Today in the WSJ, an article about St. Louis caught my eye. They are pouring $100M into a fund that will invest in startups. I appreciate the sentiment, but this is not the way to get a startup ecosystem going. It’s a Keynesian model. They think if they prime the pump, it will happen.
However, most startup companies fail. It’s a highly risky proposition. The city of St. Louis would be better off if they invested the money in a no load mutual fund that replicates the S&P, and let the private sector solely invest in startups.
But, what can cities do to engender a startup community? There must be some role, right?
In fact, there is a role for cities to play, but it’s not a Lead Actor. Cities are more like the key grips and best boys that work behind the scenes on a movie. Cities aren’t going to win Academy Awards. But, they can enjoy the process.
Here is a checklist of things cities can do to try and create an entrepreneur ecosystem:
1. Open all their data to entrepreneurs.
2. Have very little, or no costs to open up a business
3. Low property taxes so building owners can charge lower rents
4. Provide a good educational system-or have a charter school/private school/voucher system
5. Keep the streets plowed, the sidewalks level and crime low.
6. Have no regulation and don’t use city laws to codify legacy businesses. Example, Uber and existing cab companies or food trucks.
7. Make the process simple so a city can become a customer of an entrepreneur-then remit payment on time.
8. Charge no income taxes. Encourage your state to eliminate its income tax. Have low sales taxes so money changes hands easily.
9. Use the city’s media soapbox to publicize local entrepreneurs. Spread the good news in the church of capitalism.
10. Use the cities network to create connections from entrepreneurs to big companies. Encourage big companies to hire failed entrepreneurs. (Hewlett Packard used to hire failed entrepreneurs all the time at the beginning of Silicon Valley)
11. Realize your place in the ecosystem. If you want a startup community to grow and thrive, let it be lead by entrepreneurs.
State governments can eliminate all taxes on building an entrepreneurial business, and investing in them. Nowhere should any government organization invest or set up an agency to support entrepreneurs. Let them build the community they want to support themselves.
In other words, stay out of the way.