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Reinvention 2013

The Great Reinvention: How U.S. Cities Got Their Glow Back

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The Great Reinvention: How U.S. Cities Got Their Glow Back
image credit: Shutterstock

Five years ago, a perfect economic storm carved a path of destruction through nearly every city in the United States. It pummeled the housing market, choked access to credit and left millions of Americans unemployed.

Entrepreneurs, for their part, faced their share of hardships, from layoffs and called loans to forced pivots and bankruptcies. At its height, the recession claimed nearly 170,000 businesses, the majority of them small, between 2008 and 2009, according to U.S. Census Bureau data.

Yet, while the storm raged, many managed to keep their heads above water, and still others decided to launch businesses themselves. The Kauffman Index of Entrepreneurial Activity showed record-high rates of new businesses in 2009 and 2010. The recession, many entrepreneurs say, helped garner broader support for high-growth startups, sparked a wave of innovation and gave credence to the decision to carve one’s own path. It was, for many, not the Great Recession but the Great Reinvention.

Two months ago, Entrepreneur.com set out on a virtual tour of cities, large and small, from the mountains of the Pacific Northwest to the bayous of the Gulf Coast. Every community, we found, has its own strengths, challenges and gusto. That said, we heard common themes at nearly every stop along the way: The startup community here is stronger than ever, though access to funding could be better. We may not have the same cachet as Silicon Valley, but we’re playing to our own strengths. The economy might not be what it was five years ago, but technology has made doing business cheaper, faster and easier than ever.

Here are the highlights from seven cities profiled in our Reinvention 2013 project. 

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New York
New York
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New York was ground zero for the 2008 financial crisis. Historic firms such as Lehman Brothers collapsed, thousands lost jobs on Wall Street, and the city's storied stock exchange suffered a lasting downturn.

Five years later, however, the Big Apple has blossomed into a startup magnet. (See “Big Ideas in the Big Apple.” ) No longer just the financial capital of America, New York has seen the rise of new ventures spanning many different industries and such success stories as Foursquare, Etsy, Tumblr and Warby Parker.

Investors have paid attention. According to a recent survey by the New York Venture Capital Association, $12 billion has been invested in nearly a thousand New York startups in the past five years, creating 21,000 jobs in the process and surpassing Boston as the leading venture-capital investment destination outside of Silicon Valley.

No doubt, the biggest strike against New York is the high rent. Manhattan is the most expensive spot in the country, with a cost of living that’s twice the national average. It’s worth every penny, say NYC founders. Not only is the Big Apple a destination for global business leaders, they say, after a long day of hard work, the city awaits. 

Houston
Houston

If you think Austin is the only Lone Star city with a knack for launching new companies, think again. Head 160 miles east to Houston – the state’s largest city – and you’ll find that the entrepreneurial spirit runs real deep. The city, after all, was built by oil prospectors. (See “Startups Bubbling Up in Houston.”)

In fact, the Kauffman Index for Entrepreneurial Activity ranked Houston among the top big cities for new business creation in 2011, the latest data available, better than the likes of Boston, San Francisco and Seattle. It stands to reason. At the same time a booming oil and gas industry helped Houston withstand the worst of the financial crisis, the city’s low cost of living and wealth of entrepreneurial resources make H-Town an attractive spot for modern-day prospectors.

Not surprisingly, a good deal of start-up activity is focused on energy services and clean energy. At the same time, the wealth created by the energy business has spilled over to other areas, including education, the arts and health care. The Texas Medical Center is the largest medical center in the world and a hub of research and health-care ventures focusing on everything from curing cancer to improving medical advice.

Washington, D.C.
Washington, D.C.
image credit: Casey Trees

Washington, D.C., has more than its share of politicians, power brokers and bureaucrats. In recent years, however, a new breed of mover and shaker has emerged -- the entrepreneur. (See “A Powerful City Finds Its Entrepreneurial Groove.”)

The nation's capital and cities comprising the D.C. metro area have long been entrepreneurial, with a history of startups that have become household names, including AOL and, more recently, LivingSocial. Trouble was, until recently the region lacked what experts call "density," that phenomenon of walking around and bumping into other founder types. Recently, though, startups, investors and groups such as 1776 (See “The Incubator Bringing Washington D.C.’s Entrepreneurs Together”) have set up shop near Dupont Circle, giving founders and investors a much-needed hub.

Not surprisingly, many of the city’s startups have ties to the federal government, whether because the founders once worked for Uncle Sam, have a potential solution for a big government problem, or both. Even those companies that aren’t linked to government say Washington’s stable economy, highly educated population and revitalized urban core make it an ideal spot for launching new ventures.

Baton Rouge
Baton Rouge
image credit: CP Executive

About 80 miles up the Mississippi River from New Orleans, Baton Rouge is the state capital, a petrochemical and manufacturing hub and home to Louisiana State University's flagship campus. If New Orleans is the state's vivacious, sometimes tipsy daughter, then Baton Rouge is its workhorse. (See “Baton Rouge Turns Up the Heat With New Startups.”)

The city's industrial, medical and public-sector focus served Baton Rouge well during the recession. Still, the downturn was a wake-up call for latent entrepreneurs, economic developers and educators. In fact, LSU students, alumni and faculty have been a driving force behind the recent flurry of startup activity. In 2010, the university rolled out a student incubator and has since launched more than 30 companies.

Meanwhile, entrepreneur organizations and events are taking root. In 2011, Baton Rouge welcomed its first Startup Weekend. Grassroots events, such as Baton Rouge Entrepreneur Week, SeNSE pitch nights and Red Stick International Animation Festival, have also brought attention to Baton Rouge's blossoming creative community and entrepreneurs.

While there's something to be said for mobilizing entrepreneurs and celebrating creativity, Baton Rouge has a practical perk working in its favor -- tax credits. The state's Digital Interactive Media and Software Development refundable tax credit is one of the most generous in the nation. In addition to a 35 percent tax credit on payroll for in-state labor, it provides a 25 percent credit for qualified production expenses in Louisiana.

Boise
Boise
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Entrepreneurs who set up shop in Boise, Idaho, say it's not just a city… it's a sweet spot. With a population of about 210,000, the state's capital has the best traits of a large city -- major university, quality healthcare, sizeable airport and a fair bit of culture -- and all the perks of life in a mountain town. (See "Stepping Inside Boise's Startup Scene.")

When the housing bubble burst, it hit Boise particularly hard. Nevertheless, the city's most promising startups were able to roll with the punches, and many found a silver lining to the downturn: Not only did it make it easier to recruit top talent, it helped shine a spotlight on the economic role of startups in the state.

In 2012, the state approved the Idaho Global Entrepreneurship Mission initiative, a $5 million fund that will, among other things, offer innovation grants and increase research funding at Idaho universities. The Center for Entrepreneurship at Boise State University hosts speaker series and pitch competitions, and runs The Kitchen Venture Lab. In March, the university unveiled Venture College, a non-credit program for student entrepreneurs in any major.

In the absence of homegrown venture capital, companies ready to move beyond the early stages of funding have to look elsewhere. But the drawbacks of running a software company in a smaller city are well worth the nonexistent commute, relative affordability and easy access to the great outdoors, Boise entrepreneurs say. You can launch a startup here, they say, and still have a pretty nice life.

Indianapolis
Indianapolis
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Entrepreneurs in Indianapolis are used to jokes about corn, the flatlands and other clichés popular among people who’ve maybe never stepped foot in the state. Laugh all they want. Indiana’s capital city is quietly rolling out solutions for everything from scientific data analysis to digital course material. (See "Indy's Entrepreneurs Make a Full-Court Press.")

That's not to say Indianapolis was immune to the recession. The unemployment rate more than doubled to 9.1% between 2007 and 2010.

Still, for Indianapolis startups – many of which focus on enterprise and business software platforms that allow companies to do more with less – the recession opened doors that might have taken longer to pry open.

At the same time, a handful of recent hometown success stories – Angie’s List, Aprimo and ExactTarget among them – have helped infuse the city with new funds and intellectual capital. “When you combine those various successes and look at the value created, there’s billions of dollars that gets recycled back in to early-stage efforts,” says Indy investor Mark Hill. In 2005, he and his wife sold their banking software firm to Experian and have since invested in dozens of Indiana startups via their family fund, Collina Ventures.

There’s also a growing energy among entrepreneurs and would-be entrepreneurs. The local tech networking group, Verge, now has nearly 1,900 members who regularly attend its meet-ups and events, such as its Powder Keg conference last year. Established in 2011, the Speak Easy is a coworking space that describes itself as a Moose Lodge clubhouse for entrepreneurs, designers and geeks. Meanwhile, the Johnson Center for Entrepreneurship & Innovation at Indiana University is considered one of the best entrepreneurship programs in the country, and nearby Purdue University is a top engineering school.

Orlando
Orlando
image credit: Trav Buddy

The financial crisis hit Orlando with a one-two punch. Tourism – a huge part of the economy – took it on the chin. Then the housing market doubled over, wiping out home equity and many construction and real estate jobs in the process. The median single-family home sales, according to Zillow, plunged to $140,000 in early 2011 from more than $320,000 in 2007.

Yet, nearly five years since the start of the Great Recession, some of the magic has returned to the city. Tourism dollars are coming back, home prices are creeping higher and the unemployment rate – which averaged 11% in 2010 on a non-seasonally adjusted basis – was 7.1% in February. (See, "Orlando Entrepreneurs Say Magic Is Returning.")

Entrepreneurs, meanwhile, are starting to emerge from the rubble. New ventures are migrating to office space downtown, sparking networking and enthusiasm. Design and development studios such as Envy Labs are cropping up. Established telephony company Voxeo hosts a co-working space for startups in its downtown space.

In fact, the area has a considerable high-tech presence, thanks in part to its proximity to the Kennedy Space Center and the Army’s Simulation and Training Technology Center. More than two dozen colleges, universities or campus branches – the Florida Institute of Technology, Rollins College and University of Central Florida among them – call the region home, and many host incubators, venture labs and business plan competitions. A final perk of launching a startup in Florida: No state income taxes.

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