What Cities Really Need to Attract Entrepreneurs, According to Entrepreneurs

Hint: It’s not favorable tax rates.

People walk near the Twitter headquarters on Feb. 5, 2014 in San Francisco, Calif.
National Journal
Richard Florida, The Atlantic Cities
Richard Florida, The Atlantic Cities
Feb. 14, 2014, 7 a.m.

Cre­at­ing high-growth, high-im­pact en­tre­pren­eur­i­al en­ter­prises has be­come a com­mon goal of cit­ies. Met­ros and states have cut taxes, im­ple­men­ted en­tre­pren­eur-friendly busi­ness policies, launched their own ven­ture cap­it­al ef­forts, and un­der­writ­ten in­cub­at­ors and ac­cel­er­at­ors — all in the hope of cre­at­ing the next Apples, Face­books, Googles, and Twit­ters.

But what really at­tracts in­nov­at­ive en­tre­pren­eurs who cre­ate these eco­nomy-boost­ing com­pan­ies?

The an­swers: tal­en­ted work­ers, and the qual­ity of life that the edu­cated and am­bi­tious have come to ex­pect — not the low-tax, fa­vor­able-reg­u­la­tion ap­proach that many state and loc­al gov­ern­ments tout.

These are the find­ings in a new re­port from En­deavor In­sight, the re­search de­part­ment of the non­profit En­deavor, which fo­cuses on fos­ter­ing and ment­or­ing “high-im­pact” en­tre­pren­eurs. Based on sur­veys and in­ter­views with 150 founders of some of the coun­try’s fast­est-grow­ing com­pan­ies, the re­port an­swers the ba­sic ques­tion, “What do the best en­tre­pren­eurs want in a city?” It of­fers ba­sic evid­ence that cit­ies should fo­cus on factors and con­di­tions that at­tract the tal­en­ted, edu­cated work­ers who fast-grow­ing en­tre­pren­eur­i­al en­ter­prises need.

En­tre­pren­eurs look for tal­en­ted work­ers and the amen­it­ies that these work­ers like.

Look­ing at this sample of Amer­ica’s most suc­cess­ful new busi­nesses, En­deavor iden­ti­fied two fun­da­ment­al pat­terns.

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

A city also needs to ap­peal to the young and the rest­less. The en­tre­pren­eurs sur­veyed were a highly mo­bile bunch when they first star­ted out. They moved of­ten and eas­ily in the early phases of their ca­reers, fol­low­ing per­son­al ties or life­style amen­it­ies while also seek­ing the right en­vir­on­ment to launch their en­ter­prises. But 80 per­cent of re­spond­ents had lived in their cur­rent city for at least two years be­fore launch­ing their com­pan­ies, mean­ing that cit­ies had to catch them early. And once they star­ted their first com­pany, these busi­ness lead­ers rarely moved. So at­tract­ing this mo­bile group at an early age is key.

The re­port then dug deep­er in­to ex­actly what these en­tre­pren­eurs cited as the most im­port­ant part of their loc­a­tion choices.

The top-rated factor by far was ac­cess to tal­ent. Nearly a third of those sur­veyed men­tioned it as a key factor in their de­cisions for where to live and work (many spe­cific­ally prized ac­cess to tech­nic­ally trained work­ers). En­tre­pren­eurs ex­plained that they pro­act­ively sought out the places that edu­cated and am­bi­tious work­ers want to be.

As one Seattle-based en­tre­pren­eur put it:

“Em­ploy­ees want to live and work here. We knew that when we moved here and later star­ted the com­pany.”

Or as an­oth­er based in Bo­ston ex­plained:

“I chose Bo­ston be­cause of the cul­tur­al life: sym­phony, col­leges, theat­er, beau­ti­ful ar­chi­tec­ture, etc. These things at­tract the kind of in­tel­li­gent people we’d like to em­ploy.”

The study found that two oth­er key factors in en­tre­pren­eurs’ loc­a­tion choices are ma­jor trans­port­a­tion net­works (like air­ports and high­ways that can con­nect them to oth­er cit­ies) and prox­im­ity to cus­tom­ers and sup­pli­ers. This echoes MIT’s Eric von Hip­pel‘s claim that end-users and cus­tom­ers are key in­nov­at­ors.

Just 5 per­cent of those sur­veyed men­tioned low taxes.

Per­haps even more in­ter­est­ing from the per­spect­ive of urb­an policy are the loc­a­tion factors that did not make the cut — those that high-growth en­tre­pren­eurs found to be of little con­sequence in their loc­a­tion de­cisions. At the very bot­tom of the list were taxes and busi­ness-friendly policies, which are, un­for­tu­nately, ex­actly the sorts of things so many states and cit­ies con­tin­ue to pro­mote as sil­ver bul­lets. Just 5 per­cent of re­spond­ents men­tioned low taxes as be­ing im­port­ant, and a measly 2 per­cent named oth­er busi­ness-friendly policies as a factor in their loc­a­tion de­cisions.

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 top10 most pop­u­lar words, “lived,” “live,” and “liv­ing” all make the cut. Tal­ent takes the first slot.

The re­port’s con­clu­sion is clear, and I agree. “The ma­gic for­mula for at­tract­ing and re­tain­ing the best en­tre­pren­eurs is this,” they ex­plain: “a great place to live plus a tal­en­ted pool of po­ten­tial em­ploy­ees, and ex­cel­lent ac­cess to cus­tom­ers and sup­pli­ers.”

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