How a Company Becomes a Pillar of Its Local Community
This article originally appeared in Harvard Business Review on October 3, 2022.
There was never a guarantee that Detroit would become the Motor City. At the turn of the 20th century, any number of American municipalities with similar access to talent, materials, investment, and transportation might have emerged as the beating heart of the automobile industry. But Detroit prevailed in large part because a handful of companies within the auto manufacturing community served as “tentpoles,” firms so powerful and successful that they anchored an entire economic ecosystem. If, in the early 1900s, you wanted to sell to the range of automotive company that would eventually coalesce into the Big Three, it behooved you to set up shop near Detroit. And for decades, until the entire industry was disrupted, that attraction established a virtuous cycle. GM, Ford, and Chrysler benefitted from the broader network around them as much as members of the network benefitted from being proximate to the nation’s automobile behemoths. And the city of Detroit benefited from being home to a major industry cluster.
Today, cities around the country are entering a period not unlike early-stage Detroit. The silver lining to the horrors wrought by Covid is that the pandemic opened the venture capital community’s eyes to the world of opportunity beyond the traditional tech startup hubs of California, New York, and Massachusetts. The venture funds in those hubs invested a mere $4 billion annually in seed- and early-stage start-ups throughout “the rest” of America a decade ago — in 2021 that figure had grown to $24 billion. That more widely dispersed pipeline is now poised to fuel a new entrepreneurial revolution. And the fundamental question of place — the question generations of auto-related companies considered often before beelining it for Michigan — is being renegotiated.
Put another way: If founders don’t have to be in Silicon Valley, New York City, or Boston — if they can choose to start and scale in a much broader range of places — where does it make the most sense to put down roots? Where will they find the best talent with the desired subject matter expertise? Where will they be able to tap into a supportive entrepreneurial network? Even as mega-clusters like Silicon Valley lose some of their edge, in many cases aspiring founders will still decide where to locate by looking at the tentpole companies that exist in various communities around the country. That’s what Jeff Bezos did when he moved to Seattle to start Amazon, to benefit from the engineering talent that Microsoft had accumulated.
That raises the question: How does a young company evolve to become a tentpole of a local economy? Mayors and other policymakers have a vested interest in this question, but so do the many entrepreneurs I’ve talked to who want to not only grow, but to represent and empower the place where their company resides.
There are four key elements that make a tentpole company.
First, a company looking to become a tentpole needs to validate a city’s identity — it needs to establish that its success is the area’s success. The growth of Salt Lake City-based Qualtrics as an enterprise software company — raising money, hiring employees, building streams of revenue, expanding its base of customers — drew talent to Utah that might otherwise have settled elsewhere. And that mass of talent, in turn, continued to build in Utah. Since 2010, roughly a dozen venture-backed unicorns have emerged in and around Salt Lake, in no small part because Qualtrics put the city on the map for founders and VCs. When Qualtrics was acquired by SAP for $8 billion, the city saw itself more authentically as a seedbed of innovation. Distant skeptics also took note, and the belief that “innovation can happen here” proliferated.
Second, a company must represent its home to other places around the country and the globe, reflecting the underlying values of the place where it has put down roots. The co-founder of Ann Arbor-based Duo Security, Dug Song, was so convinced that the company’s success had been born from Michigan’s business-friendly environment, world-class universities, low cost of living, and unique cultural history that he made staying in Michigan a condition when selling to Cisco. That burnished Michigan’s appeal as a tech destination and enhanced Duo Security’s reputation within the state.
Third, to become a tentpole, a company must create wealth that the whole community can feel. When the company does well, even people who aren’t directly tied — those working at restaurants, in the real estate business, as small-scale entrepreneurs themselves — should feel that benefit in some tangible way. According to economist Enrico Moretti, highly specialized innovation workers generate about three times as many local jobs for service workers (doctors, carpenters, waiters, etc.) as do manufacturing workers. I saw the impact of an innovation cluster firsthand when my company, AOL, went public in 1992. Our employees started investing back in the community in Northern Virginia, building homes, funding schools through their tax dollars, and supporting a wide range of non-profits. Often times, wealth creation occurs directly from jobs, revenue sharing, and returns for local investors, but the collective effect of more financial freedom and spending power can reverberate throughout an entire region.
Fourth, to be a true tentpole, a company needs to reinvest in its home. In 2013, Indianapolis-based ExactTarget was acquired by Salesforce for $2.5 billion. Instead of bringing the company to San Francisco, Salesforce decided to keep it in Indianapolis and purchased the Hoosier State’s tallest building — now called the Salesforce Tower — to house the 2,000-person operation. ExactTarget’s co-founder, Scott Dorsey then started a new venture studio and fund, High Alpha, which has backed dozens of startups in the greater Indianapolis area. When entrepreneurialism is in the water, everyone feels invested, and everyone benefits down the line.
Of course, few startup founders will list becoming a tentpole, or even helping to renew their community, as among their top short-term goals. They’re rightly more focused on the company’s product, sales, and growth. But, over the long-term, the company’s civic role becomes increasingly important. The legions who descended on Detroit during the first half of the 20th century, as the city was establishing itself as the Motor City, provided generations of talent and a pool of labor and know-how that simply wouldn’t have been imaginable without the Big Three. While we can’t know which places will emerge as the economic engines of tomorrow, I’m confident that we’ll look back on this moment as a tipping point, ushering in a new chapter in America’s pioneering history.
