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Cities go with low taxes to attract entrepreneurs and new companies; the entrepreneurs want talent and livability

Posted on by Ted Bauer

Fact: San Francisco and Boston — two innovation hubs based on coasts, universities, etc. — are becoming more expensive.

Fact: cities like Indianapolis and Pittsburgh, right there in the heartland/Rust Belt, are beginning to attract new start-ups and incubators and hubs and businesses and emerging companies.

Potential fact: where America innovates may shift in the next 15-20 years.

So … where will entrepreneurs go?

One common idea, long held, is that people will move to cities with lower tax rates and favorable regulations. Turns out this isn’t really true, via this new report from Endeavor Insight. In fact, check out this essential paragraph from The Atlantic Cities summarizing the findings:

To drive this point home, Endeavor tracked more than 100 of the most common descriptive words that entrepreneurs used to answer the question, “Why did you choose to found your company in the city that you did?” Tax doesn’t make the top 50, falling below “rent,” “park,” “restaurants,” and “schools.” In fact, it barely manages to edge out the word “girlfriend.” Of the top ten most popular words, “lived,” “live,” and “living” all make the cut. Talent takes the first slot.

So … talent is important, and some function of livability / culture would seem to be 1A. I think in this context, “talent” primarily means “intelligence,” which means (loosely) “tied back to a big university with a cool atmosphere where people can see themselves staying for a bit,” or (potentially) “a city with a reputation, established or growing, for having other smart people in my field.” This all varies by context, of course: if you’re a smart guy but you only really care about working in oil, you’re probably moving to Houston (or maybe North Dakota right now); if you care about tech, you’re probably headed to Seattle or San Francisco. All those places do have key universities, but they also are the heart and soul of certain industry sectors. (Same applies if you’re interested in finance; you’d probably head to NYC for that.)

Size does matter too:

For one, size matters. These top business-creators gravitated towards cities with at least a million residents in the metro area. This offered the scale and diverse array of offerings needed to attract talent.

Two interesting things here:

1. This is often viewed as the yin and yang of potential employment, but it’s really clear-cut off this study. You go to a big company for stability, but in that situation, you need to understand that your actual talent might not be valuable or even really noted. “Talent strategy” should be a core business function in big companies, but it’s not. ‘Tis a buzzword. In a small, entrepreneurial set-up, access to talent actually matters — although the brand isn’t nearly as stable and could still sink. It’s a basic observation, but still interesting: company life-cycles almost directly mirror human life-cycles. Eventually, you just need more stability and/or money (most people do, I’d argue).

2. I thought the start-up scene in Madison, WI wasn’t that great — you don’t seem to hear about it a ton — but apparently I’m wrong, and that’s a good thing. It might be a little harder to get to/from potential meetings — it’s not a major city, per se — but it’s one of the only major universities (UW-Madison, that is) with multiple grad programs and undergrad programs ranked in the top 20 in their respective fields. There is a lot of talent coming out of there, and it is very livable, so based off this Endeavor research, you’d assume a start-up culture would be booming there. They actually have a start-up weekend coming up in early April, and:

Globally, FWIW, Tel Aviv is considered a start-up center. Singapore is another one; real GDP has been rising there for a few years.

Ted Bauer

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