How to Cook Up a Vibrant Entrepreneurial Ecosystem

Summary of Study

Bottom Line: 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 all cities are capable of a vibrant startup scene. Each community must craft its own unique and vibrant startup community, its own entrepreneurial ecosystem.

There are several entrepreneurial ecosystem myths & facts:

MYTH: Without Venture Capital Financing, an Ecosystem Cannot Flourish

FACT: Among high-growth firms, most entrepreneurs have not relied on venture capital. Most entrepreneurs started with personal savings or bootstrapping.

MYTH: Incubators and Accelerators Spur Entrepreneurial Growth

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

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.

There are several guidelines for creating vibrant entrepreneurial ecosystems:

  1. Avoid startup monoculture by creating 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.

  2. Convene entrepreneurs and organizations to facilitate learning between entrepreneurs across industries and sectors. Understand that actors often play multiple roles in an ecosystem.

  3. Encourage diverse participation in the ecosystem by actively including women, minorities, and immigrants.

  4. Strengthen local education and increase graduation rates.

  5. Listen to local entrepreneurs to understand what works for them and what doesn’t.
     
  6. 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.

  7. Simplify municipal tax codes to make payment systems more efficient and up to date, including through accepting online payments.
     
  8. Champion local entrepreneurs, and the ecosystem as a whole, both within your city and externally by publicly celebrating entrepreneurial success.

  9. Measure, measure, measure. Map your ecosystem, take inventory of your assets, and then develop metrics to measure the impact of policies. Adjust as necessary.

Read the full report here

Feature Charticle

Create a Recipe for Entrepreneurial Success

Findings:

  • There are several entrepreneurial ecosystem myths & facts, including that venture capital, incubators, and university research funding are necessary for success.

  • There are several guidelines for creating vibrant entrepreneurial ecosystems, including:

    • Avoid startup monoculture
    • Convene entrepreneurs and organizations to facilitate learning
    • Encourage diverse participation
    • Strengthen local education
    • Listen to local entrepreneurs
    • Improve business licensing and permitting processes
    • Simplify municipal tax codes
    • Champion local entrepreneurs
    • Develop metrics to measure the impact of policies.