Some locations seem to be havens for entrepreneurs, crowded with accelerators, incubators and co-working spaces. But what is it that makes a good start-up hub and are some start-up hubs doomed to fail?
There are a number of variables that will determine a city’s effectiveness as a hub for new business. Here are just a few of the factors that might influence the success of a new company once it's embedded in a start-up hub.
Ease of doing business
One of the most important things when thinking about launching a business is how easy it will be to operate once the company is up and running. Some countries or cities might have laws that restrict business and if there are too many roadblocks in place, no number of accelerators and co-working spaces will be able to overcome that.
One look at Athens, Greece will show you just what over-regulation of the business sector can do. Under different circumstances, a number of entrepreneurs from Athens might have been able to make a mark globally with their business ideas but the Greek government makes it hard for foreign venture capital to support aspiring start-ups.
One such Greek start-up is weather forecast aggregator Weather ex Machina, who had been planning to launch on July 1st. "News caught us and we canceled it," Manolis Nikiforakis, the CEO and founder, told Fast Company. "Capital controls would disable our ability to set up additional server nodes for our backend system and would have made our service almost unusable and our launch a failure."
The company will now wait until "things settle down" before launching the service, he says.
Cost of living
It’s an easy thing to overlook but the cost of living is crucial to entrepreneurs, especially those just starting out. In fact, the cost of living is one of the key things that turned Berlin into a dynamic tech hub that now hosts over 2,000 start-ups. Entrepreneurs were attracted to the city thanks to its low rent prices, meaning that they could afford to live there while working hard to create their businesses.
On the flip side, London’s high rents have driven start-ups away from its ‘Tech City’ area, with many entrepreneurs considering relocating to somewhere cheaper. In fact, according to a survey from The Supper Club, as many as 40 per cent of London’s start-ups have considered leaving the city.
While raising venture capital isn’t the be-all and end-all of entrepreneurial success, it is an important metric. And not being in the right start-up hub can make it significantly harder to achieve. In the US, it can take companies around 10 per cent longer to raise funds outside of New York, California and Boston, because these places are where the best performing funds are. That means that companies setting up outside New York, California or Massachusetts will spend around a month longer looking for Series A capital and around two months longer looking for Series B capital.
While that might not seem that significant, it can have a huge impact on start-ups. Any time spent looking for capital is time not spent working on the product or hiring employees or nailing that new marketing campaign. And, of course, another start-up in a different area – possibly in one of these hubs where funds are more readily available – will be using that time to get ahead.
Networks can be really helpful when you’re starting out as an entrepreneur, they can provide access to people who may be able to give advice or even people that you might want to partner with.
But it’s important that you’re in a hub that has the right people in it. Something that you often hear from successful entrepreneurs is that the moment when their start-up really took off was ‘after a chance meeting’ with someone who could help them. A city that doesn’t already have success stories from entrepreneurs is much less likely to provide you with the chance meeting that kickstarts a successful business partnership.
And chance encounters really can change a business. Just ask Richard Branson.
"I love bumping into people and finding out who they are and what they’re working on," he says. "You never know who you’re going to meet. Such encounters can be valuable: If you think about how your most important relationships began - with business partners, your spouse, with friends and mentors - the stories will almost all involve chance meetings."
"This is part of the reason why communities of entrepreneurs can turn into creative hubs. Look at Silicon Valley in California, BoxPark in London and other areas where like-minded people have banded together. Technology allows us to connect at the click of a button, but companies will still pay premiums to be near their competitors and others working in the same industry. When you are thinking about launching a startup, you should always look at whether setting up in one of your industry’s creative hubs would be a good choice."