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It was a valiant attempt to get the world's attention: 1,623 guitarists in Yonge-Dundas Square, backed by a band called Heartbroken, strumming Neil Young's Helpless in a failed bid to set a world record.

As the final notes of Mr. Young's analog classic floated skyward, Toronto's digitally minded neighbours down the 401 in Waterloo were preparing to take yet another leap into the future, in nearby Stratford, at a conference called Canada 3.0.

It was a coincidence, but one that symbolized an inconvenient truth for Toronto - that when it comes to smart-city prestige, little Waterloo has been eating the big city's lunch. And if that lunch had a name, it would be Startup Salad with BlackBerry Vinaigrette.

Sure, some of the world's best biomedical minds work in Toronto's MaRS Centre and hospitals. But wee Waterloo, with both feet planted on Earth, is getting better public traction with 500 tech companies, led by global juggernaut Research In Motion and its high-minded institutional spinoffs.

On the Waterloo corner where Seagram's once made whisky, RIM co-chief executive officer Jim Balsillie is building a sober new School of International Affairs behind his seven-year-old Centre for International Governance Innovation. Across the street is the world-class Perimeter Institute for Theoretical Physics, endowed by RIM president and co-CEO Mike Lazaridis, who also helped fund the University of Waterloo's new Institute for Quantum Computing.

Down the road in Kitchener, meanwhile, on a corner where Uniroyal made tires, UW's new school of pharmacy anchors a health sciences campus that will train medical students from Hamilton's McMaster University.

How could this be? Here's what the experts said.

Waterloo = Avis, Toronto = Hertz

"If you're already the best, you don't have to work hard," Thomas Homer-Dixon, an author and academic formerly of the University of Toronto, wrote in an e-mail. He now teaches at UW and occupies a research chair at the new Balsillie School.

The tale of the Toronto-Waterloo difference, he said, can be told by its universities. "The University of Toronto's biggest handicap is that it believes it's the best. The result is pervasive complacency and flabbiness," Dr. Homer-Dixon wrote. "UW has, in contrast, an 'Avis complex': it doesn't believe it's the best, so it's constantly trying harder, and the results are visible every day."

Roger Martin, dean of U of T's Rotman School of Management, agreed there's something to this.

"I think it gets back to 'That which doesn't kill you makes you stronger,'" said Mr. Martin, a product of rural Regional Municipality of Waterloowith 10 generations of Mennonite blood behind him. "Having to fight hard for your place in the world has a benefit."

Statistics confirm Waterloo's underdog status, at least when paired with its twin city, Kitchener. By his Rotman colleague Richard Florida's definition, 34.3 per cent of Torontonians belong to the "creative class," while just 27.9 per cent of Kitchener-Waterloo residents do. Also, Toronto has more university grads, at 30 per cent to K-W's 21.

"However, there's an interesting counter to that," Mr. Martin said. "If you ask about patents per 10,000 employees, Toronto is 1.09, and guess what? K-W is 2.50." This "ridiculous gap" suggests "there's something in the water in Waterloo that causes them to make much more of much less."

Smells like old spirits

"What's in the water in Waterloo is whisky," said UW president David Johnston. He's only half-joking. When the university opened in 1957, Seagram's had been pumping out booze for 100 years, having survived Prohibition (they happily supplied bootleggers). It was the world's largest distillery and Waterloo's biggest business. A brewery sat nearby.

Unlike others across Ontario, residents here solidly opposed Prohibition, and not merely to protect jobs. "They're different kind of people; they don't fit into the kind of profile you would expect of, say, Toronto or the other Anglo-Canadian cities," said John English, a historian, author and executive director of the Centre for International Governance Innovation. The evidence is all around him: CIGI sits in the former Seagram Museum, amid old barrels and racks.

Founded in the early 1800s by German-speaking Mennonite pioneers from Pennsylvania, Kitchener (named Berlin before 1916) and Waterloo drew subsequent waves of German immigrants, assuring a place outside the mainstream. Their prosperity in spite of obscurity - factories turned out everything from buttons and tires to furniture and meat - only spurred them on.

In the 1950s postwar boom, local industries needed engineers and technicians. Gerald Hagey, head of a Lutheran-affiliated college, rallied business leaders behind a new University of Waterloo, based on a maverick "co-operative program," where students alternate between the classroom and paid work. UW's co-op program, since copied elsewhere, is the world's largest.

Professors and students were allowed to own and patent their discoveries, which gave rise to many of the 500 tech companies that dot Waterloo region. The first UW spinoff was Watcom, a software firm founded in 1981 by a handful of students and their professor, Wes Graham, whose pioneering efforts paved the way for the likes of RIM and Open Text.

The result was an upward spiral that draws the world's best minds to Waterloo to study, start companies, hire more UW grads and give back to the university.

'Toronto is Versace. Waterloo is Armani.'

So says Malcolm Gladwell, who grew up in rural Waterloo not far from Roger Martin, studied at U of T and found fame as a pop sociologist with The Tipping Point (2000), Blink (2005), and Outliers (2008).

Toronto's flash contrasted with Waterloo's understated elegance is one difference that illuminates Waterloo's place atop the smart-city consciousness, Mr. Gladwell suggested in a metaphor-laden e-mail reply to The Globe and Mail.

"Toronto is Trotsky, who spent a whole lot of time, let's not forget, playing chess in Vienna's café central," he wrote. "Waterloo is Marx, who spent his days holed up in the British Museum writing a really, really long, really really serious book that almost no one has ever finished. I'm guessing Trotsky got the girls. But Marx? Definitely smarter."

At a joint appearance at U of T last fall, Mr. Gladwell and Mr. Martin talked about how their inauspicious Waterloo roots blossomed into high-flying careers. Neither sprang from privilege, but from pragmatism - hard work, luck, and the family and community factors that Mr. Gladwell cites in Outliers as keystones of success. "If our parents had been millionaires, neither of us would be up here right now," he told the crowd.

There's no shortage of millionaires in Waterloo, but a visitor would be hard-pressed to pick one from the Saturday-morning crowds at the farmers' market or the Home Depot, both of which feature hitching sheds for horse-drawn Mennonite buggies.

"I can't think of any ostentatious leader in this community," said Dave Caputo, president and CEO of Sandvine, which makes broadband networking software and equipment. Mr. Caputo started Sandvine in 2001 after his former Waterloo employer, PixStream, was gobbled by Cisco Systems for $554-million.

"David Johnston, I suspect, is the greatest university president on the planet," Mr. Caputo said. "And you can call him up and go for lunch with him."

Humility good. Hubris bad.

Mr. Johnston, who took the reins at UW in 1999, is a lawyer who studied at Harvard, Cambridge and Queen's, holds honorary doctorates from 12 universities and has authored or co-written a dozen books.

He also lives in the manure-scented countryside, on a farm surrounded by Mennonites.

"That's why I drive a black Volvo; I'm showing my respect to my Mennonite neighbours," Mr. Johnston quipped. "I do drive a car but it's black and [has]no chrome."

This week, he piloted the Volvo along back roads to Stratford for the Canada 3.0 conference, where UW and Open Text are developing a digital media institute. He passed fieldstone farmhouses that sum up the Waterloo ethic.

"You know, the Mennonites would build these quite magnificent stone houses, but they put stucco over the facing side of the first level," he said. "That's the Mennonites saying, 'You don't show off before God; if you're lucky enough to have a stone house, put a coat of stucco on it so it doesn't stand out.'"

A similar humility flavours business and community life here, Mr. Johnston said.

"You don't trip over your ego, and it establishes a pragmatism as opposed to airs," he said. "I mean, you're judged on what you do rather than what you say or how you dress."

Gianni Versace may have had the more flamboyant fashions, but as Mr. English of CIGI pointed out, "He's also dead."

The Mennonites also raise barns for each other, as Mr. Johnston is fond of mentioning in speeches. Mr. Caputo said the image of "people on the roof, rolling up their sleeves, swinging the hammer" applies well to Waterloo's tech companies, who network under Communitech, a non-profit umbrella group.

Goodbye, hard drive

Iain Klugman, Communitech president, said Waterloo region's easy size (500,000 people, including 120,000 in Waterloo, where much of the tech industry is clustered) is a clear advantage.

"We get asked a lot, why can't we come [to Toronto]and run what we run here," he said, "and I say it would be too difficult. The beauty of this area is … you can get your arms around things here." Including your family.

"Let's see, I left my house at about 9:52 for this 10 o'clock meeting, and I just moved out into the sticks," Mr. Caputo said. "You can't overestimate the power of the short commute."

While studying computer science at York University and getting his MBA at the University of Toronto 20 years ago, Mr. Caputo "loved every minute" of his big-city experience. "When I first moved here, I used to go back to Toronto every weekend, and then a little thing happened called kids," he said.

While tech employees in Waterloo are as prone to long hours as Toronto workers, the shorter commute - to a house that costs a third of what it might in Toronto - gives Waterloo added appeal.

As dean of Toronto's prestigious business school, Mr. Martin surely can't bring himself to say wee Waterloo is smarter than his adopted city, but he will concede one point.

"In Toronto and in every big city, there's this sort of background hum," he said. "There, whenever I go, I sleep like a baby, because it's back to the quiet that I was used to for the first 18 years of my life."

And there's no one strumming Helpless .