The term comes in and out of vogue every few years as migration trends and economic booms move the spotlight from one market to another. Today, it’s Miami, yesterday it was Boulder or Austin, tomorrow who knows. There are slight tweaks here and there - we see Startup-Nations (Israel) intermingled with Startup-Governments (Taiwan) and Smart Cities (Dubai).
Inspired by a recent task from 1729, I started reading more about startup cities, charter cities and the larger movement behind these trends. This is what I found:
0. What is a startup city? Why is this a desirable community to live in?
Balaji defines a startup city as a place with a lot of startups and a place that functions like a startup. That makes sense, but, what is a startup? A startup is generally a commercial venture that proposes a new business model that has the potential to scale, most often by leveraging technology. We can think of a startup city as a social structure that proposes a new governance model that has the potential to scale.
In theory, startup cities are desirable because they allow for increased levels of self-determination or what Doug Antin describes as an entirely new class of Sovereign Individuals. The thinking goes that as nation-states and governments lose power over sovereign individuals, startup cities will proliferate. Cities, like startups, need three main things: operational model (usually outlining business or governance), capital and people (in the form of citizens or talent).
One really useful framework for understanding the potential and limitations of startup cities is Voice, Exit and Loyalty by Alfred Hirschman. It’s important to keep in mind that different members of a group have stronger voices, and the cost for exit might be higher for some than for others. In extreme cases, some people don’t even have the option to voice or exit. In this framework, it is not the people with the most money that hold the most power, it is those who have the greatest freedom of movement (i.e. Exit) who will ultimately end up on top.
A startup city isn’t just a fancy country club where high membership fees get you a series of exclusive perks and benefits. And a startup city is more than just a cult of rich friends and influencers. Nobody calls Soho House or Rajneeshpuram “startup communities.” A startup city represents a fundamental renegotiation of power between a citizen and their state, between a person and the larger society they are a part of.
1. What can we learn from history?
Pioneering communities experimenting with radical governance models are not new. There are multiple examples of startup cities from the distant and recent past. Let’s look at a few:
The Pirate Republic of Nassau, 1706 - 1718
The Pirate Republic of Nassau is an awesome example of a historical startup city. Started by privateers-turned-pirates, this notably egalitarian community followed its own governance structure (the pirate’s code), acquired capital (through pirate’s booty) and had a brilliant model for recruiting and retaining talented new buccaneers (crews from captured ships). Learn more here and here.Seneca Village, 1825 - 1853 and Tulsa’s Greenwood District, 1906 - 1921
Seneca Village was a freedman’s town north of New York, located in what is now Central Park. Like many freedom colonies during this period in American history, the town created an insular economy where residents (primarily Black Americans) could enjoy personal freedoms, economic security and rights such as owning property and voting. The origin of Tulsa’s Greenwood District is similar. In these communities, previously oppressed groups (enslaved Black Americans) had a voice, their capital was reinvested within the community (often because they were excluded from participating economically elsewhere) and plenty of talented people emigrating from more hostile communities.Black Rock City, 1996 - present
Although this pop-up city only exists for 9 days out of the year, it has all the trappings of growth, capital and talent that constitute a startup city. Black Rock City is the location of Burning Man, an annual celebration of freedom of expression and good vibes that has evolved from an underground movement to a playground for Silicon Valley elites.
These examples offer a stark contrast to some of the more frequently cited startup cities/nations like Dubai, Israel, and Taiwan. Now that we have a broader spectrum of communities to consider, let’s dive into the pros and cons.
2. Pros of Startup Cities:
Let’s look on the bright side.
The ability to coordinate is arguably one of humanity’s greatest competitive advantages. Most of history’s major innovations have improved our ability to work as a collective: written language, double-ledger accounting, the printing press, paper currency, the assembly line, the list goes on.
Startup cities are a natural step in the evolution of human coordination. We’re simply getting better at it and finding new ways to mix and match different innovations at scale. For example, in a startup city, you can experiment with community currencies like Sarafu or City Coins, sovereign identity solutions like Democracy Earth’s Proof of Humanity and various governance software solutions used by DAOs today.
Coordination is an infinite game. There is no endgame, just thousands upon thousands of slightly different reincarnations of the same idea until the end of time. Startup cities let us play the game of coordination faster, with more interesting rules. And this intuitively makes sense. If humans as a species can land on the moon, we should definitely be able to iterate and improve upon the structure of the nation state. I strongly recommend Vitalik’s post on this topic of coordination as an infinite game.
3. Consequences of Startup Cities:
Annie, get your gun.
Here’s the deal: startups have a spectacular failure rate (90%) and those that succeed eventually grow out of the startup phase into a more stable model. Applying such a risky playbook to a municipal structure has a few drawbacks we need to consider.
First, let’s consider why startup cities might fail. In the cases of Nassau and Tulsa, these communities posed a radical threat to the status quo and as a result, were violently attacked. Meltem’s hot take seems appropriate here, “You can’t have money without an army.”
Next, let’s consider social contracts that exist within a group. As long as there are communities, there will be social hierarchies. However the arc of progress tends to bend towards the idea that the smaller the disparity between these hierarchies, the better. Startups don’t work that way. The most successful startups have a laser-focused target audience, a clear roadmap of who to hire and when and a Darwinian approach to who gets on the captable. In short, startups by design are not inclusive enterprises. They thrive by segmenting and over-serving a specific group over another. Startup cities follow this pattern. Many have a target audience, be they pirates, freed slaves or digital nomads. Some negotiate special economic conditions within larger (less permissive) regimes as is the case with Dubai in the UAE, Shenzhen in China and Prospera in Honduras. Growing disparities between social classes can be destabilizing. For more on this topic, check out Peter Turchin’s (admittedly controversial) views on the overproduction of elites.
Lastly, a core tenant of startup cities stems from the idea of exit. When the switching costs for entering and exiting a community are low (as they might be for highly skilled remote-first workers), it’s hard to build something long-term. In his blog posts, The Dark Forest Theory of the Internet, Yancey Strickler writes, “If the dark forest isn’t dangerous already, these departures might ensure it will be….To improve and positively contribute to the communities and cultures we’re a part of, we have to actively engage.”
This begs the question, “was Detroit the startup city of yesteryear?” What did we learn and what did we gain from the rise and fall of America’s gleaming Motor City?
4. Concluding Thoughts
Ultimately, I’m stuck on two questions:
What obligations does a member have to her community?
What obligations does a community have to its members?
While we experiment with different social structures, we shouldn't lose sight of the objective of community in the first place. In my mind, the ideal city balances self-determination with social collaboration. There are startup city projects like Freedom, Georgia and proposals to create charter cities for refugees. Ultimately, I think we should strive for models that maximize voice, foster loyalty and always protect the right to exit.