The Startup Seattle effect

Why promoting Seattle's startup community is our best chance for global greatness.

Over the past two years a diverse coalition of Seattle’s business and civic leaders came together to hammer out a modest proposal for the City of Seattle to support new business creation. This initiative, dubbed Startup Seattle, was strongly endorsed by the Mayor’s office, the Office of Economic Development and a clear majority of City Councilmembers, culminating in that body’s decision two weeks ago to fund the program in the City’s 2014 budget.

Councilmember Nick Licata was in the minority on that vote, opposing the $151,000 allocation on the grounds that the initiative hadn’t been sufficiently researched or justified. Yesterday, in an apparent fit of pique at being on the losing end of the debate, he launched a public attack on the Council funding decision here on Crosscut.

Licata’s editorial piece, echoing his flurry of procedural blocking efforts in Council, were framed as public-spirited efforts to demand accountability for the use of $151,000 of public money. In his attack, he described the initiative as having “no measurable public benefits”, and went on to assert that when it comes to startups “Seattle is already a success”.

As one of dozens of community volunteers who worked with the City over many months to understand the needs of our local entrepreneurial community, to benchmark our civic efforts against those of other leading cities, and to develop the very modest program that has now been funded, I am utterly mystified by Councilmember Licata’s stance on this topic.

Helpfully, Councilmember Licata’s editorial has already clarified his fundamental agreement with the bedrock principle of of the startup initiative: that the City of Seattle has a critical role to play in promoting the economic health of the region. In his own words:

“While the city has a proper role to play in supporting and encouraging economic development, it has to be done in a way that demands public benefits in exchange for public assistance.”

With that out of the way, it’s safe to move on to the logical heart of his concern: whether the $151,000 a year in public funds allocated to this effort will produce a return on the City’s investment. Happily, this is familiar ground for Startup Seattle supporters: creating economic value is what startups and the entrepreneurs who found them do for a living.

According to the City’s Office of Economic Development, each million dollars of annual revenue generated by a private company located within city limits produces $3,000 in direct B&O tax proceeds to the city (not accounting for associated utility, sales and property taxes paid by the company). At an individual level, each incremental employee earning $100,000 adds another $1,400 to the City’s coffers each year via personal sales, property and use taxes. And most importantly to a city that cares deeply about social justice and broad prosperity, each high-wage job has a multiplier effect in the local services economy. According to UC Berkeley economist Enrico Moretti, “for each new high tech job in a city, five additional jobs are created outside high tech in that city” in local services occupations like education, health care, construction and retail. These workers also produce direct revenue for the city.

For Councilmember Licata’s most basic objections to be satisfied, the $151,000 allotted to the Startup Seattle initiative must be shown to result in at least an equivalent benefit to the City. Let’s assume that a startup company with $1 million in annual revenue employs 10 high-wage workers, supporting an additional 50 services jobs by the multiplier effect described above. Under these conservative assumptions, each new company that hits $1 million in revenue results in an incremental $80,000 in cash receipts to the City each year.

In other words, the City’s efforts to support entrepreneurs will turn a profit for the city if it leads to the successful creation of just two incremental million-dollar companies a year. As those companies grow, their contributions to the city’s coffers will grow with them, paying back the city many times over.


Like what you just read? Support high quality local journalism. Become a member of Crosscut today!

Comments:

Posted Mon, Dec 9, 7:35 a.m. Inappropriate

$150,000 isn't much in the big picture of city budgets. If it can help create startups, why not?

However, to expect $1M of revenue out of startups in the first few years may be a stretch. Most startups have enormous R&D; expenses and may not produce any revenue for a few years and profit might take several more.

To show that this $150K funding works would be a tricky process. Somehow you would have to show that more startups were started because of it and that, based on the history of startups, the average tax revenue from startups exceeds their share of the $150K. That analysis would probably cost more than $150K/ year :)

The real trick is to keep startups in Seattle. Then we can truly benefit long term from keeping jobs in the city and get the tax revenue.

pragmatic

Posted Mon, Dec 9, 9:06 a.m. Inappropriate

Don't underestimate the value of Dumb Luck. And don't rush to lump "startups" into some kind of convenient political mantra. Personal experience has taught me that the power of the unlikely and audacious idea, and the perilous stewardship of that singular vision toward success or failure is the only thing that counts. Dumb luck plays a big part, as does being in the right place at the right time. Convincing politicians that handing out baby bottles to entrepreneurs borders on the ludicrous. It's Feelgoodism at its worst. Chances are they'll end up funding all the wrong guys. If there's an exception...well, there's Dumb Luck again, followed quickly by an avalanche of politicians and other bystanders rushing to claim credit.

Businesses succeed or fail. Most fail. Or at least we categorize them this way. The person with the Next Big Thing will go anonymous and unrecognized until he or she has lapped the field twice. Give me the 150 Large and I'll take it to Vegas. Better odds.

gabowker

Posted Tue, Dec 10, 12:02 a.m. Inappropriate

The $150K is just another excuse to hire some well-spoken, overpaid, overeducated white "progressive" yuppie whose only skills are her connections and the ability to crank out the 15,488th Powerpoint presentation that no one will ever care about. This is what Seattle's overfed, under-worked "progressive" bureaucracy excels in. Anything to avoid real work. The best thing we could do with this excess staff is give them shovels and send them out to do something useful, like filling potholes.

NotFan

Posted Tue, Dec 10, 4:27 p.m. Inappropriate

Dude. This is money going to the private sector - not the public. Chill a bit and try reading the article before spewing.

Lily32

Posted Tue, Dec 10, 8:52 p.m. Inappropriate

Okay, let me rephrase:

The $150K is just another excuse for some corrupt, well-connected "progressive" p.r. outfit to use tax money hire some well-spoken, overpaid, overeducated white "progressive" yuppie whose only skills are her connections and the ability to crank out the 15,488th Powerpoint presentation that no one will ever care about. This is what Seattle's overfed, under-worked "progressive" bureaucracy excels in. Anything to avoid real work. The best thing we could do with this excess staff is give them shovels and send them out to do something useful, like filling potholes.

Satisfied?

NotFan

Posted Wed, Dec 11, 4:48 a.m. Inappropriate

Let use this scenario, having been there.

Federal, state, county and city governments all interested in preventing pollution from stormwater runoff. Crying chicken little because it will be expensive to fix, so they add a stormwater fee to our property tax bill.

Then someone in your community invents a filter that retrofits a catch basin to help remove pollution from stormwater runoff capable of removing up to 97% of oil, grease, some petroleum based fertilizers and sediment.

Great idea, except the City, County, State spent all the money hiring people to research, study, analyze etc. to the point there was no money left. There was no money left for implementation or enforcement.

To benefit the community we had the filters manufactured using Lighthouse for the Blind and Skills, Inc, using local companies to get our stainless steel.

Needless to say, Pollution in the Puget Sound region is getting worse and with these long dryspells the next rainfall could do permenant damage to the point that Puget Sound can't recover. We may already be at that point.

I recommend the City find a way to cut out the dead wood to give the next entreprenuer a better chance to succeed, you can't build a better mouse trap if the cat is in charge.

salmonjim

Posted Thu, Dec 12, 7:11 p.m. Inappropriate

Silly you! First off, you had to put "sustainable" in the name of the business. More importantly, you needed to pay off the city council.

NotFan

Login or register to add your voice to the conversation.

Join Crosscut now!
Subscribe to our Newsletter

Follow Us »