Heartland startups finally strike back

A year ago the Midwest seemed on the cusp of a renaissance. Small towns and cities from Pittsburgh to Omaha had perfected the YC model of accelerator creation and low-cost/high-impact funding. The ecosystems have cropped up everywhere there is a coffee shop or an artisanal sandwich truck and the idea of “doing a startup” vs. going to work for some corporate behemoth is a well-worn path for many students. Even as the startup era dies in the Valley it is exploding in the heartland.

That’s right: as SV wanes, the Midwest waxes. Jon Evans makes the point best in his post this weekend although I think he’s missing what’s happening on the periphery:

Hordes of engineering and business graduates secretly dream of building the new Facebook, the new Uber, the new Airbnb. Almost every big city now boasts one or more startup accelerators, modeled after Paul Graham’s now-legendary Y Combinator. Throngs of technology entrepreneurs are reshaping, “disrupting,” every aspect of our economy. Today’s big businesses are arthritic dinosaurs soon devoured by these nimble, fast-growing mammals with sharp teeth. Right?

Er, actually, no. That was last decade. We live in a new world now, and it favors the big, not the small. The pendulum has already begun to swing back. Big businesses and executives, rather than startups and entrepreneurs, will own the next decade; today’s graduates are much more likely to work for Mark Zuckerberg than follow in his footsteps.

The Valley has always been a magnet for those who were just a signing bonus away from working for Google. Most entrepreneurs I’ve met who have failed at startups in SF eventually wend their way to someone with deeper pockets and it is only the absolutely dedicated who are able truly escape the cubicle. The opposite has always been true of the Midwest. You moved to Indianapolis or Columbus not to work for an exciting media startup but to take a respectable 9-to-5 at a corporation. That is changing.

First, let’s look at the Kauffman Foundation Growth Entrepreneurship Index. This points to a few trends but still reflects the relative dearth of startups in places like Nashville, DC, and Columbus. While population growth and startup growth are both rising in many metro areas, what is really happening is that these startup ecosystems, moribund a few years ago, are finally coming into their own.

The numbers don’t lie. We see the usual suspects appearing high on the list including Texas which dropped from the number one spot a year ago. What’s more interesting is who makes up the middle of the pack. Places like Michigan and DC, for example, are inching up the rankings while places like Chicago are stagnant.

To what can we attribute this growth? First, native sons and daughters are coming home from the coasts to build businesses where things are cheaper, they can have a back yard, and the people are ostensibly friendlier. Guys like J.D. Vance and Steve Case are having solid luck paying attention to those who felt they were left out of the past decade of startup growth. While some of the politics of these new barnstormers are a bit right of the Valley’s, that anyone is paying attention to Cleveland or St. Louis at all is a miracle.

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