The Right Way to Support Your City's Local Startups

HQ2—Amazon’s very public search for a second headquarters in North America—has attracted applications from over 200 cities offering an array of taxpayer subsidies as part of their pitch. But the expense and distraction of the HQ2 competition have also created a backlash, as skeptics question whether corporate relocation should drive a city’s economic development strategy. Many, myself included, have thrown water on the HQ2 euphoria, suggesting that city resources are better spent nurturing local startups loyal to their hometown rather than on front-loaded incentives for companies like Amazon based elsewhere.

But if a city is going to shift its economic development strategy toward a “grow-your-own” orientation, where should it focus resources? There are a number of potentially powerful approaches to choose from. But there’s at least one tactic city officials should avoid. Just as corporate relocation packages like HQ2 generally aren’t a good idea given the cost of incentives, neither are large contracts to local startups for untested or inferior products. City officials are often asked to make such deals to support ambitious local entrepreneurs. They should resist the temptation.