What I learned about teaching entrepreneurship from watching 14 seasons of Project Runway

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.


Crashing oil prices and entrepreneurship in the oil sector

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.

Entrepreneurship and Independence

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.

Declining Entrepreneurship in the US: Fact, Fiction or Some Third Thing?

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.

How to measure entrepreneurial ecosystems

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.

Mapping UK Startups

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. UK Startups

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 I think this is the prettiest map I've ever made.

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.... XKCD teaches us every lesson.

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.) Startups per 1000 people

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. Has anyone writen a history of histograms?

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. The colors! 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. I guess it's more of a violin plot than a boxplot. 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.

Everywhere is an ecosystem

I hate analogies. To quote Britta Perry, "It's a thought.....with another thought's hat on it." Ot, as Ron Swanson said this week, "That's why my favorite book is Moby Dick: No froo foo symbolism, just a good simple tale about a Man who hates an animal" And yes, to answer your questions, I did not exactly excel in high school English classes. The biggest issue for me is when biological concepts are used as analogies for social or economic processes. When we borrow a basic concept from biology, like evolution, we also mentally import a lot of the scientific perspective on that concept that doesn't really apply to the social world. Evolution only occurs between generations, but evolutionary economics allows for change within firms during their lifetimes (who are the animal in this analogy). Yes we still think of firm evolution in terms of spinoffs and deaths. Should we be talking about Darwinian or Lamarkian evolutionary economics? What about Lysenkoisms?

I've been thinking a lot about the problems of analogies in the context of entrepreneurial ecosystems. The term ecosystem is decidedly biological. To quote the hive mind, an ecosystem is a:

community of living organisms...in conjunction with the non-living components of their environments...interacting as a system.

The entrepreneurial ecosystem is a combination of living (hopefully) actors like entrepreneurs, investors, and workers and non-living institutions like social networks, government polices and universities, that contribute to a vibrant entrepreneurial community. At its base, an ecosystem is a pretty good metaphor for what we're looking for, a biological ecosystem. An entrepreneurial ecosystem should be self-sustaining and depend on complex interactions between the various living and institutional components that reenforce and reproduce their functions.

However, the usefulness of the ecosystem concept starts to break down once we think about it a bit more. Much of the writing on entrepreneurial ecosystems are based on the question of how do we build ecosystems in new areas. How can policy makers and community leaders foster the institutions and people that will help build a strong ecosystem the likes of Silicon Valley, Waterloo, or New York City? This is based on the assumption that only a few communities have ecosystems, but we should all be working towards building them where ever possible.

There is where the analogy starts to fall away for me. In nature, everywhere has an ecosystem. There's not a place on the earth (from the atmosphere to deep sea trenches) which don't have some kind of ecosystem. Sometimes these are rich, vibrant, and sustainable ecosystems with lots of components, like those in a rain forest or savannah. Others are thin, with few components and resources, like a desert or the arctic. Some human-designed ecosystems, like those of a sorghum farm, could not exist without continual human intervention and involve a number of species (including bacteria) that you could count on two hands.

From this perspective, instead of saying we should build entrepreneurial ecosystems, we should instead recognize that all regional communities already have an ecosystem. Some of these ecosystems support the kind of high-growth, innovation-based entrepreneurship that we like to associate with successful regional economies. Others discourage entrepreneurship, either because there is no support infrastructure to help people start new ventures or there is a cultural discomfort towards the risks of entrepreneurship. In most cases I imagine, the ecosystem has no positive or negative influence on entrepreneurship, the ecosystem is simply neutral towards starting new firms.

A successful entrepreneurial ecosystem isn't created out of whole cloth: it requires the transformation of an already existing economic and social ecosystem within a region. While it's fun and interesting to read about success stories like San Francisco, Denver, or New York City, each region is fundamentally unique. You've got to look at what social, economic, and cultural resources already exist and how they contribute to how entrepreneurs are perceived. Only then can you start to build something new.

World Weary Waterloo Waits and Wonders: When Will RIM's Worries Wane?

First, apologies for the lack of posts here. Since the last post, I've moved my entire life to Edinburgh and started a new job in the University of Edinburgh Business School. I've started an experiment in using Tumblr to make short comments on interesting articles about culture, entrepreneurship. I'll eventually find some way to integrate the two. Second, thing are....um....not going well for Blackberry (ńee RIM). Losses of almost a billion dollars in the last quarter, reports of planned layoffs of 40% of the workforce, disappointment and delays on new products, this has not been a great week for the Beleaguered Smartphone Company©.

At this point, it seems likely that recovery is unlikely at best and that RIM (sorry, not calling it Blackberry) will cease to be an independent company at some point in the near future. This may take the form of a complete selloff to a private equity firm or someone in the smartphone industry or the spinoff and selling off of the remaining profitable areas (Blackberry OS, BBM and the cafeteria?).

The question for me, even on the other side of the Atlantic is: what does this mean for Waterloo's entrepreneurial ecosystem and culture? While the 4500 cut jobs will take place around the world, there's no debate that many, if not most, will be in Waterloo.  RIM, along with the University of Waterloo, are seen as the twin pillars of the region's entrepreneurial community.  The presence of a home grown startup that became a global force is a vital narrative in the community: it shows the possibilities of entrepreneurship and the potential rewards of leaving a stable job for the risks of starting your own company.

As I've said before, Ottawa after the collapse of Nortel is the easiest comparison, but I don't think Waterloo will suffer the same fate. After Notel began it's long decline, there was an initial exodus of skilled workers out of the region in search of other jobs. Other highly skilled engineers stayed in the region due to family ties or the fact that they actually liked living there (?!). These people looked for jobs where they could and turned to entrepreneurship, mostly as small time consultants, when they couldn't find a place in another big company or the government.

Waterloo can expect a different kind of exodus. It's proximity to Toronto (an hour on the 401) means that people can stay in Waterloo but become highway warriors and work in offices in Mississagua or Oakville. It's not a pleasant drive, but it's doable. Many major companies like Microsoft and Google already have large Toronto offices and will look to scoop up some of RIM's talented engineers. We're already seeing reports of smaller firms opening up Waterloo offices, I'm sure with the hope of picking up laid off cell phone engineers and programers as well. 

It's also likely that many of the region's economic development programs like Communitech, will try to help the recently laid off workers become entrepreneurs. The logic is seductive: take the experienced human capital of RIM workers, combine it with the social capital and experience of the region's talented entrepreneurial mentors, and help create new, high-tech businesses.

However, it's a mistake to see this as the Great Hope of economic recovery. RIM is an interesting beast: it's a major part of the discourse and legend of Entrepreneurial Waterloo (along with the Mennonites and the Germans), but the company itself seems to discourage entrepreneurship. I can only think of one spinoff from RIM, KIK Messenger, and RIM sued them! Similarly, very few people leave RIM and start their own firms. In my extensive interviews in the region, I only heard of one person who did so (the aforementioned KiK). This is to say that people who have been working at RIM may not want to be entrepreneurs. They want to be people who design high quality cell phones and messaging infrastructure that works a lot of the time, and leave the dirty work of actually running a company to someone else.

The same thing happened with Ottawa and the ex-Nortel workers. The dreams of seeing startups escape the bloated caucus of Nortel like so many baby spiders in a nature documentary never happened. But the region kept on promoting this kind of entrepreneurship without a second thought.

If Waterloo wants to make the best out of a bad situation, they need to figure out a way to help the soon-to-be laid off RIM workers. Entrepreneurship training is a big part of this, but it's not the only part. The community should be working to convince other high-tech companies to take advantage of this situation and open local offices to snatch them up. The local government needs to work with its provincial and federal counterparts to try to encourage Canadian firms in the region to expand their operations to take them on. Despite the region's celebration of entrepreneurship, it shouldn't see entrepreneurship as the only way forward.

Finishing up and starting again

I haven't posted for quite a long time, but I do have the best excuses in the world. I was busy defending my dissertation and interviewing for jobs! I'm happy to say that I defended successfully and am now a Doctor of Philosophy and even more importantly, I've accepted a position as Chancellor's Fellow at the University of Edinburgh Business School. I'll be working on the development of entrepreneurial ecosystems and the relationship to firm strategy in Canada and the dusky moors and wrens of Scotland (I'm still developing my Scottish accent). And now that I'm an official Expert in Entrepreneurship, I'd like to say how much I agree with this article by Melba Kurman about the dark side of entrepreneurship policy. In our constant desire to boost technology entrepreneurship, we often forget that there's a large population of people who really can't benefit from this kind of entrepreneurship: people without the human capital to start or work in high-tech firms, poor people without the savings to endure the wait for revenues to start flowing in or the low pay and high insecurity of startups; single mothers unable to work the long hours these kinds of startups require.

More than that, I think we also may over estimate the actual economic development created by these kinds of firms. In the extreme, you have startups like Instagram, which only had 13 workers when it was acquired for a billion dollars. The value of internet companies is in their IP, not their capital or equipment. Even in the most fortuitous circumstances, when an internet startup gets all the VC investment and angels and invitations to TED talks, they may be worth a lot of money but employ very few people and therefore have limited economic spillovers to the community.

There are exceptions to this. Miovision in Waterloo has all the sparkle of a UW technology spinoff (which it is), but employs a lot of people in manufacturing and maintenance, as well as in engineering and development. However, companies like this don't fit well into the existing accelerator to incubator to VC pipeline many technology entrepreneurship programs are implicitly designed around.

Book Review: Startup Communities: Building an Entrepreneurial Ecosystem in Your City

I just finished reading Startup Communities. It dovetails nicely with what I've been thinking about, that entrepreneurship relies on an entire community surrounding the entrepreneur. Here's my mini-review for all you busy business people: I agree with the first part of the title and disagree with the second part. I believe startup communities are vitally important, but I'm not sure you can build one in your community.

Let's start with the first point. Schumpter talked about the "Heroic Economic Superman" who boldly innovate, releasing the winds of creative destruction upon the world. However, the successful entrepreneur is not so much a Superman working in his Fortress of Solitude, but rather like Batman, a smart, skilled mortal who relies on a team for support (and is also likely deeply psychologically damaged). Entrepreneurs rely on their family and friends to not only slip them a few dollars when they need it, but also to  accept the fact that they'll miss holidays, birthdays, and everyday social events as the entrepreneur builds the business. They rely on employees willing to accept the lower pay and increased risk of working at a startup instead of a traditional company. They rely on customers taking on the risk of buying from a startup when they could often just stick with IBM or Sysco. They rely on suppliers to trust them enough to offer them credit or other kinds of support. They rely on local lawyers and accountants having the knowledge to advise them on challenges unique to small, growing firms.  Without these things, it is very hard for an entrepreneur to build a successful startup that does more than provide a decent income for themselves.

However, the promise of the book's subtitle is that you can build this kind of ecosystem in your community. I'm not so sure about this. I've looked at plenty of communities who try to jump start an entrepreneurial culture that ends in nothing more than a lot of breakfast meet-and-greets sponsored by the local economic development agencies. Ottawa springs to mind, where the local economic development agency has a laser-like focus on fostering an entrepreneurial community in the telecommunications market and has missed the fact that technology entrepreneurship there has now moved to software and social media. One entrepreneur there told me that:

OCRI [the local development organization] as an organization that has done this area a true disservice because it believes chips and wires and cables were going to come back.

But, Brad Field, the book's author, has seen this too. He specifically and rightly warns that this kind of environment has to be led by the entrepreneurs themselves. And I've seen some amazing people starting some amazing grass roots organizations to create entrepreneurial environments. In particular, Calgary has seen the formation of some great groups in the past year, like the A100 and Startup Calgary. However, they're butting up against an entrepreneurial culture based around the oil industry. This means that investors are used to investing in oil wells, not startups. I heard tales like this constantly during my fieldwork there:

See that [oil] hole over there? I’ll thrown $100,000 down that hole tomorrow on 24 hours analysis because I know I have the map, I know where, I know who the players are, I know generally speaking what the risk parameters are. But you tell me that this software guy with this platform that’s going to match up with this and that or this little black box is going to take the world by storm, how do I know that? I don’t know anything about it.

Similarly, it's hard to keep employees at a small tech startup when they all know that they could call up a friend at one of the big oil companies and be earning six-figures with 6 weeks of vacation tomorrow (I'm not kidding, the salaries there are mind blowing if you've got the right skills). Grassroots organizations can help increase the social prestige of tech entrepreneurship — which I found to be very low there — but I don't think that they can change the region's culture, which is far more focused on making money than making cool technology. Or if they can, it'll take years.

I'm not saying that it's impossible to build an entrepreneurial community; I firmly believe that there are options besides the Waterloo or Silicon Valley model of "start 50 years ago." However, I think it takes more than DemoCamps and Third Tuesday drink nights. However, I'd be lying if I told you I knew what that was.

To New York I go

I'm heading down to New York City tomorrow for the 2012 Association of American Geographers conference. 7,000 geographers. 5 days. 1 city. It's always an interesting time. Here's the presentation I'll be giving. It's based on some of my newer work that looks at the connections between local entrepreneurial cultures and the reasons why entrepreneurs decide to start their firms in the first place. Hopefully I'll find an outlet to publish it in soon.

New article: The sources of regional variation in Canadian self-employment

I just got the final version of my new paper in the International Journal of Entrepreneurship and Small Business (Vol 15, issue 3, pages 340-361 for those keeping track at home. E-mail me for a copy). This is my first solo paper and the first paper that I controlled from start to finish. It's not directly related to my dissertation, but rather an outcome of what I saw as a gap in the literature: the lack of any research on what regional economic and social factors are associated with local levels of entrepreneurship and self employment. There is research on this topic from dozens of countries, but none yet in Canada. I wanted to highlight two tables from the paper. The first was part of the lit review. Like I said, there have been dozens of papers since the 1980s that have examined the regional causes of entrepreneurial activity. Normally these are regressions based on census or tax data on a metropolitan level, but some of the more advanced work employ high level statistical approaches to giant, micro-level datasets. But, there has yet to be a serious attempt to synthesize this research. The challenge is that these papers employ a variety of datasets and examine a variety of countries at a variety of times, making it difficult to really compare. But after many, many hours spent reading articles and working with spreadsheets, I was able to create this table:

Significant findings of past research on regional entrepreneurial determinates

The big takeaway from this table is (1) it's easy to see that things that proxy economic growth, like population growth, and the presence of other startups, are generally constantly associated with higher levels of entrepreneurial activities. We also see interesting differences between countries. Personal wealth has almost no effect on German entrepreneurship, but it is shows to cause it in countries like Sweden and the US. It's a difficult task to tease out if this is more related to differing national economies, or due to the different statistics and methods used by the various papers.

The second table are the results from Canada. Regression results of non-agricultural self-employment in Canadian census metropolitan areas

I argue in this paper that Canadian self-employment appears to be mostly driven by local economic growth. Population growth, a fairly good proxy for economic growth (people aren't moving to Fort MacMurray for the culture) has a positive effect and unemployment has a negative effect. Nothing too surprising there. Barriers to entry are important too, economies dominated by a few large employers have less entrepreneurship than those with a pre-existing base of small businesses. Most surprising was the role of taxes, I found that areas with higher commercial-to-residential tax ratios had higher rates of self-employment than other regions. I don't know what to make of this last finding: it'll take some more work to figure out if this is a real issue or just a statistical artifact.

A quick thought

I don't want to do many of these short questions designed only to provoke, but I'm reading the Steve Jobs biography and it's hard not to feel somewhat philosophical. Here it is. There is only one question that matters when studying the geography of entrepreneurship: If John and Clara jobs had not moved back from Wisconsin in 1952, would Steve Jobs be The Steve Jobs, or would he be the best used car salesman that northwestern Wisconsin had ever seen?

That thing they said woud happen just happened

I don't want this to turn into a RIM blog, the world already has enough disaster blogs. But, RIM just announced that they'll lay off 2,000 workers, out of a total workforce of 19,000. There is no word on what jobs are being eliminated — developer or lawyer — or where the lost jobs will be (have been?) located, but considering that the bulk of RIM's workforce is in Ontario, it is not a large leap to guess that many engineers and developers in Waterloo will get the axe. The question immediately turns to how these layoffs will affect the city of Waterloo. As I've said before, Waterloo isn't completely dependent on RIM in the way that Armonk is dependent on IBM,  Redmond with Microsoft, or getting away from high tech, as Bentonville is with Walmart. It's not a one horse town, but it is a town that had a really big horse that pulled a lot of....economic development plows (I'm starting to regret this metaphor).

From my perspective, the concern isn't that if RIM declines, Waterloo  becomes a new economy version of Hamilton, Ontario, a city who's primary industry (in Hamilton, that was the steel industry) left for greener pastures. Waterloo has a great deal of resilience, in both it's high tech and traditional industries. The main concern is making sure that the talented people who are laid off are able to stay in the region, by either getting new, local jobs or starting their own company. Waterloo's talent pool is deep, but talented people can swim to where ever they want. Most of the time, they don't because moving is pretty painful. But a lost job presents an opportunity to try out another city.

So, with that in mind, here are a few crazy ideas to try to keep the most talented people in the region, in the region.

  • RIM should donate several thousand dollars for every employee laid off to Communitech, the local economic development agency. Communitech is going to be crucial for both re-skilling (it's a terrible word, but it's the only word that works) for entrepreneurship, or, if the stories about working at RIM are true, de-program them in the hopes of successful reintegration to society.  This isn't a cure all, but OCRI in Ottawa did see some success during Nortel's collapse. The key is to remember that no everyone wants to build the next RIM. Some people just want to run a consulting firm that will pay a decent salary without sucking up all their time.
  • Given RIM's difficulty in attracting app developers, it might not be a bad idea to try to convince laid off programmers or developers to become full or part time app developers. No one knows the ins and outs of the blackberry environment better than someone who has been diving in it for years. One would hope that RIM has been conducting market research that shows potential niche applications that have a sizeable potential market. Of course, selling $1 or $2 apps will not equal a RIM salary, but app production provides a nice way to bide your time and hack while living off what is hopefully a very big severance check.
  • The idea of a Grave Dancer Fund is interesting, but I'm not sure I think it'll work. Then again, I'm a terrible investor, all my money is tied up in a 1.5% savings account because I think CDs are too risky an investment. The idea here is to create a venture fund that specifically targets people laid off from RIM: get in on a ground floor that's so low there's magma seeping in. However, these layoffs are happening soon, in the next 2 months soon. Is that really time for people to get over the shock of losing their jobs, find a product, start prototyping it, and do all the other things startups need to do? It has the potential to work, but it also has the potential to subsidize some very long post-job vacations.





The future of RIM and the future of Waterloo

Research in Motion, the maker of the venerable BlackBerry cellphone has had a hard time as of late. Another disappointing quarter has left their shares at a 5 year low, and speculation about their future has already started, with rumors of buyouts and declines swirling around. This is a continuation of their annus horribilis which has already seen the lack-luster launch of the Playbook which was supposed to revitalize the company's cutting-edge image, but didn't. But this post isn't about RIM's market opportunities or new strategies. I don't have a clue about this; In full disclosure I'm writing this on a Mac Mini, with an iPad (*sigh, iPad 1) and iPhone 4 charging next to me. What I do want to think about is what a declining RIM means for the future of entrepreneurship the Kitchener-Waterloo region. Startup North got the ball rolling on this topic yesterday. They argue that while RIM has pumped maybe 100 million dollars into Canada's entrepreneurial economy over the past several years, through acquisitions and and venture investments, Google has done the same amount in only the past 12 months. Furthermore, most of RIM's acquisitions have been located in Toronto, not Waterloo. In terms of pure dollars and connections with startups, RIM has very little happening in Waterloo. Though its headquarters is located there at it employs thousands of developers and engineers locally, to a lot of entrepreneurs' it's essentially a blackhole that sucks up all the talent. There are very few, if any, spinoffs from RIM. One of the local startups that is in anyway associated with the BlackBerry ecosystem is Kik, who made a pretty damn popular instant messaging system for the Blackberry. But, they're now they're being sued by RIM. While Kik now supports iOS and Android, they've left the BlackBerry behind. If anyone knows about other spinoffs from RIM, I'm all ears.

(I should add that my PhD dissertation focuses on the local social and cultural factors that underpin high-tech entrepreneurship in Canada. As part of this research, I've interviewed dozens of entrepreneurs in Waterloo, with a specific focus on their relationship to RIM)

I wouldn't say that RIM is hurting local startups. Many of the entrepreneurs I've talked to have said that they often see RIM senior execs at Communitech (the local economic development group), and that they give out advice and are generally nice people. I mean, this is Canada after all. RIM also helps startups indirectly as well. A lot of the entrepreneurs I talked to — from bleeding edge microchip designers to graphic designers working out of their basements — said that just being associated with RIM by being located in the same city is an advantage. I would argue that much more than the University of Waterloo, RIM has been the main reason why Waterloo is now synonymous with high-tech.

If RIM continues its decline and becomes a mere Nokia or Motorola, Waterloo's image will be tarnished. If RIM can no longer take on the cream of UW's co-op crop, Waterloo's imagine will decline and fewer of the world's best computer scientists will come to the city. Other startups like SandVine and Desire2Learn show that Waterloo is more than just RIMtowne, and the continued presence of Google and Microsoft in the region prove that the city is and will be one of the hubs of raw computing talent in Canada, if not the world. But, a declining RIM and the continued rise of startups in Vancouver, Toronto and Montreal might sap talent from the region.

However, back over at StartupNorth, there was the thought that maybe RIM's coming layoffs will be a boon for entrepreneurship in the region. This is what happened in Ottawa. As Nortel died its slow death, the laid-off engineers and developers started their own businesses, creating a renaissance of entrepreneurship in the city. That's true, but it's also not. It's true that even as Nortel slid into nothingness, entrepreneurship grew in the city (see figure)

But, the bulk of these firms were little IT consulting shops set up not by entrepreneurial world killers who wanted to take on Cisco, but by older engineers who didn't want to move. They had houses with mortgages (and this was not a fantastic time for selling your house), they had kids in schools and husbands and wives with local jobs. Leaving Ottawa just wasn't an option for some people. And Ottawa is a pretty great place to be an IT consultant. Some of them went straight back to consulting or contracting for Nortel, and over time many of them starting working with the federal government.

But many of these firms are very successful, they're not the kinds of firms that lend themselves to regional economic development or growth. They don't make products, so their revenues only grow with their billable hours. They don't hire many people, and they're not great platforms for new entrepreneurs to hone their skills. Rather, by and large they are lifestyle firms that generate a good income for the owner, and maybe a few other employees. Not that there's anything wrong with this, only that this isn't entrepreneurship in the way that many people imagine. Afterall, these weren't died in the wool entrepreneurs, these were workers at a very large company who were suddenly laid off. They want a nice comfortable life, they're not necessarily willing do 18 hour days or 100 hour weeks any more.

Waterloo is less of a great place to be an IT consultant. Sure, if RIM lays off people, it'll need to bring on contractors, but there are few other big players in the region that need large amounts of IT outsourcing done. Certainly, there's no federal government presence like in Ottawa. There is just not a whole lot of room in the local economy for a lot of small IT shops.

So, what will happen if RIM continues its decline, leading to large layoffs of highly skilled developers and engineers? The majority will find other jobs locally, no doubt of that. Google, Microsoft and the rest would love to scoop up that talent for their mobile divisions. Some of the younger and unattached ones will leave for greener pastures: Toronto, Vancouver, Montreal, San Francisco or Boston. This will be the biggest loss for the community. But those who do stay will may create their own startups. But the vast, vast majority of these will be lifestyle firms with very little growth potential. I will be very surprised if out of, say, a 500-person layoff from RIM, if even one truly innovative startup will result.