Posted: 7:27 a.m. Tuesday, April 9, 2013
By Jessica Stillman
New research indicates that if you've built the right knowledge and connections, where you start your business is largely irrelevant.
The nation's hottest start-up hubs, like Silicon Valley and New York, get a lot of attention. These hotbeds of entrepreneurship seem to fizz with creative ideas and top shelf talent, so if you're looking to really make an impact, it makes sense to stick close to the action in these hot spots, right?
Well, that depends, according to new research out of Columbia Business School. If you're an eager but unconnected newbie with a lot to learn than being located in a start-up hub has potential benefits, but if you're more of an industry veteran with an established network and a hankering for small town life, take heart – you are, in effect, a portable start-up hub. Columbia Ideas at Work explains:
The benefits of staying within in the hub are offset by the effects of greater competition, [Professor Evan] Rawley explains. “If you’re coming from a New York bank and starting up a new hedge fund, even if you are well connected in New York, you’re competing with people who are also well connected,” he says. “There are a lot of hedge funds chasing dollars in New York, but very few in Missouri.”
Rawley cautions that while connections and know-how may be portable for entrepreneurs in fields where knowledge is central like finance and high-tech, in other sectors those hoping to pack their bags should be more cautious. “Ideas aren’t tied to a physical space,” Rawley says. “Knowledge is easy to move around.” Physical infrastructure, however, clearly is.
Rawley and his collaborators aren't the only ones looking at where entrepreneurs should be physically located. A team out of Yale also recently investigated the issue and found that, while the optimistic desire to move to where the action is might be understandable, it's not always the best idea.
"Ventures perform better--survive longer, generate greater annual profits and cash flows--when their founders locate them in their home regions where they have deep roots of family and friends," said one of the researchers, summing up their results.
What's the final takeaway? Don't be automatically bamboozled by the hype and bright lights; starting a business is a lower-profile locale often has significant benefits and is worth considering.
What factors do you think are most important in deciding where to locate a business?