We’ve had a lot of success with that model on mastodon, as well as the sort of hub-and-spoke model where you have a larger instance (like beehaw) and a number of smaller instances that primarily interact with the larger instance and with each other. Location specific instances are also great for discussion, for telling people about events in their area, etc.
You could always start pretty small - basically if you could get enough people who want to have a Tuscon-specific community and who can be active, you could start a solid community, and probably survive off of relatively small donations at first. Once you’ve got a solid seed community it could be easier to grow from there.
I personally run (with a friend) a mastodon instance which is only for me and people we know IRL. While it’s not what you want in the long term, it could be a good starting place while you figure out how to get everything set up and figure out how many resources you’ll need and what funding you’d need. That way you don’t have to solve every problem at once - you can open it up more once you’re sure you have a solid foundation.
ha, if it turns out anything like mastodon, it’ll be the medium to small instances that have the biggest amount of defederation drama. This whole thing is the most amicable defederation I’ve ever seen.
Small instances have otherwise been good for mastodon though