In making the decision where to locate a new business, what factors do you need to consider? Which city or region helps you in developing innovative products necessary to succeed today? And what capacities should government develop to attract new businesses to their region?
Three conditions appear to be important in assisting entrepreneurs in building successful startups. But, these conditions are often overlooked in the current discussion about startup ecosystems. Governments should focus on these conditions when trying to design a flourishing startup community.
The best place to be innovative, creative and entrepreneurial:
(i) focuses on its unique selling points of the region (what can be termed the “Local DNA”);
(ii) understands the emergence of a global startup ecosystem; and
(iii) builds robust connections with the resources of the global ecosystem.
This type of ecosystem is usually characterized by an open and inclusive network of young companies, established firms, investors, consultants, universities, etc. Instead of a global startup ecosystem, we might also call this a borderless or virtual ecosystem.
Leveraging “Local DNA”
Each startup community has to find its own distinctive identity. Also, it is preferable to focus on businesses that connect to the unique selling points of the region. Central to this task is understanding the history and pre-existing capacities of a region.
A regional startup community needs to be built on existing capacities. Or, what we would call the “Local DNA” of a region. In the short term, it makes no sense to attempt to replicate other regions. It is better to ask “how can existing areas of expertise in our region attract and add value to the global economy?”.
In the global economy, there are hubs of expertise clustered in particular regions. For instance, Silicon Valley is characterized by expertise in computer technologies and venture capital. Other regions (such as Los Angeles) are hubs with special expertise in other fields (film and TV production).
Eindhoven in the Netherlands is another example. Due to the historical presence of Philips, this region has strengths in high-tech hardware.
An advantage of leveraging Local DNA is that it creates new opportunities and synergy effects. It can attract a pool of talented employees with similar interests and capacities. Or, it can attract investors with a common expertise in a particular sector.
This points us to the second issue that we believe is crucial for any startup community today. It is necessary to build connections with resources that operate at a global level.
The Global Startup Ecosystem
Even if a startup community is successful in building a distinct identity around its “Local DNA”, there will be various deficits. These may be technical, financial, legal etc. As such, it is important to foster strong connections with resources that exist at a global level.
What then are the main features of the global startup ecosystem?
A Global Space
In a digital and connected economy, frictionless movement appears to be the “new normal”. Innovators, entrepreneurs and investors pursue opportunities wherever and whenever they arise.
Consider the investment landscape. Investors are looking beyond borders in search of new deals and opportunities. Moreover, investors are now collaborating on a global scale to an unprecedented degree. The pool of potential investors for a startup is thus greatly enhanced as a result of this shift.
A similar pattern of global mobility can also be found amongst the other actors in the startup world. Founders, for example, are becoming more mobile in their pursuit of new opportunities. The same goes for employees and service providers.
These developments reveal the emergence of a global ecosystem. Capital and talent can pursue opportunities wherever they find them. What is interesting is that it provides opportunities for more specialized forms of collaboration.
A Global Repository
The global startup ecosystem creates an unprecedented degree of diversity. Different experiences, skills, and know-how are continuously uploaded into the “ecosystem”. The ecosystem is thus an ever-expanding repository of information and resources.
The ecosystem is not centrally controlled or coordinated by any state or other organization. It has the character of a self-learning, decentralized network. The global innovation ecosystem constantly evolves and becomes smarter.
Access to the resources of this network is, in principle, possible from anywhere in the world. Entrepreneurs and other stakeholders must build connections to the global ecosystem.
Connecting the Local with the Global
It is thus crucial to connect the local resources with the global startup ecosystem. This raises the question of who can connect the local with the global.
(i) A first group of individuals are the serial entrepreneurs. They are usually well-connected to the global innovation system.
(ii) A second group consists of local entrepreneurs who have already become nationally successful. As a next step, they may be well-placed to build these connections in the future.
Maybe, they even relocated their business to an international cluster of excellence. It is thus important not to discourage these entrepreneurs to move elsewhere.
Entrepreneurs are thus best-placed to make the necessary connections to the global ecosystem. But, is there also a role for policy makers? The answer is: Yes.
The ideal scenario is when the Local DNA of a city or region “fits” with a current or next global wave of innovation. Here we should think of FinTech, drones, robotics, artificial intelligence or autonomous cars. These areas currently attract a lot of global interest from entrepreneurs, investors and consultants. If the expertise of a region is in one of these areas, the local startup community is in a better position to succeed.
From a policy makers point of view, the task is thus first to predict the “next big thing”. Then they must concentrate on the aspects of the “Local DNA” that can take advantage of the up-curve in the innovation cycle.
The Way Forward
Startup communities are usually tempted to set up everything locally. Policy makers focus on creating local angel networks, stimulating local venture capital, etc.
Yet, there is a risk in believing that everything has to be present at a local level. In a digital and networked age, this is a misguided view. A lot of time and energy is wasted in creating capacities that are available in the global ecosystem.
As such, the existence of the global ecosystem facilitates a “leaner” local startup community. Or, at least it can do, if the potential savings of connecting to the global system are recognized.
Any startup community has the potential to connect to the global system. Many startup communities have reaped the benefits of embracing a willingness to connect. Tel Aviv and Bangalore are clear examples.
The key is to make the global resources available to the local community.