Response to Unemployment, Startup City

Unemployment is going to be released today.  The monthly jobs report will be released at 8:30AM EST and will be better/worse than expected.  Really doesn’t matter.  It’s a blip on the radar screen and since Obama has taken office, it hasn’t changed a heckuva lot.  What his government has done hasn’t helped.  It’s probably delayed things getting better rather than sped it up.

In response to poor unemployment numbers, a lot of politicians want to turn their cities into tech hubs replicating Silicon Valley.  They shouldn’t.  There is only one Silicon Valley.  Instead, what they should do is figure out what they are good at and apply technology to solve problems in that industry.  They’d be ahead of the game.

Politicians would also do better by their local tech communities by eliminating rules, regulations and staying out of the way.  For example, businesses like Airbnb, Uber and others that will cause pain to local businesses need freedom to disrupt them.  The good businesses will innovate, cut internal costs, and remain.  They will provide better service because of the competition.

What’s it take to be a tech hub?  Density.  That’s about it.  You need a lot of people.  Of course, you need talented people.  What kinds?

1.  Techies that can program

2.  People that like to solve problems.

3.  Marketing people that can sell into fragmented markets with no money

4.  Wealthy people willing to risk capital to fund companies that have a high probability of failure.

There are some cities that lend themselves to becoming a tech hub over others.  I am not going to pick winners and losers, but cities that have a research university combined with a state capital, it helps.

I like those cities for a couple of reasons.  They are populated with people that are smart, combined with people that can get things done and unentangle rules and regs.  Austin, TX is a city like that. If there isn’t a state capital, the city needs a research university combined with a lot of density.  People should want to live there.  Chicago is a city like that.

A lot of cities are trying to get a startup community going.  Have you seen what they are doing in Detroit?  Detroit may be too far gone, but they are giving it a shot.   It also has research universities close by, and a state capitol nearby.   The essence of startups is trying and failing-so the private people of Detroit are right to lay chips on the table.

Without people of means risking capital, it can’t happen.  If you live in a city that is trying to be a startup city, invest.  The wealthy can afford the losses.

If you aren’t wealthy, there are some things everyone can do to encourage a development of an entrepreneurial ecosystem in their town.

  •  Download apps of local startups and use them.  Give the companies feedback.  Feedback is really important.
  •  Take a meeting with a startup and become a customer.
  •  Introduce a startup to a potential customer.
  •  If you have expertise, mentor startups FOR FREE.
  •  When you are talking with friends, talk about the local startup community.  Tell them about apps.

Getting a startup community going is hard work.  Investors are important but getting entrepreneurs there is more important.  What’s critical is for everyone to know their role-especially the politicians.  Their role is to get rid of impediments, and to streamline the processes.  They should enable the government to become a customer of startups quickly.  The other thing they can do is open up their data to entrepreneurs for free.

Governments should not invest in startups directly.  1%-2%of assets into VC funds that will invest in their geographic area.  They shouldn’t worry about state lines-or city boundary’s.  Geographical areas tend to work together across state and city delineations.  Areas are ethnocentric enough.  For example, Illinois, Iowa, Minnesota, Wisconsin, Indiana and Michigan all work together to a certain extent.  What’s good for one is good for another.

Many states are passing tax relief to invest in startups.  Those ought to be reciprocal across state lines; if they are really serious about getting something going.   This isn’t about slicing a fixed pie.  It’s about making the pie much bigger.  The bigger the pie gets, the more people eat.

You can do it in your town.  Be patient.  It takes years.  The benefits are great.  But it truly takes a lot of people working together to make it happen.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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