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.