The success stories of Facebook, Google, Microsoft et al are well-known and have laid the path for numerous founders to follow. It’s also given birth to the most famous of startup hubs: Silicon Valley.
For many, a Silicon Valley zip code signals that their startup is on the rise. Others question how much of role it plays in a company’s success.
Can being part of a startup hub be a fast-track to serious growth?
Ideal conditions for growth
Startup hubs are places that aim to provide the ‘ideal’ conditions for founders to quickly grow their young businesses. Good ones can remove some of the risk and uncertainty involved in launching a company.
Depending on the hub, founders may be offered subsidised office space, networking opportunities, practical support and access to investors, talent and mentors.
Many options for founders
They take many forms, from sector-specific hubs such as Rise London (a fintech startup hub) to geographical ones like Vilnius in Lithuania. Sector-specific ones tend to follow the demand for certain startups.
Fintech, for example, is experiencing strong growth that’s predicted to continue. Strong mainstream uptake (64% of consumers use fintech in some form), public awareness and increasing SME adoption are driving this.
Proptech is also on the up. Hence why the Lithuanian Government has invested in 2.5 million square metres of dedicated space in Vilnius for proptech startups. Successful applicants will get access to a proptech tailored sandbox, a wealth of open data and a budding technology community.
The benefits of being part of a hub
Therein lies some of the benefits of being part of a startup hub. Companies within a hub automatically become part of a wider community of fellow startups, scale-ups, potential partners and investors. The networks offered by hubs can be invaluable.
As Andy Ambrose, founder of Liveoak and Rise member explained, being part of the scheme “put us on the centre stage of global fintech and we are forever grateful.”
Higher chance of success
Indeed, an Accenture study has found that startups are more likely to be successful when based around Silicon Roundabout (Old Street in London) compared to more remote outposts. The large tech community there can provide vital advice and inspiration for founders. Especially when they’re completely new to running a business.
Being part of a hub also lends credibility. Matus Maar, managing partner of Talis Capital believes that it’s the only way to become a coveted tech unicorn.
Maar says: “Today, if you want to be a £100-million-plus business, you need to have a presence in one of the key growth hubs.”
It also helps from a PR perspective. Startups in the same hub can team-up to share limited marketing and PR resources. Some hubs, such as Rise, may additionally offer extra support.
Closer to customers and investors
Hubs may also grow organically around major supply routes and target customers. Silicon Roundabout is well-connected to the rest of London, particularly the City of London, where high-net-worth customers and investors reside.
Meanwhile, Cambridge has become something of a healthtech hub, given its proximity to many healthcare and pharma giants, not to mention a lot of emerging talent.
The concentration of many similar companies in one area also attracts talent. Granted, it may increase the competition for highly skilled workers. But it also provides a solution to the skills gap, where in-demand developers can be shared across startups or provide informal advice in the coffee shop queue.
Ideas and inspiration
Exchanging ideas with peers in a hub comes up time and time again as a major perk. The areas can be a hotbed of ideas and innovation. Startups may combine to provide a more attractive and viable service. Others may swap capabilities, contacts and talent to help each company grow.
The downsides to being in a hub
However, there are downsides to being part of a startup hub. Famous hubs like Silicon Valley and Old Street are in high demand and incur large rents as a result. This will put them out of the price range of many early-stage companies.
There is the aforementioned battle for talent too. Digital skills will be more sought after in the Fourth Industrial Revolution. Here, hubs are a double-edged sword.
On the one hand, it might be easier for a startup to attract another company’s talent when in close proximity. On the other hand, talent will migrate to the places where there’s the most opportunity - so being outside of a hub may make it harder to appeal to workers.
Outdated and inflexible
Plus, work is becoming more flexible and remote. There’s little point in paying extortionate rents to be in Silicon Valley, when workers want to work from a beach in Bali.
The likes of Basecamp, Github, InVision and Zapier all rely on remote, distributed teams. Hiring a remote team can provide founders with greater scalability, a global presence - and make the startup hub an outdated concept.
One of many
Some startups, such as Diktionary, choose obscure, non-hub locations as a differentiator. The company is located in the Shetland Islands. Something that, its founder Chris Clough claims, makes the company stand-out when pitching and provides an interesting talking point.
He hopes that as his company grows, it will bring further resources and capital into the area.
Choose what suits your business
Being part of a hub can play a huge role in a startup’s success. As long as it’s aligned with the startup’s goals and industry. It can jumpstart a company and provide much-needed advice and connections for early-stage founders. But there are reasons to not join a hub as well. High costs, competition and being part of a crowd may put some founders off.
When deciding on the best route for your startup, consider your 3-5 year goals. If a hub will help you get there more easily or quickly, then it’s probably a good choice for your company. If your startup will be greatly affected by the cons, however, then steer clear.
Like most things in business, startup hubs aren’t one-size-fits-all. Make your decision carefully, as it could make or break your company.