Prior to the great recession, the east coast hardly posed competition for the thriving tech scene in California’s Silicon Valley. But things have changed rapidly in recent years. Since 2007, more than 1000 tech startups have emerged in New York City, financed by billions in venture capital.
What’s behind this transformation? To answer this question, Startup Studio spoke with Stern School of Business Professor Luke Williams. A leading thinker in the fields of innovation and entrepreneurship, Williams is a book author, a fellow at frog design, and the executive director of NYU’s Berkley Center for Entrepreneurship & Innovation.
In a wide-ranging discussion, Professor Williams explored the key drivers of the NYC startup ecosystem’s rapid growth, discussed the startup community’s future (hint: it won’t look like the Silicon Valley), and made a compelling case for why major cities like NYC are magnets for innovation (see the title).
Check out his insights below.
What have been the key drivers of the NYC startup community’s rapid growth since 2007?
There are a lot of theories on this. There was the initial push between 1995 and 2000 in which the term “Silicon Alley” was coined. But after the dot com bust, things went quiet for a while.
Around 2008 and 2009 things started picking up again. A number of major startups sprang up here, including Twitter and Foursquare. Venture capital firms also started opening up, largely based on the success of Union Square Partners, which was one of the first in. Additionally, high profile accelerators like Tech Stars really made an impact. The net result was that this ecosystem really started to emerge and people got excited.
Another factor that you sometimes hear is that it just isn’t as easy to get a job at a consultancy or Wall Street firm anymore. So people might be experimenting with entrepreneurship as an alternative.
Also, the development of the iPhone and the whole supply chain involved in making apps seems to have created a new generation on entrepreneurs. I came from a background in industrial design. I know from being in that space that to create a new product traditionally is really expensive. To get a product close to ready for market you need at least $80,000 to $100,000. Many people turned away from becoming innovators because there were too many barriers in place. Digital apps have changed all that. Programs exist to get mockups done online that simulate an app for next to nothing. That has been huge.
What are the comparative advantages of NYC as a home for startups?
I think that NYC has a massive advantage. New York catapulted to second among national rankings for entrepreneurial hubs, and for good reason. As innovators and entrepreneurs, one of the most important things for us is sharing ideas. When ideas are shared, they don’t just add up, they multiply. Another way of saying this is to quote Matt Ridley, who says that ideas don’t just replicate, they have sex. So New York encourages ideas to have sex. There is this environment where there is a hell of a lot sex going on. It’s difficult to say how many ideas bump together in Silicon Valley, where the main industry is tech. New York has media, finance, fashion – such a range of different experiences on an incredibly small island. In this city, ideas are having sex with each other with increasing promiscuity.
How do you expect the NYC startup scene to change in the near future?
I think the ecosystem is going to continue to grow. We have barely scratched the surface. There is so much interest and energy here in entrepreneurship and innovation, and there is a real investment being made. I really think this will explode during the next five years in particular. NYU, for example, is really ramping up its entrepreneurial efforts. The Berkley Center runs one of the largest entrepreneurship competitions in the world, with about 180 teams of 500 students from forty different schools coming here to get businesses up and running. Roosevelt Island with Cornell is another great example. I think the ecosystem will just keep growing.
Everyone thinks Silicon Valley is the model for tech startup ecosystems, but I don’t think New York City will be a replica of Silicon Valley. I think we will see a new model for the 21st century that is far more networked than ever seen before. People tell me that Silicon Valley’s culture is very dependent on the University and the venture capital network. I think in the New York ecosystem those sorts of organizations will be important, but they won’t form the most important relationship. There will be more of a network structure with a wider array of relationships.
Are there any significant bottlenecks to growth for NYC’s startup community? What is being done or should be done to address them?
I think that the biggest thing impeding entrepreneurship involves mindset. This isn’t about how many businesses we can create or even how many successful businesses. It’s not so much about the success rate as the experimentation rate. Potential entrepreneurs should focus less on success and more and getting as many experiments started as possible.
Right now, people don’t conceive of themselves as entrepreneurs. They need the confidence to back up insights and ideas. The reality is that anyone has the same potential to turn a mind-blowing insight into a marketable idea as anyone else. This is a process and a skill and can be learned and applied. People just need to believe they can do it.