The Entrepreneurship Ecosystem –the Why, the How and the Who

Paul Collits

The argument in outline

• The “second machine age” is a megatrend, not a fad• It isn’t just firms that are being disrupted, but business models, industries and REGIONS• The notion of region is being disrupted• Regions, EDAs, councils, governments, agencies who ignore this do so at their peril• Growing new businesses is now urgent business for local ED• There are many jobs to be done• There are two approaches – an ED approach (building ecosystems) and a BD approach

(building great companies, especially higros)• Both are needed and government has a role• They are underdone in provincial regions, especially the ED approach• Patient capital and collaboration are both needed and this makes it very tough to do

Two big early points

It is now really easy to start a business

Many people, especially young people, now want to start a business

What is economic development?

“Economic development is choice; it is willed from within an economy. Economic development occurs when local leaders choose to identify, invest in and develop their own set of comparative advantages to enable their workers, firms, farms and industries to better compete in regional, national and international markets” (Craig Mathisen)

Simon Bond

Today, we stand on the threshold of an economy where the familiar economic entities are becoming increasingly irrelevant. The Internet, and new Internet-based firms, rather than the traditional organisations, are becoming the most efficient means to create and exchange value

Esko Kilpi

"For most of the developed world, firms, as much as markets, make up the dominant economic pattern. The Internet is nothing less than an extinction-level event for the traditional firm. The Internet, together with technological intelligence, makes it possible to create totally new forms of economic entities, such as the “Uber for everything” type of platforms / service markets that we see emerging today. Very small firms can do things that in the past required very large organisations.”

McKinsey – “no ordinary disruption”

• Beyond Shanghai – the age of urbanisation• The tip of the iceberg – accelerating technological change• Getting old isn’t what it used to be – responding to the

challenges of an ageing world• Trade, people, finance and data – greater global connections

Killer facts about the new economy

• By 2025 75% of the world’s workforce will be millennials; • 40% of American GDP is dependent on companies that did not exist 15 short years ago; • Only around 6% of start-ups generally become “scale-ups” (what the UK’s innovation

foundation Nesta refers to as “the vital 6%”);• Over 80% of start-up businesses fail;• Only 2% of new jobs come from “hunting” new businesses from outside the region;• High growth companies create over 80% of regional jobs;• Not long ago tangible assets made up around 80% of a company’s value – 60 to 80% of a

company’s value is in intangible assets;• In 1965, the average tenure of companies on the S&P 500 was 33 years. By 1990, it was

20 years. It is forecast to shrink to 14 years by 2026;• About 50 percent of the S&P 500 will be replaced over the next 10 years.

Today’s disrupters

Uber – the world’s largest taxi company owns no vehicles;Facebook – the world’s most popular media owner creates no content;Alibaba – the most valuable retailer has no inventory;Airbnb – the world’s largest accommodation provider owns no real estate.

The Why Question

I think I have answered the “Why” question

The Right response? Four tasks

• We need to generate more start-ups• We need to lift the notoriously low survival rate of start-ups by

ensuring they have access to the services and advice (and where appropriate the capital) that they need

• We need to produce more “scalable” start-ups• We need to grow the entrepreneur / start-up community

The What Question - the start-up ecosystem

A startup ecosystem is formed by people, startups in their various stages and various types of organizations in a location (physical or virtual), interacting as a

system to create new startup companies. These organizations can be further divided into categories such as universities, funding organizations, support

organizations (like incubators, accelerators, co-working spaces etc.), research organizations, service provider organizations (like legal, financial services etc.) and large corporations. Different organizations typically focus on specific parts of the ecosystem function and startups at their specific development stage(s).

Mason and Brown

“The entrepreneurial ecosystem is a set of interconnected entrepreneurial actors (both potential and existing), entrepreneurial organisations (e.g. firms, venture capitalists, business angels, banks), institutions (universities, public sector agencies, financial bodies) and entrepreneurial processes (e.g. the business birth rate, numbers of high growth firms, levels of ‘blockbuster entrepreneurship’, number of serial entrepreneurs, degree of sell-out mentality within firms and levels of entrepreneurial ambition) which formally and informally coalesce to connect, mediate and govern the performance within the local entrepreneurial environment.” (Mason and Brown, 2014).

There are many lists, models, drivers

My list• Entrepreneurs;• Serial entrepreneurs;• Future entrepreneurs with pathways to their first start-ups;• A connected entrepreneur community;• Champions, ambassadors, connectors;• Support services of a technical nature (lawyers, accountants, IT companies) that are accessible and

affordable;• Third spaces that are affordable and appealing;• Events and programs to support learning from experts and learning from peers;• Accessible sources of finance that will engage routinely with founders;• Educational institutions at all levels that recognise that entrepreneurship can be learned, and therefore

taught, and that arrange curricula and career advice accordingly;• Connections with national and international experts of entrepreneurs;• A supportive policy and regulatory environment, locally and nationally.

Four Core Underpinners

• Failure is expected and tolerated• Collaborative culture – high level collaboration (co-creation) is

needed, not just telling one another in meetings what we each are doing

• Open source innovation – porous borders, pay it forward• Density of connections (Santa Fe Institute and Richard Florida)

League Tables and Stars

• You know where is first• Daylight is second• But …. There are others• Boulder Colorado• Tel Aviv• London East• Waterloo Canada (+ Toronto)• Sydney and the SSE• Cairns – The Space

The How Question

• There are two approaches• See Markley et al 2015 for an argument supporting a “do both”

approach• What drives innovation and e’ship?• Ecosystem enhancement• Working with businesses• Find nodes, strengthen them, strengthen the links (networks)• Danger – is it a fad? Too early to measure success?

But there is a problem …

I’d spent 20 years working in the field with more than 500 companies on expansions projects in 32 countries. Based on that experience, I believed that firm-level growth was primarily driven by internal firm capabilities and dynamics. Yet the leading economic growth theories were saying that a firm’s industry and location were more important in determining whether it grows or not. It just didn’t compute. Dr Gary Kunkle, Outlier LLC

The Who Question

• This is a problem• The private sector will not invest in ecosystem development• It WILL invest in promising companies though• And it WILL provide services to start-ups and higros, at cost• Public good argument• Patient capital is needed above all• Government is not inclined to invest patient capital, especially given so

many start-ups fail• Local government especially

• ED is a team sport and high level collaboration is needed

Final Thoughts

• The case for disruption being permanent, significant and accelerating is compelling and sobering

• This has consequences for economic geography, regions, policy and strategy (the why)

• Providing great business services will not be enough (despite Kunkle)• Ecosystem building must be part of 21C local ED practice (the what + the how)• Deciding the who and playing it as a team sport is critical• There are plenty of models and things that can be done• A start-up ecosystem will be THE new local competitive advantage• Build it and they WILL come• Did I mention Silicon Valley?

Sources

• No Ordinary Disruption: The Four Global Forces Breaking All the Trends (Dobbs, Manyika and Woetzel, 2015)

• Global Flows in a Digital Age: How Trade, Finance, People, and Data Connect the World Economy (McKinsey Global Institute, 2014)

• Patterns of Disruption: Anticipating Disruptive Strategies in a World of Unicorns, Black Swans and Exponentials (Deloitte Center for the Edge, 2015)

• The Shift Index (Deloitte Center for the Edge)• Why Software is Eating the World (Marc Andreeson, WSJ 2011)• The Global Start-up Ecosystem Ranking 2015 (Startup Compass Inc)• The Big Shift: Measuring the Forces of Change (Hagel, Seely Brown Davison,

Harvard Business Review 2009)

More Sources

Markley DM, Lyons TS, Macke DM (2015) “Creating Entrepreneurial Communities: Building Community Capacity for Ecosystem Development”, Community Development, Vol 46, Issue 5Haines T (2015) “Developing a Startup and Innovation Ecosystem in Regional Australia”, SEGRA Conference, BathurstMason C and Brown R (2013) Entrepreneurial Ecosystems and Growth Oriented Entrepreneurship, OECD

More sources

Lerner J (2012) Boulevard of Broken Dreams: Why Public Efforts to Boost Entrepreneurship and Venture Capital Have Failed – and What to Do About it, Princeton University PressLyons TS and Lichtenstein GA (2001) “The Entrepreneurial Development System: Developing Business Talent and transforming Community Economies”, Economic Development Quarterly, Vol 15 no 1Katz B and Wagner J (2014), The Rise of Innovation Districts: A New Geography of Innovation in America, BrookingsHwang V and Horowitt G (2012) The Rainforest: The Secret to Building the Next Silicon Valley, RegenwaldIsenberg D (2008) “The Global Entrepreneur”, Harvard Business ReviewFeld B (2012) Startup Communities: Building an Entrepreneurial Ecosystem in Your City, Wiley

Case Studies + More Sources

• http://www.popupbusinessschool.co.uk/hub-home.html• http://sse.edu.au/• https://thegedi.org/• http://www.oecd.org/cfe/leed/entrepreneurial-ecosystems.pdf• http://www.businesslocationcenter.de/imperia/md/blc/service/download/conte

nt/waterloo-startup-ecosystem-report-2015.pdf• https://startupaus.org/resources/economy-in-transition-startups-innovation-and-

a-workforce-for-the-future/• https://medium.com/the-wtf-economy/networks-and-the-nature-of-the-firm-

28790b6afdcc#.xa9e9b24v• http://teampa.com/wp-content/uploads/2013/02/PAHigroFinalReport.pdf

Contact

paul.collits@outlook.compaul.collits@napier.govt.nz+64 027 5329437https://www.linkedin.com/pub/paul-collits/89/3b3/534Academic papershttps://usc-au.academia.edu/PaulCollitsFor a really wild ride……https://www.facebook.com/paul.collits