A wide range of factors go into the making of a prosperous regional economy such as Silicon Valley, the section of Northern California best known for its high concentration of successful tech innovators.
But what is it exactly that makes certain regions prime locations for entrepreneurs and innovators? That’s the focus of research by Jorge Guzman, the Gantcher Associate Professor of Business in Columbia Business School’s Management Division.
An expert in entrepreneurship policy, regional entrepreneurship, and entrepreneurial strategy, Guzman understands deeply the role that location plays in a business owner's ability to make personal connections with others, as well as the impact of proximity to similar businesses. These factors can have serious implications for business outcomes; for example, starting a business in a location where many other businesses have seen capital acquisition can greatly improve the chances of acquisition down the road.
Guzman is the author of the Startup Cartography Project, which measures entrepreneurial quantity, quality, and performance across the country using predictive analytics. Even something as simple as engaging with other entrepreneurs in a certain location can provide access to unique ideas, relationships, and opportunities for collaboration that can spell success for an entrepreneur, according to Guzman.
For example, in a working paper, “Third Places and Neighborhood Entrepreneurship,” Guzman and his co-researchers—Columbia Sociology Professor Mario Small and Ph.D. candidate Jinkyong Choi—detail evidence that the proximity of a startup to a Starbucks cafe in a US neighborhood without other “third places” increased entrepreneurship in the neighborhood by between 2.3 percent and 11.8 percent.
In an interview with CBS, Guzman shared additional insights from his research, including the importance of place-based entrepreneurship and why firms cannot ignore its benefits.
CBS: How do you research place-based entrepreneurship, and how does it play a role in innovation?
Jorge Guzman: The idea that economic activity is bounded by space, and that it depends on the input and opportunities that are happening around that location, has been known for a long time. However, we do not know how that location in turn creates effective new ideas and how those ideas translate into new companies that support higher levels of local employment and higher economic growth.
In my work, I study the dynamics that drive place-based innovation and entrepreneurship, trying to go beyond the typical agglomeration forces to understand the nuanced way in which different stakeholders, different inputs, location, and the design of the place itself, shape these outcomes.
CBS: Why have economic regions in the United States been faring so differently?
Guzman: There is increasing divergence in regional outcomes across cities, at least within the United States. For example, while some regions in the Sunbelt, such as San Francisco, Los Angeles, or those in Arizona, have grown tremendously, cities closer to the Heartland have lagged behind. The difference between the rich cities and the poor cities in the United States has widened.
The reason for this widening seems to be how different cities are able to take advantage of the innovation economy: a system that centers entrepreneurship, collaboration, and innovation as key economic drivers.
In the past, solutions to alleviate the impact of innovation on inequality focused on workforce training programs, but these implicitly presumed that innovation-oriented jobs were available in most locations, for those that are trained. This is not the case when entire regions are being left behind.
Such geographic disparity does not simply happen across metropolitan areas but also within metropolitan areas. Neighborhoods have also seen divergent outcomes in terms of their ability to be part of the innovation economy. Inequality is on the rise, and the improvement of individual neighborhoods — not simply regions as a whole — is necessary for better local economies.
CBS: So there’s a huge benefit on the table for certain metropolitan areas. What about founders and their firms?
Guzman: It's critical for entrepreneurs and startups to keep in mind the importance of place in the process of entrepreneurship. In a series of studies with my co-authors, we found that moving to a tech cluster, for example, offers important inputs for startups that then improve their outcomes. Compared to firms that stay behind in their home region, these migrant firms benefit from location and how it enables access to a series of markets, including the market for venture capital, customers, acquisitions, and ideas.
Regions are not simply drivers of innovative ideas. Even for ideas that are already underway, the ability to scale them successfully depends on the way location provides the right inputs for growth. For example, being in the right place for capital acquisition or in a place where startups are more likely to be acquired.
CBS: What about the impact on more established companies?
Guzman: It is also important for established companies and business leaders of all sorts to recognize the importance of place-based innovation. The economy today is an open innovation economy. Almost all successful companies at least partially source their ideas from other smaller companies, and some of the largest and most successful companies today have grown through many acquisitions. These acquisitions are also more likely to happen locally. Therefore, any company — doesn't matter its size — needs to understand entrepreneurship, location, and the way regions and neighborhoods affect that.
CBS: Is it something about the locations themselves that makes firms succeed? Or something else?
Guzman: The location effect is about how it enables the people in it to come together. Positioning oneself in some location doesn't automatically create differences for founders, for startup firms, or for established firms. What we found from research is that it's about the opportunity to connect with other people and making an intentional effort to do so.
These can be mediated or engineered to some extent by creating space that permits and fosters in person interaction, such as third places or other avenues. But more generally, to take advantage of location requires not just being in a place but engaging with those in the location that can bring to you ideas, relationships, opportunity for collaboration, and the opportunity for capital acquisitions or other outcomes.
