The Friday Indefensible Position: Fine Wines from Difficult Soil: Real Estate Constraints in Boulder are Good for Entrepreneurship (by Matt Burns)
During the Q&A session at Silicon Flatirons’ Crash Course on Brad Feld’s Startup Communities book, one attendee asked the packed house: “How does Boulder screw this up?”
It is an excellent question. After all, as goes the saying, nothing breeds failure like success. For every innovation center that successfully adapts over time (see: Silicon Valley), another fails to do so (see: Detroit). What challenges are staring down Boulder?
One challenge cited in Boulder is real estate constraints. As in, space is scarce for expanding startups. Brad’s analysis, edited to be family friendly, was “We’re just [out of luck] on that.” Conventional wisdom is that this is a bad thing. That is, the Boulder startup community would be better off if startups were able to expand and build offices and infrastructure here in town.
Today’s Indefensible Position: Boulder’s real estate constraints are good for entrepreneurship in Boulder in the long run.
I can hear you laughing at me through the internet already, but hear me out. The fact that Boulder real estate is constrained does a few things that benefit entrepreneurship in Boulder.
First, it creates a physical crucible that magnifies the frequency and intensity of serendipitous interactions among smart people. It ensures Boulder is one dense startup neighborhood (albeit one surrounded by open space). Entrepreneurs who are space constrained are more likely to be found working in coffee shops and other collaborative spaces rather than in an office alone or with only their own staff. When the startup next door fails, a new one moves in and the random interactions continue without pause. The tendency to look outside and get outside of the office for ideas, talent, and inspiration magnifies the network effect in Boulder. Richard Florida talks about how the entrepreneurial landscape is “spiky.” In a sense, the real estate constraints in Boulder make Boulder’s “spike” taller by narrowing the base and forcing it upward.
Second, space issues prevent the presence of a single highly influential company (developed locally or imported) from swallowing the scene. In a town the size of Boulder, the company doesn’t need to be Google- or Microsoft-sized to have a significant influence. It can be smaller, a few thousand employees perhaps (Boulder already has one highly influential entity, CU, but because it is a university and not a for-profit company, the effects are much different.) A single highly influential company can have some negative effects on the entrepreneurial community and, intentionally or otherwise, Boulder’s real estate constraints block the presence of such a company and thus protects us from these negative effects. Before a company gets big enough to have that kind of influence, it is forced from the nest and moves to a new place better suited to its needs, a new startup takes its place in Boulder, and the circle of entrepreneurial life begins anew.
The presence of a single highly influential company prevents the development of a hierarchical social order that reduces inclusiveness and chills creativity. When a large proportion of the technical talent in a particular area all work for the same company, events like the Crash Course series can start to have an “Us and Them” feel. Outside entrepreneurs may be made to feel excluded because they are not part of the company “club.”
A large company in the post-startup phase if its life cycle will focus on importing and developing worker-bee and middle-manager talent to the exclusion of entrepreneurial talent. That is not to say that employees without an entrepreneurial bent are not great people and contributors to society, but part of the theory of entrepreneurial communities is that there needs to be a critical mass of entrepreneurs. The risk is that the entrepreneurs are drowned out and Boulder becomes known as the home of one big company rather than as the home of dozens of startups. Fewer and fewer students at CU will be inspired by the entrepreneurs in the community and will instead be focused on getting hired at the bottom of the big company pyramid.
Lastly, the real estate constraint prevents the business version of the broken windows phenomenon. If real estate could be easily built out to accommodate the demand during a boom cycle, there would inevitably be vacancies and neglected property during a bust cycle. Whether it is a single big company downsizing or many small ones going out of business, the outward appearance is that the town is no longer vibrant. The attitude in town changes and the remaining successful businesses may start to look at other, still-vibrant communities.
For those reasons, it is to entrepreneurs’ benefit that Boulder has real estate constraints. It is said that great wines are created from grapes that suffer because the vines are growing in difficult soil. Perhaps great companies are created by entrepreneurs that suffer because they must grow in Boulder’s challenging real estate environment.
Matt Burns is a veteran of CU Law’s Entrepreneurial Law Clinic and currently a Fellow at the Silicon Flatirons Center in Boulder. He lived with the hassles of trying to develop real estate as a construction manager prior to attending law school. He now lives with the space constraints of Boulder every day… in his cubicle.