Building a Smart City with an Innovation District Requires Lifestyle Businesses Too
If you are a smart city interested in investing in economic development by developing an innovation district, should you care about lifestyle businesses?
As a smart city consulting firm focused on economic development, we hear this innovation district question (in some form) a lot. Before we answer this question, let’s take a step back and examine why cities are interested in building an innovation districts in the first place.
The Innovation District Concept
The concept of an innovation district isn’t entirely new. Starting in the 1950’s, entrepreneurial clustering can be seen with the beginnings of Silicon Valley. The original forms looked like suburban corridors with research centers, companies and campuses mixed together. Then in the early 2000’s, cities began to dedicate zones exclusively for the purpose of clustering entrepreneurs, startups, business accelerators and incubators. Over time, innovation districts were born as a placemaking approach to regenerating downtown neighborhoods into a desirable locations for innovative and creative companies to work together to launch entrepreneur-led startups, support the development of new products and services (innovation) and create a vibrancy, based on proximity, between the companies, merchants and citizens living in the area. “Innovation Districts” have become more popular as a concept with the Brookings Institute releasing a series of insightful innovation district research reports that were published, starting in 2014.
Many cities invest in innovation districts to catalyze job creation. On top of that, more and more cities are understanding that smart city technologies is less about technology and more about people and economic development by empowering people. So to understand the full dynamics beyond the pure job creation statistics and into longer term economic development statistics that are also related to lifestyle businesses, you have to look beyond the simple job creation numbers associated with them. But let’s start there to begin our look at lifestyle businesses and the role they play in a smart city innovation district.
Job Creation By Entrepreneur Firms
According to a report from the Center for High-Impact Entrepreneurship, 4% of all entrepreneurs (companies) create nearly 40% of all the jobs. These entrepreneurs are called “High Growth Entrepreneurs” in which their company (on average) has 34+ employees in year 10 and grows more than 20% year over year. If you add in “Moderate Growth Entrepreneurs” who represent 6% of all entrepreneurs, the combined job creation impact is 64% of all jobs are created by 10% of all the entrepreneur companies. Surprised?
So, if you are a city wanting to just create jobs, then logic would suggest that you should only invest in “High Growth” and “Moderate Growth” entrepreneurs and ignore the other 90% of the entrepreneurs who create only 36% of all the jobs …right? Technically, we would answer a qualified YES – but this is where you have to look at what makes an innovation district successful in the first place and understand long term economic development, which changes our opinion to solid NO.
For an innovation district to be successful, you have to offer the ability to ideally live, work and play in a reasonably dense location that allows people to work productively, live nearby and conduct their life during the hours that they are in the district. Lifestyle businesses play a key role in this dynamic.
Why lifestyle businesses matter
1 – If the lifestyle business is a restaurant, then the ability for an employee to walk to breakfast, lunch or dinner is not only a tremendous convenience, but it can be a downright competitive advantage to enhance productivity. Proximity of a restaurant for many time-pressed entrepreneurs and workers is one of the biggest determinants for selecting a meal location, especially for lunch in a high traffic metropolitan area in which its hard to move about. When combined with a desirable restaurant based on the experience (food, atmosphere, ease of parking) for a guest to join you for a meal, the innovation district employee gains even more time back in their life by having a location that people are willing to travel to and meet them for a business meal. This means even less time “wasted” by an entrepreneur, traveling to go to their lunch meeting. Lifestyle businesses that are restaurants play an important role in the daily 9-5 life of an employee. They also play an important role after work or when the same employee who lives in the district is looking for dinner.
2 – If the lifestyle business is a small firm or solo entrepreneur like a writer, web developer, graphic designer, consultant or professional services provider (accountant, lawyer, real estate), these people become critical “just in time labor” or ad hoc advisors to these entrepreneur companies that need help but can’t quite afford full time staff. The proximity to these types of businesses allows the high and moderate growth companies to develop relationships, build trust and learn to work with each other on projects as needed, with less effort (and more confidence) than going online to find some faceless. distant consultant on some freelancer job board.
3 – If the lifestyle business is a retail shop, like a dry cleaner, gift store or some other types of hard goods, these businesses allow the employee during the day to “run errands” by patronizing nearby merchants. After hours and on the weekends, these lifestyle business can provide both the foot traffic to create density and the amenities to support the needs of living in or around an innovation district. Without small grocery stores, gas stations and a place to get a meal, it becomes very hard to live close to where you work, which is becoming an increasingly more important consideration when employees (and companies) are considering where they want to live (or locate). There is a special vibrancy that comes from people being able to live downtown in or around an innovation district, and this helps activate the pulse of a city.
One additional noteworthy consideration; cities that are considering investing in restaurants should understand a few important facts before doing so. Yes, it’s true that a fair number do fail, but the failure rate is not the reported 90% as some people may want you to believe. According to BLS data, 17% of all restaurants fail the first year. There are many reasons for this but tops on the the list is bad location. What does bad location really mean? Not enough business to support their costs.
One of the best things cities can do is to understand that building an innovation district is a a long term economic development proposition. Having the right mix of businesses is essential to creating today’s, modern 18-hour city. Investing in restaurants can seem like a good idea from a city incentive standpoint, but we think the better, more impactful thing a city can do to help a lifestyle business succeed is to deliver them more customers. As an example, an average casual dining restaurant may serve 130 meals for lunch. If an innovation district can send just 3 entrepreneur executive teams to lunch each day at that specific restaurant, then that restaurant just increase their lunch business by 10%. And the best way to deliver more customers is to make your city as attractive as possible to high growth companies who need lots of people to support their growth.
Long term, lifestyle business matter to innovation districts due to the ecosystem needed for success. Having the right balance of people and supporting amenities to allows companies and people to thrive. While lifestyle businesses may not move the needle for job creation as much as the “High Growth” and “Moderate Growth” entrepreneur-led companies, without the nearby lunch place, dry cleaner or grocery store, it is hard to attract, retain and support the high growth companies that need these amenities and talented workforce to thrive and be the real job creation engine for communities.
Smart cities, economic development and building innovation districts go hand in hand. Nurturing this recipe to include lifestyle business can lead to long term innovation district success. Planning should consider the overall relationships between the different types of companies needed to build a successful innovation and entrepreneurial ecosystem. Focusing on job creation alone will not lead to selecting the right mix of companies cities need to become vibrant, sustainable and competitive in the global economy and quest for talent. When lifestyle businesses are viewed through a different lens, innovation districts can blossom.