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.

Wither Waterloo?

Research in Motion is not a healthy company. It makes a product no one particularly wants for a price no one particularly wants to pay. The reason for the company's decline will no doubt be chronicled in a thousand MBA case studies, but I imagine at the end of the day it will simply be a tale of complacency in the face of change, over-confidence in the face of challenge, and stagnation during the punctured part of punctuated evolution of the mobile device market. But, I'm not the guy to talk to about that. I don't know from management. But I do know from regional development, and especially the role of small firms and entrepreneurship in regional development. The major question amongst nerds like me is that if RIM does implode, if it either dies a quick natural death (unlikely), or if some corporate raider takes advantage of its low share price to acquire the company and strip it for assets (likely), or it slowly shrinks over a period of several years until it's simply another has-been (99.9% chance), what will happen to Waterloo?

Christine Dobby, Mark Hartley and someone called "Financial Post Staff" think that it'll be good times! Waterloo, as you must know if you're reading this (since I'll likely be the only reader and I know this) is what you might call an 'entrepreneurial hot zone.' There are a huge number of small software startup firms in the region and these firms are all desperate for workers. I intervened around 30 entrepreneurs, investors, and economic development officials from the area as part of my dissertation and almost all of them mentioned the difficulty of hiring skilled workers. This was in part RIM's fault: they would suck up all the best workers, leaving slim pickings for the rest of the region's economy.

Ottawa is the model for this. When Nortel Networks died its slow death throughout the past decade, there was always the hope that the thousands of workers laid off from the company's Ottawa HQ would enter the local tech market, either by working for other local firms or by starting up their own firms. The former plan didn't end up working out because most of Ottawa's software economy was based around the TelCom sector, whose decline in 2001 had sealed Nortel's fate. Just as a massive labor pool of highly trained engineers was available, there was no one looking to hire. The entrepreneurship thing didn't really happen either. Nortel employees were used to working in a very large firm, many of them did not want the lifestyle of an entrepreneur. It's hard to accept 100-hour workweeks for no salary when the federal employee who lives next door is out by 4:30, get's a month's vacation and *gasp* has a pension. What entrepreneurship did exist was really an outcome of people who loved living in Ottawa but who needed to create jobs for themselves. These were largely small consultancies that will never grow or produce jobs.

I predict Waterloo will have a similar experience (few laid off workers joining the local labor force or starting local firms), but for different reasons. Waterloo's technology economy is far more diversified than Ottawa's. So it's not that no one will be hiring. It's just that there is a complete mismatch between the skills and expectations working at RIM and the skills and expectations of working for a small firm. Small firms pay less, offer fewer benefits, and expect workers to be far more flexible in what they do and how they do it. Not everyone thrives in such an environment, especially if they've spent a good deal of their career in a large, hierarchical company like RIM. One of the chief complaints I heard from entrepreneurs in Waterloo regarding employees was that it was hard to find workers who could work successfully in small firms.

But you know where there are high-tech jobs in large organizations? Just down the 401 in Mississagua and Toronto. Microsoft, Google, IBM, Intel, they all have offices or campuses in the GTA that are a reasonable commute from Waterloo. Not a nice commute, the Queen's Express Way is pretty much the worst stretch of highway in North America, but a reasonable commute none the less. Unlike ex-Nortellers in Ottawa, former RIM employees won't have to uproot their lives to find a similar employment situation. They'll just have to drive eest to suburban Toronto's plentiful office parks.

RIM's decline will hurt Waterloo, a lot. I think that as a whole, the entire regional economy is resilient enough to survive this. They have great institutions, institutions like the University of Waterloo and Communitech that will always do a great job of attracting talented people to the region and encouraging growth. And I think it is critical that the region try to support former RIM employees' local endeavours, from joining existing firms to starting their ow. However, it's clear that simply having a large pool for very skilled workers isn't an economic panacea. These workers can't simply be slotted in to existing job openings. It will be an ongoing process, one that will have far more failures than successes.

Angels in the back field

I love it when newspapers provide great examples of economic geography. In just the past few weeks, I've seen a cornocopia of great articles that really exemplify why economic geography is so amazing. We have Adam Davidson's Making it in America cover story in the Atlantic (which I'm currently forcing 200 students to read and then write about its connection with the transition to Post-Fordism in the American sunbelt), and the NYTimes' fantastic investigations into Apple's use of Chinese labor and even Paul Krugman is getting into the game, talking about clusters and such. And now, just a few seconds ago, I saw an article in the Ottawa Citizen about the lack of angel investors in Canada's Capital City. I've touched on this topic before, and I'm happy to say that I'll have a chapter in volume 22 of Advances in the Study of Entrepreneurship, Innovation and Economic Growth on it. It's called "A Series of Unfortunate Events: The Growth, Decline, and Rebirth of Ottawa's Entrepreneurial Institutions" because I'm a sucker for titles that contain other titles.

So, credentials: established. The article in The OC basically bemoans the lack of angel investors in the Ottawa region. In essence, in addition to the lack of medium and late-term venture capital investment that plagues the rest of Canada, Ottawa also has a problem in that there's very little early-stage seed money to help entrepreneurs transition from a raman-based development process to something more resembling a real, human, life. In 99% of cases, this money comes locally from either the investor's family and friends, and after that, by a wealthy individual looking to get in at the very early stages of a firm with huge growth potential.

The article seems to place the blame on the fact that the area's richest individuals aren't acting as angel investors. That's barking up the wrong tree. First, local tycoon Terry Mathews does invest in startups, they're not necessary local. He's Murchock to an A-team of super-smart and motivated technology workers. He brings them together, gives them resources, and points them to a problem he's identified as needing to be solved.

But the biggest point that this article misses is what happened to the angel community in Ottawa. There used to be one! Indeed, it was one of the most active in the country, made up of successful Nortel execs looking for something to spice up retirement and successful entrepreneurs looking for some post-sell-out fun. Indeed, the large federal workforce in Ottawa meant that it was fairly easy to find a friend willing to invest a bit, since they have pretty nice salaries and the best job security in the world. Ottawa saw a whole bunch of angel investment plays, both formal and informal, throughout the dotcom boom when everyone and their younger brother was starting a web startup. Everyone was going to be the new GeoCities!

But the crash happened. Firms that had taken on angel investment went under and obviously, the angels lost their dollars. However, the sadder story is what happened with companies that had taken on venture capital. The venture capitalists (I'm imagining them as something like this) structured the deals to protect them at the cost of the original founding entrepreneurs and the early angel investors. In the death spiral of the dotcom age, they were able to force the company to sell or liquidate and take back their entire investment, often leaving those orignal investors with nothing. This had the effect of mostly shattering the local network of angel investors. Those that had money left to invest became very gun shy, hesitiate to go through that again. Upsell altert: the forthcoming chapter discusses why a community of angel investors is so critical.

This has caused a decade of entrepreneurs, an entire generation, to be unable to get any early stage angel investment. They've had to re-adjust their growth strategies to be able to use only organic revenues to grow the company. Essentially, they chose business strategies that would let them grow without needing any investment. Companies like Shopify, Trustifier, or Klipfolio (note: maybe I interviewed the founders of these firms, maybe I didn't. I'll never tell) took a cloud-based or Software as a Service route as a way to lower initial startup costs and provide a predictable path to growth. When they realized they couldn't get anglels

So, the problem of Ottawa is not just there aren't enough deranged millionaires throwing pennies down from their air-zeppelins. Rather, it's the fact that many medium sized potential investors, people who could write a check from $10,000 to $100,000, either got burned a decade ago, or have been hearing stories about how other people got burned a decade ago. It's a bigger problem than just a lack of investors, it's a lack of will. That'll take much longer to fix.