Pete Warden put together an interesting data visualization by plotting startups listed on Crunchbase by their zip codes. Not surprisingly, the found that the top zips for startups (and startup capital) are in or near Silicon Valley, Seattle, Boston, or New York City. Since he plotted the entire country, I drilled down to the Upper Midwest, where I found this view of Minnesota and the Dakotas:
Clearly, areas with higher populations are likely going to fare a bit better on this visualization, but I think it’s also showing something else. Startups don’t care about being in low-tax states. For them, the benefits outweigh the tax savings.
Here is what the greater Twin Cities metro looks like:
Startups are not only favoring a state with higher taxes, but they’re choosing for build their businesses in the highest taxed counties and highest taxed cities within those counties.
How can that be?
Startups featured on Crunchbase tend to be companies that can be run from anywhere with reliable power and a decent Internet connection. While the Twin Cities meet those criteria, a lot of other areas do as well, so what gives?
1. Startups don’t pay a lot of taxes, because they’re not making a lot of profits.
2. Startups need smart people capable of building products and services that have never existed before. It’s likely easier for a startup’s founders to geographically surround itself with smart people than to move to a low-tax state and attempt to recruit the best and the brightest AWAY from Minneapolis to a state border city like Sioux Falls, SD or outside of Hennepin County to Delano, MN.
3. Startups are often founded by the same types of people that appreciate great restaurants, museums, trails, pro sports, theater, and nightlife. Quality of life, as they measure it, more than makes up for the difference in taxes.
Who Actually Creates Jobs?
Check out this interesting visual that compares how many jobs by year are being created in the United States by startups vs. existing companies:
Why is this so?
I think it ties to one of the other reasons that Target’s support for Minnesota Forward and thus Tom Emmer is misguided. The MN Forward crowd is full of established, well-run companies that occasionally support gay bashing politicians. Their biggest issue is not gay bashing, but corporate taxes. They want them lowered or eliminated entirely. This is because their companies are mature enough that they’ve becoming focused on driving down costs over innovation. We see this with Best Buy and Target, where both company’s strength has been in their buying power. Now they’re both getting crushed online by companies who innovated and now have buying power too (Amazon).
To me, it seems darn clear that companies that have donated to MN Forward would put a lot more of those tax savings toward corporate profits than job creation.
The state would have less money to fund the amenities that attract startups, so we’d slowly slouch toward the Dakotas for startup attractiveness. Entrepreneurial Dakotans would start skipping Minneapolis and head to the coasts (where taxes and cost of living are even higher).
If any of the gubernatorial candidates are serious about job creation, they should be serious about creating an environment that attracts startups. To do that, I highly recommend that all candidates stop by Twin Cities Startup Weekend September 17-19th to talk to people who are creating new jobs by creating new, valuable products and services.
If you’re not sure what to ask them, try this: What would you do with $1 million?
Compare the answers you receive from startup founders to the answers you receive from the companies who’ve donated to MN Forward. Who will actually create great new jobs in the State of Minnesota? And what do they need to do it?
This post was written by Ed Kohler and originally published on The Deets. Follow Ed on Twitter: @edkohler