Beyond the Capital: can startups thrive outside innovation clusters?

Francois Badenhorst
Deputy editor
BusinessZone and UK Business Forums
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One of the more colourful chapters in the saga of .com era excess concerns ION Storm’s offices. The American game developer, helmed by John Romero, the archetype of the capricious, brash founder, rented a two story penthouse on top of Dallas’s third biggest skyscraper.

Bloated with investor cash, the developer dropped $2m (and this was in 1998) on their new HQ among the gleaming, glass façades of Dallas’s skyscrapers. The design firm hired to build the big frat house in the sky boasted that they “had transformed the space into a Willy Wonka-esque interpretation of ION Storm’s workplace wish list”.

You won’t be surprised to hear that ION Storm was a catastrophic failure. Romero’s almost pathological aversion to frugality had left no room to manoeuvre. Financially leveraged to the hilt, the second the company encountered commercial turbulence it simply withered.

The office space, still empty to this day, stands as a monument to this. And it also crystallises another, bigger question: why did Romero feel it necessary to spend millions on ION Storm’s offices and why not much has changed since those days?

By now, the startup office has become a cultural meme. No longer just a place to work, the spaces are beset by childlike decadence with ‘fun’ being a compulsory activity. It’s not just what, but where with brutal competition for choice spots in trendy startup areas like Silicon Roundabout in London.

When Wired’s Kevin Kelly recently profiled the secretive startup Magic Leap – a bonafide unicorn company with potentially culture altering tech – he led with the exceptional, unthinkable fact that the company was based in Suburban Florida.

“There is something special happening in a generic office park in an uninspiring suburb near Fort Lauderdale, Florida,” noted Kelly. This isn’t a criticism of Wired’s eminent executive editor; he’s right, Magic Leap is an exceptional case.

I worked for a merchant bank in the City for a couple of years; it was very interesting and I did love it but it can be relentless.

But why are Magic Leap’s austere, tucked away premises such a rarity; why do startups feel the urge to congregate in trendy, albeit expensive urban clusters?

The aptly named commercial property agent Shoreditch Office Space gives a good idea on its website: “It is all well and good talking about £15 per sq. ft. in ‘Croydon’s Tech City’, but have you seen where Croydon is on a map? No, neither have we.

“You may save a bundle on your rental costs, but you will sacrifice the networking opportunities and geographical proximity to the UK Tech epicentre that can offer intangible benefits.”

Obviously, a company called Shoreditch Office Space has a vested interest maintaining Silicon Roundabout’s allure – but the company’s aggressive marketing does have a basis in mainstream academic thought.

It’s a lot easier for companies to find and recruit new employees if they all work and socialise in one small geographically bounded area.

The American economist Michael Porter coined the term “industry cluster” back in 1990 to describe the geographic concentration of interconnected businesses, employees and associated industries. These areas kept their allure, Porter argued, by increasing the productivity of the companies in the cluster, by driving innovation in the field, and by stimulating new businesses in the field.

As the American tech journalist Kriston Capps wrote, Silicon Valley’s enduring appeal boils down to “path dependency”. “It’s a lot easier for companies to find and recruit new employees if they all work and socialise in one small geographically bounded area. The same goes for sharing (and stealing) new ideas. It seems strange to think about something like the internet as a localised resource, but to a limited extent innovation does work that way.”

So starting up outside of clusters carries a cost-benefit analysis: save money but have much less exposure for your company.

But are these clusters losing their grip on innovation?

In a recent piece for BusinessZone, James Haydock, founder of the Manchester based startup Due Course, found the less saturated market to be liberating. “The startup ecosystem isn’t on the same level in Manchester as it is in London or Silicon Valley,” wrote Haydock, “easing the pressure on new business startups like ours and allowing us to knuckle down and focus on building a real business that addresses real problems."

So much business is transacted electronically so to be physically present in the Capital isn’t really necessary.

Haydock does admit there are still some advantages to innovation clusters. "I spent a lot of time in London and I spent a little time in Silicon Valley, too," says Haydock. "The benefits of these clusters are things happen in a concentrated network where people are together with investors. One of the biggest takeaways I had was the mindset it breeds. Everyone has the hunger and desire, it’s just the norm in those concentrations.

"Being outside those concentrations, we were not open to that, we don’t have access to that. It’s bubbling up in Manchester but it’s not at the level of London or Silicon Valley."

But still, Haydock feels the natural benefits of Manchester have outweighed the negatives. "There aren’t many high profile startups in Manchester, we don’t need to compete for talent, resources or press. We have a natural differentiator by being here, that’s been great from a talent point of view. We get the best regional talent."

Due Course has also capitalised on what Haydock calls the "natural migration from London" as cost of living in the Capital continues to go up. "People are almost looking for opportunities to move. Some of our staff moved from London to here. It’s a higher standard of life for less."

Haydock's experiences are echoed by James Kilford, founder of the accounting software startup Senta, based in Bristol.

“I worked for a merchant bank in the City for a couple of years; it was very interesting and I did love it but it can be relentless," says Kilford. "Besides, London was never an option for us, partly for family reasons. Both of Senta’s founders are based outside London.”

Bristol’s eager cultivation of its burgeoning tech scene means Senta hasn’t been left languishing outside of London. “I’ve found Bristol to be very supportive, there’s lots of co-working spaces, lots of support network, incubators and accelerators and mentors.

“Many of the companies working with startups – particularly in the legal space – are also very helpful, often offering pro bono advice. There’s a strong interest in growing Bristol’s startup scene, it’s seen as important for the region’s future.”

People are almost looking for opportunities to move. Some of our staff moved from London to here.

This eagerness to nurture startups isn’t exclusive to Bristol. The award winning Welsh tech startup Sure Chill has maintained its Cardiff base while spreading its cooling technology to 40 countries thanks to the support it has received.

“The Welsh Government has really helped us to retain our HQ in Cardiff from where all our innovation takes place. Wales actively helps companies to prosper and provides access to finance and targeted business support for key sectors, including technology,”  Nigel Saunders, CEO of Sure Chill told BusinessZone.

Senta and Sure Chill’s support from local authorities has also been matched by the decreasing importance of establishing a physical presence in the Capital. Senta’s Kilford hasn’t experienced any ill effects from being based in Bristol.

“So much business is transacted electronically so to be physically present in the Capital isn’t really necessary. For example, we’ve recently started working with a multinational accounting practice based in London.

“We were shortlisted alongside some really big competitors and we’ve never met them. We spoke on the phone and demoed on Skype, and they selected us as their global practice management software partner.

“There was no traipsing up to London, people just want an easy, seamless way of doing business and the internet gives us that.”

As for Haydock up in Manchester, the lack of London presence hasn't been a problem either. “All our investors are London based. It’s a two-hour train journey. I can get work done on the train. We've leveraged the good stuff from London and kept the positives of Manchester."

About Francois

About Francois

Francois is the deputy editor of BusinessZone and UK Business Forums.


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16th Jan 2017 11:34

Interesting to see a report out this morning that says the number of new businesses opening in the area around Silicon Roundabout has fallen by 70%, from 10,280 in 2015 to 3,070 last year:

Alas, it's from the Daily Mail -

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16th Jan 2017 12:50

Being based in Bristol I feel that we've got the best of all worlds with a city of very obvious 'zones' that mean you can 'opt in' to the environment of 'startup buzz' if you want to. Our office next to the Engine Shed, gives us exposure to a network we didn't expect to benefit from so much until we were here.

Often travelling to London I feel that the overwhelming nature of people frantic for success can be a great one but the pressure they exert on themselves and others can be driven more in a 'keeping up with the Jones'' fashion, rather than based on their own individual goals, generally speaking, of course.

I am bias of course, but Bristol's location, relative to London, Manchester and Cardiff means we have everything we need within a few hours.

In short: Startups can thrive outside of innovation clusters but if, for example, they live in the rural countryside, they must be ultimately intrinsically motivated and highly resourceful to make it work.

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