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This article was published on August 10, 2020

What is an ‘entrepreneurial ecosystem’? And why you need one to raise a startup

What is an ‘entrepreneurial ecosystem’? And why you need one to raise a startup
The Conversation
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The Conversation

An independent news and commentary website produced by academics and journalists. An independent news and commentary website produced by academics and journalists.

The geography of entrepreneurship is “spiky,” meaning that from region to region there are significant variations in rates of startups and, in particular, “scaleups” – new businesses that are evolving into larger enterprises.

This can be explained by the fact that successful entrepreneurship occurs in “fertile soil” – economic and social environments conducive to entrepreneurial activity. And in some places these environments – or ecosystems – are much better at generating and supporting entrepreneurial activity than others.

An entrepreneurial ecosystem is a clustering of interconnected individuals, organizations, and bodies that facilitates and supports entrepreneurial activity. This ecosystem provides startup businesses with resources – money, people, markets, and infrastructure – within an open, inclusive culture that has supportive policies and leadership.

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Supporting the development of entrepreneurial ecosystems is now a prime focus of economic development policy. Cities and regions typically have dozens of entrepreneurship support organizations (ESOs) that are fully-funded public bodies or not-for-profit organizations whose funding comes from government. These ESOs provide information, advice, networking, training, mentoring, and financial help that is considered essential for entrepreneurial activity.

In Scotland, for example, one recent study identified 43 ESOs in Edinburgh focused just on technology entrepreneurs. Our own ongoing research has identified 87 ESOs in Glasgow covering all sectors including social enterprise.

However, this profusion of ESOs is thought to be confusing for entrepreneurs who find it difficult to navigate the support infrastructure, raising concerns that there is overlap in the services that ESOs provide. But this is to misunderstand how entrepreneurial ecosystems work.

Everything is connected

Every year the University of Glasgow runs a program to support four startup teams with a grant of £2,500 and 12 weeks of one-to-one mentorship from the student enterprise manager. This includes an introduction to ESOs in the wider ecosystem, training, and space in the university’s “incubator” to help teams develop their embryonic startup.

Businesses that have successfully completed the program have gone on to receive further support from a variety of ESOs in the local ecosystem and beyond. Typically, each participant receives a package of support from the Scottish Institute for Enterprise (SIE). This helps them to connect to the local ecosystem to access lawyers, accountants, and other specialists, provides assistance with startup competitions, and access to networking events.

For example, Dragons’ Den contestant Corien Staels, founder of WheelAir – a company that has developed a cooling backrest for wheelchair users – received support from an ESO called Enterprise Campus to cover initial operational expenses.

Staels went on to win the SIE New Ventures competition and several other awards that provided money, business support, training, and mentorship. Having turned down a funding offer from Dragons’ Den, she has gone on to raise equity funding from several individuals.

Staels’ example demonstrates the interconnectedness of the entrepreneurial ecosystem, with ESOs providing a range of different forms of assistance. The learning and support needs of entrepreneurs change as their business develops. No single organization can provide all of the support and resources that new ventures need as they progress. This is precisely why many ESOs target specific types of entrepreneurs and stages in the process – idea, startup, growth , and so on – specializing in the types of support they provide. This means entrepreneurs can draw upon a variety of organizations as their business evolves.

Crucially, these relationships within the entrepreneurial ecosystem are reciprocal. Just as businesses that emerge from startup programs need a range of support to develop, ESOs need “springboard” initiatives such as the Glasgow University program, which germinate startups that in due course will become their clients.

A healthy ecosystem

Policymakers should not interpret the abundance of ESOs as an indication of duplication and waste. The real world is messy. The diversity of entrepreneurs and their changing needs on the entrepreneurial journey means that there also has to be a diversity of support available for these ecosystems to be effective.

Entrepreneurial support organizations offer advice, support, training, and mentoring which help new startups develop their business. Shutterstock

Instead, they should ask key questions to assess the health of entrepreneurial ecosystems. Do the services provided by the ESOs involved cover the whole entrepreneurial journey, enabling individual organizations to “hand over” entrepreneurs as their needs change, ensuring ongoing support as their businesses develop?

Do the ESOs collectively provide an appropriate mix of generic and specialist resources and support? Do they have shared goals and a sense of collective mission? Or is each in competition with one another, claiming successful businesses as a result of their own efforts? And finally, are these ESOs run by people with business startup experience – by entrepreneurs for entrepreneurs?

What is critical here is to recognize the need for connectivity between these various ESOs. Operating in isolation from one another does not help young startups, which will thrive best in an environment where ESOs recognize that their effectiveness is contingent on one another. To paraphrase the African proverb: “it takes a village to raise a child,” it takes an ecosystem – not a single individual or organization – to feed, nurture, and raise a successful entrepreneurial venture.The Conversation

This article is republished from The Conversation by Colin Mason, Professor of Entrepreneurship, Adam Smith business school, University of Glasgow and Michaela Hruskova, PhD Researcher in Management Adam Smith School of Business, University of Glasgow under a Creative Commons license. Read the original article.

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