Tech hubs: They’re easy to build. Just get some entrepreneurs, a great university, nice weather, and wait. Right?
Communities across the country are investing billions to become the next Silicon Valley: Austin’s Silicon Hills, Phoenix’s Silicon Desert, Oregon and Washington’s Silicon Forest, and Utah’s own Silicon Slopes. Some have the resources to pull it off, while others may be better off taking another path.
Imagine lights flashing as a governor holds a pair of oversized scissors. They’re flanked by city officials, preparing to award three founders in matching hoodies $100,000 for their winning pitch. Behind them, a freshly painted sign shines in the sun: “AI Innovation District.”
A year later, the flagship coworking campus is well under occupancy. The new cafe across the street, intended as a founder hangout, closes. The regional accelerator’s first cohort quietly folds, citing a lack of local investors and trouble attracting developers to the city.
What went wrong? Could they have avoided this?
Why regions chase tech hubs
Silicon Valley’s success is undeniable, and the attraction is obvious. Tech companies — most of which are headquartered in California — represent a dominating 34 percent of the S&P 500 market cap. If the Golden State were a country, it would have the fourth-largest GDP in the world.
However, tech hubs may be the new smokestack chasing.
“It’s like a fad diet,” says economic development researcher David Audretsch. “I don’t want to rule the strategy out. But is it being adopted too quickly as a default? Absolutely. … You can’t copy Silicon Valley. It’s not clear that many places would win by doing that. But I think what they’re really trying to copy is a place that went from nothing to prosperity.”
Ingredients for success
Any good recipe starts with finding the right ingredients — and in economic development, it’s people.
Noting the magnetic pull of Stanford, Berkeley, and the Ivies, Sorenson Impact Institute’s venture capital director Smit Naik says, “Innovation happens around incredible universities.” Most places don’t have world-class institutions. They have good universities, but not of the caliber that reliably draws top students and faculty.
Luckily, there are other ways to attract talent. Think about the last time you moved. What were your motivations to pick that place over others?
“Using Austin, Texas, as the prototype, Richard Florida wrote a famous playbook for this,” says Audretsch. “It seems to start with places that have a quality of life that draws people in. Nobody is going to Anchorage, Alaska, right?”
Everyone looks for high-paying jobs and affordable housing, but if you have children, the top concerns are probably safety and schools. Retirees prioritize healthcare access, climate and proximity to family. Conversely, young professionals might focus on cities with nightlife or social scenes where it’s easy to make friends. If your goal is to develop a tech hub, you’ll need to build a city that attracts talent and encourages them to put down roots.
Common challenges
Cities benefit most when people move there. But since remote work is so common, especially after COVID-19, the full benefits of nurturing a tech hub aren’t always realized.
Networks and density matter as well, which can make competing with established hubs a challenge. Naik asks: “Is it any surprise that Anthropic is across the street from Google, which is next to Meta? I really want entrepreneurs to come here and make their careers, but I need to acknowledge that if you’re not in The Bay, you’re going to lose a bit of an advantage.”
Politics can tempt shortcuts as well. A city may say yes to building a new suburban subdivision — perhaps in the name of “affordable housing” — but only if taxpayers front the money to extend power, sewage and water lines to the district. The project may look good on paper, but over time, tax revenue from the new homes often doesn’t cover the cost of maintaining the infrastructure.
“If I had to pick any state that I’d bet on with community-oriented investing, I would say Utah. There are a lot of entrepreneurs who care about our state. There’s this acknowledgement that we care about this place, and we’re going to prop these people up.”
— Smit Naik
Continuity and administrative whiplash pose issues as well. President Biden’s administration was focused on big-ticket advanced-manufacturing nodes, while President Trump is more focused on main streets and rural programs. Both have merit, but the swing can slow local momentum unless there’s a shared regional plan that survives political cycles.
Finally, regions that rely on tax subsidies or grants, without a more comprehensive strategy, can also face significant hurdles. Competition for Amazon HQ2 is a perfect case in point. Cities offered billions of dollars worth of incentives, but ultimately, strong tech talent pools, business-friendly environments, and convenient transportation infrastructure were why New York City and Arlington, Virginia, made the final selections.
Why tech hubs may not be the best fit
Arguably, economic development should benefit as many people as possible. However, tech companies can have notoriously small headcounts: California’s tech workforce is just 1.5 million — a tiny fraction of its ~40 million residents.
And even if you’re successful? There’s spillover. Hotels fill, restaurants fill, and housing needs to be built so there are jobs there as well. But that wealth isn’t as far-reaching as we might hope. “Don’t be fooled,” says Audretsch. “Silicon Valley isn’t necessarily great for people whose incomes aren’t tied to tech. Teachers, policemen, firemen? They can’t afford to live there. We see it everywhere. The place changes, and the wealth skews and it skews and it skews.”
Opportunity cost is also real. Tech investments are dollars that could be spent on fundamentals — housing, childcare capacity, transit upgrades, workforce pipelines — that benefit existing and future businesses, regardless of industry.
Austin, Texas, is the poster child for successful place-based development. They built a city that people actively choose to move to with music, food, festivals, and culture that spawned their “Keep Austin Weird” slogan, and layered it on top of a high-quality tech university.
Draw talent first, and success will follow.
Silicon Slopes is another example of a promising ecosystem. “If I had to pick any state that I’d bet on with community-oriented investing, I would say Utah,” Naik says. “There are a lot of entrepreneurs who care about our state. There’s this acknowledgement that we care about this place, and we’re going to prop these people up.”
From ribbon-cutting to staying power
Let’s go back to the start. What went wrong with our hypothetical governor’s tech hub?
It wasn’t the ceremony, or the $100,000 grant, or the sign. The issue was trying to copy Silicon Valley’s surface — with a shiny marketable “AI Innovation District” — before checking if they had the right tech hub ingredients: a reliable talent pipeline and a critically dense network ready to support a risky ecosystem. Some places just aren’t suited to that approach.
So, what might a place do instead?
Audretsch recommends starting with your unique strengths, finding something the world wants, and niching down.
“Think football. You’ve got a very strict rule: you can only have 11 players on the field at a time. But you notice that different teams have different configurations, and which one’s best depends on your players and your opponent,” says Audretsch.
Utah’s unique advantage may be in sales. “There’s a reason Goldman Sachs has an office here, right? It’s not the bankers necessarily,” Naik says. “It’s the LDS folks [members of the Church of Jesus Christ of Latter-day Saints] that can get a door slammed in their face and keep going with a smile on their face. That’s a huge part of entrepreneurship.”
As for what the world needs, trades are a perpetually underserved niche. In many landscaping, plumbing or HVAC businesses, just answering the phone when a customer calls is enough of a differentiator to be a competitive advantage. They’re usually understaffed, meaning communities that develop workforce pipelines could reap huge benefits. They might also be operating with outdated scheduling tools, which the right digital platform could capitalize on.
Regardless of what a place may be best suited for, it’s always relevant to focus on the basics: education, housing and liveability. Any strategy you choose will benefit.
