Everyone is talking about entrepreneurial ecosystems these days. But what does the term actually mean?
In the world of economic development and entrepreneur support, this idea is used to emphasize the need for connection, social capital, and community in this new Connected Age where entrepreneurs find themselves.
Entrepreneurs still need things like financial capital, technological literacy, and business incubators to feel supported.
But as the internet has progressed, the economy has changed, and our understanding has evolved, we’ve come to realize how important connection is for entrepreneurs.
That’s why “ecosystem building” has emerged as an industry.
Defining “entrepreneurial ecosystem”
So, what is an entrepreneurial ecosystem?
It’s important to remember that the entrepreneur support industry borrowed the word “ecosystem” from ecology.
With that considered, let’s imagine a rainforest.
What’s in a rainforest? There are trees and animals and insects, in addition to nonliving things like water, the soil, and the sun.
But these things themselves are not an ecosystem. Rather, the ecosystem is the system that emerges from the relationships each component has with the others.
In the same way, there might be lots of resources and supports for entrepreneurs in a community. There might be politicians, the SBDC, a Chamber, a coworking space, and banks that give loans.
But without trust, connection, and collaboration, there isn’t an ecosystem.
Just trees and rocks and water.
Considering all this we might define “entrepreneurial ecosystem” like this:
An entrepreneurial ecosystem is the network of human and institutional actors that start, support, fund, and promote new businesses in a community.
Essential Elements of a Successful Ecosystem
Since every community is different, the resources and connections needed for an entrepreneurial ecosystem to thrive will vary pretty heavily from city to city. But there are some common components.
As we said earlier, a community with lots of resources but no culture of collaboration doesn’t really have an ecosystem.
For an entrepreneurial ecosystem to thrive, all the people working within it—startup champions, loan providers, coworking space managers, chamber directors, and (importantly) entrepreneurs—have to be talking to each other.
What’s more, the culture in the community needs to be collaborative—not competitive. Unsuccessful ecosystems often have organizations or leaders who compete with each other to serve the same exact audience. This dynamic reduces the overall trust and social capital in the ecosystem, which hurts the entrepreneurs.
On the importance of social capital, our friends at the Kauffman Foundation put it best: “An ecosystem culture that is rich in social capital—the networks, norms, and social trust that facilitate coordination and cooperation for mutual benefit—is like rocket fuel for entrepreneurial growth. An ecosystem will struggle without a culture of collaboration, cooperation, and trust that inspires people to move quickly, help each other, and be open to novel ideas.”
Education and Knowledge
Most entrepreneurs don’t actually know a lot about starting a business.
This is especially true of creative entrepreneurs—filmmakers, chefs, photographers, interior designers, potters, kombucha makers, chocolatiers, etc. Creative entrepreneurs tend to know a lot about how to make the product or provide the service they are selling, but not much about business itself.
Additionally, entrepreneurs often lack “stored knowledge” in the community—they often don’t know who to ask for advice, how to design a product label, where to look for fulfillment and distribution help, how to run ads on social media, or how to get their legal and accounting needs met.
Successful ecosystems need to be able to impart these forms of knowledge to hopeful entrepreneurs, but they must also be able to clearly signal where entrepreneurs can go to get educated about starting a business in that particular community.
Spatial, Technical, and Financial Resources
Providing resources could be as simple as offering free wifi at the local library, a crowdfunded pitch night like SOUP, or a community makerspace.
The kinds of resources your community’s entrepreneurs need will vary based on who the entrepreneurs are. Some communities have lots of hopeful entrepreneurs in the food and beverage industry, so a shared commercial kitchen is a great investment.
If your community is focused on helping tech entrepreneurs, high speed internet is a must-have.
And almost every community has people who would start a business if they could find enough startup cash to get started. Microloans, CRA funds, and local sponsorships are great ways to get financial assistance to entrepreneurs on a budget.
The important point here is that the people who should have the most say over which resources your community focuses on providing are the entrepreneurs themselves. That means that community leaders and ecosystem builders like you have to talk to entrepreneurs all the time in order to gauge what is necessary for a successful ecosystem.
Which leads us to our final observation.
The Ecosystem Exists for the Entrepreneur
Ultimately, an entrepreneurial ecosystem exists to serve the local entrepreneurs, and can be judged as successful or ineffective with a simple question: How easy is it for someone with an idea to start a successful business here?
All the resources in an ecosystem—accelerator programs, microloans, policy advocates, shared commercial kitchens, networking events, coworking spaces, pitch nights, and all the people providing these resources—exist primarily to serve the entrepreneur.
This may seem obvious, but the emergence of the “ecosystem building” industry can lead many to subconsciously assume that ecosystems exist for their own sake.
But an entrepreneurial ecosystem is ineffective if it does not primarily serve the interests of the people it purports to help—the entrepreneurs themselves.
When the entrepreneur is removed from the focus of the ecosystem, the whole system tends to fall apart.
How do you make sure that entrepreneurs are the focus of the ecosystem?
The easiest way is to ensure that all of your local entrepreneurs—established, novice, and aspiring—are always brought into your conversations with other ecosystem builders. Their voices need to be heard.
Your success could depend on how well you listen.