One of America’s Most Startup-Friendly Cities Is in Tennessee

May 08, 2017

Eight years ago, you couldn’t find a person who was working on a startup in Chattanooga, Tenn. Today, this Southeastern city has quietly developed a bustling tech scene.

Chattanooga was the first municipality to debut a city-wide gigabit network—known as “the gig”—in 2010, with speeds 200 times faster than the national average. According to Chattanooga Mayor Andy Berke, who was elected in 2013, the first iteration of "the gig” was the initial step toward transforming the city into a tech destination.

Yet when he came into office, people in the community were still concerned that Chattanooga wasn’t innovating fast enough. “It felt like we were grinding our gears a lot—working a ton but not making as much progress as we wanted to,” Berke says.

The mayor called on a group of civic leaders from the public and private sectors to collaborate and put together a 30-page blueprint of steps the city needed to take in order to grow the tech community. “I also called some friends in the VC world, and one of them said, ‘Super fast Internet and a great coffee shop is all you need,’" Berke says.

Spurred by that suggestion, Chattanooga doubled down on speedy connectivity, rolling out a 10-gigabit network in 2015. The cutting edge internet system helped attract new business to the region, adding approximately $865.3 million to the local economy since 2010, according to a 2015 study done by the University of Tennessee.

Next up, Berke needed to add density. So the city designed an “Innovation District,” a 140-acre section in downtown Chattanooga that clusters startups, nonprofits, and government entities all in one place. In December, the Tomorrow Building opened its doors, becoming the first co-living space in the Southeast U.S.

As a result of these efforts, Chattanooga has produced startups like Skuid, a cloud-based UX platform for enterprises, and Bellhops, an on-demand moving company.

Mayor Berke and Skuid founder and CEO Ken McElrath sat down with Fortune to discuss the economic impact of Chattanooga’s city-wide tech initiative.

This Q&A has been edited for clarity and length.

Fortune: How has Chattanooga’s tech scene changed since the city rolled out “the gig?”

Berke: Eight years ago, there was nothing. There wasn’t a tech industry in Chattanooga. The tech industry is obviously something that has been growing, but definitely not in places like Chattanooga. When we put together “the gig,” it allowed us to change our perception of ourselves. We started a community conversation about how to bring the tech industry to Chattanooga.

The high-speed Internet service has helped generate at least 2,800 new jobs in the area. Tell me about the economic impact that this kind of tech initiative can have on a mid-size city like Chattanooga.

Berke: For me, it’s not just about the number of jobs. We’ve had the third-highest wage growth in the country for a mid-size city. And that’s really what you want to see in a community—particularly in a place that has normally been low-wage. As we add higher-skilled jobs, we’re growing the income. This means we have a billion dollars of investment in our downtown and we have the highest rising home prices in the mid-South last year. Get more people and more money in their pockets. That doesn’t just benefit the tech industry, that has downstream implications.

The Southeast isn’t exactly a region known for being home to a ton of tech hubs. Is that changing?

Berke: The Southeast cannot be the place for low-skilled, low-education, low-wage jobs. If we are, we’ll perish. The innovation jobs of the future have to account for at least a sector of our economy. Places like Atlanta, Chattanooga, and Nashville are working hard to develop that. It doesn’t happen accidentally. In Chattanooga, we very much understand what happens if we don’t get the jobs of the future.

What was the idea behind Chattanooga’s “Innovation District?”

Berke: The idea is to put a pin in the map and tell everyone, “Come here.” The idea was to create density. As a city, we don’t have enough of these businesses to have them scattered everywhere. We need them in one place so that they’re bumping into each other and talking to each other. We call it “collision space.” What we find is there are these constant connections between entrepreneurs. I encourage companies to recruit talent away from other startups in the Innovation District. We actually need a system where if you start a company and you fail, there is always another place for you to go.

The Innovation District is a section of downtown Chattanooga that clusters startups, nonprofits and government entities in one place. Photo by Meghan Campbell/Soli Photography 

Obviously, this has required a ton of collaboration between the public and private sectors. How have businesses managed to work with the government so closely?

McElrath: As an entrepreneur, I find it very helpful. When you look at what’s happened in Chattanooga these last few years, it’s been a cooperative effort. It’s very common to see public education, private education, city government, entrepreneurs, and nonprofits come together to solve a problem as a group. You have to be really open-minded to do that. In the Bay Area, it’s very cutthroat and dog-eat-dog, but when I moved here, people helped me figure out things like how to get grant money and where to locate my business.

Berke: Chattanooga has an ethic of working together through public-private partnerships. We expect civic leaders to participate. We expect business leaders to be part of the solution. And if you’re not going to be that way, you’d be outside the cultural norm.

As the mayor, how often do you meet with business leaders and startup founders?

Berke: Um, a lot.

McElrath: I’ll be walking to lunch and see [Berke], then on my way back, I’ll run into a guy who’s running a venture company. Just walking back and forth to lunch, you’re making connections.

Berke: That’s exactly the kind of density we have to create. That’s why I want everyone concentrated in the same physical space. Being the mayor of a mid-size city is not like being the mayor of a humongous metropolis. You run into people and talk to them all the time.

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