The Crazy but True Story of an American Startup City
How Kannapolis, North Carolina got built, incubated a multi-billion dollar retailer, died in a 1980's corporate takeover, and found new life as an R&D center
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This week: the wild but true story of an American town built by a towel factory.
Robert Tucker: Shoe Emperor
I bet you’ve never heard of Shoe Show Inc, a shoe retailer from rural North Carolina. I hadn’t either… until I found this little book sitting next to a cash register in a small town:
I couldn’t resist… I’m a sucker for obscure business history. But Shoe Show is no little mom and pop. It has 1,150 locations in 47 states. It’s privately held. And it made $6.2 billion in revenue last year. How’s that for a family biz?
Shoe Show is a classic bootstrapped empire. The founder, Robert Tucker, went from sweeping up a local shop to shoe emperor over 60 years. He sold shoes from his car. He built his own shelves. He employed his children. He bought and leased dumpsters to himself to get $50 a month off his store lease. He took the unsexy path and won.
But Shoe Show likely wouldn’t exist but for an obscure town built by a towel factory.
Kannapolis: The Town that Towels Built
In 1904, entrepreneur J.W. Cannon bought a thousand empty acres in North Carolina. Cannon was head of the world’s largest sheet and towel producer: Cannon Mills. Its newest mill, built on these empty acres, employed over 30,000 people.
J.W. Cannon understood the same thing that companies like Google do today: happy, healthy people make better employees. So Cannon built 1,600 homes, a YMCA, a movie theater, a daycare, a hospital, roads, parks, even an artificial lake.
Cannon endowed schools with land and funding. He even “supplemented the salaries of additional deputy sheriffs” in cooperation with the county. Cannon also pioneered life insurance, possibly the first entrepreneur to ever offer it to employees.
Kannapolis, the cheesy name of his burgeoning city, was a classic company town:
Cannon Mills Company owned all the real estate, including homes and commercial property, within a radius of several miles of the headquarters. Mill hands paid low rent to live in one of the company’s 1,600 four- and five-room clapboard houses that were arranged in neat rows along streets.
Wait, But Aren’t Company Towns Evil?
I know what you’re thinking. “Are you seriously about to say something positive about company towns?”
Because not all company towns were smoke-stacked Dickensian hellscapes. And they offer powerful lessons for today’s city builders.
Let’s face the moral stuff first. We should judge company towns like any other product. Some were good; some were not. Critics dismiss all company towns on grounds that it’s inherently evil for a living environment to be owned and operated by a private company.
I disagree. And, more importantly, so do real customers: many privately owned and operated communities have lower vacancy rates and premium prices compared to the area that surrounds them (a subject for a future essay):
There’s no way to deny the paternalistic element to company towns, which many people find gross. But then again, what do you think your enlightened tech company is doing when they give you therapy apps, kale lunches, and a gym membership? What do you think your city government is doing when they ban smoking, make it harder to drive downtown, and rant about “food deserts”?
The subsidized living of company towns like Kannapolis were the lavish benefit packages of yesteryear. We shouldn’t dismiss them outright.
Daily Life in Kannapolis
We must also be extra careful not to romanticize the American South of the 1940’s. But those that assume Kannapolis must have been a dystopian land of trampled worker’s rights can check the evidence. Roving filmmaker H. Lee Waters visited Kannapolis in the 1940’s to shoot film of daily life there.
You can find the footage in the Duke University archives. Here’s one clip:
Kannapolis looks like a well-run version of other blue collar Southern towns of the era (for better and worse). Cannon plowed profits into Kannapolis to improve it and to draw new residents.
Residents say the town worked well. And people moved there, which is the biggest endorsement a city can get. Here’s the Tucker family:
Cabarrus Memorial Hospital, the object of Cannon’s personal attention over the years, provided some of the best health care in the area. Kannapolis was orderly and neat, and Cannon’s people kept it that way.
Kannapolis also offered better urbanism than many of today’s American cities, including tradurbanist architecture and Jacobsian mixed-use, walkable spaces with commerce on the ground floor:
… The buildings in the central retail district reflected the architecture of Colonial Williamsburg… The ground level of most of the buildings was reserved for retail stores and shops, while the upper floors of multistory buildings were rented as offices for lawyers, accountants, insurance agents, and others offering professional services.
Contrary to the “company-towns-must-be-evil-monopolies” view, Kannapolis also had a vibrant retail and services sector:
Competition was keen. There were five shoe stores and a department store on Main Street alone. One block over on West Avenue, the community’s main shopping area, there was another independent shoe store as well as the Belk and JC Penney stores…
Retail competition was so fierce that Cannon’s property managers first refused to lease to a young Robert Tucker — the future founder of Shoe Show. The market was saturated, they said!
But Tucker prevailed. He got his first location in downtown Kannapolis with a handshake deal. From this beachhead, Tucker conquered his market.
There’s no denying that Kannapolis worked. It grew into America’s largest unincorporated municipality.
Until the 80’s.
The Hostile Takeover of Kannapolis
In 1982, billionaire corporate raider David Murdock bought Cannon Mills. I encourage you to play this song while reading this next part:
Unfortunately for the residents of Kannapolis, ownership of the city and the textile firm were legally the same.
The Tuckers recall:
The Cannon sale shocked the entire community and brought a level of uncertainty to Kannapolis that it had never known before.
Murdock gutted Cannon Mills. It passed between holding companies. Global competition bankrupted acquirer Pillowtex in 1997. 4,340 Kannapolis residents lost their jobs on the same day. The mills were demolished. Kannapolis slumped.
But Kannapolis didn’t die.
In 2004, Murdock appeared again. He re-purchased downtown Kannapolis and built a $1.5 billion research center, which is now the North Carolina Research Campus.
Hilariously, Murdock sold downtown Kannapolis back to the city itself — now an incorporated city with a traditional municipal government. Today, Kannapolis is North Carolina’s 19th largest city.
Some residents don’t like the new Kannapolis, instead yearning for its past as a blue collar company town:
Barbara Hunter said the changes, like the new research campus, have left people like her behind. “It was never intended to benefit the people who worked at the mill,” she said.
Lessons for Startup Cities
What can we learn from the crazy story of Kannapolis?
That’s the Power of
Love Unified Ownership
First, Kannapolis is a story of dynamism: the highs and the lows of economic change.
Kannapolis has an interesting history because its downtown was a single owned unit. It wasn’t locked in typical zoning, or the impossibly high transaction costs of a subdivision with thousands of parcel owners. Downtown Kannapolis could evolve because it changed hands like a slot on a Monopoly board.
Over 100 years this downtown went from empty land, to the busy urban core of a company town, to the blighted sprawl of a bankrupt mill, and now to a high-tech research center.
One reason why I’m skeptical of traditional subdivision and traditional city government as tools for building cities is because they often limit dynamism like this. Kannapolis proved more unstable than a typical city. But it had more dimensions for innovation and change. Unpredictability is the cost of adaptability.
Company Towns Are Fragile
Though Kannapolis is a positive story overall, Startup Cities should be careful not to model themselves after company towns. The core of a company town is that the biggest employer in the area is also the owner and operator of the community. It’s dangerous to couple these functions. If the mill dies, so does the town.
Kannapolis learned the hard way when their town was acquired alongside the mill. The industrial company town is a fragile monoculture, where too much depends on the success of a single firm.
On the other hand, the traditional company town had a quick solution to the cold start (“anchor tenant”) problem. The community owner is the anchor tenant! The city builder can seed the urban network itself!
I think the usefulness of the traditional company town depends on context. In the United States, I’m skeptical it would work today because you’re building for a wealthy service economy where many people no longer even work at a single central location.
But this isn’t true everywhere. You could argue that Ciudad Morazán in Honduras is a company town. But in Honduras this makes more sense — the country’s GDP is less than the valuation of many top tech startups. And many of the best jobs are in fields like textile manufacturing, the same industry that Cannon Mills dominated 100 years ago.
Besides, traditional cities aren’t immune to the problem of a single point of economic failure either — go read a history of Detroit and the rust belt!
Companies Can Build and Operate Successful Towns
Kannapolis also disproves the popular idea that companies can’t build cities and, if they do, that those cities can’t work. Kannapolis is surely imperfect, but is it fair to call a city of 54,000 people and a household income of $55,923 (just below the median for North Carolina as a whole) a “failure”? I don’t think so.
Finally, Kannapolis shows the secondary effects of a healthy city. Its management had the right incentives to make it easy to live and do business in Kannapolis.
And this is how Robert Tucker of Shoe Show got his start.
Entrepreneurship is about power laws. Most successes are modest. But a small number of firms end up shifting the market. We need easy onramps for entrepreneurs to start a business, in particular for meatspace businesses like retailing.
Tucker had just that. If Tucker had lived in one of today’s sclerotic cities, would I be reading his memoir? Maybe. Or maybe he’d have vanished into obscurity, another great entrepreneur lost to the battle with city bureaucracy.
Thanks for reading and don’t forget: Startup Should Build Cities!
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Another great post, Zach! Ciudad Morazán has the advantages of a company town in retaining ownership of the land, avoiding destructive regulations like zoning laws, and (as a for-profit company) being subject to market discipline. It avoids the main disadvantage because it can attract a variety of industries with its location near a major port and its low regulatory burden. Before the political uncertainty brought construction to a standstill, there were industrial tenants attracted to the ease of doing business, and residential tenants (especially blue-collar workers) attracted to the safety and quality of life.
Love this post Zach! I wonder if there might exist a middle ground between single-company dependence and total diversification in the beginning.
After all, every city started with some sort of concentrated economic focus. Port cities popped up because of shipping and trade and many other successful towns or cities today were once very concentrated in a single industry. The successful ones were able to diversify, the unsuccessful ones did not.
Again, the analogy to startups is clear: every company starts with a make-or-break product or niche. No company is born as a diversified conglomerate. So too it might be with Startup Cities: impossible to start without some sort of partnership with a company to solve the cold-start problem, but with a goal of diversifying as fast as possible. Remote work makes this easier but those jobs are still more weighted to tech companies. Awesome post!