Startups Everywhere

"The Rise of the Rest

By Steve Case

(Avid Reader, 246 pages, $28)

Steve Case, a co-founder of AOL, was one of the early internet pioneers. But he is not a creature of Silicon Valley. AOL, he points out in "The Rise of the Rest: How Entrepreneurs in Surprising Places Are Building the New American Dream," was based in the Washington, D.C., area, and many of the early tech firms, like Dell, were not started in Silicon Valley. Hence his conviction that successful entrepreneurship can happen anywhere.

To prove it, he launched an initiative called Rise of the Rest. Since 2014 Mr. Case has been taking a coach bus on a series of tours all over the United States to see local entrepreneurship in action. The tours feature what sounds like a mashup of "American Idol" and "Shark Tank." At the end of each one, Mr. Case holds a public competition for 10 local startups and, in a "high-octane finale," awards the winner a $100,000 investment. The book describes some of the people he met and the companies he learned about on his journey.

With his initiative and now a tie-in book, Mr. Case is addressing two important problems. The first is that entrepreneurship has been trending down over the years. The second is that certain geographical areas, mainly big coastal metro cities, have grown fast, offering great opportunities but leaving the rest of the country behind. For ambitious, educated people, moving to San Francisco or New York has become critical for success.

It seems that if we can light an entrepreneurial fire under the rest of the country, we can have broader prosperity. Perhaps Mr. Case will provide the spark. Not because he has enough money to fund every venture, but because he hopes he can inspire people all over the country to start a business or persuade talented people to move back home from the big city to do so.

Mr. Case reckons that we are entering a new phase of tech innovation. Success now requires not only software ingenuity but also industry expertise.

If true, we could be due for a wave of local entrepreneurs because these are the people who are aware of the problems their communities face. Now that tech workers can work anywhere, local knowledge and expertise will be at a premium.

The author introduces us to Carter Malloy, who spent his childhood on a farm in Stuttgart, Ark., but eventually left to work for a hedge fund in San Francisco. While at the fund, he noticed that there was underinvestment in farmland: Investors didn't know how to find good opportunities in rural America, and farmers were distrustful of financial markets. Mr. Malloy saw a chance to modernize agriculture finance and moved to Fayetteville, home of the University of Arkansas, to start a farmland investment fund. His knowhow and connections got local farmers to trust him -- and helped build credibility among investors.

Another firm that Mr. Case discusses is Catalyte, a software company based in Baltimore. Founder Michael Rosenbaum was convinced that "potential talent was being overlooked by a system that valued pedigree over innate ability" and devised a hiring approach that would ignore traditional resume points and instead match employees "according to their abilities and potential, which would be determined through carefully calibrated metrics and AI design." To that end, Mr. Rosenbaum decided to launch his startup in Baltimore, "a postindustrial city . . . with a large, dislocated population of workers who were not connected to the future job opportunities." His methods paid off, resulting in a diverse workforce and one that produced "off the charts" performance results.

According to Mr. Case, spurring regional entrepreneurship requires leaning on universities and building more "innovation districts."

But these zones, which contain startups, business incubators and investment funds that support one another, have a mixed record. He sees government involvement as crucial but doesn't contend with its past failures or explain how existing institutions like the Small Business Administration could better serve modern founders' needs. Before we lay out government funds, it seems we should figure out why we are in this unequal state in the first place.

The global economy today is ruthless to small businesses, with few stars emerging because economies of scale are bigger than ever and to compete you must scale fast. It is hard for the little guy to compete.

Perhaps venture funds aren't making investments in Duluth, Minn., because of these economic challenges, not simply because they don't know about great entrepreneurs in Duluth.

Mr. Case doesn't discuss most of these structural forces. The winners of his contests have received significant financing, but we're never told how their ideas were made to scale. The author is right that new businesses need capital, and for him that means getting venture funds to invest in places other than the coasts. But he doesn't articulate why selling equity in a nascent venture is better than, say, taking on debt.

Often debt is a better deal for founders who don't want to give up control or upside.

That said, it's hard not to root for the people and communities in "The Rise of the Rest," especially given the decline of economic dynamism in this country. "American Idol" was the start of something big, because it showed that talent was everywhere and that you didn't need to go to Los Angeles or Nashville to be discovered in the music business. Perhaps Steve Case, with his tour across the country, is starting the same trend for entrepreneurship.

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Ms. Schrager is a senior fellow at the Manhattan Institute and the author of "An Economist Walks Into a Brothel and Other Unexpected Places to Understand Risk."” [1]

1.  Startups Across America
Schrager, Allison. 
Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 12 Sep 2022: A.15.