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Updated: Thu, 31 Jul 2014 08:00:00 GMT | By Murad Hemmadi

Why fostering a successful startup scene means starting with City Hall

Municipal governments need dedicated units to help cut through red tape, says McKinsey study.


Wattpad founder Allen Lau

Wattpad founder Allen Lau. Wattpad has been vocal about its ambitions for Toronto's startup community. (Wattpad)

Cities need to focus on building a vibrant start-up ecosystem rather than providing funding for specific ventures, according to McKinsey.

Examining the success of entrepreneurial hotbeds like New York, Tel Aviv and Berlin, Creating Growth Clusters recommends the establishing of start-up delivery units to encourage prospective new companies:

Establishing a coherent and supportive entrepreneurial policy at the city level is challenging. Municipal decision makers should identify bottlenecks in the start-up ecosystem and design and carry out initiatives to address them. These moves require a project-oriented, dynamic, and capable organizational structure.

Toronto is the eighth-best city in the world for start-ups , according to research firm Startup Genome. Jeff Beer suggested that a few smart changes could move the city up the scale:

But if it is serious about exploiting its innovation potential, Toronto needs a tangible strategy across government, the private sector, entrepreneurs and investors to make it happen. That includes a more active role for city hall in attracting and keeping business, improved investment incentives, and encouragement for big business to engage these new ventures as investors and clients.

READ: Make Toronto the startup capital of the world »

Canada isn't exactly a barren wasteland for start-ups at the moment. Increasing numbers of Canadians are choosing to start their own businesses rather than work for someone else . Some are seeing fantastic returns from the decision to strike out on their own: the list of recent successes includes Apple purchase AllThingsID , social manager HootSuite and SalesForce acquisition GoInstant .

READ: Is HootSuite Canada's next billion-dollar tech titan? »

The federal governments has been making efforts to boost entrepreneurial outcomes, with a new startup visa for foreign-born entrepreneurs and $400 million in funding to create venture-capital funds led by the private sector.

But municipal government is the level that really needs to be making an effort, McKinsey suggests. Innovation clusters are almost always based in large metropolitan areas, and cities have control over key inputs like power and transport infrastructure. Last year Calgary's superstar mayor Naheed Nenshi suggested to Maclean's last year that municipal government is the most crucial level for most citizens, and it seems that with startups it's the absence of city engagement that causes problems.

Worrying signs abound for those hoping to see a local startup boom: Canada's cities lack the kind of transit infrastructure that would fix the country's productivity problem, and there's a dearth of graduates in the science, technology, engineering and mathematics fields.

Still, if McKinsey is to be believed, a dedicated startup-booster in every major Canadian city would boost our odds of hosting the world's next big innovation cluster.

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