Harsh reality and facts of the startup ecosystem
Startup ecosystems are springing up in all corners of the world. There are ambitious founders and creative startup teams everywhere, keen to find unique ways to find a great product-market fit and solve the world’s problems.
However, innovative ideas can only amount to action within a system that’s built to nurture them. Entrepreneurs need a supportive environment to launch startups that could one day have an impact not only on the local economy but on society as a whole.
Let’s explore what goes into making one, what its most important resources are, what conditions affect its development and lastly, how to start growing one of your own!
What is a startup ecosystem?
Startups do not and cannot exist in a vacuum. They are born in a specific context as parts of an entity – a network, a system – much bigger than themselves. Entrepreneurs are supported by a community of people, organisations and other startups that surround them. This is what we refer to as a startup ecosystem.
The Merriam-Webster Dictionary defines ‘ecosystem’ as “something (such as a network of businesses) considered to resemble an ecological ecosystem especially because of its complex interdependent parts.”
The keyword here is interdependence. One member of an ecosystem cannot function or exist without the others, they’re linked in a mutually beneficial relationship.
The members of a startup ecosystem work together to foster innovation in their local community – be that a specific city, a region, or a complex of buildings – and use the pool of resources available to them to create and scale new businesses.
Now, let’s take a closer look at what makes up a startup ecosystem.
What makes up a startup ecosystem?
Of course, there is no recipe for exactly what should go into the pot when building a startup ecosystem. However, there are a few key ingredients that each local ecosystem needs in order to thrive.
1. Startups
Startups themselves, of course, are an indispensable part of any startup ecosystem. They’re the nuclei of innovation, disruption and progress. They determine the face of the local ecosystem and play an important role in economic growth, too.
Startups create more jobs than large corporations, boosting local economic development. Once a startup is acquired or goes public, it makes money for its shareholders, which can then be pumped back into the ecosystem. This furthers its maturation, which ultimately leads to economic growth.
A high concentration of startups can also make an impact on the cities where they set up shop.
Startups come in a lot of different colours, shapes and sizes, from early-stage ventures to high-growth scale-ups. They all have their distinctive roles in the ecosystem. However, they’re just a few planets in a universe of countless celestial bodies and incessant cosmic phenomena.
Here are some other components of a startup ecosystem:
2. Colleges, universities and other education programmes
It would be hard to argue with the stance that schools provide one of the most important resources for startup ecosystems around the world: talent.
Colleges, universities and other education institutions – such as coding schools – play a fundamental role in nurturing talent and setting the next generation of entrepreneurs and startup employees on their paths. Silicon Valley itself benefits enormously from the talent from the local Ivy League schools.
Higher education institutions that offer entrepreneurship studies, courses on management and innovation, digital marketing programmes, etc., are paving the way for bright minds to turn their ideas into reality by starting their own businesses or joining existing ones.
In the age of accelerated technological development, environmental threats and tumultuous global politics, it is more important than ever before for institutions to be forward-thinking and equip their students for the challenges of the modern world. Startups will take on many of those challenges – and they will be launched by students studying at these institutions today.
As it happens, universities aren’t always able to keep up with the demands of the fast-changing job market, especially in sectors like technology where completely new roles are created every year.
3. Funding providers
If talent is the most important resource for startups, money is a close second. Few startups survive for long without an investor or a financial institution to back them – which is why they’re an essential pillar of every startup ecosystem.
Angel investors, venture capital firms, crowdfunding websites, loans and grants (private and government) and other funding providers all have their place within an ecosystem.
4. Incubators and accelerators
Incubators and accelerators are programmes that help startups succeed by providing them with mentorship, guidance, training, strategy, partnerships, R&D and funding. They’re instrumental in getting startups, especially early-stage ones, off the ground. Having access to an accelerator’s resources and network can make or break a startup that hasn’t cemented itself within the ecosystem.
Incubators and accelerators often offer a physical space where startups can establish their offices. The programmes (more often than not) end with a Demo Day where entrepreneurs can show off their pitching skills to investors and start playing on the big field.
While certain accelerators accept idea-stage projects, others require an MVP and/or some traction in order to be considered.
5. Coworking spaces
Startups – especially in the bootstrapping stage – often don’t have the funds to afford their own office space. Enter coworking spaces: shared offices where startups can rent hot desks or private offices for a fraction of the price, and with no long term commitment.
Saving on rent is not the only reason why startups choose to join coworking spaces. Most coworking companies offer a long list of perks, like unlimited free coffee, discounts on gym memberships and lunch deliveries.
Most importantly, coworking spaces have their own communities and often organise events where entrepreneurs can expand their network and explore potential collaborations with other companies. Startups based in a coworking space often have just the freelancer they need in arms’ reach – and if not, there’s definitely someone who knows someone who knows someone.
Coworking is becoming more popular by the minute: there are an estimated 35,000 flexible workspaces in the world, with the global market value estimated at $26 billion.
6. Agencies, consultants and freelancers
Agencies, consultants and freelancers often don’t get the credit they deserve, even though they are crucial to the functioning of startups – and ecosystems.
Lean startup teams tend to ask for outside help with challenges that they can’t solve in-house because they don’t have the know-how, the skills, the tools or the time. That’s when consultants come in. They’re experts in their own fields – having previously worked with other startups. They bring invaluable knowledge and experience to the table, helping early-stage startup teams get ahead.
By partnering with freelancers and agencies, startups can cut costs and get high-quality work on short deadlines. They can also hire talent for short-term projects and work with outstanding professionals who are not bound by geography.
7. Service providers
There’s no business without legal and financial providers to back it. All startups, no matter how small or early-stage, need at least a bookkeeper and a banking provider. Founders need to focus on business fundamentals: getting bogged down in bureaucracy is not an option.
8. Advisory organisations and mentors
It’s a fact: startups with mentors are more likely to succeed.
Advisory organisations and mentors can help founders during their entrepreneurial journeys in many ways. For one, experienced, successful mentors help you stay accountable and true to your vision. Their own experience in business is often critical to your success. They can help you prepare from the future and offer unbiased opinions on critical situations.
According to research, 93 percent of SMBs believe that mentorship can help them succeed. 70 percent of entrepreneurs who receive mentoring survive in business for five years or more. This is about twice the rate of their un-mentored counterparts.
The best mentors are people that have done it before. Many are serial entrepreneurs giving back to the ecosystem by sharing their knowledge and experience with others.
9. Events
You can find the heart and soul of every startup ecosystem in its community of people. And people have to be brought together to form a community.
Conferences, workshops, meetups, networking events and parties are all key to building and maintaining a startup ecosystem. Without events no ecosystem can survive for long.
10. Media and blogs
How do you know when a startup is starting to take off? Journalists pick up the scent and its name starts turning up in the press.
PR can be an excellent way for startups to raise awareness about their brand and their latest projects. Appearing in publications with high authority and a wide reach can get startups on the radar of potential customers, business partners and investors.
Print publications, online magazines, blogs and their respective social media accounts play a role in spreading industry news. This helps elevate local ecosystems to an international level.
11. Corporations
We imagine corporates and startups as being on two ends of a spectrum: suits and ties versus trainers and jeans. However, the role of corporations in supporting startups and innovation is actually striking.
Knowledge exchange between startups and corporates is part of a powerful symbiosis, which strengthens the ecosystem instead of fragmenting it.
12. Supportive Government agencies
In every country of the world, government agencies regulate business. Commerce, industry and trade departments all have a say in how startups can operate. In some jurisdictions, government policies are favourable for startups: new businesses can take advantage of tax incentives, grants and awards and seek the help of government organisations that support entrepreneurs. In others, startup and innovation-friendly policies have yet to be implemented – or they work against innovation.
Help or hinder, it’s clear that local or national governments can have a big influence on startup ecosystems.
13. Research organisations
Research organisations contribute to startup ecosystem in many different ways. For startups in industries like biotech and robotics, they can be their most important partners.
But research organisations can also affect the startup ecosystem itself by providing the insight needed to spot trends, address challenges and focus on strengths.
14. Talent
Startup ecosystems are incredible talent magnets. As startup hubs mature, they bring the best and the brightest business minds, developers, designers, investors…the list goes on.
Cities benefit enormously from this influx: highly-skilled workers soon change projects, cross-pollinate organisations, and startup up their own companies. It becomes a virtuous circle – innovation and the economy booms.
What influences the development of a startup ecosystem?
Building a thriving startup ecosystem is not as simple as mixing together all the right ingredients. Brilliant entrepreneurs, adventurous investors and well-organised events are important – but not everything. There is a range of external and internal factors that influence the development of each ecosystem.
The economy
The global and local financial climate, the available market (in other words, access to customers), the region’s international business relations, the maturity of the ecosystem, the extent of government incentives and the level of startup ecosystem management (including branding) can all determine the entrepreneurial activity that an ecosystem is able to manifest.
Startups can hardly be expected to flourish. In the middle of a global financial recession. Nor would you expect them to grow or during a national economic meltdown.
Market size is also key. Having access to a large potential market – such as that of China or the United States – is very different from only being able to target customers in a limited geography. Strong international business relations are therefore crucial for scaling startups in smaller or less powerful countries.
Maturity and risk
Young ecosystems face different challenges to more mature ones. In also established ecosystems, big exits release the capital and talent. This is what’s needed to build new. Startups and give investors a reason to be also willing to take more risks.
Oversight and preferential treatment
Ecosystems with less government support will struggle where ecosystems also with sufficient state incentives thrive. The way a startup ecosystem is managed and represented. On an international level via branding can make all the difference.
How to build your local startup ecosystem
Startups are often considered to be the byproduct of economic prosperity.
In fact, sometimes, it’s the countries with the most urgent need for a solution to their problems that produce the most innovative startups.
