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How to build a startup ecosystem – Why it takes a village to raise a child

Entrepreneurs and investors have long known that it takes an ecosystem to raise a scaleup. Policy makers, however, have only recently begun to understand the mechanics. They now see the benefits and feel the urgency. Policy makers now also realize that If no one ever did anything, we’d still be living in the stone age. The same goes for current highly debated inventions, such as Facebook or Twitter. Are they only as bad for us as people say, or are they tools, which we can leverage to speed up progress in general?

Ecosystems where these innovations arise thrive all around the world and policy makers realize they cannot afford to miss out. Fortunately, there is a solution: “We are now at a stage where we know the ingredients for a high quality environment. Plus, we know that you cannot simply press one single button to raise the level, everything is connected.”

Moral of the story: Competence in building startup communities can be a major competitive advantage for ecosystem builders struggling to create value for their city or country, allowing them to tap into less obvious tactics and connect key players. If you don’t know your stuff (or employ someone who does) you’re surely fail to create value. In this interview, Erik Stam, Full Professor of Strategy, Organization and Entrepreneurship at Utrecht University, lays out what builders need to know, who to attract, and who to collaborate with to develop the best version of their startup ecosystem.

Barriers

A lot of cities and countries aim to become the next Silicon Valley. Or are looking at China on how to become the next big thing. Stam points builders of startup ecosystems into another direction. “You should look at what fits you and what creates value for your ecosystem. As opposed to copying what others are doing.” Each environment is different and requires specific attention. Top challenges for builders include lack of knowledge, too few entrepreneurial spirits amongst builders, and not enough collaboration between key players. Stam has tips to demystify each.

Lack of knowledge

“You won’t have the perfect data of your ecosystem, so you need to extract expertise from local parties,” says Stam. “Of course, you and your team are capable of many things, but in execution, you need knowledge from entrepreneurs and the like. Building a startup ecosystem without involving those partners is a recipe for disaster.”

“Many are exceptionally capable of making sure no one gets left behind, but facilitating forerunners to excel, not so much.” But this can be a mistake. “The reality is that you should constantly experiment to find out what works best. Especially because working with startups always accompanies fundamental uncertainty.” Building a company in complete uncertainty and finding ways to be profitable doing so is the whole point of startups.

That said, the reality is that you should stop asking what you should be doing, but should start asking, as Stam puts it, “what are our greatest limitations and where can we make the biggest differences? Where’s the gold? How can we achieve the highest results with the least amount of resources?” And iterate on that process.

Institutional difficulties

Building a startup ecosystem is largely a long-term game, taking into account the institutional difficulties builders face. Growing a pool of talent and funders can take years, if not decades. Especially because many startup or scaleup ecosystems are relatively young and successful founders from the past do not necessarily feel the urge to give back to where they came from. Not to mention the regulatory reasons that surged risk averse behavior amongst banks and companies looking to hire talent.

“This might give you the feeling that your ecosystem should operate more freely like Silicon Valley does or more controlled like how Beijing is controlled by the Chinese national government, but you should not forget that scaling initiatives in their way, also leads to outliers in negative sense. Social mobility is very low in those countries. For example, you need to be part of certain networks to become a millionaire. And not many people are part of those networks.”

Last but not least, “look at the bigger picture. Compared to many Western European countries, African countries struggle with so many basic services, that it’s almost impossible to sustainably grow a startup for the long term.”

Too little entrepreneurial spirit

Stam has been working on creative destruction for over twenty years and noticed it requires a certain mindset. “When you look at how people create value, resistance from incumbents usually follows. Those organizations are bothered by innovation, because they struggle to reach a high return on their past investments.”

“Breaking through this barrier requires a higher level of entrepreneurship in the public sector,” Stam says. “Policy makers, just like startup founders, not only need to understand the startup language, but they also need to embrace trial and error. As opposed to how they used to ask for a bag of money, because they felt they knew what to do with it’.”

Stam is quick to add a footnote, as he states that “unlike startups, policy makers also need to consider longer term consequences and the broader environment, in which startups operate.” This might sometimes feel ungrateful, because startups will spread out their wings and leave the nest when it’s necessary for them to go elsewhere. However, if you don’t allow them to, they will never grow and will never be able to give back to your ecosystem.

Not enough collaboration

In order for any of this to work, your ecosystem needs to have a really strong sense of belonging. This can get very complicated with various needs and interests. “Inhabitants of a city or country must want their region to do well. Partners, such as universities or startup incubators, should want to be involved in a government that pushes regulation that benefits their operations. Last but not least, incumbents need to be involved for the greater good that innovation entails.”

It’s up to you to build a thriving community where best practices are openly shared for everyone to benefit. Not to mention the results you can achieve towards larger governments, competitors, or other outsiders through joint efforts.