09.24.17

Entrepreneurial Ecosystems: Stop Chasing Windmills

Karl R. LaPan, President and CEO of The NIIC

It’s widely understood that the ecosystem (environment, community) in which an entrepreneur is operating (directly and indirectly) affects entrepreneurial success and engagement. But what exactly is such a thing? In the next three posts, I will lay out what they are, what they are not and what our community should know about them.

Let’s start by looking at the elements, or ingredients if you will, that makeup such a phenomenon. Experts, like Daniel Isenberg, have identified several important domains:

  • a conducive culture (e.g. tolerance of risk and mistakes and a positive social status of an entrepreneur);
  • facilitating policies and leadership (e.g. regulatory framework incentives, and the existence of tier 1 research (R1) universities, federal labs, and corporate R&D);
  • availability of dedicated finance (e.g. business angels, venture capital, micro loans); relevant human capital (e.g. top tier talent, serial entrepreneurs, entrepreneurship educational programs);
  • venture-friendly markets for products (e.g. early adopters for prototypes, reference customers), and
  • a wide set of institutional and infrastructural supports (e.g. legal and accounting advisers, telecommunications and transportation infrastructure, entrepreneurship promoting associations).

Although they may share some similarities, each entrepreneurship ecosystem is unique and is the result of the hundreds of elements interacting in highly integrated and complex ways. For example, factors like a free market, access to education, limited bureaucracy and global forces can come into play to form or positively affect the entrepreneurial climate. There have been such ecosystems attempted to varying degrees of success around the world, but perhaps the most well-known is Silicon Valley in the U.S. Its high concentration of innovative companies, well-educated talent, failure mindset, robust connectors and influencers and a very well-developed venture capital base has made it the perfect storm of sorts but nearly impossible to replicate it as it is anywhere else. The beauty of this is, that once the six domains are strong enough independently, they are mutually reinforcing.

Isenberg wrote an incredible and noteworthy HBR article in 2014 entitled, “What an Entrepreneurship Ecosystem Actually Is“. This article makes a number of key points worth restating because they are often overlooked when people are talking about entrepreneurial community-building.

  1. No one owns or represents an entrepreneurial ecosystem. There is lots of talk out there that as an entrepreneurial support organization you need to be the go to resource or dominant player in the ecosystem. It simply isn’t true. Isenberg clearly acknowledges, “Many stakeholders must benefit in order for an entrepreneurship ecosystem to be self-sustaining.”
  2. There is no systematic evidence that coworking spaces contribute significantly to growing ventures. In fact, we know from coworking metric reporting that over 80% of all coworkers never grow beyond themselves. That doesn’t mean their bad or ineffective. It just means their goals are not job creation. Also, the term entrepreneur is often misused and inappropriately interchanged with solo-preneur, freelancer, road warrior. This is unfortunate because there is a big and significant difference. We have dumbed down what it really means to be an entrepreneur.
  3. Formal entrepreneurship education is not on the critical path to a regional entrepreneurship ecosystem. The key components and entrepreneurial success pillars are those that we at the NIIC advocate – Capital, Talent, Workspaces and Networks. The idea that if you are not an investable venture you are a lifestyle business is as illusory as Don Quixote fighting the windmill. Not every new startup wants or needs investor money. Quite frankly, most don’t and the stats prove this out.
  4. Entrepreneurs drive the entrepreneurial ecosystem. Feld’s thesis is simply not true. Entrepreneurs are important, but there is no one driver of the ecosystem because, by definition, an ecosystem is a dynamic and self-regulating network of connectors and influencers. One thing is for sure, the government should not lead the ecosystem (should be supportive), the private sector should.

Entrepreneurial ecosystem is an overused term that has lost a lot of its meaning because it has become as generic as Kleenex is for a tissue. Rather than seek what you cannot have or replicate, what if every community tried to become the best version of itself rather than chase other region’s or community’s windmills? It would be a stretch but not impossible with the right framework and entrepreneurial mindset.

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