Seattle + The Startup Ecosystem Report 2012

I was both pleased and surprised last week to find Seattle ranked #4 on a global survey of startup ecosystems — below Silicon Valley, Tel Aviv and Los Angeles, but above several much more talked-about innovation centers, including both New York and Boston.

The report was a timely validation of a hypothesis I’ve been exploring — with the help of many others — about the global diffusion of innovation, and the corresponding rise of the “city-state” (as opposed to the national economy) as the locus of global competition.

The report’s authors summarized this macro trend very well:

“Overall, the Startup Ecosystem Index paints a glowingly positive picture of the state of entrepreneurship around the world. While Silicon Valley is far and away the strongest ecosystem, just 5 or 10 years ago most of the other ecosystems on this list either barely existed or didn’t exist at all. The global startup revolution is going strong, indeed.”

I’m already on record as believing that Seattle (and the Pacific Northwest more broadly, including #9 on the list, Vancouver BC) will be one of the global winners in the Innovation Economy, so I was both gratified to find us ranking so well, and spurred to an even greater sense of urgency by the many areas in which we remain weak.

Here’s a quick rundown on my takeaways — both positive and negative — from the report:

The index is a composite of eight different factors, and Seattle’s strong overall showing was attributable to outperformance on just one of those — masking average performance on many others, and significant weakness on some of the most critical factors for future growth.

On the positive side, Seattle was ranked second only to Silicon Valley on the quality and depth of our talent pool.

Thanks to the extraordinary success of our “pillar” companies — Microsoft and Amazon — and increasingly reinforced by an excellent Computer Science and Engineering (CSE) program at the University of Washington, Seattle is rich in the scarcest and most valuable resource in the innovation economy: digital creative talent.

Unfortunately for the long-term health of our startup ecosystem, Seattle ranked 19th out of 20 for “Startup Output” — defined in the report as “the total activity of entrepreneurship in the region, controlling for population size and the maturity of startups in the region.”

In other words, the deepest talent pool outside of Silicon Valley — Seattle’s — is also among the least productive in the world when it comes to creating new tech startups.

The report doesn’t shed much light on the “why” behind this underperformance — we under-indexed slightly for funding support (#7) and startup performance (#6), and matched our overall ranking (#4) for community support of entrepreneurship — so while we can do better on these fronts, it’s difficult to attribute the poor start rate to a lack of capital or mentorship.

Our most significant areas of underperformance as an ecosystem were on the “Trendsetter Index” (a measure of openness to new innovations, where we placed 11th) and the “Differentiation from Silicon Valley Index” (a measure of the extent to which we have nurtured unique competencies that set us apart from the dominant innovation market, and where we ranked 14th).

Both criticisms may be true, but neither are particularly actionable (we can exhort each other to “think different” all we want, but it’s unlikely to make it so).

So what *can* we do to get more local talent off the bench and into the game?

For years, Microsoft was a certain path to wealth as a technical professional in the Seattle area — not only did they pay well, but the stock gains made thousands of early hires rich beyond their wildest expectations. That baton has now been passed to Amazon where pay is poorer, but stock appreciation continues to mint millionaires at an impressive rate.

It’s been a long time since a new Seattle-based company produced a huge windfall for more than the founders and investors — where even the rank and file who committed early wound up with a nest egg and some mad money too.

If I had to put my finger on the one thing we could do to improve our weak “startup rate”, it would be to produce more explosive wins in Seattle — for the curent generation of local tech talent to witness their peers creating huge impact — and huge wealth — with companies of their own.

I can think of a half-a-dozen local companies that are already on a path to producing the next generation of tech wealth in Seattle, and dozens more that could get there within the next five years.

If we want to really earn our #4 ranking — and claim our spot among the small handful of city-states that will dominate the global economy in the next 50 years, we need to dream big dreams here in Seattle and put all our weight behind making them come true.

I’m not just betting we can do it — I’m all in.

  • http://twitter.com/chrisamccoy Chris McCoy

    This is the defining question to the startup ecosystem in Seattle:
    So what *can* we do to get more local talent off the bench and into the game?

    The answer is more guaranteed capital. 

    • http://www.crashdev.com Chris DeVore

      The quantity of startups in the system only matters in the long term if it also comes with quality. Lowering the bar for quality — which is what the idea of “guaranteed” anything implies to me — may produce short-term volume gains by de-risking the first step, but will ultimately degrade the long-term prospects for the ecosystem. Skilled entrepreneurs don’t need handouts, but they do need more visible on-ramps and local patterns for success; the more explosive those successes, the more willing they’ll be to make the leap.

      • http://twitter.com/chrisamccoy Chris McCoy

        I echo your points about lowering the bar but that wasn’t my intent. 

        Here’s how I see it. (My POV is starting in Seattle from coffeeshops and libraries at the UW, raising small angel $ from local investors, lots of iterations, and finally moving to SV because I knew I needed to understand social data better to pull off sports + social + local + data the right way. Still trucking.)

        Quality of startups is directly related to the talent inside them.
        Talent is locked up at AMZ and MS (largely). 

        To get talent off the sidelines, they’ll at least need a year of salary/health benefits. 

        Otherwise, Seattle startup ecosystem’s biggest competitor are the motherships in the ecosystem. 

        Second biggest competitor is fear of failure (FOF). While Valley has FOMA, FOF an issue in Seattle. 

        Third biggest competitor is access to capital. 

        TechStars and Founders Co-Op is the right start but we need more of them. 

        Finally, capital attracts talent. It’s a magnet. 

        Startups take talented folks. Anyone can try, only the cream rise to the top.

        Plenty of talent in Seattle still on the sidelines.

        To me, it’s a game of more capital in the ecosystem.

        • http://www.crashdev.com Chris DeVore

          Fair points and thanks for the clarification — I think I got hung up on the word “guaranteed”. My experience with great entrepreneurs (the ones that go on to build great companies) is that they often do their best work without a net.

          Everyone needs help and support to get started, but de-risking entrepreneurship past a certain point is unlikely to produce the desired result. The secret to successful programs like YC and TechStars is that they provide money and mentorship to a tiny fraction of their applicant pool based on a thoughtful and rigorous selection process. You can only widen the neck of that funnel so far before you undermine the success of the whole program.

          • http://twitter.com/chrisamccoy Chris McCoy

            “Guaranteed” helps de-risk the startup route, especially for folks with kids, mortgages, etc. History shows those folks see problems differently than restaraunt app building 22 year olds. 

            Thoughts on my thesis? 
            – Quality of startups is directly related to the talent inside them.
            – Anyone can try, only the cream rise to the top.
            – Talented optimize for situations that make them lucky

            After spending a couple years in Seattle and a couple years in SV, this is my #1 thesis. 

            Startups take uber talented to succeed.

            Capital a) attracts them and b) helps them make the jump from mothership to the jungle.

  • Aaron Bird

    Great article and overall I’m encouraged by the report.

    One thing I think we can do to impact the “Differentiation from Silicon Valley Index” – Do what all smaller competitors do to beat big guys: Narrow our focus and nail it.  

    We are already seeing some focuses emerging from Seattle (enterprise IT, ad tech, mobile tech/services, gaming, commerce).  I think it would be great to see us foster these more and make Seattle a tech hub for something(s) specific before we grow horizontally.  BTW, to that point, I know you guys at Founder’s Co-op and Techstars have been doing a great job fostering mobile tech/services and I love it (Urban Airship, MobileDevHQ, Apptentive, LeanPlum, .. I’m sure I’m missing many more).

    • http://www.crashdev.com Chris DeVore

      Great point, Aaron and totally agree — we can’t win on all fronts in the PNW but we can go toe-to-toe with any region on the planet in Enterprise, Mobile, Cloud, eCommerce and Gaming and we should double down on those sectors (and the intersection points among them) + play to win.

  • http://www.facebook.com/people/Nick-H/518197148 Nick H

     Well said Chris!  I especially agree with your point here…

    “If I had to put my finger on the one thing we could do to improve our
    weak “startup rate”, it would be to produce more explosive wins in
    Seattle — for the curent generation of local tech talent to witness
    their peers creating huge impact — and huge wealth — with companies of
    their own.”

    We need the waterfall effect and it only takes a few big wins.

    • http://www.crashdev.com Chris DeVore

      Thanks Nick – let’s make it happen!