Author Talks: Steve Case identifies the US cities driving new innovation—and it’s not where you think

In this edition of Author Talks, McKinsey Global Publishing’s Raju Narisetti chats with AOL cofounder and Revolution CEO Steve Case about his new book, The Rise of the Rest: How Entrepreneurs in Surprising Places are Building the New American Dream (Simon & Schuster, September 2022). In pursuit of a more inclusive innovation economy, Case has run investment firm Revolution’s Rise of the Rest Road Trip tours for nearly a decade, visiting and investing in start-ups across the country, excluding the major venture capital hubs of Silicon Valley, New York City, and Boston. For years, these three cities have dominated the competition for seed funding and talent, but Case says pandemic- and technology-borne disruptions now pose an equalizing opportunity for noncoastal entrepreneurs. An edited version of the conversation follows.

Why did you write ‘The Rise of the Rest’ now?

After spending most of the last decade traveling around the country to dozens of American cities and meeting hundreds of entrepreneurs, I found their stories so mesmerizing and encouraging that I wanted to share them with other people. I think most people assume that the majority of innovation happens in places like Silicon Valley. They don’t realize the innovation that’s happening in dozens of cities all across the country.

In terms of the forces that are converging, the pandemic has been a shake-the-snow-globe moment: people are rethinking how and where they work, how and where they live, and remote work. A lot of things have resulted in a dispersion of talent, as well, and people who left their work situations because of brain drain are now returning. It’s a sort of boomerang.

Also, as the internet shifts and starts dealing with the most fundamental aspects of our lives—how we stay healthy, how we move around, and other things like that—it will start disrupting big industry sectors. This shift will require partnerships and collaboration, not just the technology. Technology is the table stakes—it’s the partnerships you have around technology that are so important.

For example, many of cities in the middle of the country have expertise in healthcare, whether it be Mayo Clinic in Minnesota, Johns Hopkins in Maryland, the Cleveland Clinic in Ohio, UnitedHealth Group in Minnesota, or HCA Healthcare in Tennessee. Those partnerships likely will be pivotal, so having companies closer to those potential partners is going to be a key advantage in this next wave.

We’re also seeing government at both the national and local levels lean into the opportunity in different ways. A lot of people have been working on policies at the local level, like angel investor tax credits, in an effort to build innovation districts. We’ve also seen a lot of work in just these past few months at the federal level. Some of the legislation that has passed—including the CHIPS Act that funds the development of regional hubs—tries to fund the industries of the future. In terms of what’s happening on the public-policy front, this is a moment.

Before, the economic development game plan was, how do you get a big company to move or open a factory? Now, more people recognize that the new companies are going to be the sustainable-job creators.

Finally, there is a level of collaboration focused on start-ups that didn’t exist before in most of these cities in the middle of the country. Before, the economic development game plan was, how do you get a big company to move or open a factory? Now, more people recognize that the new companies are going to be the sustainable-job creators. All of these factors are developing, and we’ve seen the growth in these rising cities over the past decade.

Why do you see the majority of future start-up icons coming from outside Silicon Valley?

The data on the past decade show that 75 percent of venture capital has gone to just three states: California, New York, and Massachusetts. The other 47 states have been fighting over that remaining 25 percent. That’s starting to change: 1,400 new regional venture firms have started in the past decade. The venture capital dollars flowing to entrepreneurs in these rising cities in the middle of the country are up sixfold over the past decade.

That bodes well, and we’re seeing some breakout successes, like Mailchimp in Atlanta, which just got acquired for $12 billion. The most important healthtech company in the country, Epic Systems, is in Madison, Wisconsin, and it does most of the electronic medical records for most of the hospitals in the country. There’s also Carvana, in Arizona, now worth $8 billion.

Every year CNBC comes out with what they call “the Disruptor 50” list, which is the companies that are most likely to disrupt industries, create significant value, and create significant jobs. For the first time, about two-thirds—33 out of 50 of the companies on the Disruptor 50 list—were from outside Silicon Valley.

How is the unbundling of work and life fueling some of these changes?

It’s really amazing how what’s happened in the past few years have shifted how people think about work in general and remote work, whether it be big companies or small companies. For decades, people talked about videoconferencing, but it was only when everybody had to shut down offices during the pandemic that everybody embraced videoconferencing technologies.

People realized it worked pretty well, that it gave people more flexibility in terms of where they work, that it allowed companies to access talent all across the country and not force them to move to their headquarters’ cities. Remote work and videoconferencing gave people an unusual level of flexibility. I think the next phase is going to be interesting. Some of the larger companies, particularly some of the big banks in places like New York—such as JPMorgan Chase and Goldman Sachs—have said that they do need people to come back to the office as part of their strategy to hire, train, and mentor young people. It’s harder to do that in a more remote world.

There will be companies that go back to working in person, and there will also be companies that are designed to be remote only, where they have a completely dispersed workforce and do not have any headquarters. Most companies are going to be somewhere in the middle, which I think will be super helpful—maybe even transformative—in terms of the innovation I write about in The Rise of the Rest.

We’ve moved away from a time when people said, ‘You can’t participate in the innovation economy unless you live and work in Silicon Valley.’

Frankly, I think it will be a little bit confusing for a lot of people and companies trying to figure out what the right policy is, and how you give people more flexibility while also getting the benefits of collaboration, creativity, and mentorship. We’ve moved away from a time when people said, “You can’t participate in the innovation economy unless you live and work in Silicon Valley.” I think now we’re moving into an era where these Rise of the Rest cities will continue to rise. This will probably end up being a tipping point, and over the next decade, we’ll see an acceleration that we wouldn’t have seen before the pandemic.

How should the US government prioritize start-ups instead of focusing on small or big business?

About a decade ago, I was asked to initially cochair the National Advisory Council on Innovation and Entrepreneurship, which led to an initiative called the Startup America Partnership that I was asked by President Obama to chair. Then, I was on the President’s Council on Jobs and Competitiveness, and we worked with the McKinsey Global Institute. They did a lot of work analyzing different options.

I and most people were unaware of this at the time, but we learned that while small business is very important and in many ways the fabric of our communities, and big business—our most successful companies, our Fortune 500 companies—are also obviously very important, neither sector really is a big net job creator. Most of the net new jobs come from new companies less than five years old: start-ups. We have to back start-ups all across the country if we’re going to create jobs all across the country. I think that insight is becoming more and more clear at the federal, city, and state levels. We’ve seen the benefit of that focus just in the past few months, with some of the legislation that has passed Congress and been signed into law by President Biden, focusing more on investing in regional hubs.

Most of the net new jobs come from new companies less than five years old: start-ups. We have to back start-ups all across the country if we’re going to create jobs all across the country.

It’s clear from looking at the politics in our country that a lot of people are feeling frustrated, left out, and left behind. They’re seeing innovation happening in places like Silicon Valley and people doing really well there. Some of that innovation leads to disruption of jobs in their own communities, and sometimes in their own families, which obviously makes them not just frustrated but angry. The only way to deal with that is to support more new companies that create jobs in these communities. The idea behind Rise of the Rest is not just about supporting more entrepreneurs in communities outside major tech hubs, it is about a national priority to make sure we are creating a more evenly dispersed innovation economy that allows more people and places to be part of forging the future.

Another area that’s quite important and has been discussed in Washington, DC, for well over a decade now is immigration reform. Part of the reason we do have the leading economy is because we’ve been a magnet for a long time for people who want to come to this country and build the future. Some of our most successful entrepreneurs have been immigrants from other nations, but in the past decade we’ve made it harder for people to come and harder for people to stay. As a result, some of the people who would have started companies and created jobs here are starting companies elsewhere. It is time to pass immigration reform that allows us to win what is now a global battle for talent.

So, some of this is about focusing on start-ups and recognizing the role of new companies, some of this is about creating a more dispersed innovation economy through regional strategy, and some of this is about things like immigration and making sure we are winning the next talent battle.

Amid all of the polarization across America, what gives you hope?

We at Rise of the Rest have traveled around for much of the last decade, visited more than 40 cities, and invested our seed fund in over 100 different communities. We’ve seen remarkable companies being built that are leading these communities to reimagine what’s possible and create opportunities that otherwise wouldn’t have existed, building on some of their legacy industries.

For example, in Chattanooga, we backed a company called FreightWaves that’s building a platform for the trucking industry, because many big trucking companies are based there. They’re benefiting from policy at a local level: over a decade ago, the mayor led an effort to build what were the highest-speed fiber connections in the country. That suddenly advantaged Chattanooga and gave people a reason to be there. In places like Detroit, companies like Shinola and StockX are starting to scale up.

When I’m on these bus tours we invite a lot of people to join us in that particular city: people from universities and big companies, mayors and governors, senators, and so forth. When we’re traveling around, everybody’s united in believing in entrepreneurs and the role they play in driving creation of new companies and jobs—it’s not a partisan issue.

I saw this a decade ago when I worked on the JOBS Act, the Jumpstart Our Business Startups Act. It passed Congress with broad bipartisan support. There are many aspects of politics these days that divide us, sadly, but innovation, entrepreneurship, and job creation—trying to make sure the United States continues to be the leader of the world in terms of innovation and entrepreneurship—that is an area that does unite us.

Sure, there are going to be challenges in some areas, and some of the recent decisions on social issues—like the Roe decision around abortion—could impact how some of the talent flows. The people that were thinking of moving to a particular place might rethink that. How do you get people that want to move to your city or state? There are politics at that level that need to get a lot of attention in the years ahead.

How do you reconcile ‘The Rise of the Rest’ with globalization?

Globalization has had a lot of impact in a wide range of industries, and it’s also impacted entrepreneurship. Thirty to 40 years ago, 90 percent of global venture capital went to the United States, and now it’s under 50 percent, so we have seen a globalization of entrepreneurship. Many other countries have figured out that, in some ways, the “secret sauce” that made America is innovation and entrepreneurship. Other countries are trying to win the industries of the future and make policies that create the right environment for the entrepreneurs in their countries to succeed. That should be recognized.

We’re also seeing the need—and we saw more of this during the pandemic—to have your supply chains closer to home. Because of automation, things that before were outsourced to other countries like China now are being brought back to the United States. You can now create different products with fewer people. Therefore, it becomes more economically attractive to keep the supply chain closer to home, and this allows more control over it. The legislation that recently passed Congress regarding the CHIPS Act highlighted the strategic imperative to make sure, as a country, we have more control of things like our semiconductor production, as opposed to relying on other places to get core technologies that are essential to many industries that are being reimagined.

There are a lot of dynamics on the global level around entrepreneurship and supply chains. Part of that story is the story I’m trying to tell with The Rise of the Rest, with what’s happening within the United States. While we’ve seen the globalization of entrepreneurship, we’re also seeing within the United States the regionalization of entrepreneurship. In dozens of cities, thousands of entrepreneurs are reimagining the American innovation economy.

While we’ve seen the globalization of entrepreneurship, we’re also seeing within the United States the regionalization of entrepreneurship. In dozens of cities, thousands of entrepreneurs are reimagining the American innovation economy.

I think there’s an opportunity for the economy to be much more inclusive and bring more people and places along, which will maximize the likelihood that the United States continues to lead the world in innovation and entrepreneurship. It also maximizes the likelihood that we have a more inclusive innovation economy that makes more people feel good about the future, as opposed to anxious about the future. That’s why I wrote the book. It’s an exciting time for innovation in America, not just in places like Silicon Valley but in cities and states all across our great nation.

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