DC’s Disruption in Highly Regulated Industries
Politics and regulations, not startups, used to define the image of the Washington, D.C. metropolitan area. But not anymore.
According to metropolitan data released this month in the 2016 Kauffman Index of Growth Entrepreneurship, while the “usual suspects” for growth, such as Boston and San Francisco, performed very well when benchmarked against the national average, Washington, D.C. was the top performer. So what distinguishes the nation’s capital among the 40 largest metropolitan areas in the United States?
In addition to the rate new companies grow into medium employers or larger, the Kauffman Index also looked at how fast startups grow in their first five years and at the share of companies sustaining high revenue growth. In terms of high-growth company density—the third component of the 2016 Index, America plateaued nationally, but Washington, D.C. placed at the high end of the range at 271.5 high-growth companies per 100,000 employer businesses. In terms of top metros by IPO density in 2015, Washington, D.C. ranked seventh.
The fact that the Index defines startups as businesses in their first five years and does not confine the definition to tech or any sector may be part of the explanation behind these results. Washington was among the top five metros with the highest density of high-growth companies in the IT Services Software, and Business Products & Services industries.
But there is more to what makes the DC metro, namely the Washington-Arlington-Alexandria area, a startup hub these days. If the vibrancy of last week’s Challenge Cup Festival which I participated in is any indication, it is also in great part the work of visionary startup communities, like 1776, which is behind DC’s feat. Local entrepreneurship champions like Donna Harris are not bogged down by the reality of highly regulated industries, but rather see big opportunities for disruption, and have formed spaces for ideas and talent to collide and connect with mentors, startup support and funding.
Talent is another important part of DC’s success formula. Educated millennials (population aged 24-35 with a post-secondary degree) comprise more than 8 percent of DC’s total population, according to the Innovation That Matters report.
“Smart millennials play a big role in establishing an environment of innovation. Washington, D.C. has the greatest number of educated young people, followed by the Bay Area” explained the authors. What makes DC’s talent different though is that a coder here “may have worked on a defense contract instead of tweaking the latest social app,” as one observer put it.
Therein lies DC’s competitive advantage as a scale-up hub: startups are working on the big impact solutions that overlap with public sector priorities. The profile of international competitors for the Challenge Cup demonstrated this wave of startups that look beyond on-demand apps for food delivery or cabs, to deep innovation in areas that overlap with the government’s biggest challenges. They are in industries such as energy, health care, education, and transportation. Take qAIRa, a competitor from Peru, which develops drones that collect data to monitor air quality and allows citizens to gain insight into environmental contamination from major industries, or Nano-X, a revolutionary cancer treatment system that captures 3D images in real-time and reliably sends the right amount of energy to the treatment location. Year-round, startups a few blocks from the White House are at the cutting edge of edtech innovation “tackling everything from teaching techniques to funding models that are aligned with tomorrow’s economy.”
The 1776 “revolution” model is an interesting one to follow for cities with a heavy presence of government, and traditional industries, where most talented workers are already comfortably employed by stable corporations (much like in DC, where many look to work for traditional government contractors). Beyond the incumbents’ market domination, supporting entrepreneurship in traditional, heavily-regulated industries also means helping entrepreneurs consider policy from early on right from their beginning ideation stage.
This has the added advantage of including – and educating – policymakers in the early stages of an entrepreneurship ecosystem, and helping them open their eyes to the positive possibilities for the economy and consumer that derive from digital disruption, rather than rushing to catch up from a regulatory perspective before it is too late. In fact, as mentioned during my Challenge Cup panel last Friday, we are on the brink of a new, more powerful technology shift that matters – and one which will drive the largest economic transition our world has ever seen.
Entrepreneurs disrupting in traditional, highly-regulated industries are preparing both government and incumbents with the insights and tools to prepare for this new digital era. We should not be surprised to see a nation’s capital as an unusual suspect in growth entrepreneurship rankings. Washington, D.C. has firmly gained its place as one of America's leading laboratories of entrepreneurial disruption.
Photo credit: Flickr
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