The startup ecosystem may drive NYC’s future economic growth

Concentrated in a narrow band running through the heart of midtown and downtown Manhattan, a robust new industry has been developing in the wake of the financial crisis.

Colloquially dubbed the “Silicon Alley,” an ecosystem of about 1000 (mostly) tech startups has been gobbling up capital that, prior to 2007, was largely locked up in the financial industry, according to an article by angel investor and tech entrepreneur Paul Grossinger.

To illustrate the scale of this reallocation of resources, consider that the volume of venture capital investment in this city has grown an astonishing 160 percent in the past decade, vastly outpacing the Silicon Valley’s 30 percent growth and positioning New York as the second largest site of venture investment in the country. In 2011 alone, investors injected $3.1billion into the city’s economy.

While the Great Recession continues to leave most of the city’s economy reeling (the unemployment rate is around 8.4 percent), the startup scene has been a rapid generator of jobs. Between 2005 and 2010, this ecosystem has helped boost IT jobs by 30 percent, to around 90,000. For perspective, this rate is ten times that of the broader New York City labor market.

Another window into job growth in this field is the app economy. Nationwide, apps have created 450,000 jobs since 2007. About 10 percent of those jobs have been located here in New York City. Importantly, jobs in apps or IT pay well. An entry-level software programmer, for example, can make as much as $75,000 annually.

Luckily, New Yorkers need not be tech savvy to find roles in this new economy. The digital products of the startup industry are designed to serve a wide variety of industries, creating demand for staff with expertise in fields including social media, e-commerce, digital advertising, education, healthcare and finance.

Despite the industry’s success, New York startups are shackled by a number of fundamental problems, according to a report by the Office of the Manhattan Borough President. The first, and perhaps least unsurprising, is a general talent shortage among technical roles.  Another problem common among major cities is an excess of bureaucratic red tape ill equipped to the needs of nimble startup firms.

A bit more unsettling is that Manhattan is hamstrung by “appallingly slow, spotty internet access,” according to the report.  The fourth challenge is that the city’s infrastructure hasn’t adapted well to the gradual shifts in the city’s primary job centers (such as the growth of Brooklyn). Finally, as every New Yorker knows, “the rent is too damn high.”

The Bloomberg administration has already made moves to help alleviate some of these problems, including appointing the city’s first chief digital officer, providing financial support for tech incubators, creating the New York City Entrepreneurial Fund, and launching the Tech Apprenticeship Program at CUNY to train new talent, according to the report. Private institutions have also kicked in, with Cornell’s development a tech campus on Roosevelt Island and NYU’s creation of the Center for Urban Science and Progress.

While it’s unclear exactly how the industry will change and develop in the near future, one thing is relatively certain, said NYU entrepreneurship professor Luke Williams in a Q&A.  “The ecosystem is going to continue to grow. We have barely scratched the surface.”

Startup Studio will be tracking this development every step of the way.

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NYC is where ideas have sex (and other insights from an innovation guru)

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Professor Luke Williams

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.