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December 13, 2016

#CoLiving: Small Towns

smalltown

As we go back to the spirit, community and camaraderie of villages, it’s time to start thinking about what a rural model of economic development looks like in a world of unicorns.

That’s why in this edition, we look at where some entrepreneurs are placing their bets in the return to rural.

The Next Big Things is Small Towns

The CEO of Startup Weekend, Marc Nager, has a big thesis about small towns:

“My thesis is that five $10 million companies could transform our economy,” Marc says, referring to the economy in Telluride. “That’s what we’re doing this for.” The Next Big Thing is Small Towns

While wealthy, Telluride, Colorado has a population of only about 2,500 people – hardly enough to build the ‘next Silicon Valley.’  With such a small population and no urban appeal for young up-and-comers, the town needs its own development model. That’s where Mr. Nager comes in with his big wager.

the-next-thing-is-small-towns

The first place he will need to start is developing a new paradigm and language for the creation of these companies, and a new mythology that makes it ok to start a company that doesn’t use ‘global domination‘ and ‘become the Google of X‘ as its raison d’être:

“One of the primary things I’m looking at is that a lot of the startup rhetoric, methodology, programming, investment models — they’re all built around this power law, Moneyball strategy.” The Next Big Thing is Small Towns

More than anything, bringing a model of innovation and entrepreneurship to small towns will require a reset of the expectations around ROI (return on investment):

“… the model of 20 percent of a portfolio’s investments driving all of investor’s return has created a mentality of having to come back with a 20x return. And while that’s fine for certain types of business, it’s simply not going to work with small town SMBs. However, that approach has “permeated every level of the programming” — from online advice to accelerator programs to entrepreneurship classes at universities. The entire startup system is gearing people for a 20x to 100x return.” The Next Big Thing is Small Towns

Return to Rural

Prior to the Industrial Revolution, villages had their own commercial model that created enough income to remain self-sustainable; it wasn’t a question of what was in vogue, villages commercialized their goods and services simply to survive. Then the Industrial Revolution sparked a shift in labour and trade from villages to cities, leading to a talent exodus for small towns that has made it difficult/impossible to retain the bright and ambitious entrepreneurs they need to maintain such levels of commerce. Nowadays, most rural areas are supported by government grants and infrastructure, there is no local industry strong enough to sustain the community.

Industrial-Village

That trend has been accelerated exponentially by globalization over the last decade, especially in the Western world where manufacturing activities have been shifted towards China and other foreign markets.  To reverse this trend requires a unifying force:

“Entrepreneurship is the most uniting force and thing on this planet,” Marc says. “At its core, entrepreneurship is about a set of values. It’s about problem solving, creating, building, collaborating, diversity of opinion. The values behind entrepreneurship transcend every human boundary that we put up — cultural, racial, political, societal, religious boundaries — they all just fall away when it comes to entrepreneurship.” The Next Big Thing is Small Towns

And while a ‘return to rural’ business model may appease those who have seen their small-town communities gutted in the past, there is an entire generation that is trending back towards a more laid back and authentic lifestyle, an objective that is impossible to achieve in the big cities:

“All of the trends from the Millennial generation are pushing toward things like local and organic; more authentic and experience-driven. Those dynamics and trends are going to push toward different buying and consumer behavior. And that consumer behavior isn’t running to Walmart to buy everything.” The Next Big Thing is Small Towns

The same corporations that have profited immensely from the globalization era are the ones that will be taken down, as consumer preferences change faster than purely transactional, volume-base entities can adapt to. It’s also important to remember that despite all the political rhetoric about big business and jobs, it’s new businesses that create the great majority of employment:

“New and young companies are the primary source of job creation in the American economy” and businesses with less than 50 employees create 95 percent of all US companies. So while the corporations and major tech companies are important, of course, it really is those smaller businesses — the ones that create purpose and meaningful lives, according to Marc — that are fueling the growth of our economy.” The Next Big Thing is Small Towns

Not ‘gig economy’ employment either, real employment.  As ‘real employment’ starts to hollow out in global hub cities, many will be forced to make the return to rural simply to be able to pay for their life.

Typical greek tavern, restaurant or cafe view at Makrinitsa village of Pelion, Greece

The Wealth Paradox

In today’s world, the barriers to starting a business have never been lower, while the centralization of power, money and resources in the hands of the elite has never been higher. As a result, we see an economic imbalance; the will exists for many would-be entrepreneurs to start their own business, yet they can’t afford it because the cost to stay on the treadmill and pay for high-quality food, shelter and family expenses is so high, especially in cities.

This paradox is further exacerbated by the fact that those with resources need deeper buffers to ensure that they can afford a comfortable lifestyle; therefore, a lot of ‘risk capital’ that would have otherwise been invested into new companies gets hoarded and stored into safer assets with zero productive capacity. TBTF (too big to fail) Banks won’t lend to main street businesses whose owners can’t securitize the debt, which deepens the wealth paradox even further.

Individuals can break this effect by moving back to small towns. Rent is affordable, the local lifestyle creates a lot more free time for entrepreneurial activities, and local credit unions will lend capital to help certain types of businesses start out. To take it a step further will require visionaries like Marc who can incubate businesses with equity capital and share knowledge/resources to help make small towns the next big thing. But in a digital world, collaboration can also come from within cities and across countries to help build rural centres into real hubs of innovation.

Given the movement towards more collective living arrangement (co-living) and community-driven commerce, we see the curb appeal of rural settings increasing in the next five years, especially for a young generation that is sick of working in H&M, Starbucks and other global chains, making only enough to pay rent.  A return to rural may mean giving up the commercial joys of city life, but if it means the chance to start a business, build a family and be part of a vibrant community, many will take the plunge.

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