I'm happy to announce that my latest paper with Richard Harrison on entrepreneurial ecosystems will be published in the Strategic Entrepreneurship Journal's special issue on entrepreneurial ecosystems. You can read a pre-print version of the paper here. Below is the abstract, but after that I'll tell you about the really cool stuff in the paper.Read More
Workshop on Entrepreneurial Ecosystems
June 6th 10:30 to 4:00
University of Edinburgh Business School
Location: David Hume Tower Room 4.18
George Square, Edinburgh
The Centre for Entrepreneurship Research at the University of Edinburgh Business School is hosting a Workshop on Entrepreneurial Ecosystems that will focus on the emerging field of entrepreneurial ecosystems and high-growth startup regions.
The workshop will feature talks by two international experts on entrepreneurial ecosystems: Dr. Yas Motoyama of the University of Kansas and Professor Erik Stam of the Utrecht University School of Economics.
The workshop will bring together scholars and policymakers from fields such as business, economics, geography to discuss how regions can support high-growth venture creation and entrepreneurship-led economic development.
Attendance is free and lunch is provided
10:30 - 11:00 Arrival & coffee
11:00 - 11:10 Opening
11:10 - 12.10 First session: Dr. Yas Motoyama
12.10 - 13.00 Short ecosystem presentations & discussion
13:00 - 14:00 Lunch & networking
14:00 - 15:00 Second session: Professor Erik Stam
15:00 - 16:00 Discussion & close
Please contact Ben Spigel (email@example.com) or Fumi Kitagawa (firstname.lastname@example.org) with any questions or to RSVP.
The events of the past 9 days make it clear that there is a shift towards authoritarianism and fascism in the United States marked by attacks on the humanity of immigrants and religious minorities. It joins several other countries in this regard.
It is also clear that the main people behind these racist, facist policies have business degrees or business education. Donald Trump graduated from Wharton Business School in 1968. His principal advisor has a Harvard MBA. His UN ambassador has an accounting degree.
The rise of political leaders with business degrees, rather than law or political science is a rising but not new phenomenon. George W. Bush was famously the first president with an MBA (from Yale) and his first campaign highlighted his MBA training as a key source of his skill set as a manager. An older analysis shows that a degree in business administration or economics is one of the most common educational backgrounds for state leaders.
Successful business people are increasingly using their business or entrepreneurial success as a platform for their political careers. Trump is the most obvious example of this but Darell Issa is another example. This trend will only grow.
Given this, Business Schools need to take on the responsibility and duty of training the next generation of political leaders as well as business leaders. This responsibility includes the need to deliver anti-facist and anti-racist training. We as management scholars need to begin a discussion of how we can take on this new responsibility in our teaching and research.
What does anti-facist business pedagogy look like? It goes beyond simply offering a class on business ethics (even if it is mandatory). It has to be integrated throughout the curriculum. It has to accomplish several goals.
- First, it has to teach students to know when they are being lied to and understand the reasons. This is pretty useful skill for a future business professional to have anyways, but is is particularly necessary in a world where our leaders boast of having 'alternative facts'
- Second, it has to teach them that they are capable of being facist or racist. One of the biggest failure of our education system is that it presents racism as an act of determined hate rather than a series of many, simple, thoughtless actions. Students should learn both about unconscious bias in hiring and leadership, but should also be subtly exposed to how they engage in it. Maybe we can create a business simulation where students are given the option to adopt illegal policies (such as limiting worker safety to reduce labor costs or asked to review the resumes of different workers when hiring for a student startup). The key is help them realise that they are susceptible to these biases and they will have to police themselves.
- Third, it must have them engage with humanity. Several entrepreneurial and social design classes have had students work with refugees or undocumented immigrants to better understand their situation and design solutions to help them.
I want to begin a dialog about what an anti-facist business curriculum looks like. Critical scholars from fields like sociology, gender studies, history, and political science have put together several draft syllabuses and reading lists to better understand the post-trump world. Management scholars must do the same thing. Our challenge is that it is difficult for us to simply teach against fascism: students come to our programs and classrooms expecting to develop a very specific skill set and will likely resist too much overt anti-fascist training. Rather, we have to integrate these life lessons into our overall curriculums.
If you have any ideas to share, please leave them below in the comments or e-mail them to me at email@example.com. My ultimate goal is to help arrange a late breaking PDW or informal gathering at AOM in August to discuss and develop these ideas further.
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.
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)
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.
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?
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.
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.
What can regions do to try to build their global ecosystem brand?
- 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.
- 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.
- 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.
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.
The answer to any question in a headline is No. A recent article in the Globe and Mail talked about the poor results from grants Ontario gave to universities to build out entrepreneurship programs. It's the traditional gripes about university startup programs: too much money spent useless things (office space and 3D printers) or money spent on things that could be free (mentorship) and it's too difficult to track outcomes.
This problem is everywhere. Entrepreneurship is seen by the public and by the government as A Good Thing That Should Be Encouraged. Money is made available to universities to promote entrepreneurship, usually through the creation of a entrepreneurship support group inside a business school or the university commercialisation body. They run business creation workshops for students, review business plans, hold pitching competitions, and maybe they have some sort subsidised office space or angel seed money for the very best kids.
And after 4 or 5 years of this, the results are tallied up and they don't look good. There are a few academic spinouts, but but many of them might still be in the angel investment/VC investment phase with very little to show. If the entrepreneurship organisation is very good at record keeping, they might have a list of how many students they helped have gone on to start a new venture, but chances are also that these startups have low growth potential. So there's a re-org, new management is brought in, a new mission statement crafted. Wash, rise and repeat.
The problem with many university entrepreneurship programs is that we are measuring the wrong things. It's great if we embed entrepreneurship in the curriculum so much that students in all disciplines from STEM to Slavic Studies are prepared to identify a pain point and build a Minimal Viable Product while filling out their Business Model Canvas while watching a TED talk. But the fact is that recent university graduates are pretty poorly positioned to startup a growth-ready startup. Because they have little experience in any industry, they are poorly positioned to identify needs in industrial value chains or really anything beyond consumer products / apps. Studies have shown that the most successful entrepreneurs are generally in their late 30s/40s and have at least 10 years experience in the industry they're entering. They have the knowledge, the legitimacy, and the resources necessary to successfully create a new, fast-growing venture.
In this sense, it's kind of foolish for recently graduated students to jump into starting their own company the second they graduate. Some students who have been dreaming about running their own company for years will do this, and that's great. They have the initiative, flexibility, and orientation needed to be a great entrepreneur.
But for most students, this entrepreneurship was never their goal after they graduate. For these students, the majority of a university's student body, the point of entrepreneurship education is to plant a seed. Knowing that entrepreneurship is an option for them, knowing the fundamentals about what works in a startup and what doesn't can help a graduate who is 8 or 10 years into their career in an industry see an opportunity and decide to take the risk of going after it. Now they not only have the skills to start a business they have the inside knowledge and experience that gives them an unfair advantage.
The problem is that these startups will never show up in any analysis of the university's entrepreneurial performance. The connection is too long-term and too subtle to easily pick up. But I think these types of startups are the most important outcome of university entrepreneurship education programs. It's just a shame that we'll never be able to count them.
There's no solution to this. All we can do is temper our expectations for what an immediate intervention can do. A single program with a 3-year rolling budget won't make a university a startup factory. This kind of transformation is a decades long project involving long-term investments, changes to the way tenure and promotions work, and a complete reinvention of the university's culture and the type of students it creates. But what these programs can do is help create a more entrepreneurial population of graduates, even if they don't become entrepreneurs until long after they've graduates.
What I learned about teaching entrepreneurship from watching 14 seasons of Project Runway (and 4 seasons of Project Runway Allstars, and one season of Under the Gunn, and reading all of Tim Gunn's books), OR What happens when the sun sets at 3 PM in Scotland OR How I learned to stop worrying and love skill-based reality competitions. Teaching entrepreneurship is a weird thing. There's not a huge amount of theory you can teach. Oh there is stuff about what is the nature of an opportunity or the role of personality characteristics, but I don't think many teachers or students think these are actually important to knowing about entrepreneurship. There are techniques to teach, like design thinking, customer empathy, and business model canvases, but it's hard to avoid teaching these in a way that isn't completely vocational. In a university class, I want students to develop critical thinking skills, not just know how to fill out a business plan template.
I think about it like teaching photography: there are technical skills to learn like f-stops, lighting levels, and colour coordination and there are things like the history of photography that students can engage with, but at the same time it is an art that can only be learned through repeated practice.
But while you can take a photo in 1/60th of a second, building a new venture takes a long time. We can try to simulate this with business plan assignments, but the problem with this is that it takes a long time (at the very least a good portion of a course) for students to figure out if a business model they're working on can work or the types of challenges they'll face.
So, we can't just practice entrepreneurship. I think a better approach is to help students develop good taste. Throughout Project Runway, Tim is trying to help the contestants become better designers by helping them become more tasteful. Often time this takes the form of 'editing,' taking away features of the clothes to reveal the brilliant design underneath. This isn't a rote list of what colors go together or what's fashionable this season: taste according to Tim Gunn is a highly creative and dynamic knowledge about what works in a given context given your resources, time frame, and customer needs.
Taste in entrepreneurship is similar. I think a business model can be beautiful if it opens up a path to create value where no one saw value before or identifies a solution to a problem everyone has but no one realises they have. Business models can also be ugly, like a model where you compete in a saturated market to provide a commodity service. A good business education should help students develop good entrepreneurial taste to realise what is a good opportunity and what is one to be avoided.
For Tim, the best way to teach taste is to ask questions. The teacher shouldn't say that there's no customers for a new product, they should ask who the customers are, what's the price point, what problem are they solving. A teacher shouldn't say that it's a bad idea to start a restaurant but instead make sure that the student can articulate their Unique Selling Point and then look for the holes in their argument. You're job is to be something of a speed bump, making sure that you don't let students get to carried away with their own ideas that they don't look at it from different perspectives to see the flaws.
Good teaching is always good mentorship, but mentorship is especially important when trying to cultivate taste in students. It's helping students to understand what questions they need to ask and to understand what a good idea sounds like.
Drawing on my now very extensive experience of watching Project Runway, I've come up with a few tips on cultivating entrepreneurial taste that I'm going to try to work into my classes:
- Identify beautiful business models and share them with students. Try to explain what makes the business model beautiful: does it uncover a new source of value (like AirB&B), does it try something totally new and unexpected (like leasing jeans), does it do something that's already out there but just much better (like Slack)?
- Ask questions, lots of questions. Make students re-think every aspect of their idea to find the weaknesses.
- Use silence. If the student can't immediately answer a question, don't just skip it and move on, just sit there until they can answer it. If they can't, then they sure know that they have to figure out how to answer it now.
- Don't do the work for them. One of the biggest challenges mentors face is not to just jump in when you see a student struggling (look at the first season of Under the Gunn to see what that looks like) and help them out. But struggling is part of the learning process. Make sure you're not just giving them ideas, but you're helping them come up with their own ideas.
- Force them to road test. No plan survives contact with reality but road testing an idea is the only way to see if it works. Figure out way to make students take their ideas out of the class room and into the real world. Make them come up with £5 experiments (a market validation test that costs less than a really good cup of coffee) and then talk with them about the results.
- Be empathetic. Tim Gunn is the world's best mentor because he deeply empathises with all his students, no matter what their background. He's good at teaching because his students instantly know that he cares about their success. That way even when he's forcing them to start all over on a 12-hour design question, they know he's doing it because he believes they can do better.
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.
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.
Richard Florida wrote series of tweets on the recent news that Uber as 'poached' around 40 senior researchers from Carnegie Mellon University. CM has a fantastic reputation in robotics and automation research and is one of the leaders of work on autonomous cars. Uber has made no secret of its interest in automated cars in order to disrupt the 'poor immigrants get a foothold in a new country' market'. The article he was responding to sees this as a problem: Uber has made no secret of its interest in being a leader in the self-driving car market and is throwing its sizeable resources into hiring the best minds in the business. The fact that they set up a research office in Pittsburgh is testament to how great CM is at this. The MarketWatch and WJS article views this as an attack on CM and that by stealing away their top researchers they've weakened the university's robotics program. The point that Florida was making is that there is no reason to see this as a threat. Indeed, that this is the entire point of university research!
Now, before we get going talking about this, I just want to make two points. One, the real market for disruption by self-driving vehicles is the trucking industry not the taxicab market. Two, is anyone else confused about why a gypsy taxi dispatch company is valued at 50 billion dollars?
But, let's put that aside for now. What made me interested in this topic is that I'm currently reading through Christophe Lécuyer's brilliant book on the history of Silicon Valley. It's no surprise that one of the reasons for the emergence of Silicon Valley as a technology cluster was the interaction between local tech entrepreneurs, defence contractors, and researchers at Stanford University.
Stanford was a leading research location for the self-driving cars of the 1950s: microwave radio tubes and klystrons. The highest of the high tech. Varian Associates was the Uber of the mid 1950s, an high-tech, engineer-led company near San Francisco that was beating the pants off of its competitors like RCA. Its secret was hiring physicists with a great theoretical understanding of the basic science and pairing them with the skilled trades people drawn from the region's burgeoning defence industry.
Key to their success were their close linkages with Stanford. These connections went far deeper than just drawing on the tech developed at the university, they hired graduate students and directly funded relevant research. In some cases Varian "relocated its engineering staff to Stanford to reinforce the firm's close connection with the university's research programs" (p. 110)
The same thing happened when in the development of the transistor and microprocessor. The main developer of this technology, William Shockley wanted to hire a Stanford professor onto his company but the professor declined as he was more interested in his academic research. But over the next few years they "reproduced Shockley's laboratory on campus. As a result, Standard was probably the first university to have the capability of making silicon diodes and transistors" (p, 138).
So, what does this have to do with CM and Uber? From the university's view Uber is a threat to their research. They've hired away 6 PIs and it sounds like 30 odd advanced post-doc or phD researchers, which is a huge deal. Those researchers are taking hundreds of person-years of experience out of the university. CM can try to replace those PIs, but even if the new hires are of the same caliber as those who have left it will take them years to get their own labs up and running.
From Uber's perspective this a great thing. By locating their research office in Pittsburgh they've gained access to knowledge spillovers from CM for years but now thanks to the *ahem* ambitious valuation of the company they're in a position to hire on these researchers and become *the* world leader in self-driving cars. From a regional economic development angle, this is great too. Uber's advantage in this industry will grow, helping them create even more high-skill, high-pay jobs.
But the history of Silicon Valley provides some useful insight into this. Lécuyer's history helps me understand something that isn't much talked about in academic research on the role of universities in economic growth. In order of importance, here is the contribution of universities to the economies of high-tech regions:
- Producing highly skilled students who go on to work at local companies
- Acting as a magnet to attract highly skilled researchers to the region who then go on to work at local companies
- Knowledge spillovers from university research to local firms
- Academic spinoffs and commercialization of university tech
- Students spending lots of money on beer before leaving
- Proceeds from sales of CDs from student a cappella groups
A University's role as a producer of skilled graduates and magnet to attract skilled workers is their most important role in supporting economic development. Other things like knowledge spillovers and spinouts are secondary at best.
So, on one hand Uber's hiring of CM researchers is great. CM has acted as a magnet for attracting the top autonomous robotics people in the world and Uber is able to take advantage of that.
But by hiring away the PIs, Uber might have killed the golden goose. PIs with large grants and labs are great training ground for new highly skilled researchers. They attract top PhD students and post-docs and help them become world leading engineers and researchers. It's hard to know what the role of these PIs will be within Uber, but if they're not publishing or applying for grants it will be hard to attract the world's best researchers.
In many ways, history tells us that it would be better for Uber to support the PIs within their university labs. Give out large, undirected grants and let the researchers do what they do best. Give them lots of money to bring in more researchers and then hire the best of the best. Encourage spinouts from the university by being a early-stage customer and acquire those with the best product.
So, Florida is right that we shouldn't see this as an attack on the university because this is exactly what should happen. Local companies should hire the best talent that's produced at a university which in turn helps the region develop a stronger knowledge-based economy. But we should also be concerned that by poaching PIs, Uber has reduced the capacity of CM to produce and attract the world's best researchers which at the end of the day does a disservice to them, Carnegie Mellon, and Pittsburgh as well.
The great thing about the end of the year, other than my birthday (better known as Christmas 2) is that governments try to release all their crazy policies while everyone is off enjoying the 'festive season' (better known as getting drunk). So I wasn't that surprised when I read that the Home Office is developing a new strategy of forcing all non-EU foreign students to leave the country before applying for a work visa. Let's discuss why this is a terrible idea. A university helps the regional and national economy by bringing in promising pupils, educating them, helping them gain technical and social skills, and then unleashing them on the economy as workers and entrepreneurs.One of the biggest economic contributions universities make to their surrounding regions is to attract and train skilled workers. All the cool research and 'academic spinoffs' are just added gravy, the true benefit comes from developing wicked smart kids. Immigration policy should do its best to create pathways for foreign students trained in domestic universities to stay in the country. Universities aren't economic engines, their alumni are.
I also think that forcing a 4-month trip home would break the link between the student, the university, and the region. Let's imagine the optimum situation here: a brilliant student graduates and leaves the country to apply for a work permit. She has to give up her flat, sell or store all her furniture, and then move back with the parents. She goes out and applies for jobs and because she is brilliant, gets many offers and gets a work permit after about 120 days. Right there the university's home region has lost it's best claim to the student: she already lives there. Sure lots of students move after finishing university, but many students (particularly post grads) also set down roots in a place that encourages them to look for local work. This is especially true for entrepreneurs or people who want to work at startups who depend on their place-based social networks to find opportunities and jobs. This policy change will break these networks and bonds for every single non-EU student.
Second, it's pretty much admitting that the sole purpose of international students is to subsidize domestic students' tuition. I'm an international student / worker twice over: I'm an American but I did my undergrad and PhD in Canada and now I'm a migrant worker in the UK. As a student I knew that I was paying more than my Canadian friends, but at least I knew that Canada had some interest in keeping me after my studies. Maybe not as an undergrad (for some reason economic geographers aren't in demand in the Canadian labour market) but my PhD came with a permanent residency application stapled to it. I think changing the rules to basically say "thanks for the money, now why don't you go home and cool your heels for a few months while we decide if you can come back." would really change my view towards the university and the country.
Look, we all know that this change is being done for political reasons leading up to an election. Some idiots made an idiotic promise to minimize net immigration. But it's also important that every single idiotic consequence of these idiotic plans are raised and that the backers of these plans are forced to explain their rationales to a sceptical public.
What an interesting time to be alive. Oil prices have dropped precipitously over the past 3 months. Down from over $100 to around $61 at the moment. There are various explanations for this. Saudi Arabia is trying to pull the rug out of the fraking boom in the US by reducing the profit margin on expensive production sites in North Dakota and Pennsylvania. I like the super geo-political-diplomatic explanation that the US cut a deal with Saudi Arabia to cut oil prices in order to hurt Russia (it doesn't sound true, but maybe it is!) What I'm interested in is how this will affect entrepreneurship in regions whose economies are dependent on oil extraction. For the past year I've been conducting a study about technology entrepreneurship in these sorts of regions. Places like Aberdeen in Scotland and St. John's in Newfoundland. I've just returned from 6 weeks of intensive fieldwork in St. Johns, made all the more interesting by the falling oil prices.
These places tend to have very, very high levels of entrepreneurship and self employment. The hugely capital intensive projects associated with sucking oil out of the seafloor brings in lots of money to the region but it also attracts some of the smartest and best trained engineers and scientists in the world to work on these projects. Entrepreneurs are able to find plentiful opportunities in these sorts of markets — many begin by serving the local market as contractors or sub-contractors on big projects before developing a technology that can be exported to other oil service centres. Think new software tools to manage the flow of resources into projects or submersible technologies that can be used to inspect offshore installations anywhere.
It's hard to figure out what the decline in oil prices mean. In the short term we're going to see very swift retrenchment by the major operators. They're going to cancel projects and lay off workers. But developing an on-shore or off-shore oil field is a major investment that'll most likely be in operation for several decades. You don't make decisions like that on major, but quick, fluctuations in the price of oil. After all, oil is still a non-renewable resource and it's still getting burned off like crazy. The price will return to very high levels eventually.
But in the meantime it will do some major damage to entrepreneurs in this sector. The major oil producers are really, really good at externalizing everything that isn't sucking oil out of the ground and selling it. As far as I can tell with projects in the North Sea, most of the design, development, installation, and maintenance work on offshore rigs are outsourced either to international oil service companies like Haliberton or to smaller local specialized firms. These opportunities will be the first to dry up, the entire point of this system is to be able to quickly drop projects and contractors during periods of cyclical decline. This will not be a fun period for entrepreneurs. Many will fail and others will either see a substantial loss of profits or the need to scour the world for new business.
But I think in the long-term this kind of short term shock can be good for the regions (if not the individual entrepreneurs). The economies of resource regions are tied to the fate of a highly variable commodity whose use will hopefully decline over the next 50 years. Anything that pushes firms to move beyond the oil and gas industry is a good long-term move. For example, I can see lots of maritime engineering firms and subsea technology companies in Aberdeen shift to offshore wind development. These installations require really advanced work to be build and maintained in one of the world's harshest environments. However, the payment for working on these projects is far lower than what they would expect to get for oil projects. When times are good these firms wouldn't have the resources to take on a project like wind power but in leaner times they just might. And by doing this they develop capabilities that can be exported around the world, helping the firm survive and reducing their dependence on the oil industry.
I'll try a new experiment, a short note about an interesting paper I've read in the past week or so. Hopefully in an entertaining way, but I can't promise anything: it's really hard to punch up regression tables or structural equation models. I can't even promise it'll stay an article of the week, I'll be lucky if I can keep to an article a fortnight. Paul Brewer and Sunil Venaik's new paper in Organizational Studies provides a real valuable service to entrepreneurship and organizational studies people who want to look at culture. I think you'd be hard pressed to find anyone who doesn't at least agree that culture has a huge impact on how organizations operate. But the chief stumbling block in studying it is quantification. How power oriented is the culture? Can we measure it to the second decimal place?
Geert Hofstede came up with a great solution to this problem. Throughout the 1970s, he surveyed thousands, eventually over 100,000, IBM workers about psychological and leadership issues. Through the magic of component analysis and (one of my favourite mathematical terms) verimax rotations, he came up with 5 dominant cultural factors and generated scores of them for over seventy countries. Researchers love using this as a basis for work to explain national differences in things such as startup rates, innovation, and economic development. It's a really neat way of connecting something as nebulous of culture with something as important as economic growth through rigorous statistical methods.
So now, Hofstede's work has been criticized from a number of sources — the basic theoretical underpinnings, the methodology, the results, but one aspect has been really overlooked but is present in almost everything that uses this work (and other similar measurements of cultural attitudes). That is the ecological fallacy. This is when you use statistical evidence about an entire population to make judgements about an individual. The paper has a great table showing the problems this causes.
In essence, the authors argue that there are huge problems with taking the 'average' cultural values of an entire country (a country which might have a very heterogeneous population made up of natives and immigrants) and then saying that everyone in that society has cultural values exactly identical to this average. This hides all the variation within a country's cultural outlooks, leaving little room for nuance or variation.
At the end of the day, this kind of outlook contributes to what Duncan (1980) called the reification of culture. This was a criticism of how cultural geographers viewed culture as a real, objective 'thing' that could be examined, measured, and understood. But it's not: it's a weird thing that is maybe part of our basic neurochemistry and is also maybe a complete social construct that is produced and reproduced by the powerful echelons of society. But when we reduce it to a number for a nation, we forget all this complexity in return for empirical parsimony. Brewer and Venaik's paper is a good and timely reminder that it's very hard to simply very complex things.
Bruce Katz and Julie Wagner at the Brookings Institute just put out a new thought piece on innovation districts — concentrated urban areas designed to foster innovation, entrepreneurship, knowledge sharing and creativity. This is an interesting mix of existing thinking about how the economic growth engine of developed economies are shifting from suburban office parks to urban cores, studies on cluster development and knowledge spillovers, and architectural and environmental psychology thinking about how the built form influences interaction and knowledge sharing. Innovation districts are different than the traditional idea of clusters. Clusters are about a whole region, from the suburban periphery to the downtown core, to the other downtown core, to the highway strip malls that are become a new form of office space. Innovation districts are much smaller, the authors through out numbers like 200-1000 acres, and much more focused on the assets needed to support high-tech innovation (wet labs, office space, collaboration areas, 3D printers because everything is 3D printers right now).
The report does a very good job of making clear that innovation districts aren't just physical facilities. The authors cite three kinds of assets: economic assets, networking assets, and physical assets. Economic assets are the existing firms and institutions that drive innovation, network assets are the linkages between these economic assets and the individual employees that actually generate the innovation, and physical assets are the infrastructure in which all this tasty innovation happens within.
However, I'm a bit concerned about the idea that innovation districts are a solution to specific problems, such as low levels of innovation or a failure for the knowledge produced within a university or anchor firm to effectively spillover to others in the area. Just like when I try to bake, just having all the ingredients together in one place doesn't mean that you'll make something delicious.
The recent controversy over MaRS in Toronto is instructive. MaRS is a government sponsored facility in downtown Toronto, right next to the University of Toronto and its many research hospitals. Its mission was to support and incubate spinoff companies from university research and provide a space for satellite offices and labs of major pharma companies to capitalize on knowledge spillovers. It failed. Despite the copious efforts put in to entrepreneurial support, there are few if any startups in it and it the facility poised to default on its bonds because it's new lab space don't have any tenants. Despite the fact that Toronto has the physical, economic, and network assets to support this kind of work, the innovation district never really emerged.
What this means is that innovation districts can't just be plomped down in a city and expected to work. Now, that's a bit of a stawman argument: very few policy makers think they're playing Sim City where they can just right click, add a new feature, and expect it to seamlessly integrate with the physical and economic landscape of the city. But there does seem to be a belief that one last public investment — a new incubation facility or a collabatorium — will finally bring together all the great urban and regional innovative resources that are currently unconnected.
Let's call that outlook the 'mushroom model.' Mushrooms seem to popup right after a nice summer rain: the water activates the existing resources in the environment (I'm no mycologist here. I'm just a guy who notices that mushrooms seem to spring up after a rain). This suggests that the physical form of the innovation district can unlock the existing potential of an innovative region.
I think a 'bamboo' model is better. Bamboo is a rhizome, a root system that sometimes sends up shoots to gather energy and produce flowers to reproduce. (note: apparently poison oak is also a rhizome, but that wouldn't make as catchy a title). The heart of the bamboo is the roots, not the shoots.
An innovation district should be like bamboo: it's physical form should reflect a strong root system of innovation, interaction, knowledge sharing, and entrepreneurship. The physical form of the innovation district should be the embodiment of the innovation, not the catalyst.
But there's the rub. Unlike bamboo shoots, new university collaboration centres, lab space, or incubation programs just don't appear overnight because the conditions are favourable. They require massive public investment and years of planning. How is a policy maker to decide if an investment in a new facility reflects an existing innovative undercurrent or if she is just trying to add a bit of water in the hopes that a new mushroom pops up.
I obviously don't have the answer to that, but part of the process is casting a critical eye on the region's innovative culture. You need to take a serious look at the pre-existing levels of interaction between firms, researchers, and entrepreneurs. Is there a culture that supports interaction and learning for their own sake, or are they just showing up to networking events for the free wine?
I just got back from the Independence and Entrepreneurship debate hosted by the University of Edinburgh Business School and MBM Commercial. It was a great event! This is such an interesting and important topic, and I'm glad that over 400 people were willing to spend an evening listening and thinking about it. Now that I'm back home with my scotch and my Game of Thrones, I've got a few thoughts on it. 1) I was somewhat disappointed by the composition of the panel. 6 people: 1.5 entrepreneurs, 3.5 economists / financial policy folk (one was half economist and half entrepreneur) and one MSP. Because of this, discussions of entrepreneurship took a back seat to discussions of fiscal policy. Not that those points aren't important, but that they're not entirely relevant to entrepreneurs. I was also disappointed that there were no women on the panel. Women make up about 40% of the owners of new firms. I was disappointed their voices weren't heard tonight.
2) The elephant in the room is that policy and tax regimes really don't really affect entrepreneurs. As I said in the last post, I've talked to a lot of entrepreneurs and not a one has mentioned being swayed by a small change in the marginal tax rate or the introduction of a new innovation policy. No one seemed to answer which UK policies are holding entrepreneurs back and which future Scottish policies could foster it.
3) Buuuuuuuut.......currency does matter. The panelists suggested that the costs of currency transactions between some future Scottish pound and the Pound Sterling would add about 1% to firm costs. I think this is a bit low when we're talking about smaller firms, who will bear the brunt of cross-boarder transactions. But, I honestly don't think it will come to that. This is the one question that really matters for entrepreneurs, but it' the one question that will not be answered before the vote.
Ian Hathaway and Robert Litan at the Brookings Institute just came out with an interesting working paper showing that new business creation and entrepreneurship in the US has been declining since the 1970s [PDF warning]. Since people at Brookings know how to write a good paper for public consumption, the lede is right there in Figure 1.
And also since the Brookings Institute is really good a press releases, this report has been part of today's twitter tales. Plenty of people are blaming this on OABAMA, OBAMA TAXES, and OBAMA REGULATIONS.
I don't doubt the author's analysis, but entrepreneurship data is tricky, tricky stuff. I've spent far too many hours yelling at my excel spreadsheets, wondering why they don't add up, only to realize I was using the wrong definition.
What's a startup? What's a new firm? Are we talking about every new firm registered with the IRS? Firms that have incorporated with their Secretary of State? What about firms that have more than nominal turn over? Firms who employ more than just the founder? Are we counting farms? Franchises?
There are a lot of reasons why aggregate levels of entrepreneurship would fall over time. As much as I am loath to blame regulations (in the over 100 entrepreneurs I've interviewed as part of my research, I don't think any have ever mentioned regulations as a major challenge), but it's not like there are fewer building codes out there than in 1970. The idea that slightly higher marginal federal tax rates discourage entrepreneurs (who are unlikely to make a profit during the term of the president who raised or lowered the taxes) is such a stupid idea that it doesn't even merit a clever joke.
Rather, I think there are fewer opportunities for entrepreneurs out there. A Wal-mart in town means that there's no need for the local 5 and Dime, the appliance shop (and now that TVs are so cheep, no need for the TV repair shop). Now, consumer facing small businesses are only a small part of the overall entrepreneurial scene. But, it's hard to ignore the fact that major firms and franchises are able to out compete most independent entrepreneurs in the same field. McDonalds franchise owners work hard, but they have a lower failure rate than any independent restaurant.
The authors say they've got another paper in progress that'll control for external economic factors and that the decline in entrepreneurship survives the addition of control variables. But something like this doesn't show up in any econometric variable I know of. It represents a structural change in the economy.
I love reading data-driven articles on entrepreneurial ecosystems, and Nick Beim's new article "The Rise and Future of The New York Startup Ecosystem" is no exception. What's unique about it is that is uses two measures, total amount of VC investment and exists about 500 million, to compare ecosystems. Nick shows that while NYC's ecosystem might still be small by Silicon Valley terms, it's the same size as as Boston (if not bigger) despite the fact that NYC lacks a high profile research university like MIT (Colombia stands in the corner of the room and looks at the floor in embarrassment; no one even notices NYU).
Both these metrics are nice because they give us real, comparable numbers. Comparing regions is always a difficult process because of a lack of good, comparable data that actually talks about entrepreneurship specifically.
However, there are some problems with these measures. VC isn't geographically neutral: venture capitalists tend to invest in firms near them (I could give you so many citations for this but just throw 'venture capital geography' into google scholar and go wild). So, places with more VC firms are likely to have more VC investments. This is called a 'Matthew Effect,' meaning that places with an already existing advantage continue to get that advantage at the expense of worse off places. So, places with lots of existing VC investment will attract more VC firms, leading to higher levels of investment. Now, this isn't deterministic: New York-based venture capital firms are increasingly investing in firms in Toronto and Ottawa. Two venture funds just put over 100 million into Ottawa's Shopify last year. Similarly, without this kind of financial backing, it's hard to get a $500 million + exit.
Because of this, there are maybe 5-10 cities in America where we'd expect to see enough venture capital invested to actually put the data in a spreadsheet and make a pretty graph with out resorting to logging everything. But I think that there are more than 10 entrepreneurial ecosystems in America. We need to find better metrics that allow us to identify them in ways that go beyond VC investments and exist.
However, this means a lot more work on the part of researchers. It's easy to get VC data if you're willing to pay; it's much harder to figure out the contours of a regional culture or count how many mentors there are within a community. This requires a more in-depth, case study approach. I'm just beginning to think about how we can measure ecosystems in a way that gets at all these hidden factors but at the same time allows us to systematically compare different regions.
One last note: Nick's article is particularly nice because it actually mentions cost of living. Major ecosystems like NYC, Boston, and San Fran are having a cost-of-living crisis. It's going to become increasingly hard for entrepreneurs, especially young ones, to actually live and work in these places. How entrepreneurs support themselves prior to being bought by Facebook for 19 billion dollars is going to become an increasingly important question as time goes on.
Since I first washed up on the chalky (more peaty, I guess) British shores, I've been doing my best to get an overview of the geography of UK startup activities. That's my job after all: to figure out where the entrepreneurship hots spots are and why those places are great areas for startups. I forgot about this for a while after being buried in other work and teaching, but I was reminded about this by a recent report by Startup Britain about the the UK's entrepreneurial hotspots. They were kind enough to release the underlying dataset, which was produced by Companies House. The data is a report of how many new firms were registered in every postal code area in the UK.
This data set helped me rediscover the joy and the pain of making maps while watching re-runs of Law and Order.
Plugging the data from Startup Britain into QGIS (a nice, open source GIS platform that actually runs on OS X!) produces a nice visualization of where the UK's entrepreneurs are.
This is a pretty diverse geography of startups, but it's about what we'd expect. High levels of entrepreneurship in the Southwest and up into the Midlands, lower levels of entrepreneurship in the Northeast and in the Highlands.
We can make this a bit simpler to get an even broader overview of the UK's entrepreneurial geography. This is an equal area map of the average number of startups in the postal code areas contained within 25 KM hexes
With this, you can see a very clear pattern of high rates of startup activity in the area between London and Manchester, with fewer activity elsewhere.
But XKCD teaches us that most maps just map population....
So, we've got to control for population. This is where I ran into the wall of horrible data collection. It's pretty dang easy to get population for postal code areas England and Wales from NOMIS. But, because of Events over the past 700 years, Scotland gets it's own census and it's not very good at showing what data they have and letting you have it. After several hours of yelling at the computer, I finally found what I needed and could make a map of the number of startups per 1000 people in every area code in the UK (except for northern Ireland, Gibraltar, and the Channel Islands, because I just couldn't bring myself to care.)
This is..... ummm.....less interesting. London is really the only place where we see huge deviations from the mean of 20.66 new firms per 1000 people. Indeed, if we look at a histogram of the log of startups per capita, we see it's really concentrated around the mean.
This is because there is a very clear relationship between the population of a postal code area and the number of startups. The correlation coefficient is 78%! This is very apparent when you graph population against startups. From the graph, it's clear that there are very few regions that have an exceptionally high rates of startups per capita, but there are plenty of regions in the North and the North West which have very low rates.
This is even more apparent when we make a box plot of startups per capita by region. London does have a lot of areas with exceptionally high levels of entrepreneurship per capita. Of the 6 area codes that have more than 1 reported startup per person, 5 are in London (EC1V, SW1Y, EC4A, W1B, W1S) and one is in Birmingham (B2). I imagine these codes are some weird corporate or historical zones where no one actually lives (maybe just the Queen and her Dogs), which totally throws off the per capita calculation. But even with that, the average startups per capita in London is still significantly higher than the national mean.
So, where do we go from here. The first thing I want to do is try to break this down by industry. In terms of economic development, all new firms aren't created equally. A consulting LLC will likely never employ more than a few people, but a new manufacturing firm can employ many people and export products abroad. We also need to look at firm births as well as death. What regions are gaining startups and which are losing them? We also need more data to figure out what's driving entrepreneurship. High populations do mean more economic activity, but this doesn't help policy makers figure out how to encourage entrepreneurship. We need to look at things like education, levels of immigration and migration, and that fun stuff.
So, I've got a lot of librarians and statisticians to yell at. I want to thank everyone on the twitter-sphere who encouraged me to make these maps, it was a great excuse to learn some new tools and data sources.
I got an early Christmas present a few weeks ago when my paper in Entrepreneurship and Regional Development was published. The paper, Bourdieuian approaches to the geography of entrepreneurial cultures, is part of a special issue on entrepreneurial cultures. My paper develops a new framework to understand how entrepreneurial cultures develop within regions, influence entrepreneurs' practices, and change over time. The second paper, Economic Geography and the Financial Crisis: Full Steam Ahead?, is a contribution to a special issue of The Professional Geographer that came out of the 2010 Summer Institute of Economic Geography in Sunny Vancouver. Along with Chris Muellerleile, Kendra Strauss, Thomas. Narins, we discuss how economic geographers can best contribute to global understandings of the 2008 Financial Crisis.