With a disproportionate share of the media attention focused on the entrepreneurial community in places like Boston and Silicon Valley, it is easy to overlook the lively entrepreneurial scene in Middle America cities like Kansas City. To better understand high-growth entrepreneurs in less-known cities, the Kauffman Foundation conducted the study "Leveraging Regional Assets: Insights from High-Growth Companies in Kansas City," authored by Yasuyuki Motoyama and a team of researchers at the Kauffman Foundation, including myself.
This research provides insights on how entrepreneurs from outside the stereotypical startup hubs accomplished high growth. On this case, the companies studied achieved an average annual growth of 39% over a three year period, with some of them reaching 108% average annual growth for at least three years. While we cannot assume the findings of this study can be generalized to any city, this report may provide interesting insights to entrepreneurs also looking to achieve the same level of growth. Additionally, while different cities can have wildly different environments, the entrepreneurs studied in this report demonstrate that it is indeed possible to create high-growth companies outside of the traditional startup hubs.
The study is based on interviews with 22 of the 144 Kansas City companies that appeared on the Inc. 500/5000 between 2007 and 2012. The focus was on firms that operated in the following three sectors: 1) information technology, 2) biotechnology, and 3) business services.
Based on the experience of these high-growth entrepreneurs as reported in this paper, I identified 4 actionable insights that may serve to inform entrepreneurs wishing to build high-growth ventures outside of Silicon Valley:
Although the role played by VC funds is often perceived as almost mythical in startup circles, Yasuyuki Motoyama’s research is consistent with other evidence about the role of Venture Capital investment: VC-backed companies are the exception among startups, not the rule. Only 7.4% of the high-growth firms investigated in Kansas City received venture capital, while 59.1% of the companies were financed by the entrepreneurs’ own funds, and another 27.2% with funds from friends and family (with some overlap between funding sources).
As the research highlights, the scale of growth of these companies is not marginal. These firms accomplished an average of 40% growth per year; and all revenues were in the magnitude of millions of dollars.
It might not be obvious to outsiders, but any given region (including yours) likely has assets to be explored creatively. Rather than emulate Silicon Valley companies, Kansas City Inc. 500|5000 entrepreneurs took advantage of local strengths for growth.
In the case of Kansas City, the tangible assets included the presence of relevant tech players such as Sprint, Cerner, and BATS Exchange, the third-largest stock exchange market in the USA; as well the low cost of living in the city. Intangible assets mentioned by entrepreneurs included things like the Midwestern work ethic.
These local strengths might not be easy to spot for outsiders, but as a local entrepreneur you are uniquely positioned to take advantage of them.
Although we often assume that to achieve high-growth a company needs to go national or international, the experience of these Inc. 500|5000 was very different.
Even though these entrepreneurs accomplished high-growth and multimillionaire revenues, a 14% of the interviewed companies operated exclusively in Kansas City, while an another 23% operated in a few other proximate regions in cities like Denver, CO and Dallas, TX. In other words, 37% of them had only regional operations close to their home-base.
The reasons that compelled the entrepreneurs to focus only on their home markets include the possibility of closeness to clients, high-touch customer service, and focusing on underserved markets. This can be enlightening to early stage entrepreneurs, in the sense that it challenges the notion that a company needs to go national to “go big.”
Although finding a mentor can be a struggle, this research found that 75% of these high-growth entrepreneurs had some form of mentorship as they founded and operated their companies. Although not conclusive, this suggests that mentorship may have a very important role, and that early stage entrepreneurs should consider pursuing one or more mentor-mentee relationships.
Fortunately, smaller communities such as Kansas City have fewer degrees of separation between you, the entrepreneur, and potential mentors. Exploring local connections is a potential way to tap into a wealth of entrepreneurial wisdom you might not be able to access otherwise.
These entrepreneurs achieved massive growth, even though most of them started rather small and had to self-finance their way up. And although we cannot say for sure these very same circumstances will occur in every city outside the stereotypical entrepreneurial hubs, I believe entrepreneurs in other mid-sized cities can learn from them.
Silicon Valley is an excellent place to start a high-growth company, but it is far from the only place.
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Arnobio Morelix is a senior research analyst and program officer in Research and Policy at the Ewing Marion Kauffman Foundation, where he is a principal investigator on the Kauffman Index of Entrepreneurship, the first and largest index tracking entrepreneurship across city, state, and national levels. For over a decade, the Kauffman Index has been a trusted source of entrepreneurship indicators in the United States—referenced in the policy world by institutions like the White House Office of the President of the United States, the Small Business Administration, and by U.S. Embassies and Consulates in several countries. Morelix also is an editor of Kauffman’s entrepreneurship research blog, Growthology.org.