The Amazon HQ2 opportunity was a wake-up call. Despite all the applications from smaller and mid-size cities, Amazon chose to invest in two superstars: New York and Washington, D.C. Clearly, the traditional economic development strategy of deploying taxpayer dollars as subsidies and incentives in exchange for corporate relocations is a waste and needs to be replaced by an intensive focus on public investment in startup ecosystem infrastructure.
Time and time again, startup ecosystems — clusters of talent and of science, engineering, and business innovation — drive job creation, new business formation, and investment. Ultimately, these are the elusive ingredients that lead to greater prosperity and equity in our communities. The new companies they grow are the primary source of job creation in the economy today. Less well-documented are what actions the public sector can undertake to promote the growth of these communities — and what civic-minded business leaders can do to encourage these actions.
We propose three areas of focus where leaders can leverage underused community resources and drive economic growth:
• Invest in institutions of higher education as engines of innovation and job creation, particularly leveraging their ability to attract international talent.
• Foster diverse communities, using untapped talent to drive higher economic returns as well as greater equity.
• Build basic infrastructure to ensure future growth and to retain a highly trained local workforce.
Education is an obvious but often misunderstood area for public- and private-sector collaboration. Higher education institutions play a critical role in growing the local innovation economy through research commercialization and by serving as a hub for student entrepreneurial training and new business formation. But there is more they could do.
One opportunity is to leverage international students and researchers who receive an education in the United States. These graduates are often shown the door after graduation, turned away by our inane immigration system. The Global Entrepreneur-in-Residence program, launched at the University of Massachusetts, has shown that by facilitating visas to retain these graduates, cities can benefit. Sixty entrepreneurs have participated in the program and those entrepreneurs have raised over $400 million in capital and employ nearly 1,000 people, mostly in high-paying positions.
Investing in diversity and inclusion is a proven way to improve economic returns in an innovation ecosystem. The economic case for diversity and inclusion is clear, based on a wide range of research. For example, McKinsey & Company has found that firms in the top quartile for racial and ethnic diversity are 35 percent more likely to have financial returns above their respective national industry medians. There are many promising programs in this area, including YearUp, Code2040, and Resilient Coders. One example: Boston-based Hack. Diversity provides coaching and mentoring services for African-American and Latinx engineers to help them secure entry-level jobs at the region’s fastest-growing innovation companies. Businesses contribute two-thirds of the budget. The program has successfully created three cohorts of 100 engineers of color with nearly a 100 percent successful placement rate.
In the 1970s, David Packard convened microchip and tech-industry leadership across the Bay Area to launch the Silicon Valley Leadership Group. It focused on regional infrastructure and education initiatives, supporting public investment into light rail, housing, and other basic infrastructure that contributed to the economic miracle. For other communities looking to create “the next Silicon Valley,” they would be well-served to consider investing in basic infrastructure as the time-tested formula for success.
Business leaders have a unique moment to invest in a successful transition into the innovation economy in cities small and large. But this partnership requires those business leaders to take a longer-term view, and to demand more than tax cuts and incentives. Reversing the decades-long decline in American entrepreneurship requires communities to rally together to build strong startup ecosystems.
Jeffrey Bussgang is a senior lecturer in the Entrepreneurial Management Unit at Harvard Business School and a general partner at Flybridge Capital Partners. He is the author of “Entering StartUpLand: An Essential Guide to Finding the Right Job.” Craig Montuori is the cofounder and executive director of the Global EIR Coalition. William Brah is the founder and director of the UMass Venture Development Center. This column is adapted from a piece they wrote for Harvard Business Review.