3 Ways Cities Can Encourage Startups

November 19, 2013
General Foundation

How can cities foster more entrepreneurs and startups? Recent years have dealt a blow to the young businesses vital to generating the innovation that drives the economy. Local economies, people's jobs, and fiscal sustainability are all at stake.

A recent paper by Darrene Hackler of George Mason University has an answer—and it starts with reframing the question. It’s not so much that we’re after more businesses and the people to create them. It’s that we want a city to have a culture that embraces risk and absorbs innovative ideas. These two ingredients help foster an entrepreneurial ecosystem.

Like it or not, ecosystems don’t spontaneously form in the absence of government. City leaders are needed to create frameworks of collaboration, incentivize capital formation, address clear market failures, and enable public spaces where knowledge spillovers and serendipity can occur. Local realities will dictate the specifics of that role, but the basic goals are there. Hackler concludes that “local government has the ability to influence the environment and enhance the probability of innovation that engenders entrepreneurship and business development.”

Hackler thinks that cities should take 3 concrete steps:

Enlist stakeholders

“Local governments will need to enlist a diverse set of actors and facilitate interactions, including dialogues that allow private industry to share what their needs are and educational institutions and residents to fuel ideas that could find commercialization support of those ideas.”

Evaluate regulations

“Local governments should examine where they could reduce delays, streamline processes, and offer assistance for businesses to navigate the regulatory process. … Research examining county small business growth from 2007 to 2008 indicates that in a recession government regulations, like offering permitting and zoning assistance, can make a difference.”

Promote fiscal sustainability

“A strategy to develop and foster an innovation and entrepreneurship ecosystem will necessarily need to provide the services that will pull in entrepreneurs and provide a foundation of support for them as they progress through the product innovation lifecycle. … Currently, city fiscal systems reflect the 19th and 20th century economic systems, focused on land and physical assets. The sources of growth in the 21st century economy are knowledge, technology, innovation, and entrepreneurship. Cities must restructure fiscal systems to fit this reality.”