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
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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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