Archives: Reports

Inspired by research on the importance of entrepreneurship for sustained economic growth and improved well-being, many governments and non-governmental grant-making organizations have sought over the past decade to implement policies and programs intended to support entrepreneurs. 

Over this interval, growing appreciation of the limits of strategies focused narrowly on financing or training entrepreneurs has prompted a number of such entities to shift their efforts toward more broad-based strategies aimed at enabling “entrepreneurial ecosystems” at the city or sub-national regional scale.

This paper takes the metaphor of the “ecosystem” seriously, seeking to draw lessons from evolutionary biology and ecology to inform policy for entrepreneurship. In so doing, the paper provides a framework for data gathering and analysis of practical value in assessing the vibrancy of entrepreneurial ecosystems.

Taking the ecosystem seriously as an economic model suggests the following strategies to enable entrepreneurial ecosystems:

• Favor incumbents less. Policies and regulations that favor existing, dominant companies over entrepreneurial ventures constrain competition and create barriers to entry for new firms. Examples of such regulations include assertive enforcement of non-compete laws, excessively restrictive occupational licensing requirements and regulatory complexity that inhibits contracting. Policymakers should avoid such policies and regulations and work to reduce the barriers to business startup.
  
  
• Listen to entrepreneurs. Rather than developing policies abstractly intended to correct “market failures,” policymakers should listen to what entrepreneurs have to say about their challenges. That input should be used to develop policies that stimulate idea exploration, product development and increased rates of deal flow.
  
  
• Map the ecosystem. Entrepreneurial supporters should create an inventory or graph that indicates who the participants in the ecosystem are and how they are connected. Ecosystem maps can become valuable tools in developing engagement strategies.
  
  
• Think big, start small, move fast. This simple rule, long a guiding principle for entrepreneurial ventures, also holds true for successful entrepreneurial ecosystems. The ecosystem should enable the connectivity needed for early success, and then clear the runway for future growth.
  
  
• Avoid artificially segmenting your community or your strategies. Entrepreneurs and members of entrepreneurial communities are active participants in creating new companies, investing in and/or advising startups, mentoring entrepreneurs and serving as customers of entrepreneurial companies. Expect participants in entrepreneurial ecosystems to play multiple roles, and make the most of their valuable skillsets.
  
  
• Prepare to capitalize on crises. Much like the rotting trunk of a fallen tree feeds the growth of new saplings, economic disruption creates entrepreneurial opportunities. Because disruptions are inevitable in economic and social life, architects of entrepreneurial ecosystems should anticipate them and prepare to make the most of the opportunities they create.

The search for effective strategies to enable local entrepreneurial ecosystems is a fundamentally practical one. Better understanding of actual ecosystems provides a conceptual framework within which policymakers can ask relevant questions, envision better approaches, and evaluate resultant outcomes.

As with other “typical” cities in the Midwest, Indianapolis is often overlooked in academic studies, but has much to offer the research, practice, and policy communities interested in entrepreneurship and its benefits (Motoyama et al., 2013). Our study supports the idea that Indianapolis (Max, 2013)—specifically, the greater Indianapolis/Carmel metropolitan area—represents an attractive place for business in its unique way.

Of special interest for regional competitiveness is a special subset of companies: high-growth firms, also called gazelles, which make disproportionate economic contributions especially to job creation (Haltiwanger, Jarmin, and Miranda, 2013; Kolko and Newmark, 2007). Most research on high-growth firms focuses on their contributions to the regional and domestic economy, whereas few studies have examined the role of regional environment for high-growth firms (see Motoyama and Danley, 2012; Neumark and Wall, 2006).

This study focuses on the regional environment for high-growth firms in the Indianapolis/Carmel area. Highlights of our findings are:

• High-growth companies in Indianapolis were able to survive and grow largely without external angel or venture capital investment, two financial forms conventionally associated as the sources of growth. Most of the companies were initially financed by the founder/s, with personal funds being the most common mechanism. In addition, several entrepreneurs used bootstrapping of some kind. 
• High-growth firms in Indianapolis face challenges in recruiting and retaining the right talent. This is particularly the case for entry-level, recent college graduates and for technology-specific skilled talent.
• However, there appears to be a “boomerang effect” which draws many former residents back to the region after they have lived elsewhere, often for personal reasons such as raising children or being close to family. 
• High-growth firms in Indianapolis do not generally have strong direct business ties with other companies in the region, including with vendors and customers, nor do they have significant direct competition in the region. 
• The locational choice of high-growth entrepreneurs appears to be “by chance,” as opposed to a deliberate choice. The people interviewed were already in the region and did not move to Indianapolis specifically for the purposes of starting or growing a company, but they also touted its many advantages. 
• Taking these findings together, people start businesses where they live. In other words, talented people in a region, such as entrepreneurs and technical experts, do not choose the place to start a business. This is in contrast to the currently dominant theories of the creative class. 
• Other regional advantages identified in interviews include market size, locational advantage of proximity to other major markets, and a “Midwestern work ethic,” which seems to imply a hardworking attitude without job-hopping. 
• Findings on the overall ecosystem are mixed. Most interviewees reported a generally positive overall environment, but not overwhelmingly so, and several interviewees indicated no effect or a negative impact of the overall ecosystem.

The recent growth of the startup scene and entrepreneurial community in St. Louis is incredibly exciting. It means economic progress for the St. Louis region and more jobs available for St. Louis citizens. Many newly formed local assets, such as ITEN, T-Rex, and Arch Grants, are laying a foundation that will have impact for decades to come.

In this paper, Yas Motoyama from the Ewing Marion Kauffman Foundation, and Karren Watkins from Washington University, document the resurgence of entrepreneurial activity in St. Louis by reporting on the collaboration and local learning within the startup community. This activity is happening both between entrepreneurs and between organizations that provide support, such as mentoring and funding, to entrepreneurs. As these connections deepen, the strength of the entrepreneurial ecosystem grows.

Another finding from the research is that activity-based events, where entrepreneurs have the chance to use and practice their skills needed to grow their businesses, are most useful. St. Louis provides a multitude of these activities, such as Startup Weekend, Million Cups, Code Until Dawn, StartLouis, and GlobalHack. Some of these are St. Louis specific, but others have nationwide or global operations, providing important implications for other cities.

St. Louis is a unique city with its own history, people, and culture. Yet, it shares many social and economic features with other cities across the national. Although this paper’s focus is St. Louis, other cities can draw lessons from our experiences, and I hope this research sparks a dialogue about what entrepreneurship practices and policies they might consider and why.

There is still much to learn, of course, as our entrepreneurial community is in its early stages, and there will undoubtedly be bumps along the way as we evolve. Because of this research, however, we will be able to do that growing in an informed, thoughtful way.

Mayor Francis G. Slay City of St. Louis