Innovation in Real Places summary

Innovation isn’t what you think.

For decades, cities and regions have been sold a story – a tall tale, that innovation means one thing and one thing only. Become the next Silicon Valley, the mantra goes. Prosperity will surely follow. 

But the hard truth is that this rarely happens. History shows that, for communities that attempt this strategy, things rarely turn out as hoped for. 

Atlanta, Georgia is one example of a city that tried to become a startup hub, with less than stellar results. In the 1980s and 1990s, Atlanta was home to pioneering companies in emerging tech sectors like modems, software, and internet security. Firms like Scientific Atlanta, MSA, and Internet Security Systems even became global leaders in their market niches.

However, this leadership position didn’t last. MSA was acquired for just slightly above its annual revenue. Scientific Atlanta and Internet Security Systems were both purchased by out-of-state companies. And of all Atlanta startups receiving venture capital from 1999 to 2007, fully 40 percent left the city within three years of their first funding round.

While Atlanta succeeded, at least initially, at developing startups, they largely failed to translate this into lasting local prosperity. Impatient investors and a lack of strong community ties meant profits and talent were siphoned away rather than reinvested locally. Atlanta failed to develop into an inclusive innovation ecosystem. What it became instead was a short-term startup launchpad where companies briefly stopped before migrating to other cities.

As the Atlanta example highlights, blindly chasing startups has often led communities down a dead-end path. When regions narrowly pursue VC-backed tech in hopes of becoming "the new Silicon Valley," the results are often lopsided and unstable. A startup ecosystem may or may not arise, but even when it does, the benefits rarely circulate locally. Instead, it benefits a thin stratum of knowledge workers, while housing costs and inequality rise, squeezing other local residents. Instead of transformational change, communities get less growth than expected, along with a two-tiered economy that leaves many behind. 

The author argues that this misguided model of innovation and economic development is based on three core myths. The first is that innovation means new gadgets and startups. This view of innovation is overly narrow and misses the huge variety of everyday innovations that drive a great deal of progress and development. Innovation, at its core, simply means making products and services better or cheaper. It's not just about paradigm-shattering breakthroughs and glitzy new companies. In fact, mundane process improvements across industries account for most growth.

Myth number two is that venture capital fuels growth by funding visionary startups. This idea misses some crucial facts about venture capital, or VC. VCs are optimized towards huge short-term returns for investors, not stable, long-term development for communities. VCs often push companies to risky growth strategies, encouraging them to zoom forwards towards an initial public offering or acquisition. Furthermore, VCs don’t care very much whether or not economic gains stay local. The VC approach therefore tends to increase inequality, instability, and short-term thinking.

The third and final myth is that if a community copies Silicon Valley, prosperity will come.

VC-funded tech startups tend to benefit a limited selection of groups. This model of development typically creates stark divides between select tech-industry insiders with high-paying jobs and outsiders struggling with rising costs. And regions that copy Silicon Valley often end up becoming “feeder communities” for bigger cities, losing talent and profits to established tech hubs over time.

Communities need to move beyond cookie-cutter approaches. It's time for a radical rethink of innovation and growth.