I listened to an investor share his views on what it takes to become a top city for start-ups. He believes the most important characteristic is the ability to create companies that lead in their markets. Cities creating market-leading companies are the best cities for start-ups and start-up ecosystems. His reasoning is that a market-leading company captures most of the value created in its market (70% or more). Cities that create companies that lead markets will see torrential trickle-down effects from having them.
I agree with this investor. You can have a lot of great companies in your city that do well and even exit. That’s a great city and ecosystem to be a founder in. Such success leads to more success, but likely at the pace of a dribble. But if a city creates a market leader, the effect isn’t a dribble. A tsunami of capital, knowledge, relationships, and energy hits the city’s founders. And it doesn’t lead just to more garden-variety success but also to people wanting to recreate and support what they just saw—a market leader enjoying massive success. The rate of change in such a start-up ecosystem is accelerated, the resources and network available to founders are amazing, and people are thinking big.
Markets matter a lot, and founders should take time to think about the market early in their journey. Fast-growing markets with massive potential are the best (even if they’re small now). Cities that want to be top start-up destinations should think about how to create an environment that creates market-leading companies.