Four ways start-ups can transform a city

From Berlin to Cairo, from Medellín to New York City, new start-ups are flourishing in the heart of the city instead of occupying suburban areas or remote technology parks. This is the new model of start-up innovation ecosystems propelled by the so-called “fourth industrial revolution.”

Are these city-based start-up ecosystems generating new economic opportunities and jobs? If so, how are they doing it? To better understand this new model and its potential economic impact, we studied the evolution of the start-up ecosystem in New York City. 

The city’s vibrant start-up scene is a recent phenomenon. With more than 14,500 start-ups and nearly $6 billion in venture capital investments, New York City today has one of the largest and most vibrant start-up ecosystems in the world. Just 10 years ago, the start-up community in the city was small, scattered, and disorganized.

The incredible transformation of the city’s start-up scene provides a few key insights on the characteristics and potential impact of the urban ecosystem model:

• Urban ecosystems can create new business and foster growth. For this to happen, the ecosystem needs to be linked to the local industry base. In New York City, for example, the ecosystem evolved around finance, advertising and fashion. This process not only allowed the ecosystem to retain a specialized workforce, but it also increased the competitiveness and level of innovation of the city’s more traditional industry base. As more and more start-ups emerged, market competition forced local industries to innovate directly, either by introducing open innovation processes with start-ups or by absorbing new technology through start-up acquisition or recruitment.
• Urban ecosystems can generate “new” jobs, as opposed to “old” jobs that are being replaced by technology. These new jobs are the jobs of the future, emerging from new business models propelled from start-ups and innovation. Start-ups create some new jobs themselves. However, the majority of new jobs come from traditional industries that have introduced technology in their processes due to competitive pressures from new business models generated by start-ups or innovation absorption from the start-up ecosystem (as explained above). In New York, traditional industries generated three times more of the “new jobs” (i.e., tech employment) than start-ups themselves, serving as multipliers of “new jobs” catalyzed by the start-ups. Interestingly enough, these new jobs include both low- and high-skilled tech workers in similar proportions, allowing for equal-opportunity growth.
• Urban ecosystems can attract resources for local innovation. As the start-up ecosystem grows, it attracts out-of-the-city “innovation leaders” — for example, R&D institutions and innovation leading companies. This reinforces the innovation process of the ecosystem, further diversifying the local economy and providing another source for competitiveness. In New York, once the ecosystem reached maturity, the city attracted R&D, innovation, and product development functions from leading tech companies from outside the city — for instance, Google, Facebook and IBM.
• Urban ecosystems can transform urban environments. Start-up support infrastructure (such as co-working spaces, accelerators and incubators) and entrepreneurs’ communities can change the economic and social dynamics of entire neighborhoods. In New York City, the startup scene helped revitalize several areas in Manhattan and, most noticeably, Brooklyn. Propelled by start-up activity, formerly depressed neighborhoods like DUMBO have become centers of economic growth and social life.

The New York case also provides interesting insights on how policymakers can support the growth and sustainability of urban start-up ecosystems. To read more about this topic, click here for the full study, “New York City: Transforming a City into a Tech Innovation Leader.”