Imagining Entrepreneurial Ecosystems in a Post-Covid World

What are entrepreneurial ecosystems and why do they matter in a crisis?

Entrepreneurial ecosystems are the types of people, organisations, networks, and outlooks of a place like a city or region that support high-growth entrepreneurship. While a great entrepreneur can come from anywhere , great entrepreneurship tends to be easier in particular places. These are normally cities with dynamic economies, lots of smart people, maybe a research university or two, along with lots of other successful entrepreneurs who can help, investors with money and insight into growth, and strong social networks that connect them all. Plentiful, cheep office space and lots of bandwidth help too. All these actors and factors combine to create, attract, and circulate the resources that entrepreneurs need to transform good ideas into high-growth scale-up firms.

This is important because it’s these scale-up firms that are responsible for the bulk of new job creation in most developed economies. By innovating new products and identifying new opportunities, these companies (which constitute about 2 - 6% of new firms founded in a given year ) attract new investment and revenues, creating jobs and building the local tax base.

It’s this support for highly innovative, fast-growing scale-up firms that make entrepreneurial ecosystems important for local economic development efforts. Entrepreneurship isn’t the only tool to create wealth and jobs, but it’s a powerful tool that allows a place to create its own economic destiny rather than depending on branch plants or remote offices. The archetype of an ecosystem is a place like Silicon Valley, but we can look at other places like Boulder, Colorado, Waterloo, Ontario, or Edinburgh, Scotland as places that have built strong economies around supporting digital and other types of entrepreneurs.

Ecosystems matter in a crisis because they’re a tool for recovery and resiliency. No matter how strong an ecosystem is, it can’t totally isolate entrepreneurs from an unprecedented health and economic crisis. Scale-up firms are by definition national and global in their outlook and will be hurt by the loss of national and global markets. But entrepreneurial ecosystems will play a critical role in how cities recover from this crisis as they try to replace jobs and tax revenues that were lost and orient themselves towards new futures.

Entreprenerus and Crisis

In order to think about what ecosystems will look like in a Post-Covid world, we need to think about the immediate effects of the Covid Crisis of entrepreneurial firms and their ecosystems. Though this crisis is playing out in real time, we can already see some impacts:

A swift collapse of many growing firms due to cash flow collapse

Some crises have a long lead up and give plenty of warning before they hit (at least in retrospect). By any standard, the current Covid crisis came to fruition shockingly quick. A little more than 5 months from its first emergence in China to the essential locking down of most of Europe and North America. Almost every company besides Zoom, Netflix and seed distributors are in a cash flow free-fall as customers can’t reach them or are cutting down their spending. This is as true for B2C companies as it is for B2B ones. But as these revenues dry up, their expenses don’t go down as fast. Even with layoffs, government support, and other benefits we will see many firms collapse due to the loss of cash flow. This not only adds to the unemployment, it leads to loss of IP and investments which will have knock-on effects for years to come.

Uncertainty makes it difficult for entrepreneurial firms to pivot and find new opportunities

In normal times, many entrepreneurs use lean strategies where they are constantly testing new business model and product ideas to find new customers and markets. This means that if there is a problem in one market — say a decline in demand for customised investment advice — they can pivot to new markets that take advantage of their underlying skills and resources. This doesn’t mean that all firms (or even most) can survive the loss of a major market, but at least there’s somewhere else to turn. This won’t be the case in the current crisis: pivoting can’t help you where there are few places to pivot too. This will make it harder to even well-run and well-organized firms to make it through the coming months

Loss of investment capital and loss of investors

Still lots of deal flow in Europe, but I’m sure that’s collapsed by now

Groups like Startup Genome have already started documenting the pull-out of investment in the past few months. Since the start of the year, for example, VC deals in China are down almost 60%. This only makes sense: it’s impossible to be able to value a company and predict its chances of success in such uncertainty. This will only continue over the next few months. In addition, we will see a rapid decline in angel investment. Angels are high net-worth individuals who invest in young firms as both a portfolio strategy but also as almost a social function in order to help their local business community. Given the rapid decline in equities and the chaos facing real estate, it’s hard to imagine there will be many HNW people willing to take a flier on a new company. This capital is important for helping innovative ventures rapidly scale, which in turn creates new jobs and (hopefully) new wealth.

High rates of necessity entrepreneurship

Entrepreneurship and unemployment are closely linked (from Farlie 2013)

We normally think of entrepreneurship as a good thing — mom, apple pie, and all of that. But this isn’t always a case. As mentioned above, only a very small minority of new ventures have any growth prospects. The vast majority are small lifestyle firms that will not grow much beyond the founder. And that’s totally fine!

However, in recessions we see an increase in entrepreneurship. There is a very strong correlation between unemployment and entrepreneurship. This is necessity entrepreneurship; the entrepreneur is only doing it because they can’t find a job. These are often low-quality firms with little growth prospects. Entrepreneurs who own these firms typically make less than they would in traditional employment, they take on more risk, and they are more likely to be anxious and depressed than those with regular jobs. We’d expect to see a lot more of these types of firms in the next few years, which acts as a drain on the economy.

How ecosystems can help

Ecosystems aren’t a panacea. No matter how strong an ecosystem is it can’t make up for a global collapse in demand and the evaporation of investment capital. But there are a number of ecosystems that will help entrepreneurs in the midst of this crisis.

Sharing knowledge about how to survive

All entrepreneurial ventures have one goal right now: survive. They do that by reducing their cash burn rate, trying to make what ever sales they can, or applying for grants, loans, and other kinds of public support. While each individual entrepreneur needs to make really tough decisions about how to do this that are specific to their firm and context, there are only so many ways to do this. There are lots of common practices and choices that will work in a variety of firms. One of the most important aspects of ecosystems is that they allow for the quick circulation of practical know-how. While in good times this might be knowledge of investor preferences or good employees who are looking for new opportunities, now the most important knowledge is tips for managing remote workers or how to apply for new bridging loans.

Entrepreneurs sharing what they’re going through with one another, what’s worked, and what hasn’t helps everyone. This will be particularly true around government support programs, which are complex, difficult to understand, and complicated to apply for. Sharing best practices helps people avoid mistakes (say, not having the right documents when they apply for support) and they learn what works from each other.

Now, because we’re all locked-in to our homes, this knowledge sharing can be global. But the relationships and trust that have built up between entrepreneurs within ecosystems makes the knowledge sharing quicker and more effective than what we can get from just reading blogs and twitters.

Emotional support and solidarity

Business advice is one thing, but only entrepreneurs know what other entrepreneur are going through. It’s not that every entrepreneur in a city is friends with each other, but in my research I’ve seen a lot of emotional support within entrepreneurial networks. Simply knowing that others are going through the same experience as you helps make it less traumatising. We’re already seeing this solidarity in the informal chats between entrepreneurs on community message boards and Slack channels. This kind of support is as valuable as any more formal support and is only possible because of the prior relationships entrepreneurs forged before the crisis.

Bringing together key plays to create local solutions

So far I’ve been talking about informal support in the ecosystem. This is because the crisis is so fast moving and so complex that it’s hard for formal support programs or organisations to keep up, to say nothing of leading their community out of danger. But in the coming months there will be a need for localities to find local solutions and identify local resources that can help local entrepreneurs. This likely won’t involve lots of money — that’ll be scarce for the next long while. But there are other options. Some cities with major universities of anchor firms may be able to leverage their resources to help the start-up and scale-up community, maybe by bringing them into their supply chains or sharing resources. Likely, this will involve lobbying local political leaders for specific forms of support. In either case, having a pre-existing community with key leaders (successful, engaged entrepreneurs, prominent support organisations, ect) makes this much easier.

What will post-Covid ecosystems look like?

Ecosystems will have an immediate role in helping entrepreneurs make it through the crisis. But what will they look like in a year or two? When we can go outside, but where we’re in what will likely be a significant recession and in which cities themselves may be fundamentally changed.

Fewer investors, less know-how

We know that lots of really innovative firms are going to go out of business in the coming months, and the something will happen to many venture capital firms. Given the shocking drop in stocks, real estate, and other assets we can also assume that there is going to be a drop in the number of angel investors and high net worth investors. This will look like a spectacular decline because we’re in a VC-bubble to begin with.

The withdrawal of investors is more than a problem of not enough investment capital (though this will be a big problem!) Good investors bring knowledge and insight with them to the firms they invest in. They provide advice on how to handle the HR, legal, and strategic issues that come with growth.

I saw a similar phenomenon in my work on Ottawa’s entrepreneurial ecosystem. All of the city’s VC and angel investors effectively vanished after the dot.com bust. Entrepreneurs had to learn how to scale with minimal outside Investmet, driven by internal revenues and efficiencies. The success of Shopify helped build a new investment scene more than a decade later. Many other ecosystems will see a similar pullout of investment, requiring radical changes in growth strategy amongst entrepreneurs.

Less focused policy

In the past few years we’ve seen a major focus in many cities and regions to have an explicit ecosystem strategy. Some of these efforts have worked better than others, but they represent a realisation that there is a need for public support for early stage firms as well as the importance of these firms for local economic development office.

There is likely going to be a paradigm shift in economic development logic, which will hopefully lead to more resources available at all levels. However, immediate policy over the next few years is going to focus on triaging the damage and trying to get people back to work. I think this will lead to a much larger focus for most local economic development agencies. Maybe this will be led by public works, maybe by some form of universal basic income. While high-growth innovative entrepreneurship will be a part of these efforts, it’s going to be a huge effort. I can see there being a shift of focus away from supporting these types of startups for now in favour of broader self-employment strategy.

Different meet-ups

Meet-up events have always been a really important part of how ecosystems work. They provide a meeting and learning space and help introduce new entrepreneurs to already established communities. I don’t know how society is going to change after Covid — will we all become hypochondriacs who are afraid of shaking hands or will we hate to spend a night at home when we could be out with other people? Local meet-ups for entrepreneurs have moved on-line, but eventually they’ll be back in person. I can see them remaining important, but maybe with a larger, more permanent virtual component. I can also see problems emerging in the loss of major sponsors who will be looking to control their own costs.

More inclusive

Many ecosystems aren’t as inclusive as they should be: people are excluded based on age, gender, race, care responsibilities and a lot of other factors. In the past year I’ve begun to see a change in many ecosystems and leaders and organisers try to explicitly including as many people as possible rather than just hoping they show up to events made for and by white men. I hope that as people get more used to online meetings they can begin to develop new methods that make it easier to include people who can’t necessarily make an afterwork bar event.

What should ecosystem leaders be doing right now?

Stay inside. Wash your hands. Sneeze into your elbow.

The world right now is about as uncertain as it can be. It’s impossible to say what will be happening next week, to say nothing of 6 months from now. It’s simply impossible to make any good predictions about what people or organisations should be doing now to prepare for the future.

Instead, they should stay flexible and lean. See what happens and look for opportunities to help the community. React to changes as they occur using the same entrepreneurial thinking that underlies the entire idea of entrepreneurial ecosystems.

Amazon and its ecosystems

The biggest topic of discussion in the urban policy Nerd-o-Sphere yesterday was the surprise and sudden announcement by Amazon that it was pulling out of its agreement to set up it’s second (third) headquarters in New York City. The 3 billion in local and state subsidies were under threat by civic groups, and either in a strategic move designed to preserve future incentives at other locations or in a fit of pique over having something it wants, Amazon announced that it was withdrawing from the agreements.

Two views on Amazon’s strategy

It’s kind of amazing to be seeing something in the news and know that it will result in at least a dozen different PhD dissertations. I really hope someone is collecting all the different pitches cities made to Amazon so we get a sense of what policy levers cities think they have for attracting major investments from knowledge-based companies.

After the withdrawal, the finger-pointing started. Amazon said they planned to create 25,000 jobs, which in turn will create more jobs outside of Amazon thanks to what those employees would spend. There would be a boost to Long Island City’s real estate market as Amazon would become a massive anchor, attracting new residents to New York and boosting commercial spending. While the city and state would give more than 3 billion in direct subsidies and forgone taxes, the idea is that this would be more than made up by the increased tax base the HQ would create.

Smokestack chasing is a venerable economic development policy. Offering subsidies and tax benefits to an employer to come to a region can boost employment, create local supply chains, and help build a virtuous cycle that leads to more economic growth through entrepreneurship and a higher skilled workforce. But such efforts are usually the domain of smaller, more peripheral regions with high unemployment rates, low wages, and cheep real estate.

The goal of bringing in a major firm through tax subsidies is to create an ecosystem that goes beyond the single company. New firms can spin off of the anchor as entrepreneurial employees find opportunities and reasons to hate their bosses. Employees get unskilled, either through investments the firm (and the government) made with local universities and colleges or just through the experience at working at the company. Corporate accelerators can spur local startup activity and connect it with the strategy of the anchor firm. Senior managers can act as investors and mentors to newer firms, helping them grow. All of this helps the economy grow, which is a good thing.

But NYC has much different dynamics, which make the sheer size of the subsidies seem silly. New York City’s unemployment rate is 3.6%, which is pretty much full employment. The unemployment rate in business service and information technology will be even lower. That means that Amazon creating 25,000 jobs will increase wages across the board for IT workers throughout the Tristate area. In theory this is a good thing, but wages are already so high, this will make it harder for new and growing firms to find the talent they need to grow in NYC. It’s questionable if NYC’s public transportation system can even handle that much increased employment in Long Island City. And Amazon’s hiring won’t just be local: it will attract thousands of new workers to the region who will heat up an already ridiculously overpriced housing market.

In an overheated economy like New York’s, we should be asking very tough questions about how these subsidies will increase the social welfare of the entire city. In most places in the world, the creation of this many high-paying jobs would have been a great thing. But NYC isn’t one of those places. The money that was promised to Amazon would go a long way to keeping the subway from collapsing or building the social housing that is desperately needed. But once those questions were asked, Amazon cut and run.

Economic development officials need to start realising that too much of a good thing isn’t always great. The point of subsidies is that they aren’t needed after a certain point: you build a sustainable business ecosystem that then creates its own incentives for future growth.

An embarrassment of riches

Over the past few weeks, a whole host of new articles have come out on entrepreneurial ecosystems and related concepts. I think it's getting to the point where it's hard for one person to have read everything on the topic, if that was even possible. It's really great seeing the field develop over the past few years. Without further adu, here are some papers that I think are worth checking out. I haven't read all of them yet, but I think I'll be citing a lot of these papers in the future.

Towards a Process Theory of Entrepreneurial Ecosystems

“Entrepreneurial ecosystems have recently emerged as a popular concept within entrepreneurship policy and practitioner communities. Specifically, they are seen as a regional economic development strategy that is based around creating supportive environments that foster innovative start-ups. However, existing research on entrepreneurial ecosystems has been largely typological and atheoretical and has not yet explored how they influence the entrepreneurship process. This article critically examines the relationships between ecosystems and other existing literatures such as clusters and regional innovation systems. Drawing on this background, the article suggests that a process-based view of ecosystems provides a better framework to understand their role in supporting new venture creation. This framework is used to explain the evolution and transformation of entrepreneurial ecosystems and to create a typology of different ecosystem structures.”

Why I think this is interesting: A bit of a cheat, since I wrote this. But you should read it! The point of this article is to really think about what we study when we study ecosystems. Richard and I argue that we should really look at the practices entrepreneurs use to get resources within an ecosystem rather than the ecosystem itself.

Hierarchical and relational governance and the life cycle of entrepreneurial ecosystem

“In this paper, we explore the way the evolution of entrepreneurial ecosystems is shaped by different governance designs. We propose a theoretical framework in which we discuss what type of governance design would best fit the needs of an entrepreneurial ecosystem throughout its evolution. We also provide argumentations concerning the mechanisms that may explain the evolution through the different governance configurations. The conceptualization of a new framework has allowed us to specify a set of propositions, which we have tested on one single empirical setting, represented by Turin’s entrepreneurial ecosystem. The paper introduces some important policy implications. It highlights the need for a more complex relational form of governance for the growth of an entrepreneurial ecosystem, which could be obtained by means of a systemic and participative approach rooted in shared cooperative norms and informal routines.”

Why I think this is interesting: I'm always a fan of careful mixed-methods case studies of individual ecosystems. Anything that combines network analysis and longitudinal study are going to go to the top of my reading pile.

Take-up and variation of advice for new firm founders in different local contexts

“Although business advice has been linked to entrepreneurial outcomes, it is subject to information asymmetries and market failure. We argue that the knowledge concerning from whom to take advice before starting a new firm is more easily accessed in areas with high start-up rates which therefore ameliorates market failure. The study is based on surveys of 599 new firm founders in England and 381 new firm founders in Catalonia. A series of probit and heteroskedastic probit models are employed to investigate not only the probability of taking advice but also the variance in that probability, which reflects uncertainty. Supporting our view, the findings show that the taking of advice in the places with higher start-up rates exhibit less variation compared to other localities. We also find differing effects of place on the take up and variation of private sector and public sector advice. Implications from the findings are discussed”

Why I think this is interesting: Why I think this is interesting: Part of my evolving thinking about ecosystems is that they are primarily about entrepreneurs learning about entrepreneurship. However, this only works if entrepreneurs are actually open to learning about entrepreneurs. So, I've been trying to understand how open entrepreneurs actually are to learning from others and actually changing what they do.

The behavioural foundations of urban and regional development: culture, psychology and agency

“Urban and regional development theory is largely rooted in explanations based on the location, agglomeration and organisation of firms, industries and capital. Contemporary economic geography theory, however, is moving towards a (re)turn to addressing the role of human behaviour in determining urban and regional development outcomes. This article focuses on the concepts of culture, personality psychology and agency in order to understand how these behavioural factors interact and result in development differentials across cities and regions. It is proposed that psychocultural behavioural patterns provide a basis for understanding the type and nature of human agency within cities and regions. Furthermore, it is argued that such agency is based on a rationality that is spatially bounded, and intrinsically linked to the nature, source and evolution of institutions and power. It is concluded that the integration of human behavioural aspects into urban and regional development theory offers significant potential for exploring and explaining long-term evolutionary patterns of development.”

Why I think this is interesting: At the end of the day, ecosystems is just the newest way of thinking about the tension between structure and agency within the entrepreneurship process. I'll always read any article that tries to figure out what the balance between these two forces (though I'm a bit salty they didn't cite my article on the topic in ERD). 

Laboratory of the Precarious: Prototyping Entrepreneurial Living in Shenzhen

“Making has been envisioned as an enabler of an entrepreneurial self that prototypes hopeful interventions into precarious work and life conditions. This article unpacks how Shenzhen, a city in the south of China, was transformed from a site of low-quality production into the ideal laboratory for this subjectivity of entrepreneurial living. It shows how prominent and mostly male actors began experimenting with professional identity and expertise in design and engineering by articulating their engagement with Shenzhen through feminist and postcolonial critiques. Because these critiques only figured implicitly and were unacknowledged, the potential to build more democratic worlds was undermined.”

Why I think this is interesting: A bit of a deep cut here. It's not exactly about ecosystems, but I think this will be a useful critique of who we think of as the typical 'ecosystem entrepreneur.' We need to make sure we're critiquing the concepts and categories we're using.

Accelerator Expertise: Understanding the Intermediary Role of Accelerators in the Development of the Bangalore Entrepreneurial Ecosystem

“To understand the intermediary role of accelerators in the developing regional entrepreneurial ecosystem of Bangalore, we analyze data from 54 interviews with accelerator graduates, accelerator managers, and other ecosystem stakeholders, and from 49 websites, 13 online video interviews, 26 online news sources and 301 pages of policy documents. Specifically, we adopt a socially-situated entrepreneurial cognition approach to theorize how accelerator expertise, existing at a meso-level, intermediates between (micro-level) founders and the (macro-level) ecosystem. In our model, four types of accelerator expertise—connection, development, coordination, and selection—together increase stakeholders’ commitment to the entrepreneurial ecosystem, leading to venture validation (success or failure) and ecosystem additionality. These findings indicate that accelerators contribute to ecosystems in a way that is distinct from, but supportive of, building individual ventures.”

Why I think this is interesting: Not going to lie, I'm a bit salty this paper didn't cite me too. But I'm so desperate for good research articles on ecosystems from outside the UK and Western Europe I'm willing to overlook that party foul.

How Entrepreneurial Ecosystems Take Form: Evidence from Social Impact Initiatives in Seattle

“Research Summary This research uses insights from field theory to explore the early moments of how entrepreneurial ecosystems form through everyday interactions. We examine the cultural-cognitive and material micro-dynamics of activities occurring in support of social impact entrepreneurs and businesses from 2000 to 2014 in the Seattle WA region using archival and interview data sources. The pattern of results about what actors do and how interactions change over time supports a two-period model of ecosystem formation where initial distributed and disparate activity undergoes a phase transition to coalesce into a more coordinated and integrated social order. The findings point to endogenous sources of structuring, including language and interaction, rather than exogenous sources such as government action or instrumental policy goals. ”

Why I think this is interesting: Every third person I've talked to about ecosystems has said they're doing something on social enterprise ecosystems, but this is the first paper I've actually seen on it in the wild. I've got my own poker in this fire, but it's good to see that others are exploring this issue.

What happens when the success story stops being a success?

Some less than great news about Fanduel, one of the most prominent success stories of Edinburgh's entrepreneurial ecosystem. According to the New York Times, both it and its main competitor Draft Kings are running low on cash.

“Within the past three weeks, the New York-based FanDuel has laid off more than 60 people, and both companies have acknowledged that they are months behind in their payments to vendors, especially to the array of public relations and lobbying firms that they have employed across the nation to persuade individual state legislatures to legalize daily fantasy games — the most critical component of rebuilding their business.
”

— New York Times

One of the things that separates Edinburgh from other entrepreneurial ecosystems of its size is that remarkable emergence of two high-growth unicorns, Fanduel and Skyscanner. These have become leading icons of the city's tech community. They're celebrated, the CEOs of both companies often give talks at events and it's something that city leaders can point to when trying to attract the attention of global investors and tech giants. But more than a symbol, these companies act as magnets, attracting highly skilled workers to the region who can then either startup their own firms or become highly valuable employees at other startups. Their success has helped build a culture within Edinburgh's tech community that says "I can do that." If you see something is possible, it becomes possible for you to do yourself. It's the business equivalent of this Pokemon ad (which I love)

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But what happens when that success story succumbs? What would happen if (knock on wood) Fanduel and Draftkings make a desperation merger that results in widespread layoffs in Edinburgh and the loss of its local offices? 

Immediately, the impact would be big but not devastating. LinkedIn shows about 100 Fanduel employees based in Edinburgh. These are all really highly skilled people, both on the tech and managerial side. I have no doubt that those who wanted to would quickly find jobs at other local tech firms, from large ones like Amazon's local R&D lab to Skyscanner to smaller but still up and coming tech firms. Others would go abroad or down south to London depending on how deep their ties are to the city. We might even see a small spike in entrepreneurship as people who have been playing around with the idea of starting a company now take their severance and make a play. 

Longer term, it's hard to say. I feel that while right now Edinburgh (especially it's digital tech sector) has a very positive, supportive culture. But I think that this culture is rather fragile. We don't talk about failure. Richard Yemm and Pelamis Wave Power — a wave energy company in Edinburgh that went into administration in 2014 — used to be the toast of the town. Everyone was celebrating the advances it made. But after it went into administration not another word was spoken about it (except to blame the Chinese for stealing their technology). 

I've seen similar things happen in Ottawa after the collapse of Nortel in 2000. I've written about it with varying amounts of puns here and here and wrote a pretty decent book chapter about it here. Ottawa saw about a decade of retrenchment after the collapse of Nortel, with significant loss of talent to other regions. While the economy has recovered, the technology scene has shifted far away from the heavy duty networking technology Nortel was known for towards SaaS, including Shopify, one of the world's leading e-commerce platforms.

What I noticed in Ottawa after the collapse of Nortel but before the rebirth of its SaaS economy was a big depression in it's entrepreneurial culture. In a recent article I've written in the Journal of Economy Geography, I show how this lead to fewer people finding entrepreneurial mentors,  a crucial ingredient in a thriving entrepreneurial ecosystem. There were other knock-on effects: the lack of a strong entrepreneurial culture made it hard to create a cohesive entrepreneurial community. There was a big divide between the new startups downtown and the tech companies in the suburbs. They just didn't see eye to eye. The city didn't know who to support or how to support them because the firms couldn't come together in an organized fashion. 

So what does this tell us? It means that while the collapse of any one firm might not have immediate impacts on a city's entrepreneurial ecosystem, it does suggest that entrepreneurial cultures can be very fragile in small-sized ecosystems with just a few real big success stories. It's more than a bruised ego, a damaged entrepreneurial culture can discourage the kind of risk taking that startups need to scale up and can make it harder to attract new angel investors and venture capitalists to the region. 

How can ecosystems preempt this? There's no one silver bullet. Firms fail. It's part of life. All you can do is be prepared for it. One thing places can do is try to be more tolerant of failure. Celebrate failure as a learning opportunity rather than as personal failure. It's hard to do but necessary. Second, ecosystems should make sure that people recycle through it rather than leave. If Fanduel folds, there is an amazing pool of highly skilled, talented people. How can we make sure that they find jobs in the ecosystem rather than heading to sunnier climes? After the collapse of RBS, Edinburgh set up a senior management bank to help tap the talent pool that suddenly became 'available.' But it's also about providing targeted support for the recently laid off to make sure that local firms have a first shot to offer them new opportunities or that they receive startup support relevant to their needs and abilities.  

Will Fanduel suddenly collapse? I hope not. But an ecosystem so dependent on its successes that it can't outlive them isn't a very stable ecosystem to begin with. 

Branding entrepreneurial ecosystems

Wired Magazine recently ran a profile of the top startup cities in Europe. They profiled the most exciting startups in  Stockholm, Amsterdam, Paris, London, Lisbon, and Helsinki. Noticeably absent from this list was Edinburgh. Edinburgh has the highest per capita rate of 'unicorns' in Europe and the third world wide. It has one of top performing private accelerators in the world in CodeBase and one of the world's best computer science departments. 

The question is: why it didn't make the list?

I want to be in the room where it happens

This isn't just a question of the ego of a city (or my own ego) left off the hot or not list. An entrepreneurial ecosystem's global profile has a big impact on its future success. Ecosystems aren't real things that exist; much like Tinkerbell they only live as long as people believe in them. A place's perceived success will attract investors to it as well as budding entrepreneurs and startup employees. Generating a buzz about a place helps make it easier to get people to lend their time, energy, and passion to organising and running the entrepreneurial groups that make up an ecosystem. Companies benefit from this. This creates a virtuous cycle: successful entrepreneurial ecosystems create attention which helps establish the place as an 'entrepreneurial city.' This helps attract talent, investment, and customers. This in turn helps the ecosystem perform better, increasing the attention it gets from the global business press and community.  Rinse and repeat until they make an HBO show about you. 

You know you've made it when you get added to the Silicon Valley intro

The challenge for Edinburgh is how can it stop punching below it's weight? How can it attract media attention that goes beyond the local Scottish press (with the occasional profile from the FT when they venture North of the Wall). Part of the problem is that the city's two big successes — Skyscanner and Fanduel — aren't really connected to the place. Not to say that they aren't engaged with the community, they are, but the businesses themselves are disconnected from Edinburgh. Fanduel is for all intents and purposes an American company and Skyscanner is seen as a global company rather than a Scottish one. Good for Skyscanner, bad for Edinburgh. 

However, effectively branding an entrepreneurial ecosystem requires more than just press junkets and advertisements. It requires building a narrative that connects the history of the place with its future and helps explain why there is so much exciting activity happening there. A startup ecosystem isn't just a bunch of cool new ventures succeeding by themselves; it's an entire community that helps support innovative entrepreneurship. 

Waterloo, Canada is a great example of how to do this.  The city has not only helped develop numerous high growth tech firms like Blackberry (not so high growth any more), Kik Messenger and Tribe HR, but also attract offices from players like Google and Microsoft. This despite being a fairly small city just an hour away from the much bigger metropolis of Toronto. Waterloo has worked hard to build a narrative that connects its Mennonite and German history with its contemporary technology success. Drawing on this, they've been able to create the myth of Waterloo as Quantum Valley. This has help attract substantial interest from investors and researchers. 

Ironically, Edinburgh literally pioneered the idea of city branding. Walter Scott, author of books like Waverly and Ivanhoe, helped brand Scotland and Edinburgh with the image of Tartan and Highlanders. He used this image to arrange a trip by King George IV to Edinburgh, which was a boom to the city's businesses. 

Now this is how you build an ecosystem!

What can regions do to try to build their global ecosystem brand? 

1. While ecosystems need a diverse range of actors experimenting with new ideas, successful branding seems to require a prime actor. Communitech in Waterloo has been successful in part because everyone in the community sees it as the most important agency for building Waterloo's global brand. 
2. Everyone needs to help. That single organisation can't do everything on its own. Companies and entrepreneurs should be proud about where they come from and why that place is great. 
3. Internal communication is as important as external broadcasts. Building a shared story about the ecosystem needs to happen internally. It can't be imposed from the top down but has to emerge through consensus and shared myth making. 

New articles on entrepreneurial cultures and ecosystems

To absolve my guilt about not blogging more, I'll simply say that it's been a very busy year. The results of that busy year are now coming to fruition with two of my new articles on entrepreneurial cultures and ecosystems coming out in the past few weeks. First, I just published an article in the Journal of Economic Geography on regional entrepreneurial cultures and mentorship. This is work that came out of my dissertation that looked at the origin of entrepreneurial practices. I was interviewing entrepreneurs in Ottawa and Waterloo, Canada, and saw huge differences in both the number of entrepreneurs who had mentors. The difference was only seen looking between the two cities: it didn't matter if they were high-growth of lifestyle entrepreneurs or serial vs first time firm founders.

The reason for this was the relationship between each city's local culture and the shared culture of 'tech entrepreneurship' — the general feelings and understandings about entrepreneurship created by the global business media and entrepreneurial communities. That later culture sees mentorship as a real important part of the entrepreneurship process, but the importance of mentorship differs within different regional cultures based on a variety of factors.

So, how do we understand the complex interplay of local and non-local cultures? I argue that the work of Pierre Bourdieu can be very useful. Bourdieu talks about fields — ordered systems of social rules and relations — and habitus, people's internalised understandings of how fields work. Entrepreneurs are embedded in both their local field as well as the more global field of the technology entrepreneurship community. Entrepreneurs have to be very skilled at navigating the often conflicting norms found within different fields.

The paper is very conceptual and tries to build a model of entrepreneurial culture from a Bourdieuian perspective. The main take away is that instead of talking about if a place has an 'entrepreneurial culture' or not, we should be better concerned about the different types of fields entrepreneurs are embedded in and how they understand their overlapping position in them. This stops culture from being some monolithic, deterministic force and helps us understand it as a more nuanced context that contributes to entrepreneurs' own practices.

The second article, in the International Journal of Innovation and Regional Development, is an empirical peek at how Edinburgh's entrepreneurial ecosystem works. It reports some early work I did on the role of different entrepreneurial support programs that operate within Edinburgh's entrepreneurial ecosystem.

I think there are two important findings in this paper. One, Edinburgh has a huge number of different public and private programs designed to support high-tech entrepreneurs. I counted somewhere around 45, but that's a very conservative estimate. While I think Edinburgh is at the high end of the number of programs for a city of it's size, it's clear that most communities don't have just one program but a whole network of programs that work together to support entrepreneurs. This is echoed in a recent study of St. Louis by researchers at the Kauffman Foundation in Entrepreneurship and Regional Development.

Second, I didn't see much competition between these programs. While they overlapped to s0me extent in the types of support they provided (see figure above), they were generally able to specialise in different industries and stages of the entrepreneurship process, handing off entrepreneurs to different programs as their needs changed. This creates a pipeline that entrepreneurs can enter and ensures that they are supported throughout their journey.

A blessing of unicorns.

Three facts: a herd of unicorns is called a blessing, Scotland's national animal is the unicorn, and a unicorn can also mean a startup valued at over 1 billion USD.Given these facts, it was pretty much impossible not to title my recent talk on Edinburgh's entrepreneurial ecosystem "A Blessing of Unicorns." You can see the slides from the talk here

Edinburgh is a very strange entrepreneurial ecosystem. On a per capita basis, it has the third highest number of unicorns in the world, more than New York City, Berlin, and Bejing and behind only Silicon Valley and Provo, Utah.

For the past few months I've been carrying out a study of Edinburgh's entrepreneurial ecosystem. I recently published a white paper summarizing my initial findings, which you can read here [PDF warning]. I was primarily looking at the role of entrepreneurship support programs in helping to create a thriving entrepreneurial ecosystem.

Support programs, often run by the public sector, are a crucial part of an entrepreneurial ecosystem. They help correct for the market failures that often face early stage companies: entrepreneurs may have great vision and technology, but they'll always experience trouble convincing investors and customers of this. Programs can help entrepreneurs by providing them with training, grants, and help build their social networks to connect with other entrepreneurs and advisors.

I identified 43 different entrepreneurship support programs in Edinburgh. These ranged from large, publicly funded programs organized by Scottish Enterprise and Scotland-wide business plan competitions like the Converge Challange to smaller programs put on by local entrepreneurs, such as coffee meetups and organized drink nights. This is by any account a conservative estimate, almost every week I hear about a new program that just started up or an existing one that had slipped under my radar.

I interviewed the leaders of 26 of these programs to get a better sense of what they do and who they work with. The most interesting finding was how tightly networked all these programs are. As you can see below, this is a really, really dense network of support programs. There are almost no isolated programs with none or just one connection to other programs.

What does this mean? What I observed in Edinburgh was that individual programs were able to specialize in providing specific types of support to specific types of entrepreneurs. This can be helping early stage biotech entrepreneurs network with potential investors or organizing startup competitions for student entrepreneurs. As entrepreneurs change, the the leaders of support programs can connect them with other programs that provide more relevant services. This is only possible given the strong connections between programs. Allowing programs to specialize mean that they can provide more material support for a small subset of entrepreneurs rather than being everything for everyone.

What does this mean for Edinburgh's ecosystem? On one hand, it's a good thing. Lots of programs mean that entrepreneurs can pick programs that provide the right resources and support for them without having to endure generic programs that aren't very relevant to them.

However, I'm a bit concerned that the Scottish Government has a bit too much power in creating and running these support programs. In my study, about 80% of the programs I interviewed got their funding in some way through either Scottish Enterprise or another Scottish Government funding body. One of the defining characteristics of an entrepreneurial ecosystem is that it is primarily run by and for entrepreneurs. Entrepreneurs themselves should be identifying their needs and helping to create organizations to deal with the issues they encounter. The role of the government should be to sit back and support the entrepreneurs doing this. Otherwise the state risks investing resources in areas that aren't affecting entrepreneurs. Programs like StartEDIN are great examples of entrepreneurs coming together to identify common problems and working towards solutions. This should be encouraged rather than crowded out through public investment.

Where have all the salesmen gone ♬ ♬

I've been doing some interesting work on entrepreneurial ecosystems lately. I just published a paper in Entrepreneurship Theory and Practice on ecosystems (hint hint) but that was just the start. One of the points I made in that paper is that entrepreneurial ecosystems depend on more than just entrepreneurs. Look, entrepreneurs are the most important thing, but there are a bunch of other people that matter. Now, we know that angel investors are important and Kenney and Patton said that we should pay attention to folks like patent lawyers and accountants. Obviously you'll want experienced, successful entrepreneurs who can serve as mentors for future generations of firm founders. But I've been talking to a lot of entrepreneurs, policy makers, and other people in Edinburgh for the past month and from those conversations I think we need to think about a broader group of people that you need to make an effective ecosystem.

First of all is sales people. I think sales is the toughest nut for entrepreneurs to crack, especially entrepreneurs who see themselves as 'technologists' or 'innovators' rather than businesspeople. Heck, even businesspeople don't think of themselves as sales people: how many business schools or MBA programs actually teach sales techniques? The answer is Not Many. How many books on entrepreneurship actually talk about sales beyond a very simple 'it would be nice if you sold some stuff'?

But salespeople are very important for startups! Salespeople are typically the first employee at a startup that actually gets a real, competitive salary. They are instrumental in building connections with customers and landing the deals that actually pay for product development. But new entrepreneurs often have a lot of trouble working with sales people, they really don't know how to pay them, how to measure their effectiveness, or how to help them do their job. And if I'd have to guess, I doubt there are a lot of salespeople who like working in the structureless environment of a startup.

And this is where the trouble starts: there's been a 20 year debate in the academic research over if entrepreneurs are born or taught. The debate is still going on but there seems to be a consensus that we can at least try to instil an entrepreneurial mindset in people if we catch them early enough. There's be no discussion about this for sales. There is the basic assumption that salespeople are born; they are born with an extroverted personality, slicked back hair, and the ability to give a sales pitch so meaningful people run from the room crying and you never look at a slide projector the same way. This may or may not be true: I hate talking to people yet during my PhD I learned how to make cold calls to entrepreneurs in order to sell them something they truly didn't need — an hour of their time spent with me.

So we're left in a situation where we assume that since we can't teach sales entrepreneurs will just draw on what ever local talent exists and hope for the best. The problem is that there doesn't appear to be an even distribution of sales talent. We're lucky that the ONS's Labour Force Survey provides detailed occupational data so we can actually see where specific types of salespeople are in the UK. The map below displays the location quotient (LQ) of sales professions: not telemarketers or retail salesclerks but Marketing and sales directors, Business sales executives, and Sales accounts and business development managers. These are high level salespeople and managers. LQs are a nice metric for this sort of thing since they show the ratio of a certain profession to all other professions while controlling for population and other factors: an LQ above 1 means that the concentration is higher than the national average and below 1 means it's lower.

Not unexpectedly, London has a huge cluster of sales professionals: London is a global city filled with sales based companies, this is exactly where you'd expect them to be. But the map shows big problems for Northern England, Scotland, Wales, and Northern Ireland. These places have almost half the national average of sales professionals. This means that when startups go looking for salespeople, they have a smaller pool to draw from. They'll either have to pay more or get a lower quality worker. It means there's a smaller support infrastructure for salespeople to build up their skills and learn how to manage other salespeople.

What does this tell us? Typical region policy to support entrepreneurship focuses on training entrepreneurs first, then trying to educate potential angel investors, and maybe they have a workforce development program to help train people in computer programming or whatever else it hot right now (is Internet of Things a job yet?) But no one is really thinking about (1) how can we train more and better salespeople and (2) how can we train entrepreneurs to be better at working with salespeople. Having a broader conception of who matters in entrepreneurial ecosystems makes it clear that this should be a priority.