How Tentpole Companies Can Transform a Rising City

Last week, Cisco announced its intent to acquire Duo Security, an Ann Arbor-based cybersecurity company, for $2.35 billion. It is the largest acquisition to date in the entire state of Michigan.

Not only is the deal significant in terms of the amount of capital flowing into the region, it also promises to have ripple effects throughout the Ann Arbor startup ecosystem. On our Rise of the Rest tours, we often visit companies like Duo Security—what we refer to as a tentpole. A tentpole company is one that, because of its standout success, attracts investment, talent, and attention to the broader startup community. Duo Security raised $121.5 million prior to being acquired and currently employs 740 employees. But its fast growth and subsequent acquisition also reinforced the idea that great companies can start and scale in Ann Arbor.

Another tentpole company we visited on our last road trip is Shipt, a Birmingham-based grocery delivery service that was acquired by Target for $550 million last year. Instead of relocating, Shipt stayed in Birmingham, partially due to a series of incentives granted by the local government. This summer, Shipt announced that it planned to hire an additional 881 workers in Birmingham, with an average salary of $48,000. And that’s only what’s occurred in the past nine months; imagine the ripple effect the company could have on the region over the next several years.

For an example of how the success of a tentpole company affects the startup ecosystem years down the line, look no further than Indianapolis. ExactTarget, a marketing software company, was acquired by Salesforce for $2.5 billion about five years ago. Instead of closing up shop, Salesforce doubled down on Indianapolis — opening its new tower in the city where it now ranks as Salesforce’s second largest global location with more than 2,000 employees.

And the ExactTarget founders have committed to the Indy tech scene as well. Co-founder Scott Dorsey started High Alpha, a venture studio to help fund other Indy-based entrepreneurs. Chris Baggott, also an ExactTarget founder, stayed in town and created another startup: ClusterTruck, a food delivery company. There are also the dozens of ExactTarget employees who stayed in Indy, creating new companies and new jobs and in turn, attracting new talent to the city.

Another example can be found in Chattanooga, with Access America Transport, a third-party logistics company specializing in truckload and supply chain management solutions. Founded in 2002, Access America saw rapid organic growth, going from zero in sales to over $500 million in revenue in just 12 years. In 2014, the company merged with Coyote Logistics, creating revenues of more than $2 billion and marking a big win for the Chattanooga ecosystem. After the merger, Ted Alling, co-founder and CEO of Access America, launched a string of successful businesses and organizations to support entrepreneurs including: Lamp Post Group and Dynamo, two Chattanooga-based venture capital firms, and the Tomorrow Building, a co-living residence for entrepreneurs and creatives in the heart of Chattanooga’s innovation district.

Salt Lake City also recently saw its own regional success with Pluralsight, a technology learning platform which went public this past May. Following the IPO, Pluralsight announced its planned expansion in Utah with a projected creation of 2,400 jobs, $86.2 million in new state revenue, and an estimated $371.7 million in capital investment. Just last year, Pluralsight launched the Pluralsight One initiative, which committed $10 million to support K-12 computer science education across the country. Aaron Skonnard, co-founder and CEO at Pluralsight, has also been instrumental in helping the region rise by co-founding Silicon Slopes, a nonprofit organization empowering Utah’s tech community to learn, connect, and serve. The organization hosts over 200 events that attract more than 40,000 total attendees per year.

Tentpole companies play a key role in providing validation to investors, momentum for the community, and mentorship to startups. Dug Song, co-founder and CEO at Duo Security, has accomplished that by not only proving that it’s possible to scale a company of this magnitude in Ann Arbor, but also by supporting the next generation of entrepreneurs by helping launch the A2 New Tech Meetup, one of the longest-running, most attended, tech startup events in the region. Because of companies like Duo Security, a lot more entrepreneurs, in a lot more places, will believe that startup success outside of Silicon Valley is more than just a possibility — it’s a reality.