Building a startup ecosystem
Without research university or hub, Gig City builds on support networks to grow new companies
ENTREPRENEURS
When Stephen Culp moved from Silicon Valley to the Tennessee Valley in 1998 to launch Smart Furniture and one of Chattanooga’s first venture capital funds, the Stanford University law graduate got all of his money outside of Chattanooga.
“There was little appetite for Chattanooga investors to invest locally,” Culp recalls.
Two decades later, after Culp has built the online furniture builder and retailer into a successful national company and launched a half dozen other business and nonprofit startups now housed in Chattanooga’s Innovation District, the local climate is far different for entrepreneurs and venture capital.
Aided by Tennessee’s biggest business incubator, a handful of business accelerator programs and new venture capital funds and the word’s fastest citywide internet links, Chattanooga is emerging into what Mayor Andy Berke calls “a city of creators.” Although Chattanooga lacks the type of major research university or medical facility that has propelled other innovation economies, Berke created America’s first Innovation District in a mid-size city five years ago in
a 140-acre part of downtown to promote an “entrepreneurial eco-system” where startups often encourage rather than just compete with one another for talent and dollars.
“We call it “collision space,” where there are these constant connections between entrepreneurs,” Berke said. “While our innovation economy has grown tremendously in the past several years, I think we’re just at the cusp of this growth and, while we have a lot of wind at our back, we still have a long way to go and a lot of opportunity ahead.”
HIGH-FIBER ENTREPRENEURIAL DIET
Much of the impetus for the growing innovation and tech economy has come from EPB’s Fiber Optic system, which provided the first communitywide Gig internet connections for all homes and businesses for any city in America at speeds 200 times faster than most broadband connections. In an online connected world of e-commerce, what EPB has billed as “Gig City” has proven to be a major advantage in attracting attention, talent and startups trying to take their web-based businesses around the globe.
High-speed connections helped grow such online startups as the moving service Bellhops, the code builder and development platform builder Skuid, the online counseling service known as Wecounsel and the global ship security startup known as International Maritime Security Associates.
“Being a tech company handling the volume of calls and online traffic that we do, having access to high-speed internet is vital for our business,” said Kyle Miller, head of brand and communications for Bellhops, which employs from 80 to 110 full- and part-time employees in Chattanooga, depending on the season. “For us, the faster the communications, the better.”
Miller said EPB has allowed Bellhops to succeed outside of Silicon Valley, where costs would be much higher. The gig internet service that Bellhops gets for $2,500 a month in Chattanooga would likely cost the company around $10,000 a month in San Francisco.
Bellhops was recently recognized as having the best startup culture in Chattanooga by Powderkeg, a web-based connection engine for tech entrepreneurs which recently conducted surveys of Tennessee tech companies. Bellhops was lured to Chattanooga from Auburn, Alabama with the support of the Lamp Post Group venture fund. But EPB has been key in the growth of the business since.
The GigTank, a business accelerator program designed to capitalize on EPB’s 10 gigabyte-per-second internet connections, has helped bring dozens of other entrepreneurs and investors to town. In 2015, University of Tennessee at Chattanooga (UTC) Economist Bento Lobo estimated that EPB’s fiber optic network had already generated as many as 5,200 extra jobs and as much as $1.3 billion in benefits for the community, and such benefits were projected to continue to grow.
CULTURE OF COOPERATION
W “e’ve whet the appetite, and started to show some promising early returns of capital,” said Culp, who has launched and moved into Chattanooga’s Innovation District PriceWaiter (a webbased shopping tool for negotiating better deals), Delegator (a digital agency), ProDiligence (technical due diligence for acquisitions and investments) and S Ventures (an investment group), in addition to SmartFurniture. “What needs to happen is that we, as an entrepreneurial community, need to commit to reinvest our money and time back into this community, in the next generation and in a broader swath of talent in our entrepreneurial population.” Matt Hunckler, CEO and founder of Powderkeg, said he has been impressed by the growth in Tennessee’s tech space in Nashville, Memphis, Chattanooga and Knoxville.
“We’re going to see big things out of the tech ecosystem in this state, which is important as we try to bring a national spotlight to tech hubs outside of Silicon Valley,” he said.
Chattanooga already has shown more community support for startups than in many cities.
Erwin Ovalle, a Guatemala native who has lived in Chattanooga for the past 17 years building a cleaning service, MCS Inc., and a Mexican Cafe turned catering business, said Chattanooga is more supportive of entrepreneurs than most cities.
“It’s a community here you really can’t find anywhere else for the support and assistance available,” said Ovalle, who works out of the Society of Work in the Innovation District.
The Enterprise Center, which is working to coordinate the diverse efforts in Chattanooga to foster more innovation and technology, has hosted dozens of groups from cities around the world which have come to Chattanooga to study its turnaround from the 1980s when the city was losing jobs and population to its above-average growth rate today.
“One of the things that most everyone is struck by is the collaboration and support for one another, even startups that sometimes may be competitors,” said Ken Hays, president of the Enterprise Center. “We’re obviously a much smaller community than Boston, Austin or Silicon Valley and, to some extent, we’ve learned that we must work together in the public and private sectors if we are going to be successful.”
INCUBATOR, ACCELERATORS HATCH STARTUPS
Chattanooga has sought to nurture its startup community with a variety of public and privately funded initiatives for more than three decades.
On the North Shore, the Hamilton County INCubator is the largest business incubator in the state — and the third biggest in the country — with more than 550 successful business graduates coming out of the incubator over the past three decades. Within the 127,000-squarefoot complex — formerly a manufacturing plant for American Lava, 3M and General Electric — 60 or more startup companies are housed for up to three years along with the Tennessee Small Business Development Center, CHATech and a variety of shared meeting spaces and services.
At the hub of the Innovation District in the Edney Building, the Company Lab (CO.LAB) offers a variety of business accelerator programs, Tech Town provides coding and tech outreach to the community, and Society of Work provides shared office space for a variety of startup companies.
Also within the Innovation District, UTC is working to build its entrepreneurial focus across a variety of disciplines to supply the talent for the emerging new companies.
“Our biggest focus is on increasing the pipeline of students that we can have engaging in our community, working at the CO.LAB, doing research for local companies or with our many internship programs at local businesses,” said Dr. Bevery Brockman, the chair of UTC’s marketing and entrepreneurship department. “These are programs we hope we can build out to really meet the needs of the community as well as help our students gain real-life work experience.”
For younger students and disadvantaged persons, Launch Chattanooga works to train and support business startups in targeted high schools and among women and minorities. Over the past seven years, Launch has helped support more than 230 businesses that have created nearly 300 jobs.
“Over 88 percent of the businesses we’ve worked with (since Launch began in 2011) are still operating,” said Hal Bowling, executive director for Launch Chattanooga. “We try to provide a supportive environment, not just in starting but in sustaining these businesses.”
GAINING NATIONAL ACCLAIM
As a former industrial town in Southern Appalachia, Chattanooga is seemingly an unlikely town to be a leader in innovation and technology and its recent success is therefore attracting lots of national attention.
CNBC, the business news television network, has highlighted Chattanooga this year as both one of the best and one of the lowest-cost cities for startups in America. Livability, an online research source of information about U.S. communities, called Chattanooga “a startup magnet” because of its entrepreneurial ecosystem and its 10-gig broadband. Forbes magazine last year called Chattanooga “one of America’s most startup-friendly cities.”
AOL Co-founder Steve Case included Chattanooga this year among 38 cities outside of Silicon Valley for his “Rise of the Rest” bus tour of promising cities for startup and technology ventures.
THE NEXT GROWTH STEPS
The Enterprise Center is coordinating a new effort to grow the number of businesses and residents in the area, billed as Innovation 2.0, and recently created a new research collaborative among major players such as Erlanger hospital, UTC, EPB and CO.LAB. As a collaborative and connected city, Chattanooga can be a good place for applied research, especially in tackling community problems through the Smart City initiatives in energy, transportation and health care, Hays said.
Dr. Moise Baptiste, executive director of student affairs at UTC and the global director of educational affairs for the Haitian-American Caucus, said the university is actively working to better connect UTC students with the local community.
“We’re looking not only at work internships, but also chances for civic engagement by our students from most all of our disciplines at UTC,” he said. “As long as they are students here at UTC, this is their home and we want to find ways to engage those students and involve them in their home here.”
Dr. Baptiste said UTC is also working to encourage more students to think about ways to start or aid new businesses.
“A lot of times we think of entrepreneurship only in our School of Business, when in reality anyone can be an entrepreneur, especially with the community resources we have here to help startups,” he said. “Small businesses are the foundation of this country.”
KIVA CITY LENDING
In October, CO.LAB and the city’s Office of Multicultural Affairs launched an online crowdfunding program offered by Kiva to provide no-interest loans of up to $10,000 to entrepreneurs. Chattanooga is the latest city to join the global Kiva network, which began in San Francisco in 2005 and has since provided more than $1.2 billion in loans to 3 million borrowers to help alleviate poverty by promoting business startups around the world.
CO.LAB Executive Director Marcus Shaw said Kiva loans will provide another means of initial seed funding for entrepreneurs and should help their initial startup phase when costs usually are greater than revenues.
Shaw, who relocated to Chattanooga from the Washington D.C. area in 2017 to head CO.LAB, said Chattanooga already offers relatively affordable downtown office and housing costs near the UTC campus and the local accelerator programs to aid entrepreneurs relocating to Chattanooga and those eager to focus more time of their business, rather than their commutes.
“In major cities housing in business corridors is often affordable, and the cost of commuting long distances can be burdensome,” Shaw said, noting that 70 percent of his staff at CO.LAB either walks or bikes to work most days.
But for all its success, Culp warns against complacency and urges even more efforts to build the innovation economy and create and lure more business startups.
“When you have momentum like we do, it’s time to push harder, because we can get twice the ROI (return on investment) for our effort,” Culp said. “We have momentum, but we’re far from the goal.”
Culp’s message is similar to Brookings scholar Bruce Katz, who highlighted Chattanooga’s entrepreneurial success last year in a study on promising metro markets around the globe.
Katz , the founder of the Brookings Metropolitan Policy Program, praises Chattanooga for establishing its Innovation District, but urges the city to push to expand the reach and scope of such development downtown.
“Chattanooga has built strategically on three critical assets—quality place making, unusual anchor institutions, and a highly collaborative innovation ecosystem,” Katz said. “But don’t be complacent. You may be at 15 percent of what is possible.”