Greater Washington needs a new approach to growing its technology startups. Unless we change what we are doing, the talent drain will continue, and economic activity will lag behind that of our competitors.
Ten years ago, the region’s technology economy was also at a tipping point. The enthusiasm and activity for starting tech companies had been driven by the first internet wave until it ran smack into the Great Recession. The world was rapidly running away from financial and business risk. Angel investors stopped funding startups and many people chose not to take the risk of starting new technology businesses. Meanwhile, the stability of working in federal employment, or selling to it, became compelling in comparison.
I and other members of our tech community rapidly reached consensus on two things we needed to do if the local entrepreneurial community was to stay focused on tech startups. The first was to reassure people that starting a tech company was still a risk worth taking and to advocate strongly for entrepreneurship as a positive career choice by sharing our stories and enthusiasm widely. The second was to mentor those who wanted to take the risk of starting a business by sharing our experiences to help new founders learn from our mistakes.
I helped lead two significant community groups that emerged as leaders of this movement toward mentorship and advocacy. The first was StartupAmerica, an initiative launched by Steve Case, and the second was FounderCorps, a not-for-profit I launched with a group of prominent regional entrepreneurs. Both initiatives focused on bringing experienced entrepreneurs into contact with emerging startup founders so that they could share their war stories, lessons learned and enthusiasm for the entrepreneurial journey.
In retrospect, these efforts were very successful. Many of our region’s best-known accelerators, incubators and mentorship programs were started by FounderCorps members and StartupAmerica leaders, including StartupVA/DC/MD, 1776, iCorps, TandemNSI and Connectpreneur. We were also able to influence various governments, as some of us worked directly in federal and state government in leadership roles. Today, of the more than 120 accelerators and incubators in our region, many have FounderCorps and StartupAmerica alumni providing active mentorship.
The positive results of these initiatives show that when our region’s experienced entrepreneurs work together we can make a difference to our tech ecosystem. By acting in concert 10 years ago, we helped ensure that our region remained committed to tech startup entrepreneurship and people continued to take the risk of starting tech businesses. As the broader economy recovered, the tech startup ecosystem we supported was still around to benefit from renewed access to risk capital and the greater risk tolerance of potential employees.
Today, we face new problems that threaten our tech ecosystem.
The first is that our collective focus on startup mentorship was so effective that we have helped to create an oversupply of places where startups can be formed, but the regional venture capital market has not grown at the same rate. This isn’t just a risk capital problem; it’s also an expertise problem. The lack of venture capital means that fewer companies get to benefit from the focused business scaling expertise that venture investors bring along with their funding.
The second problem is our region’s technology entrepreneur community has become far too reliant on the delivery of technology through consulting or build to suit, rather than the creation of technology products. Because many entrepreneurs took our enthusiasm and advocacy to heart and stayed in the game by selling to the federal government, the government’s technology purchasing practices and preferences shaped many of our region’s technology businesses and drew them away from the commercial market and product creation.
Both problems have resulted in other regions of the United States developing better ecosystems for creating commercial technology product companies. Venture capital prefers to scale product companies, and commercial customers prefer to buy products. This means that entrepreneurs who wish to build product companies move elsewhere, where there is funding and product company talent, and many of our entrepreneurs that do stay have a harder time building a team and scaling their businesses.
We are at a crossroads that can’t be solved through enthusiasm and advocacy. Although mentorship is enormously valuable for episodic advice, we need to create an ecosystem that will fill the void in scaling expertise created by a lack of venture capital through the creation of focused skill development. It’s no longer enough to make people excited; we must teach them how to develop commercial products.
As I did 10 years ago, I’m now talking with other experienced entrepreneurs and hatching a plan. Watch this space and get ready to help.