Fueling Innovation Justin McCarthy  | October 9, 2018

A Tennessee Transformation: Inside Chattanooga’s Emergence as a Startup Destination

“We’ve done a great job building a base, and now it’s about continuing to grow our circle of influence,” Marcus Shaw says. “Chattanooga could be the model for innovation in mid-size cities everywhere.”

Listening to Shaw, who runs a local startup accelerator program, you start to feel like Chattanooga’s emergence as a significant player on the national startup scene was easily foreseeable—perhaps even inevitable. The numbers, after all, are eye opening: 14,000 people employed at 671 businesses based in the city’s downtown “Innovation District,” which has generated more than a billion dollars in local capital and several high-profile startup exits netting upwards of $1.8 billion.

Recently, AOL co-founder and Revolution CEO Steve Case brought further attention by stopping in Chattanooga during his most recent Rise of the Rest national startup tour. During the event, eight local ventures presented and one, shipping and logistics technology upstart FreightWaves, took home a $100,000 investment.

All this in the last five years—with no sign of slowing down anytime soon.

As the CEO of CO.LAB, Shaw and his team have played a central role in putting Chattanooga on the map as a hub of entrepreneurship. CO.LAB operates downtown and in 10 surrounding counties, providing resources, knowledge, and relationship-building support to small business—everyone from traditional Main Street businesses (your neighborhood coffee shops) to high-growth, technology-focused ventures looking to reach national and global markets (the would-be tech giants of tomorrow).

Though he’s been fully immersed in the local entrepreneurial environment for the last few years, Shaw (pictured below) still remembers very clearly what it was like to arrive in Tennessee’s fourth-largest city for the first time.

“There were things about Chattanooga I didn’t expect,” he says. “For example, I was blown away by how progressive the city is. But I’ve lived up and down the eastern seaboard over the last twenty years, and I’ve developed a good sense for knowing when a city is on the move.”

He added: “I knew which municipalities were primed to create an ecosystem for telecom, and that gave me a high level of confidence in Chattanooga and its sweet spot of moving forward.”

Shaw’s confidence was well placed. However, as inevitable as Chattanooga’s economic and innovation resurgence may seem in hindsight, from an historical perspective, it wasn’t always a foregone conclusion.

Thanks to unparalleled access to the mighty Tennessee River, a dense network of railroads, and one of the largest populations in the United States, it’s no wonder Chattanooga in the early 20th century was referred to as the “Dynamo of Dixie.” For captains of industry and blue collar workers alike, the city was a booming metropolitan hub on par with the likes of Chicago and Cleveland, still on the rise and full of potential.

Per a report by the Brookings Institute, by 1930 there were 388 manufacturers in the Chattanooga area, making the city a regional leader in textile, iron and steel, and patent medicine manufacturing. After WWII, Dupont constructed a flagship facility in the metro area, and the population continued to climb. Chattanooga, it seemed, had nowhere to go but up.

You can probably guess what happened next. Manufacturing jobs evaporated, and suburban flight severely diminished the once-vibrant downtown area. By the mid-1980s, Chattanooga’s government officials were prepared to do just about anything to reverse course.

Through a series of savvy economic development decisions, Chattanooga leaders paved the way for a new era in the city’s history by forging strategic public-private partnerships and making smart investments in citizen-oriented projects—a revitalization approach that later came to be known as the “Chattanooga Way.” The result was a swift reversal of economic fortune that began with downtown revitalization, progressed into sound investments in social capital, and continues today with a city-wide commitment to fostering growth and innovation.

“We have the fastest internet in the country,” Shaw says. “Gigabit internet is available to every home and business passed by the local utility—that’s hundreds of thousands of people. And now you can get 10 gigabit service in many local areas as well.”

The fiber optic high-speed internet available to citizens across Chattanooga is just one example of how the “Chattanooga Way” continues into the 21st century. Chattanooga’s municipal electric company, Electric Power Board of Chattanooga (EPB), originally installed the fiber to transform the community’s electric power system into a Smart Grid. Now, it’s the foundation for a state-of-the-art, city-controlled internet service network, built on America’s largest ubiquitous fiber network—and local startups are taking full advantage.

“The equivalent would be having the Mississippi River 100 years ago,” says Shaw.

“This city has a glorious history,” Revolution’s Case said during his visit to the area earlier this year, “I’m told there were 50 trains a day here. A hundred years ago, that was the hot technology. That shut down. Technology changed. The question is: What’s the next revolution?”

Chattanooga’s entrepreneurs are asking that question constantly; and they believe their city is the perfect place to find the answer. Scott Mall is the Director of Public Relations at FreightWaves (leadership team pictured above), the freight data company that won the Rise of the Rest pitch competition in Chattanooga. Mall is also another example of the axiomatic truth about entrepreneurs here: If you ask anyone in-the-know about the city’s success, they’re bound to mention public-private partnerships sooner or later.

“The city has a reputation for leveraging development funds through effective public-private partnerships,” Mall says. “The private foundations really get involved. And Chattanooga was one of the first U.S. cities to effectively use citizen visioning to set specific long-term goals.”

Mall also spoke about the other element of the “Chattanooga Way” that drives growth on a city-wide level: a citizen-focused approach to development that gives people what they need to live fruitful and happy lives as everyday Chattanoogans.

“[Chattanooga] boasts the most productive affordable housing program in the nation,” Mall says. “Civic vitality and integrity go a long way. Chattanooga has some of the same challenges that most other cities its size have, but it’s probably better off than many of its peers.”

Chattanooga’s rise coincides with an entrepreneurial uprising across the state.

According to the 2017 Kauffman Index measuring U.S. startup activity, Tennessee has experienced an increase in overall entrepreneurship activity in recent years, but that increase has been almost entirely driven by an uptick in high-growth startup activity, as more traditional “main street” business formation has been flat. At the same time, the state’s more mature startups are growing increasingly quickly, with Tennessee ventures that were launched in 2014, for instance, having collectively expanded employment by 76 percent in the years since. In the Kauffman Foundation’s overall state rankings for startups, Tennessee last year broke into the top 10 (No. 10), up from fourteenth in 2016.

If you ask Felicia Jackson, the founder and CEO of successful Chattanooga healthcare enterprise CPR Wrap, she’ll tell you that the close-knit, collaborative dynamic between businesses, residents, and government is another important ingredient in the recipe of Chattanooga’s triumph.

“I tell people, once you show up, Chattanooga shows up,” she says. “The mayor, he stopped by my office and we spoke for 30 minutes the other day. He’s a busy man! He came to congratulate us on the things we’re doing. You can tell when your city is behind you. And the whole [startup] scene is incredible. These people lit that fire in me, and I’m grateful.”

Shaw echoed a similar sentiment: “It’s not ‘Get a couple billionaires and start creating companies,’” he said. It really takes a combination of all stakeholders in the community to drive forward the best outcome for innovation.”

He continued: “Here, you can’t do it alone, and you can’t do it in circles of the people you think you’re going to see everyday. You have to be intentional about including the whole community.”