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The digital revolution is upon us as startups unleash a new wave of innovation throughout the country. While these small but scrappy tech disruptors are increasingly tackling next-wave challenges across America — forever transforming the way we live, work and play — many continue to face significant challenges that threaten to impede their growth, according to the freshly released 2017 Innovation That Matters report, a one-of-a-kind index analyzing 25 leading U.S. cities and exploring how well each is positioned to capitalize on the shift to a more digital economy.
According to the analysis — conducted by 1776, the U.S. Chamber of Commerce Foundation, the U.S. Chamber Technology Engagement Center (C__TEC) and FreeEnterprise.com — the most pervasive barrier stymying the advancement of tech-focused American startups can be boiled down into one word: disconnectedness.
There is a disconnect between startups and larger, longer established local businesses.
Early-stage smaller company founders across the U.S. widely report a perceived lack of strong bonds with larger businesses that have existed for longer periods of time in their region. As long as the lack of connections and communication between newer, smaller businesses, and larger, longer established businesses persists, local startup economies will struggle to reach to their full potential.
In our survey, next-wave startup founders were asked to rate on a 4-point scale (1=no support, 4=strong support) the level of support they receive from the following groups: universities, mentors and advisors, investors, civic institutions, professional services firms, local startup advocates (e.g., chambers of commerce), the media, as well as established companies within their respective industries.
For the second consecutive year, the group that netted the lowest average score was established companies, this year plummeting to an average rating of 1.94 (down from 2.15 in last year’s ITM survey). This stark drop highlights that entrepreneurs surveyed in every participating city reflected a significant lack of support from established enterprises in their respective industries.
Startups lack the support they need from other community stakeholders.
The lion’s share of startup founders who participated in our survey reported a broadening sense of disengagement borne out of a persistent absence of support from key stakeholders in their communities — local government and academic leaders, investors and business mentors among them. Many participating founders noted that this is particularly the case in next-wave sectors, where smaller, early stage companies greatly depend on public and private entities for overall support, strategic, financial and otherwise.
The most notable decrease in support from the aforementioned group over the last year, per the perception of the next-wave entrepreneurs we polled, were local investors, including individual angel investors and venture capital firms.
Peeling Back the Layers of Disconnection
Joseph Whitner, Startupbootcamp Miami’s director of business development, said there is “absolutely no denying” that there is a disconnect between startups and larger, longer established companies across America’s entrepreneurial landscape.
“There’s no question that larger company culture is a major driver behind this lack of connection, but there’s so much more to it once you peel the layers back,” he said. In his view, much of the problem lies within larger, legacy companies’ “general inability to embrace and ingest innovation,” and, in many cases, certainly not quickly.
In other words, it’s complicated.
“For a large organization to ingest startup innovation, this means that a core structure to receive and work with innovation would have to be in place,” Whitner said. “There needs to be more than one internal champion at these larger companies in an enterprise cycle for startup innovation adoption of bold, new ideas.”
He continued: “A startup would need to go where a large corporation’s innovation culture exists. These innovation sandboxes may not necessarily be based where the startup is located. Add onto these complications that there are legal and compliance hurdles at larger organizations that aren’t with the times or, shall I say, ‘entrepreneur and founder friendly.’”
Where Large and Small Companies Pair Well
Adam Klein, formerly of the Durham Chamber of Commerce, is the chief strategist at American Underground, a Durham, North Carolina-based coworking space. He told Free Enterprise that Durham, unlike what Whitner says he often witnesses in the Greater Miami area and beyond, is experiencing the opposite of disengagement between big and small and old and new businesses in the heart of The Bull City.
Also per the latest Innovation That Matters report, cities like Boston and San Francisco, like Durham, are broadly benefitting from the regional self-perpetuating momentum of their startup communities. Such is the case in Durham as well, Klein says.
“In Durham, we’re heartened by the high level of engagement between our startup community and large corporations,” he said, “including Google for Entrepreneurs, Lincoln Financial, Fidelity Investments, Coastal Federal Credit Union, Duke University and others.”
Klein says this is largely due to the American Underground fervently acting as a matchmaker of sorts, continually connecting nascent startups with legacy corporations seeking to innovate through partnerships with smaller, more outside-of-the-box firms.
“We see our role at American Underground as providing the sturdy organizational framework and sharp focus that help make engagement mutually beneficial,” he continued.
That is when Klein and his colleagues can cut through the clutter (and red tape) on both sides, which there’s, of course, no shortage of.
“Both startup founders and leaders of major corporations face enormous amounts of requests, opportunities and distractions every day,” he said. “They have to make their choices and place their bets carefully. It’s our job to make sure both camps see the value in engagement — to make it real and readily apparent, not just theoretical. Our state motto is, ‘To be rather than to seem.’ That’s what we shoot for on corporate engagement — and in all things.”
Increased network connectivity — of the caliber and breadth that leads to mutually advantageous connections forged between startups and larger companies with the help of people like Klein at American Underground — is crucial to the sustainable growth of innovative startups over the long-term.
What Needs to Change
For startups and established companies to foster effective, meaningful collaboration now and in the foreseeable future, Whitner and Klein suggest that more corporations warm up to partnering with startup accelerators and incubators in the communities they serve and operate out of.
“Working with incubators and accelerators, which are innovation-based structures, is part of a culture shift which can lead to new types of thinking,” Whitner said. “They help smaller and larger companies see what is really possible when they work together.”
Another potential solution, Whitner offers, is for local community members to foster crowdsourced, grassroots-level innovation initiatives where larger legacy companies look to tech startups for solutions that can solve their most pressing needs.
“Ultimately, however, the biggest step startup leaders can take right now to bridge this gap,” Whitner said, “is to focus on the comparative advantages of the communities where they’re based.”
He added: “Think about where your city is strong. What can we learn from your community that we may not learn from others? What unique needs do the larger businesses in your specific backyard have that require innovative solutions that only your startup can provide? Once you nail that down, the sky’s the limit.”