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How to Cook Up a Vibrant Entrepreneurial Ecosystem

Local policymakers are increasingly turning to entrepreneurship—a proven driver of economic growth and a catalyst of upward economic mobility.

Written by Emily Fetsch, Evan Absher and Jason Wiens

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Entrepreneurial ecosystems come in myriad forms. To better understand what contributes to vibrant entrepreneurial ecosystems, Kauffman researchers examined 355 U.S. metropolitan areas and found that some factors have a positive relationship to a strong ecosystem, while other factors remain unproven. Though some variables certainly help enhance startup growth, most so-called necessary ingredients often are not statistically significant. Nor do all cities have identical resources and assets.

Not all communities are bustling with entrepreneurial activity, yet as one prominent entrepreneur has said, all cities are capable of a vibrant startup scene. Each community must craft its own unique and vibrant startup community; its own entrepreneurial ecosystem.

Entrepreneurial Ecosystem Myths & Facts

 

 

MYTH: Without Venture Capital Financing, an Ecosystem Cannot Flourish

FACT: Among high-growth Inc. 500|5000 firms, most entrepreneurs have not relied on venture capital.

  • Most entrepreneurs started with personal savings (67 percent) or bootstrapping (13 percent).
  • Only 8 percent received funding from angel investors, and 7 percent received venture capital.

MYTH: Incubators and Accelerators Spur Entrepreneurial Growth

FACT: Businesses affiliated with incubators do not perform better than those businesses not affiliated with incubators.

  • Incubators can be reconceived to connect entrepreneurs and emphasize peer learning.
  • Not enough is known about the effect of accelerators in supporting entrepreneurial ecosystems. It is clear, however, that the quality of accelerators varies substantially.

MYTH: Entrepreneurs Need University Research Funding

FACT: College graduation rates are correlated with startup rates. Yet, more scientific research funding does not necessarily lead to more new business creation.
create a recipe for entrepreneurial success

Guidelines for Creating Vibrant Entrepreneurial Ecosystems

  • Avoid startup monoculture. Create your own recipe by connecting existing ingredients in the community to construct an environment conducive to new business creation rather than building or acquiring them in an attempt to copy what another city has done.
  • Convene entrepreneurs and organizations to facilitate learning between entrepreneurs across industries and sectors. Understand that actors often play multiple roles in an ecosystem.
  • Encourage diverse participation in the ecosystem by actively including women, minorities, and immigrants.
  • Strengthen local education and increase graduation rates.
  • Listen to local entrepreneurs to understand what works for them and what doesn’t.
  • Improve business licensing and permitting processes by streamlining requirements and making the process easy to navigate, with the intent to level the playing field with incumbents who know the ropes.
  • Simplify municipal tax codes to make payment systems more efficient and up to date, including through accepting online payments.
  • Champion local entrepreneurs, and the ecosystem as a whole, both within your city and externally by publicly celebrating entrepreneurial success.
  • Measure, measure, measure. Map your ecosystem, take inventory of your assets, and then develop metrics to measure the impact of policies. Make adjustments as necessary.

Cities Pitch Their Own Recipes

Cities are hard at work to create vibrant entrepreneurial ecosystems. At the Kauffman Foundation’s 2015 Mayors Conference on Entrepreneurship, five cities were given the opportunity to pitch a plan they developed to strengthen their ecosystems. The cities of Knoxville, Tenn., and Louisville, Ky., were awarded funding to increase connectivity between entrepreneurs and support organizations and to improve economic opportunities for minorities and underserved populations through entrepreneurship.

For More Information

While the idea of entrepreneurship as an ecosystem is not new, the idea that the ingredients matter more than the recipe is relatively novel. Thus, policymakers would be wise to apply the suggestions to their particular community instead of simply using, “an ecosystem-in-a-box” approach. For examples of different ecosystems, see Spigel and Bahrami and Evans.

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