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)

 

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. 

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.

Table 1

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.

What all these programs actually do

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.