Why Co-Locating Startups Works

by francine Hardaway on July 14, 2010

Long before I went to China  and got to know Mark Suster, I read and admired his blog.He’s one of the new generation of open, transparent VCs. So it’s not surprising to hear him come out in favor of co-location for startups. He’s right. Distributed teams may work, but co-located startups work faster, quicker, better.  And if there is only one founder, they may be the single best way to get a good business idea the resources it needs to get off the ground (which is often a co-founder to begin with).

I’m not talking through my hat here. Stealthmode works out of a collaborative work space in Chandler, Arizona called Gangplank, and also run a startup incubator in Mesa, a town nearby. The Chandler startups are mostly creative and geeky, (Authority Labs is one of them) and the Mesa ones are health-related, retail, and web services.

In every case, the businesses have made huge strides by “living” together, using each other’s talents and services, learning from each other, and being exposed to the same group of educational resources and mentors.

A large part of helping companies is simply mentoring.  Well, maybe that’s not so simple. I’ve done it for the past ten years both privately and for four municipalities and part of job generation and retention programs. It is VERY labor-intensive work, and there are only three of us at Stealthmode. If we didn’t aggregate groups of entrepreneurs and allow them to learn from each other and us simultaneously — as well as from the resources who donate their time to the collaboratives (investors,lawyers, accountants, and yes, social media gurus), we couldn’t scale what we do. Because of the collaboration programs, we’ve been able to help over 400 businsses get started, grow, or stay in business during this downturn by changing their cost structures, product offerings, or marketing techniques.

After all, there are only 24 hours in every day. Even the best-intentioned VC, agnel, or attorney can’t give all the time they’d wish to give. So a colocation facility, where the resource can be brought to the facility for an hour of answering questions, can go quite far among ten companies.

In times of scarcity like the one we are in now, it’s important to form new businesses. Most hiring is done by businesses less than five years old. Those are the ones that gravitate toward the acceleration programs we are part of. They’re the best, the brightest, and the bravest of entrepreneurs. There may not be bank lending for them, or VC money (most companies aren’t eligible for VC money), or even seed money, but lowering their startup costs by sharing resources can make it possible for them to succeed.

We try not to call our co-location or collaboration “incubation.” My long-time business partner says “incubation” has the connotation of sick babies.  The companies that self-select to come into the Kauffman Foundation Fasttrac programs we offer at the co-location facilities every fall and spring are not sick: they’re companies that have decided to take advantage of every resource the community has to offer, and not to pre-judge their competitors or their complementors.

After ten years, our network of businesses have formed a “trust” network and often buy from each other or use each others’ services. I’ve never led a program that didn’t have a web developed as a participant, and two or three businesses that had web site issues:-)

In Mesa, where the businesses are less technology-centric, we have had businesses that needed graphic design services, and people who needed massage therapy. And surprise: we had a massage therapist, a yoga travel business, and a graphic designer. Also a gentleman who raised money for health related businesses, a woman who spoke on defeating cancer by natural methods, and a real estate specialist. None of them could have attracted a dime of bank financing or venture capital, and yet they are all off the ground and generating revenue.

This co-location idea works, both in technology-specific businesses and in unrelated random groups of small neighborhood businesses. To get ourselves out of this Recession/Depression, we need both. So I’m bullish on co-location, collaboration, or whatever else you want to call it:-)

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