What does it take to create an environment where entrepreneurship and innovation can flourish ? Why are some places better at creating them?
Made by Entrepreneurs for Entrepreneurs
In Entrepreneurial Ecosystems and Growth Oriented Entrepreneurship Prof. Colin Mason and Dr. Ross Brown identify a key phenomenon they name “entrepreneurial recycling.” Through it, cashed-out entrepreneurs reinvest their time, money and successful expertise to support new entrepreneurial activity.
While investment dollars might accelerate the growth of already successful firms, they can’t act as a substitute to the leadership of an experienced entrepreneur in the birth of a new venture. Mason and Brown attribute the high growth of Ottawa’s tech cluster in the 1970s and 1980s to local entrepreneur Terry Matthews and not venture funding.
Brown and Lee’s 2014 report An Examination of Funding Issues Confronting High Growth SMEs in the UK noted that less than 5% of growth-oriented firms were funded by venture capital.
The Kauffman Foundation’s 2012 study The Ascent of America’s High Growth Companies: An Analysis Of The Geography Of Entrepreneurship, Kansas City found very few had raised angel or venture capital funding. Most firms were initially funded through a combination of self-financing, loans from family and friends, and bootstrapping.
Brad Feld’s breakthrough book Startup Communities: Building an Entrepreneurial Ecosystem in Your City categorizes all the stakeholders in an entrepreneurial ecosystem into two main groups: feeders and leaders. Survival requires both but it’s critical that entrepreneurs lead the ecosystem. Despite commonly held belief, it’s not pools of available capital that is key to growing an entrepreneurial ecosystem, it’s having proven entrepreneurs reinvest their time, energy and capital back into the community.
Open is Key
An open ecosystem is one that readily accepts new members, shares information between its members and supports diversity in its membership. This is key in both short term and long term health of an entrepreneurial ecosystem.
Boston and Silicon Valley were similar technology hotbeds in the 1980s. Later, though, Silicon Valley vastly outpaced Boston. In her PhD study, Regional Advantage: Culture and Competition in Silicon Valley and Route 128, Annalee Saxenian researched why that was and came to the conclusion that the horizontal exchange of information across and in between companies was the key differentiating factor.
The porous boundaries between leading Silicon Valley companies stood in stark contrast to the closed-loop and autocratic companies in Boston.
Richard Florida’s pioneering Rise of the Creative Class argues that tolerance exhibited by the community at large is a key factor in becoming a hub of creativity and innovation. His research links a large gay population to a metropolitan area’s high-technology success.
In Startup Communities: Building an Entrepreneurial Ecosystem in Your City Brad Feld cites the importance of a start-up community as one of the key factors of its success. It should be diverse enough to including all kinds of entrepreneurs from the just emerging to the most experienced. In their Think Locally Act Locally Report The Kauffman Institute points to the importance in having a heterogeneous composition of programs that appeal to a variety of different levels and types of entrepreneurs.
Tech City UK exemplifies initiative that encompasses a number of different programs that support a wide range of entrepreneurs and digital businesses. Their Digital Business Academy provides expert digital business courses to anyone in the UK. Their Future Fifty program offers concierge-style help to qualified high-growth businesses. Recently they launched Tech Nation Visa scheme to attract and secure top talent from outside the EU.
Affordable Spaces to Work, Live, and Congregate
Start-ups are risky, so access to affordable working and living space is key to nurturing an entrepreneurial ecosystem. However it isn’t just space that is needed. A high entrepreneurial density in the ecosystem is advantageous as it can act to build momentum for existing players, provide access points for new members and boost information sharing.
Also equally as important as the physical space is the culture which permeates it and surrounds it. A creative “can-do” culture that encourages mutual assistance.
The move of entrepreneurial centres from suburban enclaves to urban environments is a recent trend. As of 2016, Paris hosts the world’s largest digital business incubator – 1000 innovative start-ups – in the city’s centre.
Having this many entrepreneurs congregated in a particular area can be a powerful phenomenon as it helps to connect the community creating multiple formal and informal encounters on a regular basis that can lead to information sharing and community ties strengthened.
Michael Storper and Anthony J. Venables highlight local awareness in Buzz: face-to-face contact and the urban economy. They call buzz “the information and communication ecology created by face-to-face contacts, co-presence and co-location of people and firms within the same place or region.”
Entrepreneurial density can also help to create economies of scale for specialized services and talent pools needed to grow companies.
Locating these spaces in urban settings enables easy access to what Richard Florida labels street-level culture: Environments that promote a variety of participatory and experiential activities through sidewalk cafes, musicians, galleries and bistros. Florida’s view shows up in the rankings of NomadList, a popular website that helps creatives choose where to work.
Understanding best practices in fostering entrepreneurial ecosystems helps reveal the participatory and democratizing potential of technology. In turn, that can lead to widespread adoption of digital technologies and services accompanied by a global surge in economic development.