EXECUTIVE SUMMARY

The rapid technological and economic changes of modernity have inspired a growing number of movements to explore new forms of governance in small places. We call these experimental areas “Startup Societies." (Founders of the Startup Societies Foundation coined this term because no existing term covered all governance experiments). Some of the most vibrant areas in the global economy began as Startup Societies. Cities such as Singapore, Dubai, and Shenzhen are examples of the economic dynamism that concentrated political reform can bring. Similar policies have rejuvenated rural and urban neighborhoods around the world.

This Guidebook is the first to provide entrepreneurs comprehensive how-to information to build Startup Societies. It sets out practical steps for founders to create a venture, attract funding, secure reforms and run self-sustaining Startup Societies. The book backs up its guidelines with 50 years of research and field work in over 50 countries (see Appendix XIII, Author Backgrounds. The authors cover both business- and residentially-oriented developments that leverage targeted policy reforms. Chapters also explore how projects can start small and scale from a small cluster of buildings, to midsize projects, to whole new cities.

Startup Society Opportunities

This book distills lessons from thousands of thriving governance experiments around the world. Startup Societies fall into three main categories:

Free Economic Zones

These are special jurisdictions with business climate reforms. The number of Free Economic Zones have jumped from fewer than 600 in the mid-1970s to over 5,400 today. Sources: Diamond, Walter, Tax-Free Trade Zones of the World, Bender, 1976; UNCTAD estimate, 2019). They include duty-free retail, export manufacturing, financial services and information processing operations Zones. Many of their reforms focus on the removal of taxes, red tape and government monopolies. Some are as small as a single office building or a retail mall with duty-free shops. Others are industrial and office parks that host exporters of electronics, garments, software and healthcare services. In China, Special Economic Zones range from dozens to thousands of square kilometers.

Private Residential Communities

Opt-in communities offer new forms of self-governance for inhabitants. Private Residential Communities are exploding for the poor and rich alike. In the United States, over 300,000 residential Startup Societies now offer contract-based systems for residents, in contrast to 600 half a century earlier (CAUS). Private Residential Communities deliver services and amenities normally managed by municipalities. Examples include neighborhood and village-scale homeowners associations that take care of streets, parks, utilities and other common functions. Private Residential Communities also encompass condominiums, housing cooperatives, eco-villages, communes and other intentional communities. Residential community developers use deed or lease covenants to govern themselves. Deed agreements also ensure that residents can self-fund local services and infrastructure. Policy reforms in some cases have conveyed idle
public sites to Land Trusts to help fund community initiatives. New policies are also lifting regulations that limit the ability of residents to self-provide food, energy and other key services.

Integrated Startup Societies

Areas that include both Free Economic Zone and Private Residential Community elements are Integrated Startup Societies. These are the most advanced Startup Society type. Hong Kong, Songdo and Macau freeports provide exceptional tariff, tax and regulatory relief for residents and businesses alike. Chinese Special Economic Zones also have lifted tens of millions from poverty and created world-class commercial, industrial and residential hubs. Their example has inspired entrepreneurs to launch privately funded Integrated Startup Societies around the world.

Successes – and Shortfalls

Startup Societies succeed because they do not attempt to transform large, entrenched governments. Instead Startup Societies create small “proving grounds” for new policies. History shows how even small places can have monumental consequences when governed properly. Shenzhen, a poor fishing village with fewer than 30,000 residents in 1979, is now a world-renowned metropolis that accounts for over 80% of the world’s electronic hardware production (Bland). World Bank studies compare Shenzhen’s GDP with that of Ireland, Portugal or Vietnam, all countries 500 times larger in size (GDP). Shenzhen’s success inspired China to open scores of Free Economic Zones and embark on broader market-oriented reforms. Also, almost half of all Chinese urban residents live in private condominium-style neighborhoods (Glass).

A sizable number of Startup Societies have also fallen short, or failed outright. Common mistakes have included:

*Tensions with the local community
*Poor relationships with governments
*Lack of eminent endorsers/partners, raising questions about intentions and capabilities
*Dependency on public sector funds
*Giving investors and partners monopoly positions
*Going “all in” on a pre-chosen location, rather than scouting for alternatives.

Startup Society founders have been unaware of best practices to address the above issues. Nor have Startup Society developers looked beyond their narrow market segments for new ideas. Free Economic Zone developers, for example, are often unaware of innovations in contract-based residential communities and vice versa. This Guidebook seeks to cross pollinate best practices from both industries and beyond.

Projects with concentrated reform often spark backlash. Land near Startup Societies becomes more expensive as governance improves. As a result, long-time residents feel they will be displaced if the project succeeds. Many also view Startup Societies as havens for the well-off. In areas with colonial histories, people recoil at the prospect of neo-colonial enclaves. In the past, such concerns have delayed or derailed countless projects.

Paths for Inclusion

This Guidebook offers a new way to align the interests of Startup Societies with those of host communities. The following strategies differentiate themselves from one-sided, extractive approaches. After an agreed-upon period to reward private funders, the authors recommend that ventures turn over Startup Society asset gains, in full, to the community.

Cornerstones of this approach include:

*Startup Society ventures leasing — rather than purchasing – prime sites.
*Developers conveying privately-funded infrastructure to Community Land Trusts through “Build-Operate-Transfer” (BOT) agreements.
*Residents receiving dividends from ground lease income as the full-scale project develops.
*Residents receiving direct dividends from eGovernance apps that improve the investment climate. (A share of the user fee revenue also goes to governments and to creators of the online apps).

With the above approaches, long-time residents inherit the asset value created by Startup Society ventures. This yields results that are the direct opposite of past neo-colonial Startup Society attempts. With the inclusive approach, localities commit to deep reforms and offer the Venture prime leasehold sites at affordable costs. This makes the Startup Society more attractive and profitable to private investors. Inclusive growth also maximizes the value of the assets that the host community inherits. The Venture can repeat such partnerships in other locations.

Better Practices

This Guidebook introduces cost-effective paths to launch Startup Society ventures. The authors recommend:

A Bold Vision

Startup Societies spark support when animated by a plausible and exciting vision. Founders with a massively transformative purpose can attract high profile endorsers as well as grassroots and online supporters.

An Active Consortium

Experienced partners give a lean Startup Society venture traction, expertise, connections and credibility. Online fans that are inspired by the Startup Society’s vision are another key ally. Their pooled support and pledges can be crucial to early success.

Leading with a Gift (LWAG)

Startup Societies give digital gifts that help local communities economically develop. These help build trust with local communities prior to the Startup Society’s development.

Quickstarts

Small, low-cost facilities are a Startup Society’s first “minimally viable product.” They can activate business hubs and fast-setup dwellings for digital nomads and local enterprises. Quickstarts apply initial policy reforms to validate market response – and if successful, they scale to a larger area.

Big Expansion Areas

Each Quickstart pilot should grow into a larger Expansion Area. Land values there rise given effective policy reforms.

Quickstart partners and local stakeholders (including government) hold shares in the larger site. Entrepreneurs can “flip” the Expansion Area development concession to larger developers, rewarding the Startup Society venture.

The developers bind themselves to BOTs and ground lease dividend agreements to benefit the local community. As a result, established residents can become co-owners of Singapore-class projects.

Endowment Zones

These are areas that dedicate a share of their land lease revenues to fund local causes. Endowment Zones may occupy a portion of land within a Startup Society or its entirety. Endowment Zone reforms stimulate early local investment and business startups. Over time, a Community Land Trust benefiting from BOT agreements also vests the Expansion Area’s land value gains with residents. As policy reforms cause the value of Startup Society ground leases to rise, locals receive a continuous and growing share of revenue. This motivates engagement from core stakeholders to maximize the Startup Society’s long-term value.

Competitions

Startup Society ventures can invite bids from multiple local partners and governments to become host. This is opposed to the traditional strategy of focusing on a pre-chosen location. A formal or informal contest can ensure that deep reforms, attractive sites and local partners are available. Contests that yield quality opportunities increase the likelihood that a Startup Society venture will make a wise location choice.

Combining best practices lowers the expenses and political risks of new initiatives. Once understood, a Startup Society Founder will be in an excellent position to form a team, create exciting presentations, win endorsements, gather experienced Consortium members and assemble pledges of financial support. These steps set the stage for the Startup Society to choose among contestants in the competition.

The world has never been so ready for new experiments in inclusive and accountable governance. This Guidebook offers a range of opportunities for the next generation of Startup Societies to emerge. To get there, ideals and a success-sharing ethos should be combined in practical and rewarding ways.

This is an excerpt from the e-book Founding Startup Societies: A Step by Step Guide.