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Location is one of the most discussed topics in entrepreneurship. Governments send representatives to visit Silicon Valley hoping they learn lessons on how to establish successful hubs in their own countries; city councils turn buildings over to incubators in an attempt to start tech revolutions in their own backyards.
Big cities remain the drivers of most economic growth and their critical mass helps attract workers, investors and entrepreneurs. Every year the Kauffman Foundation, a think-tank on entrepreneurship, produces the Kauffman Index ranking US areas for start-up activity, based on several indicators.
Less traditional start-up cities are gaining ground on places like New York, San Francisco and Chicago, the index indicated. The five metropolitan areas with the most start-ups per 1,000 companies in 2016 were Las Vegas (120.7), Miami (107.8), Orlando (105.5), Austin (104.5) and St Louis (96.7), although New York was seventh in the broader ranking which take other criteria into account.
“If you have the same information costs and a lower cost of operating all you need is the talent. And the talent is starting to move because people cannot afford to be in Silicon Valley,” says Victor Hwang, Kauffman’s vice-president of entrepreneurship.
The foundation reported that overall start-up activity had picked up slightly in 2016, marking a three-year upward trend and reaching levels that have not been recorded since 1996.
“There is a growth in start ups and much of it is taking place outside the metro areas on the coast. The internet has created a level playing field for information,” says Mr Hwang.
Smaller towns can have advantages and offer inspiring models. Sam Walton, for example, picked Bentonville in Arkansas because his wife Helen wanted to raise children outside a metropolis. Bentonville also offered him a great chance to indulge his other passion — hunting. So he opened a dime store there and started an expansion programme which led ultimately to the establishment of Walmart, the world’s largest offline retailer, which is still headquartered in the quiet town.
There are less idiosyncratic reasons to choose a small town. Rents are usually cheaper. Staff, if you can find them, tend to be more loyal because there have fewer options, and the lifestyle may be better.
The attractions of smaller towns have influenced some contestants in EY’s World Entrepreneur of the Year awards. Petr Chmela, this year’s country winner from the Czech Republic, founded Tescoma 25 years ago in his hometown of Zlín, 300km east of Prague. His original aim was to make money to buy instruments for his band. But Tescoma gradually grew to become an international brand of kitchen equipment. He says Zlín, an industrial city of 75,000, provides many good graduates from its design school. It was also where the Bata shoe empire was born.
“We have no reason to change our location. We are patriots and, in the same way as Tomáš Baťa [Bata’s founder], who was a successful local industrialist and person with great empathy with his fellow human beings, we keep developing our international creative and business potential from this city.”
He says keeping most things in-house and in the city helps speedy decision-making. Tescoma employs more than 530 people and made sales of about $95m in 2016. “If a person works with diligence and passion, he can succeed anywhere in the world,” says Mr Chmela.
Lucy-Rose Walker, chief executive of UK-based Entrepreneurial Spark, which claims to be the world’s largest free business accelerator, agrees. The company started as an arm of government three years ago, is now mainly funded by NatWest, the bank, and has expanded to 13 towns and cities across the UK. Scottish local authorities including Glasgow and Edinburgh wanted to generate economic activity in poorer areas hit by the decline of shipbuilding and other traditional work, and Entrepreneurial Spark set up hubs there.
Businesses that are accepted on the programme receive 12-18 months of free support. It has worked with 1,700 businesses across the UK since it started operating in 2012 and helped them create 3,152 jobs and attract £151m in investment.
Ms Walker believes the internet can help turn anywhere into a hub. Entrepreneurial Spark recently worked with Highland and Islands council, which covers the sparsely populated north of Scotland out of Inverness, its biggest town with a population of 50,000.
“We didn’t think there were enough people around Inverness to fill an accelerator, so we built a virtual one. We still got people together a few times and they did the rest online. There is a real entrepreneurial spirit there because there is little other work. People were flying in from the islands.” It has deployed the same model in Portsmouth on the south coast of England.
But Mr Hwang is not convinced hubs can be artificially created. “Top-down tools are not as effective as bottom-up tools. Policymakers such as mayors are often playing catch-up,” he says.