12.

It Takes a Village

How the Rest of Us Can Help

Developing entrepreneurial ecosystems is a top priority for nations worldwide. Policy makers are looking to spur local innovation and support job creation. Corporations are looking to revitalize age-old processes and infuse them with technology, all while giving back to their local ecosystems. The social and philanthropic sectors hope to leverage innovative solutions to address seemingly intractable problems.

As you learned in chapter 11, Frontier Innovators are at the forefront of building their ecosystems—but they can’t do it alone. Everyone has a role to play, including the government, local corporate leaders, investors, the social sector, and other ecosystem participants.

This chapter details strategies for anyone looking to support Frontier Innovators. Before we start, it is helpful to review the current best thinking on innovation ecosystem development.

Theories of Ecosystem Development

Traditional theories of entrepreneurial ecosystem development fall into three broad subsets: input-driven models, network-driven models, and entrepreneur-driven models. Let’s look at each in turn.

Input-Driven Theories

Input models focus on the conditions under which entrepreneurial ecosystems succeed. For example, the World Bank ease of doing business rankings focus on the policy environment and its influence on the simplicity and ease of starting businesses. Others measure a more comprehensive set of markers. For instance, the OECD Entrepreneurial Ecosystem Diagnostic Toolkit’s rubric measures fifty-seven separate metrics, including access to debt capital, tax incentives, local graduation rates, and access to telecom and infrastructure.¹

Similarly, the agglomeration of demand model considers the economies of scale in acquiring specialized resources as a sector grows. This theory suggests that resources like entrepreneurship-focused lawyers, venture capitalists, and specialized tax accountants who understand stock options are more likely to exist in sectors that scale: the ecosystem can support the fixed shared cost of increasingly specialized resources, labor, infrastructure, and knowledge.²

While input models catalog the magnitude of specific conditions and measure the vibrancy of a system already in motion, they typically fail to explain the magic that catalyzes exponential ecosystem growth. As Chris Heivly, co-founder of MapQuest and a global ecosystem builder with Techstars, once told me, “If building an ecosystem was as easy as finding the right ingredients, wouldn’t everyone have done it already? Silver bullet solutions unfortunately don’t work.”³ Thus, input-focused theories fall short of explaining why some ecosystems enjoy virtuous cycles and others do not.⁴

Network-Centric Theories

To explain virtuous cycles, a second school of thought explores the role of networks. Network economics are well understood among technology entrepreneurs. A network’s value increases as more people use it; Facebook is not valuable if there is only one person on it. Harvard Business School professor Michael Porter developed a theory on network-driven regional innovation advantages. He suggests that innovation sectors thrive when there is an intersection of multiple players, including suppliers, governments, and competing companies that help create clusters of advantage and, over time, innovation ecosystems.⁵

For others, the value of networks lies in the ability of an ecosystem to share ideas, best practices, and strategies horizontally. In her book Regional Advantage: Culture and Competition in Silicon Valley and Route 128, Anna Lee Saxenian provides an explanation for Silicon Valley’s rise. Thirty years ago, it was unclear whether Silicon Valley or Boston’s Route 128 would become the dominant US innovation ecosystem. At the time, both ecosystems were similar in size, were proximate to top universities, and had abundant access to talent. Saxenian argues that the key determinant of Silicon Valley’s success was the combination of horizontal network effects and a culture of transparency.

Silicon Valley’s culture (unlike Boston’s) promoted information sharing at every level of organizations and among organizations. Therefore, close horizontal social networks defined by wide information sharing took shape. San Francisco’s advantage was compounded by relatively lax employment practices (e.g., noncompete clauses in employment contracts are not enforceable), making it much easier for employees to move between companies and for best practices to propagate across the ecosystem. The result: much more porous functional barriers between firms in Silicon Valley (versus Boston, where information was shared top down) and thus much stronger network effects. Therefore, the value for someone to plug in to the Silicon Valley network was higher and thus the ecosystem won out.⁶

Others have focused on networks that form due to geographic and cultural concentration. In his book The Creative Class, Richard Florida argues that innovation stems from intellectual creativity, which is largely driven by engineers, academics, and artists. Innovators want to live among people who are tolerant of new ideas and open to pushing creative and artistic boundaries. They also want to live around each other. Therefore, the value of a local network increases as more people contribute their skills and values, in this case of tolerance and openness. Once a region reaches a critical mass, it earns a long-term competitive advantage.⁷

Network-driven approaches successfully explain what makes a startup ecosystem endure and how a region cements its advantage over time. However, as with input-driven models, creating the individual nodes or the foundation of a network doesn’t explain how it takes hold, or why. The magic is in kick-starting the network—the activation of the connective tissue between people and firms.

Entrepreneur-Centric Models

A third set of theories explores this magic kick-starting effect. In their book The Rainforest, Victor Hwang and Greg Horowitt describe entrepreneurial ecosystems as the product of complex organisms. Whereas traditional policy makers focus on ecosystem development in the way a postindustrial manager would build a factory, Hwang and Horowitt argue instead that startup ecosystems are developed organically. They cannot be planned.⁸ The key input for these ecosystems is to foster the right culture and enable entrepreneurs to grow and shape their ecosystem.

More recently, in his book Startup Communities, venture capitalist Brad Feld proposed the Boulder thesis. Feld’s fundamental principle is that entrepreneurs must lead the startup community. Government, academics, corporations, investors, or other outside actors cannot kick-start an entrepreneurial ecosystem alone. Feld argues that the entrepreneurial leaders of a startup community must have a long-term commitment to the geographic region itself. At the same time, the community must be inclusive and welcoming. The boundaries of the ecosystem should be porous, allowing companies and individuals to flow in and out. Experimentation should be encouraged; the best ideas are supported, and failures are shuttered quickly. Finally, Feld writes that the startup community must have continual activities to engage the community.⁹ Chapter 11 in this book explores this topic in detail, showcasing the many ways entrepreneurs, and in particular older siblings, build and kick-start the ecosystems in which they work.

But entrepreneurs do not build ecosystems alone in a vacuum. Others play critical roles, from ensuring basic table stakes—a nod to the necessary input and network preconditions that most ease the burden for entrepreneurs—to taking more-tactical approaches to supporting entrepreneurs in emerging ecosystems, including fostering opportunities for cross-pollination, facilitating access to both financial capital and human capital, and investing in entrepreneur-friendly infrastructure and regulation.

Rooted in the lessons of innovation at the Frontier covered so far, the suggestions in this chapter build on existing ecosystem development theories to suggest strategies for all ecosystem builders at the Frontier.

Table Stakes

The input-focused theories are correct in that certain ingredients are necessary for an ecosystem to take hold. Throughout this book, you have explored many of the disparate macroeconomic, currency, or political challenges many Frontier Innovators face.

While economic advice is beyond the scope of this book, macroeconomic uncertainty (e.g., inflation, economic growth, etc.) unquestionably decreases an entrepreneur’s interest in and ability to take risks. Currency depreciation makes raising capital all the more challenging. Political volatility complicates strategies such as being born global. The business climate is important, too, as exemplified by the World Bank’s ease of doing business rankings. If an environment is rife with corruption or unfair competition through monopolies, it effectively functions as a tax on innovation.¹⁰

Legal systems can be an important innovation catalyst. If bankruptcy laws are hostile to entrepreneurship (e.g., if debt follows founders past startup failure), entrepreneurs won’t even want to start. Similarly, flexible employment laws motivate entrepreneurs to test and experiment with new models but allow for adjustments where needed. If every hire can never be revoked, then it is hard for entrepreneurs to change course.¹¹

As you saw in chapters 6 and 7, human capital is the core input to building startups. A top priority for ecosystem players, therefore, should be funding primary, secondary, and university programs.

Governments and regulators who want to build their ecosystems should start by ensuring these basic table stakes. Not everything needs to be perfect, but, to thrive, an ecosystem needs to achieve a certain baseline. Brazil faces inflation, high interest rates, and a volatile political environment, and yet its fintech ecosystem is among the leaders globally. India has high poverty and high inflation but has created a global technology powerhouse in Bangalore. Each country was able to bring sufficient stability and adopt the right regulatory ecosystem to support innovation.

Of course, government regulators and other ecosystem players can do better than achieve a minimum baseline of stability or educational standards.

Help Entrepreneurs Think, and Be, Global

You have seen that entrepreneurs with international backgrounds working in globally connected environments are creating some of the most exciting companies in existence.

Ecosystem builders can encourage these born global trends in meaningful ways.

Foster Opportunities for Cross-Pollination

Fostering a cross-pollinating environment is an easy place to start.

It begins within the education system. Encouraging local students to pursue exchange programs, internships, or work opportunities abroad creates opportunities for students to build meaningful links with peers in other geographies and to be exposed to different cultures. Research has found a correlation between GDP growth and the rate of international education.¹² China had 9 percent GDP growth between 2001 and 2017, and during the same period a nearly 20 percent growth rate in undergraduate students studying in the United States. Similarly, Vietnam saw 6.5 percent GDP growth over the same period, with more than 15 percent growth in students studying abroad.¹³

The opposite is also true: a lack of cross-pollination may hamper innovation. Japan’s GDP growth has continued to slow, these days hovering consistently at less than 1 percent annually, and the country has been losing its preeminence in technological innovation.¹⁴ Perhaps not coincidentally (though there are a range of factors), student cross-pollination has also declined. In 2004, Japan sent more than eighty thousand students abroad. In 2018 this number declined by nearly 40 percent, at slightly more than fifty thousand.¹⁵

Governments can catalyze cross-pollination in the other direction by bringing in exchange students and entrepreneurs. Programs like Start-Up Chile and Start-Up Brazil look to institutionalize cross-pollination by encouraging entrepreneurs from around the world to start their businesses locally. Start-Up Chile offers startups as much as $100,000, free office space, and a number of other perks.¹⁶

Investors can support this as well. Two of the leading Latin American funds—Kaszek and Monashees—have institutionalized cross-pollination within their portfolios. Kaszek runs a proprietary one-week leadership and innovation program at the Graduate School of Business at Stanford (at Kaszek’s expense), exposing its portfolio companies to professors and industry experts. Monashees organizes an annual trip to visit another ecosystem. So far, they have brought their entrepreneurs to visit China, Israel, and elsewhere.

Nonprofits are well placed to support these exchanges. Venture for America (VFA) is looking to bridge the divide between the United States’ two coasts and the middle of the country. Borrowing the model of Teach for America, VFA places recent college graduates in innovative companies in fourteen cities, such as Pittsburgh, Birmingham, and St. Louis. The competitive program accepts only two hundred fellows out of a few thousand applications every year. More than 30 percent of VFA alumni have gone on to start their own startups, many of them in their newly adopted cities.¹⁷ C100, a nonprofit membership-driven organization, links Canadian technology ecosystems with Silicon Valley by connecting leading entrepreneurs in Canada with mentorship, capital, and advice from Silicon Valley and beyond.¹⁸

Cross-pollination isn’t solely about the transfer of international ideas. Cross-industry and cross-sector experience also helps. Corporate management rotational programs are great opportunities to give young graduates exposure to multiple roles and departments in companies. Similarly, government fellowships have the dual benefit of infusing the government with external thinking, and the students with new perspectives on how the government works.

Support Immigration

As you have seen, immigrants are a driving force of innovation and entrepreneurship globally. In the United States the majority of unicorns were started by at least one immigrant, and immigrants are responsible for a quarter of entrepreneurship.¹⁹

Unquestionably, the changing stance on immigration in the United States is shooting the country’s innovation ecosystem in the foot. Enabling the hiring of qualified immigrant entrepreneurs or team members at fast-growing startups is critical if the virtuous cycle of innovation in Silicon Valley is to continue. Many qualified and trained executives from around the world consider moving to Silicon Valley to start their businesses. Often these ready-made entrepreneurs easily attract capital and create jobs. By making it difficult for them to come, the United States incentivizes them to choose a more accessible entrepreneur visa program elsewhere.

A look at open startup jobs on AngelList (a leading platform for startups in the United States) shows more than ten thousand unfilled startup jobs in the United States. Yet only about 10 percent of these companies are able to sponsor an immigrant.²⁰ By holding up immigration, the United States is holding up the growth of these companies, and in turn the creation of future jobs (and the creation of incremental tax dollars).

Governments should make it easier for entrepreneurs to move in and start businesses. The United States should reinstate the entrepreneur visa program—a program that allowed entrepreneurs who raised $100,000 in government grants or $250,000 in venture capital to stay in the United States for a renewable thirty-month term.²¹ Similar programs are being successfully implemented in many markets, making it easy for entrepreneurs to come in and succeed. This policy in turn catalyzes sector development.²²

Others can support immigration as well. A case in point is Unshackled Ventures. Founded in 2014, Unshackled is an early-stage venture capital firm that is designed specifically for foreign-born entrepreneurs. Its unique venture builder model invests in entrepreneurs from the get-go, offers them complete immigration and employment support, and facilitates access to a network of investors and customers.²³ To date, the fund has made more than thirty investments in founders from twenty different countries, from six different continents.²⁴

The reality is that America’s population is dwarfed by giants like India and China. In a few years, India will have more people working in technology in Bangalore than there are in Silicon Valley. China is already on par, depending on the metric. In 2018, China minted thirty-seven new unicorns, nipping at the heels of the fifty-five in the United States, and outpaced the United States in venture capital investment.²⁵ American exceptionalism—and Silicon Valley’s dominance—are based on the foundation of immigration, and the country’s competitiveness endures only by attracting the best minds around the world.

My recommendation for countries around the world is to consider immigrant entrepreneurs as a valuable and competitive asset. Do everything you can to attract them—or someone else will. Last year, on the 101 (the main highway in Silicon Valley), a billboard read, “Have H1B problems? Come to Canada!”²⁶ Perhaps they will.

Create Global Launching Pads

Neither born global startups nor decentralized startups scale in an ad hoc way. Instead, they strategically select well-connected hubs rich with talent as launching pads. In turn, strategic policy makers can make their markets more attractive as launching pads.

One of the reasons London became popular for fintech startups was that it served as an easy base to expand across Europe. With a central bank that was open to innovation and a regulatory match with Europe that would allow companies to “passport” across the continent, London developed an agglomeration of venture capital and startups. It also did not hurt that London had regional specialization in financial services (more on that later). Of course, as the United Kingdom potentially exits the European Union and thereby closes itself off from the region, these advantages and this specialization are disappearing.

Singapore, the hub for innovation in Southeast Asia, serves as another example. Despite representing less than 1 percent of the region’s population of six hundred million, it is the launching pad for four of the ten Southeast Asia unicorns.²⁷ This is in part because of Singapore’s connectivity links across the region. As one of the world’s leading airlines, Singapore Airlines provides physical links. Singapore has a strong rule of law and a strong academic system, enabling local entrepreneurs. The country also has an accommodating immigration system that has managed to attract global talent. In Startup Genome’s 2017 “Global Ecosystem Rankings Report,” Singapore outranked Silicon Valley as the top place for startup talent.²⁸ Finally, the government is focused on cementing greater links with global entrepreneurs. It rolled out the Global Innovation Alliance (GIA), which helps entrepreneurs connect with hubs such as Bangkok, Beijing, Germany, Tokyo, Munich, Paris, and San Francisco.²⁹

Similarly, in the Middle East, Dubai has positioned itself as the region’s launching pad. The U.A.E. is the base for more than 40 percent of all startups in the Arab world, and among the sixty acquisitions in the region in the past five years, most were Dubai-based companies.³¹

Policy can help offer an attractive place for entrepreneurs in the creative class to live. Innovators can often choose to live anywhere. Elements that have been suggested as attractive to such entrepreneurs include liberal values, economical housing, and a concentration of other cultural elements.³²

As distributed models take hold, ecosystem builders can support this phenomenon as well. Estonia’s government has taken this practice to the extreme. Through its e-residency program, people from around the world can get an Estonian government ID and access the country’s digital business environment. Benefits include allowing entrepreneurs to create an EU company while being location agnostic, starting from anywhere in the world, registering to accept online payments, and joining a global network of e-residents in 165 countries.³³

Human Capital

Human capital is the lifeblood of startups. Access to this resource is also their greatest challenge. As you will see, this is a key area where ecosystem builders can help. Penny Pritzker, the former secretary of commerce under President Obama, and now the co-founder of P33, a technology ecosystem-building organization in Chicago, once told me that “to support an innovation ecosystem requires a deep focus on an inclusive, local talent pipeline. Deep collaboration across the spectrum of companies and sources of capital as well as a focus on training and apprenticeship policy are critical to success.”³⁴

In many emerging ecosystems, the first wave of entrepreneurs are often immigrants or repatriates. Over time, as they import their global learning and practices and as the ecosystem matures, it becomes easier for local entrepreneurs to enter the field. For this passing of the baton to succeed, local talent must be able to access training and educational opportunities—not only to find employment at a startup but also to start their own companies.

Ecosystem builders have a massive opportunity to support Frontier Innovators on this front. It starts with the baseline of supporting and properly funding local school and university programs and goes far beyond formal education.

Ecosystem participants can support specialized organizations like the African Leadership University or local coding boot camps. If the cost of tuition is a barrier, this is a great area in which to explore subsidization. Hotels.ng has a subsidized training program that identifies Nigeria’s best hidden talent. There are opportunities to do more training for the general technological industry as a whole.

Mentorship programs like Endeavor help founders access the resources they need. Others, like Rippleworks (a foundation started by cryptocurrency startup Ripple, Chris Larsen, and Doug Galen), match global experts with the needs of particular global startups and social enterprises. For instance, the foundation matched Zola with experts on customer service when that became a pain point.³⁵ As Doug explained to me, “Many funders and organizations are working tirelessly to improve the quality and size of the talent pool, with innovative education and upskilling efforts, but these will take years. In the meantime, we need to help social entrepreneurs solve their most immediate challenges now. Capacity building fills this gap. This need is immediate, vast, and full of great organizations actually bridging this talent gap.”³⁶

Lack of diversity is an endemic problem in the technology industry, and it is uniquely thorny in many emerging markets. Frontier Innovators like Shopify and Hotels.ng have provided compelling ideas. Government, corporations, and the nonprofit sector have an opportunity and, I would argue, an obligation to support the talent pipeline more broadly and provide greater opportunities to women and other underrepresented communities.

Capital and Economics

Camels survive in challenging environments, operating for days without access to water and food. However, they eventually need sustenance to survive. Here, the entire ecosystem can help. However, the response should be considered and not excessive.

As you have seen, many ecosystems are starved for capital. Investors have an opportunity to support emerging ecosystems. For example, nonprofit initiatives like the Rise of the Rest tour and the Comeback Cities tour, both led by investors, help raise awareness of the startup ecosystem and opportunity in the Midwest region of the United States.

Venture capitalists can focus strategies on capital-deprived ecosystems, as Drive Capital has done in the Midwest or Kaszek in Latin America. They should also continue to experiment with new investment structures and models (e.g., revenue shares, evergreen funds, etc.). Limited partners (investors in venture capital funds) should support these innovations.

Governments have a role to play as well. Indeed, many ecosystems trace the beginnings of their capital models to government support of venture capital. In Israel, the Yozma program was a big driver of the venture capital sector’s early development. In Hebrew, Yozma translates to “initiative”—an apt description for what it achieved in Israel’s venture capital industry. The government program provided $80 million for a 40 percent stake in ten new venture capital funds to help get Israeli companies off the ground and to market. The rest, as they say, is history. Venture capital investments soared sixty-fold, from $58 million in the 1990s to $3.3 billion now.³⁷ Similarly, in the United States, as early as 1958, the Small Business Investment Corporation (SBIC) provided debt and equity to high-risk small businesses that were unable to access capital from traditional sources.³⁸

Foundations and multilaterals are an undertapped source of capital. Foundations should shift part of their endowments to supporting entrepreneurs or investors at the Frontier. Impact-focused investing is a particularly potent channel.

Corporations, similarly, have an ability to invest in and support startups globally, as companies like Tencent, Alibaba, and Naspers have demonstrated. In the United States, corporations have more than $1.9 trillion in cash on their balance sheets. Unlocking only a portion of this capital to reinvest in their local communities would be a game-changer.³⁹

Of course, a Camel is not designed to live by the watering hole all the time. In the same way, in capital-starved environments, the temptation can often be to provide capital to alleviate this challenge entirely. Indeed, no startup entrepreneur will ever say there is too much available capital. Yet, as many people have convincingly argued, while a lack of capital can be a bottleneck it is rarely the key constraint.⁴⁰ Rather, the key challenge is often finding a sustainable business model. The advantage of the Camel model is its focus on sustainability and resilience. Drowning an ecosystem in capital risks undercutting a camel approach and the success it achieves. Therefore, ecosystem builders must carefully diagnose the problem, identify the gap by stage, sector, and geography, and craft targeted solutions.

Finally, interventions should be temporary rather than permanent subsidies. They should help start the virtuous cycle and then exit gracefully. Although support should be long term, it should not be eternal. The Yozma program in Israel, for instance, had a built-in exit timeline.

Provide the Right Infrastructure

Frontier Innovators are often engaged in creating markets. Market players can support them by providing appropriate regulation and infrastructure.

Offer Regulatory Flexibility

Ecosystem builders have an opportunity to create an attractive regulatory landscape for innovators. A regulator’s instinct is often to analyze every eventuality and provide rules upfront. In innovation, one cannot predict how a business will evolve. Closing doors off is a recipe for curtailing creativity. A more balanced and tolerant regulatory approach serves as a strong accelerator.

In this vein, the sandbox efforts of the central banks in Singapore, Malaysia, and the United Kingdom are noteworthy. Fintech is a highly regulated industry where experimentation is often difficult. In a sandbox, a regulator allows startups to operate within a constrained environment and with a specific risk level accepted. Regulators in turn agree not to overregulate the idea. They just let it play out. Once the idea evolves over an agreed amount of time, regulators and startups jointly look at the results and evaluate the risks, rather than regulate the idea ahead of time.⁴¹

Through policy, countries can make themselves attractive as innovation sandboxes. Rwanda, for instance, has made itself an easy place to do business, with limited corruption and a focused approach to supporting entrepreneurs. In doing so, it has attracted global startups to its ecosystem, many of whom, like Zipline, chose to first launch there to experiment. Similarly, Rwanda was Babylon Health’s first African market.

Support Ecosystem Infrastructure

Creators are often building entirely new industries and have to create multiple business models at once (e.g., Zola, with its R&D unit, financing arm, distribution platform, and manufacturing team, or Guiabolso with its bank interconnections, credit score, PFM, and lending product). Sometimes, this practice is strategic and serves as a point of differentiation (e.g., Apple building its own stores to control the distribution experience). However, Frontier Innovators often need to build undifferentiated horizontal infrastructure out of necessity.

Ecosystem players can build this needed horizontal infrastructure. In India, a live experiment is taking place with Aadhaar, a government-sponsored universal identification program. It was launched by Nandan Nilekani—the co-founder of Infosys (a key older sibling himself in the Bangalore ecosystem)—while he was serving in government. Aadhaar provides 1.3 billion Indian residents with a digital identity based on biometrics, along with a unified platform to access government benefits, open bank accounts, subscribe to telephones, and demonstrate their identity.⁴²

The Aadhaar platform provides valuable foundational infrastructure for the ecosystem. As demonstrated in the Matrimony.com case study, identification infrastructure is critical. At the time, founder Murugavel Janakiraman had to build a costly custom solution. Through Aadhaar, identity verification could be as easy as a plug-in. The government in India, aided by technologists from the volunteer group iSPIRT, are building IndiaStack, a portfolio of application programming interfaces (APIs) that leverage Aadhaar as a plug-in for identity, making it easier to launch new services in a digital, paperless, cashless way.⁴³ Nandan explained the vision:

The objective is to create digital public goods. The first was Aadhaar, which provides a public, verifiable identity. Subsequently, the National Payments Corporation of India offers a successful interoperable payment network called UPI. The next stage is data empowerment, where data is put in the hands of users to use for their own benefit. Our vision is that, enabled with all this infrastructure, magic can happen. All kinds of products and services can be reimagined.⁴⁴

Corporations, foundations, and governments can also support ecosystem infrastructure. With regard to human capital, regional governments and some corporations supported the inclusive application program efforts of Hotels.ng as a public good. It would be powerful to do this nationally to help startups discover the best talent around the country and spread equal opportunity.

Principles of Ecosystem Support

Many ecosystem builders approach me for tactical advice on supporting their particular ecosystems. Developing an entrepreneurial ecosystem strategy is no small feat, and it requires deep knowledge of the local strengths, dynamics, and relationships at play. That’s why I’m reticent to provide a standard recipe of advice. Instead, I propose a few principles to guide the way.

Keep the Entrepreneur at the Center

Startup best practice places customers front and center. The same should be true of ecosystem development. In this case, the customer is the entrepreneur. Serving other “customers”—such as developing a particular industry, creating new jobs, or solving social goals—may of course see traction, but it will not be as powerful in unlocking the virtuous cycle of entrepreneurial ecosystems.

From interviews with ecosystem builders around the world, I have learned that one of the key drivers of success (and predictors of failure) is entrepreneurial centricity. If outside players, rather than entrepreneurs themselves, dictate what is required for the ecosystem, then perverse incentives creep in and generally lead to suboptimal outcomes. Endeavor’s analysis of the Nairobi ecosystem reports heavy external funding by donors, development finance institutions (DFIs), and corporations.⁴⁵ It counted one donor-funded incubator for every thirty startups in Nairobi. As the report explains, “Donors began to fund tech-oriented entrepreneurship initiatives, which led local organizations offering personal microfinance loans and educational services to refashion themselves and launch entrepreneurship support programs.”⁴⁶ This contributed to less-productive microbusinesses and startup strategies that optimized for what would serve donor objectives rather than what would create great businesses.

Despite the rocky start, Kenyan entrepreneurs have made great strides in building their ecosystem over time. Yet, comparing the Nairobi ecosystem to the Bangalore ecosystem, only 1 percent of Nairobi companies grew sufficiently to employ more than one hundred people—one-sixth the rate that Bangalore achieved.⁴⁷

The same dynamic plays out in venture capital. In the late 1990s, the Canadian government supported labor-sponsored funds, a tax-subsidized investment fund. By regulatory decree, these funds were restricted in the types and ways in which the capital could be invested.⁴⁸ Unsurprisingly, as Harvard Business School professor Josh Lerner discovered, labor-sponsored funds underperformed compared with other asset classes and had much higher likelihood of failure than traditional venture capital investments. Labor-sponsored funds were simply trying to place capital where entrepreneurs were not seeking it.

Ultimately, innovation ecosystem development should be centered on and led by entrepreneurs. Brad Feld’s Boulder thesis, explored earlier, supports this philosophy, as does empirical data from the Kauffman Foundation.⁴⁹

Focus on Big Wins, Too

For many ecosystem builders, the temptation is to support entrepreneurs at the earliest stages, seeing success in the rising numbers of new startups or the number of patents filed. But these metrics are correlated only with successful startup activity. They are not signals that startups will scale—one of the key markers of success for an ecosystem.

The Kauffman Foundation published a report that helps measure entrepreneurial ecosystems using twelve metrics that inform four indicators. The first indicator is density, which measures new and young firms per one thousand people, the share of employment in new and young firms, and sector density, especially in high technology. The second indicator is fluidity, which measures population flux, labor market reallocation, and high-growth firms. The third indicator is connectivity, which measures program connectivity, spin-off rate, and dealmaker networks. The fourth is diversity, which measures multiple economic specializations, mobility, and immigrants.⁵⁰

I suggest a fifth, focused on the older siblings from chapter 11: the number of later-stage entrepreneurs who have successfully scaled to exit. Research has demonstrated that in sectors having multiple companies, the top three companies will impact more than 60 percent of the ecosystem. In Buenos Aires the portion is greater than 80 percent.⁵¹ As you have seen, successful, scaled startups can kick-start the virtuous cycle of ecosystem development.

Take a Long-Term View

Rome was not built in a day. Neither are startup ecosystems. Silicon Valley took more than forty years to become what it is now. Israel’s success can be traced back twenty years to the Yozma program.

Ecosystem builders must take a long-term view. An ecosystem’s development takes longer than electoral cycles or the tenure of most corporate or foundation CEOs. Success requires passing the baton across at least a few generations in order to succeed.

Collaborate

Ecosystem development should not be siloed. It requires a collaborative approach with the community at large. Solutions like Endeavor, FUN, and ALU require partnership with the broader entrepreneurial community, but also the corporate, private, and nonprofit sectors. ALU worked with its students’ future employers to identify gaps, build the curriculum, and create opportunities for internship and training. It worked with philanthropists to subsidize its early projects and with a range of corporate and venture investors to scale. Similarly, part of the magic of Endeavor is its deep alignment with leaders of the local business community who fund the program and mentor the startups.

Be Creative and Take Risks

Unfortunately, there is no single ecosystem development recipe. Ecosystem development is necessarily experimental. It should involve taking risks and trying creative new approaches. Not everything should succeed or become large.

In fact, the opposite is often true: smaller, more organic activities are powerful. Some will succeed and others will fail. But rapid experimentation is critical to find models that will succeed.

This Above All: To Thine Own Self Be True

Scaling an ecosystem at the Frontier is a different journey than in Silicon Valley or anywhere else. Therefore, heed Shakespeare’s words: “To thine own self be true.”

Many ecosystems around the world have a moniker of “Silicon X.” There’s Silicon Alley in New York, Silicon Plains in Utah, and Silicon Savannah in Kenya. It is often an incorrect and pejorative comparison. Silicon Savannah, which refers collectively to all Sub-Saharan African ecosystems, uses an originally Native American word to describe a natural ecosystem that is certainly not representative of an entire subcontinent.⁵²

Building multiple reproductions of Silicon Valley is not a productive objective. Successful global ecosystems should and will look different, leveraging local strengths.

Historically, technology was seen as a vertical industry unto itself, almost wholly independent of others. There were domains such as financial services, health care, industrials, and technology. In that world, Silicon Valley could dominate the market, as New York dominates finance and Québec dominates maple syrup.

Today, technology is horizontal; every company and every industry has technology built in. Regional expertise must play a critical role in local ecosystem development. London has become a global leader in fintech (for now). Columbus, Ohio, has become a thriving innovation hub in the US Midwest, specializing in agriculture and manufacturing.

Innovation ecosystems around the world will foster various types of startups. Some will focus on health care (and likely specific subsegments of it) while others will focus on robotics for heavy industries. The strengths of local ecosystems will determine the emergence of specialized sectors.

As you contribute to your local ecosystem, understand that Frontier Innovators differ from one another. Each operates in a unique environment defined by a political economy, a macroeconomic reality, and an ecosystem of individuals in the sector. Any ecosystem also necessarily includes a broader industry environment and set of expertise.

So don’t call it Silicon Savannah. Just call it Kenya.