As the aftershocks of the Great Recession continue to shape the decisions we make, states and cities are looking for ways to provide economic opportunities for their citizens. Some have adopted entrepreneurship as their cause du jour, understanding that young, growing companies can be far more impactful than mature, established companies as a driver of employment. While no city can become entrepreneurial overnight, the support of local policymakers can be an important factor in changing the culture of entrepreneurship in an area, and then propelling it to new heights.
The goal for policymakers, in valuing entrepreneurship, ought to be developing a vibrant and self-sustaining entrepreneurial ecosystem. Many have recognized the power of entrepreneurship as a growth strategy, yet policymakers need to understand what works and how to best facilitate successful entrepreneurs.
What steps can local champions of entrepreneurship take to provide fertile ground for entrepreneurs and their companies to grow? Often, the answer includes incubators, accelerators and traditional public venture funds. But this sort of “build it and they will come” mentality is not backed by research.
Publicly funded incubators that provide office space and little else for young firms don’t actually make much of a difference in a business’s chance of success. Public venture funds have also proven to be a mistake.
So if public venture funds and the average incubator don’t really do much towards creating a prosperous entrepreneurial ecosystem, what can policymakers do and how can we tell if these options are working? One of the attributes that describes a healthy ecosystem is a requisite density of entrepreneurs that are connected to each other and the rest of the business community.
A healthy ecosystem is populated with a large number of entrepreneurs (preferably in a variety of industries) who also employ many others that work in that ecosystem. Along with the obvious benefit of more entrepreneurs, a greater density of entrepreneurs provides more collision opportunities. By collision opportunities, I am referring to the natural networking that can occur when entrepreneurs are able to meet informally, talk with, and learn from peers that are also active in the business community. When entrepreneurs are surrounded by others who are taking the same path, this sort of interpersonal contact sparks new ideas that can make everyone more productive.
A second attribute of a healthy entrepreneurial ecosystem is the level of connectedness that entrepreneurs feel, both to other entrepreneurs and to the existing business community and policymakers. One way policymakers can encourage young business owners to become (and stay) an engaged member of the business community is by supporting and encouraging education and training programs for entrepreneurs and their employees. When programs such as Hackathons, Startup Weekends, or 1 Million Cups happen, it is tremendously impactful to the participants when a mayor or other local politician attends and shows interest in the event.
Another important aspect of a highly-connected ecosystem is the spinoff rate. Some of the most exalted entrepreneurial communities (Silicon Valley at the top of the list) are characterized by the high percentage of startup founders who previously worked for a startup. Companies that have the propensity to produce employees that are entrepreneurial themselves provide an internal source of entrepreneurship that helps sustain an ecosystem. Both density and connectivity are qualities that define an effective entrepreneurial ecosystem.
So how can cities and regions achieve these goals? One tool available to local developers and policymakers is zoning regulations. Entrepreneurs often raise zoning policy as a significant obstacle in starting a business. When zoning prohibits entrepreneurs from living and working in the more productive ways, whether that be in mixed-use buildings, entrepreneur houses, or some other arrangement, the barrier to entrepreneurship is raised. And when entrepreneurs are unable to live and work near each other, a business community will find it harder to develop both the density of entrepreneurs and the connectivity that produces more successful entrepreneurs.
While designing regulations can have trade-offs, as the recent kerfuffle about the Kansas City Startup Village shows, this is one of the ways the local policymakers can make an impact in developing an entrepreneurial ecosystem. Density and connectivity (among other qualities) are reasonable identifiers of a vibrant ecosystem, and identifying how policymakers and community leaders can promote such an ecosystem is a challenge.
In the future, I suspect further research will provide more answers as to what can be done by entrepreneurs, the surrounding business community, government and other citizens to facilitate such an environment.
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Chris Jackson is a research assistant in Research and Policy for the Ewing Marion Kauffman Foundation, assisting in the understanding of what policies and environments best promote entrepreneurship and education in the pursuit of economic growth.
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