David Benson, assistant professor of strategic management at UVU, along with Paul Godfrey and Gove Allen, BYU Marriot School professors, recently had a study published in Nature Biotechnology. The study found that the companies have the best success when they move to the market that has the best fit.
“We started researching what it takes to build an entrepreneurial cluster, like what it takes to build the next Silicon Valley,” said Dr. Benson. “How much does a Silicon Valley matter? Since the Bayh-Dole Act of 1980, universities have been pushing to spin more startups from their universities—Google comes out of Stanford, Netscape comes out of the University of Illinois at Urbana-Champagne. We find in our research a ten-fold increase over the last 30 years in the number of startups coming out of universities. It turns out that there’s no one central spot to find the information for all these startups, so it’s taken eight years to gather all the data out of the top 50 universities in the last 10 years. Then you look at where they end up. Two-thirds end up remaining local to the university, which we define as within 60 miles. The other 30 percent locate to a cluster. The clusters we observed were Silicon Valley, Boston, and San Diego—a cluster being a concentration of industries. We discovered that those startups that move to a cluster are twice as likely to succeed as those that remain local.
When you compare the data of who moves and who stays, it turns out the ones that leave on the measures we can track are higher quality. They raise more money, file more patents, more likely to get acquired, so on the metrics we look at, it’s similar to how the best actors go to Hollywood. If you think you have the next Google, you’re more likely to migrate. That’s the selection effect. If all the Olympic athletes go to the Olympic training center, are they faster because I’m seeing the fastest runners in the country, or are they receiving the better training and getting better nutrition? We definitely see a selection effect, but even when we control for that, we find a treatment effect. The most interesting thing is that the ones that move somewhere else, even if it’s not to a cluster area, do better than the ones that stayed. This suggests that it’s about finding the best fit. A policy implication is that most land grant universities have a dual motive where they want you to build the next Google, but want you to do it locally. Universities may provide incentives or inducements such as free workspace, but then have a clawback provision, and that may be counterproductive. By saying I want you to build the next Netscape here locally, you might be limiting some of your upside.
In trying to build Utah, when I look at our big successes, they’ve been able to make it here, but what we’ve seen is that Qualtrics, Vivint, Domo, and Omniture all raised money from big Silicon Valley VC’s, such as Benchmark, Sequoia, Blackstone, etc. Those firms see good promise here, and if there’s a good enough company then they’ll make the trek here to invest, but our research suggests that with the best training and mentors comes the best success.
Our research is definitely affected by the selection effect. Mark Zuckerberg isn’t going to leave Boston to go to Silicon Valley if he doesn’t think he can be the next Facebook. When Marc Andreessen leaves, he goes to Silicon Valley with Jim Clark to start Netscape, but he thought he had something big, and it turned out he did.
Our research was published in Nature Biotechnology because one of the biggest producers of university technologies are the life sciences. If you look at the last 30 years, 10 percent of all new drugs were discovered at universities, and then companies developed those. Of those, 20 percent were fast-tracked, meaning it gets developed if there are no better alternatives and if it shows promise. Nature was interested in telling life science faculty about how to best commercialize and get their drugs from bench to bedside. Ray Schinazi comes out of Emory University and does their first startup, and the university didn’t reinvest when the time came. He then gets purchased for a billion dollars, and the next time Ray had a company, the university was sure to continue investing. This is a big deal for two reasons: first, our research directly impacts nature biotech, and second, there hasn’t been a national database for these startups, and I had to collect this by hand, so it’s valuable to have that.
For universities, policymakers, and legislatures, you face this tradeoff of keeping people local or moving to where they think they’ll be best served, and instead of trying to force them to stay local, let them pick where they think they can bloom the best. As long as you have some sort of royalty or other stake on it, go that way.
The big takeaway is to move where you think you’ll bloom best. The advice is usually to be close to your customers or close to your suppliers.”