“Ecosystem” is the go-to metaphor for regional entrepreneurship. The Kaufman Foundation, popular press commentary, Charlotte,North Carolina, and San Francisco, California all make references to creating an entrepreneurial ecosystem to facilitate economic growth, impact upward mobility, and build a strong regional economy.
The entrepreneurial ecosystems metaphor means that new firms emerge and grow due to talented entrepreneurs and the location of these firms in nurturing environments for entrepreneurs.
Nature’s ecosystems are often studied at the individual, population, and community level. On the individual level, ecosystems are studied mostly on the basis of physiology, reproduction, development, or behavior. At the population level, studies focus on habitat and resource needs of specific species, group behavior, population growth, or causes of extinction. Lastly, studies at the community level explore species and their interactions (i.e. predators and prey).
An entrepreneurial ecosystem has analogous components to a natural ecosystem:
- A conducive culture such as tolerance for risk and mistakes, positive social status for the entrepreneur;
- Institutional support such as legal and accounting advisers, research facilities, universities, think tanks, associations, supportive tax structures, and diverse and accepting capital markets;
- Political environment support of entrepreneurs with regulatory incentives;
- Available individuals in existence to build human capital;
- Dedicated finance availability such as venture capital, seed capital, and angel financing; and
- Supportive infrastructure such as large firms to purchase goods and services.
Some countries, such as Singapore, Israel, and Germany, and some regions, such as Silicon Valley, are well known for their robust entrepreneurial ecosystems. The entrepreneurial ecosystem metaphor is so popular that the European Commission developed the Entrepreneurship 2020 Action Plan advocating for an entrepreneurial environment where entrepreneurs can flourish and grow through better ecosystems.
People trying to facilitate entrepreneurial ecosystems carry many myths about how to develop and nurture an ecosystem. Here are a few of the more salient myths:
- Myth: Strong entrepreneurial ecosystems have an increasing numbers of startups.
Not true– strong economic growth facilitates new business creation. In fact, healthy economies may see less and less entrepreneurship because jobs are available without taking on the startup-risk. This outcome is probably true for certain communities, not distressed communities defined by low upward mobility. So, entrepreneurs are continuously important in certain ecosystems.
- Myth: Ecosystems are best managed with a central coordinating body.
Nothing could be further from the truth; the best natural ecosystems and man-made ecosystems are best left to themselves to develop. Central bodies are not recommended and will likely kill the very outcomes that are desired.
- Myth: Incubators, accelerators, co-work spaces, and shared services make for better ecosystems.
No evidence here either; these spaces could facilitate entrepreneurship by creating communities of practice. Additionally, they could kill entrepreneurship by institutionalizing unwanted behaviors such as distracting people from focusing on important issues in a startup.
- Myth: Entrepreneurial education is fundamental to entrepreneurial success.
Maybe, but not likely. Key success behaviors relate to opportunity seeking, willingness to take risks, and ability to secure capital and talent. University and government offices are dedicated to entrepreneurship courses yet little evidence exists that people who take these courses are any more successful entrepreneurs than those who have not participated. All said, educational experience will probably be successful to the extent that they are research-based, sensitive to participant needs, and respond to regional needs.
- Myth: No banks and large companies please– they kill entrepreneurship.
Wrong on both fronts. Banks provide stable capital markets and are future sources of financing. Large companies purchase goods from small companies. Ecosystems need variety to survive– large, medium, and small businesses are all a part of this diversity.
- Myth: Entrepreneurs are best when they are young– they have more time to recover if something goes wrong.
This assumption is wrong. In fact, the most successful entrepreneurs seem to be those who have had prior company employment or a government career. Experience matters despite some the celebrated examples like Steve Jobs and Bill Gates.
Social ecosystems are best viewed as cultural phenomena. In other words, entrepreneurship ecosystems are mindsets and energies that are focused on entrepreneurs and their success. Entities in the ecosystem may vary and strong ecosystems develop from regional competencies, not imported characteristics. For example, Silicon Valley has a long history of engineering success and large companies that conducted engineering work. Today, Silicon Valley, at its core, is taking advantage of this engineering competency. Israel’s strong technical work in security and natural resource management stems from a long history of its political situation and its challenges with resource availability, especially water.
Want to develop a successful entrepreneurial ecosystem? Start at home. Forget the central control, forget benchmarking other cities, and forget the prescribed processes that constrain a species.
Instead, discover a location’s strengths. Then, develop public policy around those identified strengths and encourage business start-ups to find their fit in the ecosystem. Finding the “best” business is not as important as finding individuals (business firms) that fit the overall ecosystem.
Similar to natural systems, supportive conditions such as plenty of sun and healthy soil are needed to exist. For social ecosystems this means plenty of talent, capital, supportive large businesses, and high-benefit government policy such as tax incentives and small business vendor requirements for government purchases.
Celebrate entrepreneurs and provide business acumen when needed. Remember, entrepreneurs come in all sizes and shapes, and sometimes the most unlikely individual or species is the one that takes hold.