Middle America is emerging as a startup powerhouse

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Far from emulating the excesses of Silicon Valley, these companies thrive on caution, collaboration and community beliefs, says sparks & honey's CEO.

A recent survey of more than a thousand Americans asked respondents to identify what they thought was the most innovative part of the country. While 72 percent identified the coasts, and a full 20 percent called out Silicon Valley by name, only 10 percent chose the Midwest.

This bias against Middle America is not surprising. Silicon Valley and its unicorn companies and "fail fast, winner-take-all" ethos has been widely touted as the model for success and innovation, with investment money following in spades. Half of all venture capital in the U.S., for example, goes to two areas: the San Francisco Bay area and New York.

But as critiques of Silicon Valley’s toxic startup culture continue to tarnish its reputation, Middle America is quietly emerging as a startup powerhouse, with companies as diverse as the region itself. Far from emulating the more egregious excesses of Silicon Valley, these companies thrive on caution, collaboration and community beliefs.

And it doesn’t hurt that rent and operating costs are lower in Middle America. Or that a "failure is not an option" ethos means that the 5-year survival rate for startups is higher in the Midwest than in California, according to the Kauffman Report.

Nashville, which Forbes has ranked as one of America’s next boom towns, is conventionally associated with country music and the Grand Ole Opry. But it now hosts the largest per capita concentration of independent fashion and design companies outside of New York and L.A, with brands like Warby Parker, VF Corp, ethically sourced and produced shoemaker Nisolo and Ceri Hoover, specializing in bespoke leather jackets.

The fashion industry is bringing in $5.9 billion and 16,2000 jobs to the economy, according to a Nashville Fashion Alliance January 2017 report. And it’s doing it on its own terms. A bonus of having a fashion brand in Middle America? Van Tucker of the Nashville Fashion Alliance told Fashionista that the collaborative spirit of the city in the fashion industry is informed from the music industry and the ethos of co-writing.

Not only are out-of-work coal miners in the Heartland learning coding, they’re inspiring those from the coasts to replicate their model.

In 2011, Rusty Justice and his business partner Lynn Parish, of Pikeville, Kentucky, both of whom had worked in the coal industry for 40 years, decided they needed to figure out how to move on. They wanted something to replace their coal mining jobs but that paid comparably. They discovered coding during a workforce retraining expo in 2014 in Lexington, and a company idea was borne: BitSource, a web and app design company that trains out-of-work miners to code. 

Interapt CEO Ankur Gopal was inspired by BitSource to start TechHire East Kentucky, and what those in Kentucky call "Silicon Holler" even inspired Google to reach out to attempt to replicate their model.

And with some of the fastest Internet speeds in the world, Chattanooga, Tennessee has reinvented its downtown into a high-tech startup hub, even attracting companies like San Francisco’s OpenTable, which opened an office there.

Chris Olsen, formerly a partner at famed VC firm Sequoia Capital, is so convinced that in the next 5 years there will be more startups in Middle America than in Silicon Valley, he staked a claim by starting Drive Capital, which is headquartered in Columbus, Ohio. He has argued that every bit of data suggests that startups can in fact thrive in Middle America.

And as opportunity flourishes in Middle America, the influx of talent from the coasts to more affordable and livable cities there may very well prove Peter Thiel wrong.

Terry Young is CEO of sparks & honey.