Ecosystem Building 101

Introducing 7 schools of thought to help you understand what makes an entrepreneurial ecosystem.

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Each month, three out of a thousand Americans start a new business (Kauffman Foundation 2019).

For these entrepreneurs to succeed, they need varying levels of support: mentorship and advice, affordable work space, flexible financing, a favorable business environment, the list goes on… Broadly speaking, they need an ecosystem that helps them start and grow sustainable companies. 

I don’t hesitate to call the field of ecosystem building nascent at best. To shed a little more light on the term, I combed through hundreds of pages of reports, studies and publications to present you with a variety of approaches of how you might think about your local entrepreneurial ecosystem. Instead of insisting on one definition and fighting academic tooth and practitioner nail over semantics, I invite you to view the resources that follow as a menu of different schools of thoughts. The truth of the matter, as I see it, is that entrepreneurial ecosystems constantly evolve and shift based on the developments within them as well as in response to external factors.

Before diving deep into the eight different schools of thought, we clarify some terminology and geographic variables. The last section summarizes the key take-aways from the body of research presented here and invites readers to contribute their favorite sources to contribute to the ecosystem building discussion.

*If you are not interested in devouring the different schools of thought, jump ahead to the last section that offers a synthesis of learnings.

Disclaimer: Terminology

Please note that the language around ecosystem building if fluid. Some of the resources refer to entrepreneurial ecosystems, innovation ecosystems, or social enterprise ecosystems. I like to think of the first two designations as appropriate when we talk about social change; innovation is often inherent to entrepreneurship. With that being said, it is not a pre-condition and I encourage everyone to keep these distinctions in mind when reading. For the purpose of understanding ecosystem building for social change, I have found all three designations insightful and valuable approaches to understanding how we can help purpose-driven entrepreneurs thrive through nurturing thriving and efficient ecosystems.

Disclaimer: Location

These resources were published based on research in Europe, North America, globally, or developing nations. Whenever you consider an ecosystem, be aware of the different contexts that set the stage for the discussion. While we can assume a democratic style of government in much of the Western world, government stakeholders play a very different role in countries with high levels of corruption, a low acceptance of the rule of law, or a high occurrence of human rights violations, to name a few.

Location and its inherent economic, political and cultural context is rarely taken into consideration in resources that stem from North America (which is perfectly fine as long as you discuss entrepreneurial ecosystems in North America). But do know that certain parts of the world with a thriving startup – and potentially social startup – scene operate under different parameters (e.g. gender equality, religious freedom, etc.). The World Economic Forum, for example, features entrepreneurial ecosystems from different continents as you will see below.

Schools of thought

These resources are listed by complexity and geographic scope (local to global). Each resource is presented with merely an excerpt of their core definition. I encourage every reader to consult the original source (linked at the end of each paragraph) to dive deeper into the approaches that are of most relevance and interest to him/her.

Brad Feld, Startup Communities

One of probably the most popular and most cited sources regarding the actors within a startup community in North America is Brad Feld’s book Startup Communities. As participants in the startup community, he lists:

  • Entrepreneurs
  • Government
  • Universities
  • Investors
  • Mentors
  • Service providers, and
  • Large companies

The book also includes the often-referenced Boulder Thesis and shares some insights into how these actors should operate and engage in order to build a thriving startup ecosystem. 

If you are curious about the field of entrepreneurial ecosystems, start with this book and get a basic understanding of who is who, and what role they play in helping founders thrive.

Hwang & Horowitt, The Rainforest

If you have or intent on moving around the North American ecosystem builder community, it is only a matter of time until you hear the rainforest analogy of entrepreneurial ecosystems. Pioneered by Victor Hwang, at the time of writing (August 2019) Vice President of Entrepreneurship at the Kauffman Foundation, and Greg Horowitt, their book The Rainforest: The Secret to Building the next Silicon Valley makes the case for diversity and the importance of recipe over ingredients in the natural evolution of entrepreneurial ecosystems.

This distinction is an important one: your ecosystem may have all the right actors, but if they don’t share the same vision and have not created a welcoming culture that has the interest of entrepreneurs at heart, you will end up with a stagnant set of ecosystem players who each pursue their own agenda instead of building towards a greater good. Hwang and Horowitt explain this much more elegantly and take you from a bird’s eye view of entrepreneurial ecosystems to that of the individual ecosystem builder. 

If you are serious about learning more about entrepreneurial ecosystems, I suggest you add The Rainforest to your reading list.

Michael Isenberg, Scale Up Ecosystems for Growth Entrepreneurship

The work of Michael Isenberg at the Babson Entrepreneurship Ecosystem Project is captured as part of the Diagnostic toolkit by ANDE (see below) but deserves special intention for its level of insight and adoption by other practitioners such as the OECD

According the Isenberg, “the entrepreneurship ecosystem consists of hundreds of specific elements that, for convenience, we group into six general domains” (Isenberg 2011):

  • Policy
    • Leadership 
    • Government
  • Finance
  • Culture
    • Success stories
    • Societal norms
  • Support
    • Non-government institutions
    • Support Professions
    • Infrastructure
  • Human Capital
    • Labor
    • Educational Institutions  
  • Markets
    • Early customers 
    • Networks

Isenberg also brings forward a number of recommendations which I encourage you to read here. The one that stuck with me the most was his take on whether ecosystems are nature or nurture, in other words, do they evolve naturally or are they designed?

“[Ecosystems] are usually the result of intelligent evolution, a process that blends the invisible hand of markets and deliberate helping hand of public leadership that is enlightened enough to know when and how to lead as well as let go [of] the grip in order to cultivate and ensure (relative) self-sustainability” (Isenberg 2011).

Kauffman Foundation, Ecosystem Builder Playbook

The essence of an entrepreneurial ecosystem is its people and the culture of trust and collaboration that allows them to interact successfully. The ecosystem allows for the fast flow of talent, information, and resources so that entrepreneurs can quickly find what they need at each stage of growth.

Kauffman Foundation, 2019

The Ewing Marion Kauffman Foundation based in Kansas City, MI, has been investing heavily in the field of entrepreneurial ecosystem building since 2016. They convene one of the largest, if not THE largest, annual meeting of entrepreneurial ecosystem builders mostly from the U.S. (learn more about EShip here). 

Trying to sum up the different components of what an ecosystem is – beyond the definition offered above – is both beyond the scope of this overview and would do their work a disservice. Instead, read through their Ecosystem Building Playbook and see whether it serves your work. It is worth noting that this playbook has been created over the last three years collaboratively by attendees of the annual EShip Summit. 

TEPSIE, Building the Social Innovation Ecosystem in Europe

Under the banner of social innovation research, “The Theoretical, Empirical and Policy Foundations for Building Social Innovation in Europe” (TEPSIE) is a research collaboration between six European institutions led by the Danish Technological Institute and the Young Foundation. TEPSIE ran from 2012-2015 and put forward their report “Building the Social Innovation Ecosystem in Europe” in 2014. 

Instead of focusing on actors, the TEPSIE study approached the term of an innovation ecosystem through broader categories; this might be due to the fact that instead of looking purely at new businesses, the project specialized in social innovation which is a valuable lens when exploring ecosystems for social change (which may or may not stem from social innovation, more about this here).

Here’s how TEPSIE approaches the term of innovation ecosystem:

  1. Framework Conditions
    • Financial or economic context (economic growth, access to credit,)
    • Political context (type and stability of government, levels of corruption, transparency)
    • Legal and institutional context (respect of the law, human rights, level of gender equality)
    • Societal context (levels of civil engagement, public participation, risk adversity)
    • Human resources (level of education and quality skills)     
  2. Supply-side measures
    • Financial resources (grants, debt instruments, venture philanthropy, patient capital etc.)
    • Non-financial resources (incubators, safe spaces for R&D, business development support, mentoring and coaching etc.)
    • Skills for innovation (tailored courses and programmes for social entrepreneurs)
  3. Demand-side measures (growing the market for innovative products and services)
    • Procurement 
    • Support of private demand through tax incentives, subsidies etc.
    • Campaigning and advocacy
    • New flow of information
    • Development of the knowledge base around socially innovative products and services
    • Strengthening of system-wide capabilities
  4. Intermediaries: institutions, groups and networks that enable the transfer of knowledge about social innovation

What I specifically like about this school of thought is the focus on demand-side measures. When it comes to purpose-driven founders introducing new solutions to long-standing social and environmental issues, boosting demand is critical. Social Traders in Australia, for example, placed a strong focus on putting ethical procurement on the government agenda. The B Corp movement, in North America in particular, plays a strong role in advocating for Business as a Force for Good through campaigns like this one.

European Commission, Social Enterprises and their Eco-systems: Developments in Europe. 

This 2016 report puts – perhaps not surprisingly –  public policies and the European citizens’ ability to self-organize at the center of the social enterprise ecosystem.

Surrounding the center of the ecosystem are the following assets:

  • Political acknowledgement and legal forms 
  • Access to markets 
  • Fiscal framework and support to start up and scaling up of social enterprises
  • Access to finance
  • Networks and mutual support mechanisms
  • Research, education and skills development

While this approach can be argued in terms of who is at the center of the ecosystem, it is worth noting that the report analyses each of these factors by country, namely:

  • Belgium
  • France
  • Ireland
  • Italy
  • Poland
  • Slovakia
  • Spain

For an extensive list of actors in each country, read the individual country reports

The World Economic Forum, Entrepreneurial Ecosystems Around the Globe and Early-Stage Company Growth Dynamics

In 2014, the World Economic Forum published the “first large-scale study that examines which ecosystem pillars matter most to entrepreneurs at the growth stage.” In their work they define an entrepreneurial ecosystem as 

“A system of interrelated pillars that impact the speed and ability with which entrepreneurs can create and scale new ventures in a sustainable way” (p. 9)

The eight key pillars according to the World Economic Forum study are:

  1. Accessible Markets
  2. Human capital/workforce
  3. Funding & finance
  4. Support systems/mentors
  5. Government & regulatory framework
  6. Education & training
  7. Major universities as catalysts
  8. Cultural support

This report features 43 cast studies from China, the UK, Egypt, UAE, Australia, Israel, South Africa etc. which allows for comparisons of entrepreneurial ecosystems across continents. 

Aspen Network for Development Entrepreneurs (ANDE), Entrepreneurial Ecosystem Diagnostic Toolkit

In their 2013 Entrepreneurial Ecosystem Diagnostic Toolkit, the Aspen Network for Development Entrepreneurs compared nine different tools by their level of complexity and geographic unit of analysis. 

Synthesizing all nine approaches, ANDE suggests looking at entrepreneurial ecosystems through three indicators:

  1. Entrepreneurship Determinants (various factors that affect entrepreneurship)
    • Finance (debt access, VC access, access to grants, access to angels, stock markets)
    • Business Support (industry networks, incubators/accelerators, legal/accounting services)
    • Policy (tax rates, tax incentives, costs to start a business)
    • Markets (domestic sales, international sales, target market size)
    • Human capital (graduation rates, quality of education) 
    • Infrastructure (access to telecom, access to electricity, access to infrastructure)
    • R&D (patents)
    • Culture (entrepreneurial motivation)
  2. Entrepreneurial Performance (specific activities by entrepreneurs that deliver impact)
    • Total number of businesses in the economy
    • Number of high-growth firms
    • Employment numbers
    • Enterprise survival and death rates
  3. Impact (value created by entrepreneurs – macroeconomic variables)
    • GDP growth
    • Employment
    • Gini coefficients

This toolkit is the most thorough meta-analysis of ecosystem analysis tools that I have seen to date. 

Through its lens, we understand that while entrepreneurship determinants can be measured, and we might be able to collect data on entrepreneurial performance, we are often at a loss when it comes to extrapolating impact. 

But do not despair. The toolkit comes complete with a template of indicators (appendix II) and an ecosystem survey instrument. If you are committed to analyzing your entrepreneurial ecosystem, this tool is ready for you. Print and survey away!  

Limitations 

Having reviewed these seven resources, here are the limitations I found from my experience as an ecosystem builder:

Not all businesses are startups

Remember that a lot of these resources focus on the needs of new businesses and startups. Your ecosystem will be home to just as many if not more established companies that can leverage their position to contribute to the ecosystem. When it comes to building ecosystems for social change in particular, look for small levers that can move the needle.

Secondly, not all entrepreneurial ventures in your community might end up being viable businesses. Some of them may end up as small but mighty non-profits, or hybrids or come in the shape of dedicated freelancers. Keep an open mind. Don’t get too hung up on unicorns = startups.

Definitions and categories: Don’t go overboard

I hope these seven selected resources gave you some language to talk about ecosystem building in a more informed way. And while I agree that sharing a common language to have a constructive dialog on how to move the field of ecosystem building forward, let’s not get too hung up on semantics, definitions and labels.

More often than not, you will find that any given actor in the ecosystem wears more than one hat, if not at once then over time. 

Keep in mind that the term “ecosystem building” is an analogy in itself to guide our work. But it should in no way be treated as a capital-T-Truth or prescription. 

Context matters

As mentioned in the disclaimer, your geographic context matters. Whether you are located in Zimbabwe, Italy, Israel, Ecuador or Minnesota – expect your ecosystem to underlie a unique set of political, cultural, institutional and societal aspects. 

Moreover, even within the same country, assume that no two ecosystems are alike. 

You might go as far as to observe how different actors within the same ecosystem describe it. The truth is, based on your role and experiences within the same community you might view challenges, obstacles and opportunities very differently from the next person. Never assume equality and always be on the lookout for different perceptions. Keep an open mind

Seven guiding principles in understanding your ecosystem

I hope this review has allowed you to draw your own conclusions about what an ecosystem is and how you can contribute to it.

As we move forward with building a common language around ecosystem building and reporting back from our efforts, here are my four recommendations to guide your exploration.

1. Assess your ecosystem

Whether you use the Ecosystem Diagnostic Toolkit presented by ANDE (see above) or create your own methodology, take stock of who is doing what in your ecosystem. Knowing your ecosystem’s assets helps you identify gaps and gives you insights into what might be missing in your recipe.

2. Talk to entrepreneurs

More than anyone in your ecosystem, founders have a strong sense for the roadblocks and challenges that slow down their progress and growth. This, of course, assumes that you put the needs of entrepreneurs front and center of your work, and are willing to listen. Chances are that that something is not even missing but disconnected from the ecosystem or not easily accessible.

It should go without saying that as an ecosystem builder it is your job, to not only speak to the founders you know but seek out the ones you don’t know. Whose table have you not set at? Which tables are you not even aware of? Stay self-critical my friends, and seek out groups that are often underrepresented in your ecosystem. For more on this, I recommend “The Innovation Blind Spot by Ross Baird.

3. Understand your role as an ecosystem builder

In case you hadn’t noticed, you are not the hero of this story. As an ecosystem builder, figure out what your role is, and focus on doing that part really well. You’re not serving your community if you are trying to do everything for everyone. Know your strengths and play to them. If you work for your city government, no-one expects you to run an accelerator on the side. Lobby for the needs of entrepreneurs within your sphere of influence. And do it well. That’s your responsibility. 

For more guidance on the typical roles within a startup community, revisit Brad Feld’s Startup Communities.

4. Recipe over ingredients 

Hwang and Horowitt as well as the Kauffman Foundation place high value on the idea that it’s not just about assembling all of the right ingredients; depending on your local context, what matters most if the recipe for cooking up a vibrant ecosystem for founders. And this recipe, once again, is bound to change over time; if it doesn’t, chances are your progress has stalled.

5. Grow your own

The reason that there is only one Silicon Valley is not that they had a specific set of actors that can be copied and deployed elsewhere. The reason Silicon Valley is Silicon Valley is that their recipe works where they are. You can have eager investors and phenomenal high-growth startup entrepreneurs – if there is no culture of collaboration and shared interest, it isn’t going to lead anywhere. That’s why my toenails start to curl when I hear someone say “We’re the next Silicon Valley.” Please don’t. Be the next you. Grow your own based on your ingredients and your culture. 

6. Create demand for mission-driven products and services

In order to support your local ecosystem, you don’t need to be a full-stack ecosystem builder. Advocating for purpose-driven founders and their products and services is as much part of the job as lobbying your state government for more favorable startup legislation. A topic that often falls short in the conversation around nurturing entrepreneurial ecosystems is that of storytelling. Telling the stories of the founders who align with your values is one of the most valuable contributions you can make as an ecosystem builder. Refer to the TEPSIE report for more ideas on how to create demand for products and services that create not only profit but impact in our communities.

Our friend Jeff Bennett – ecosystem builder extraordinaire – spearheads the storytelling initiative of the EShip community and outlined how to get started with storytelling for ecosystem builders in this article.

7. Data. Data. Data.

As we get better about data collection, a tool like ANDE’s Ecosystem Diagnostic toolkit allows us to translate the work of purpose-driven founders into macroeconomic variables. This, in turn, helps us make a strong case for the impact of social entrepreneurs on our economy, and the work that we as ecosystem builders deliver to support their efforts.

At the time of writing (August 2019) the Startup Champions Network is developing a program to train ecosystem builders in gathering and showcasing data of their entrepreneurial ecosystems. Learn more about their Ecosystem Health Challenge here.


Your turn: What definitions and schools of thoughts about ecosystem building have you come across? Comment below!

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