman, Senior Account Manager at Spark.
Eventually, funding will catch up and become easier to access by those outside of tech hubs. Increasing wealth in other cities becoming tech hubs will encourage new investors to invest and firms to form. Increased success by non-tech-hub startups will give more confidence to those in tech hubs to invest elsewhere. A perfect example is Mark Kvamme, who left one of the most famous VC firms in the world—Silicon-Valley based Sequoia Capital—to found Drive Capital, based in Columbus, Ohio. People like Steve Case, who travels the country for his Rise of the Rest tour and invests in companies outside of tech hubs, will inspire more big city investors to look at the rest of the country and encourage investors in other cities to invest.
In the meantime, there is always crowdsourcing (and possibly new systems of investing not yet devised).
As technology continues to make itself omnipresent in the lives of those throughout the U.S. and the world, founding a startup and growing it to a successful business outside of a traditional tech hub is becoming more and more realistic. Recruiting talent, communicating across the supply chain, and raising funds still present challenges to startups outside of tech hubs but will improve with technology growth.
About the Author
Vanessa Zucker is a marketing professional who has done marketing for tech giants, garage-stage startups, a non-profit that helps startups expand from other countries into the US, and Spark, which focuses on tech PR and marketing. When once faced with the possibility of moving to Norfolk, Virginia from Silicon Valley, she delighted in the discovery of several innovative technology companies in that town’s burgeoning downtown area. She has also marveled at the smoothness of working with large Silicon Valley companies with Directors and VPs living in states like Montana and Wyoming.