Creating an innovation engine: How Rochester business can drive, benefit from startup growth

You may have seen or heard some of the recent community discussion around the need for our region to better embrace entrepreneurship and innovation, and to translate more of our regional potential into actual economic impact by scaling up more successful new companies.  As an existing business owner, manager, or service provider, you may be thinking, “What does this have to do with me?”  The answer is: Everything! The old adage, “It takes a village to raise a child” applies here. Except in this case, it’s to “raise a new successful company.” By getting involved, you’ll create a host of opportunities–for new companies and for your business, too.

If you’re a business owner, think back to the early days of your company, or the pivotal moments that catalyzed your rapid growth. Remember the uncertainty, the sleepless nights, and the critical breaks that changed everything? Chances are, your success was not achieved in a vacuum. It was aided by a seasoned mentor who gave unvarnished advice. An early investor who took a calculated risk. Or, that first customer who  took a chance on an unproven business or technology. You survived and thrived because of a number of those early milestones.

NextCorps’ recent State of Innovation report reveals a sobering reality for early business growth: Rochester continues to be a region of “potential,” but despite a lot of new activity at the front end of the business formation funnel, we have not yet translated that potential into economic reality. Part of this challenge is a lack of investment capital. When we dig deeper as to why investors aren’t investing in our companies, we hear several reasons, mainly our startups don’t have enough experienced leaders, industry connections, and early traction/proof points.

As a result, we are losing major economic opportunities to peer cities because we have failed to build a cohesive engine for innovation and startup growth. Given that startups and young businesses are the single largest driver of net new job creation and regional wealth, this systemic disconnect hurts everyone. We boast incredible raw ingredients, but without a unified scaling mechanism, we are letting our economic future slip through our fingers.

This isn’t just an entrepreneurial problem. It is a threat to our entire business community. In modern commerce, stagnation is terminal. Companies that fail to continuously innovate inevitably lose market share, surrender their competitive advantage, and fade away over time. By collaborating to build a robust culture of innovation, we do more than launch new companies — we inject entrepreneurial vitality back into our established industries, strengthening corporate longevity and expanding revenue potential across the board.

To transition Rochester from a city of “potential” to a creator of innovative companies, our business community must become central collaborators. The data in the report defines our challenges, but the following recommendations outline how local business leaders can work together to help dismantle these bottlenecks.

1. Mobilize business leaders to be catalysts

The established business community must intentionally step up to close the “market traction” and “industry access” gaps that plague young companies. Startups face immense challenges securing the critical first B2B customers needed to prove product-market fit to external investors, and they frequently struggle to reach industry experts for early feedback.

Our corporate leaders can solve this by opening their doors and their networks. By making connections you help young companies get early feedback and speed their time to potential customers and partners. By serving as mentors and acting as the first pilot customers yourself,  you provide the validation these companies need to scale.

By assisting, you are not only giving back to the next generation of businesses, but you’re going to see direct benefits. In partnering with agile tech startups, your business gets insight into how it can expand its own product portfolios or production capabilities without the overhead of internal R&D. White-labeling arrangements, exclusive channel partnering, mergers & acquisitions, and other strategic paths for injecting immediate new customer value can be explored. It is a high-yield loop that benefits all involved.

2. Share and recruit experienced talent

A brilliant idea means nothing without execution. NextCorps’ data shows Rochester has a shortage of “been-there-done-that” serial entrepreneurs and C-level leaders (CEOs, CFOs, CMOs) who know how to navigate rapid growth in a startup environment.

Seasoned company leaders can bridge this talent gap by serving on startup boards, and leveraging your corporate networks to help aggressively recruit experienced operational talent back to the Greater Rochester region to guide young companies through rapid scaling phases.

3. Anchor and attract venture capital

Our region is a powerhouse for research; Rochester-area inventors secure 700 to 800 patents annually, completely lapping regional peers on a per capita basis (~375 patents per 100k residents versus Pittsburgh’s ~275 and Buffalo’s ~125). Yet, NextCorps’ data shows we are dead last among our peers in capital, securing a meager $394 million in cumulative five-year VC investment compared to Columbus’s $3.9 billion and Pittsburgh’s $3.0 billion.

The intellectual property and federal funding are here, but the scaling capital is not. Local executives can help close this gap, and ensure our best innovations don’t leave the region to find funding elsewhere. Joining angel investor groups like Rochester Angel Network, helping to make connections to out of town investors whom you know, or supporting the creation of new, regionally-based venture capital funds are just three ways to make a difference.

4. Demand a unified regional strategy

Finally, business leaders must use their collective clout to explicitly cement entrepreneurship as Rochester’s economic “North Star.” Our region’s past economic frameworks omit innovation as a core focus area, treating it like a peripheral side project.

We cannot build the future by relying entirely on what has been done in the past. It has been seven years since the landmark MIT study named Rochester the nation’s top metro area for tech hub potential. Since then, there has been some progress. We continue to generate patents and obtain early-stage commercialization grants. We’ve been named a semiconductor tech hub (although the startup and entrepreneurship plank of that proposal was not funded). And, we’ve seen a steady increase in new first-time founders, particularly with software startups.  However, without the engine in place to scale our opportunities into impactful results, and without establishing a culture of entrepreneurship and innovation, we will continue to lose ground to peer cities that act with more urgency.

As business leaders, we must ask ourselves the hard question: Are we truly okay with not putting innovation at the absolute forefront of our regional strategy?

If we choose to be innovative in how we approach these challenges, we can finally secure our destiny as a premier Tech Hub. We can prove that new ways of working together — bridging the gap between established corporations and promising startups — will put Rochester back on top as the place where people want to work, and where ideas and opportunities are abundant for all.

To read the full report or join us in building Rochester’s future–either by sharing your ideas or becoming a part of the solution–go to nextcorps.org/innovation.

Jim Senall is president, NextCorps and co-founder of the Rochester Angel Network.