According to a Kauffman Foundation report, in the US, ”new businesses account for nearly all net new job creation and almost 20 percent of gross job creation.” It’s no wonder there is so much hype about emerging startup ecosystems, and so much new focus on supporting startups from governments.
But what often gets lost in all the hype is how sustainable startup ecosystems are actually created.
For example, it pains me every time I see a press release from the government of an area with no startup ecosystem that decides to dump millions into shiny facilities to “spur local startup innovation.” More often than not, these initiatives end up providing a great photo opportunity and a hip workspace for local freelancers to code while sitting in beanbags, but little else.
Similarly, I see a lot of government venture funds investing in the best companies in their locales, whether these companies have found product-market fit or not. Not only do these efforts provide improper validation to businesses before they are ready, they are also an egregious waste of taxpayer money.
These types of “top-down” approaches are by far the worst ways to build a sustainable startup ecosystem. Think about it: successful startups are not launched with a big splash – they are built over time through careful iteration and a laser-like focus on the needs of their customers. Building a startup ecosystem is no different.
In my experience helping to build startup ecosystems in over 60 countries, the “bottom-up”, slow approach is what works. Just look at emerging startup ecosystems like those in Colombia, Indonesia, and Vietnam, and you will see that the government-funded “innovation centers” don’t create lasting companies – grassroots efforts led by a few local and passionate entrepreneurs are what drive results.
No matter where you are trying to build a sustainable startup ecosystem, here are some simple ways you can approach the challenge to be successful:
1. Start with a Collaborative Mentality
The first thing to understand is that entrepreneurship is not “zero-sum.” Startups are exciting precisely because they have the opportunity to create new markets that did not exist before. When you adopt this mentality, a competitive startup, startup organization, or startup ecosystem does not have to lose in order for you to win…the most lucrative opportunity is to make the pie bigger for all.
It sounds simple, but since most people are trained in the traditional business mindset of gaining market share at the expense of somebody else, this concept is often hard to grasp.
In practice, this means that sustainable startup ecosystems typically:
- Are not dominated by vertically-integrated gatekeepers.
- Consist of many specialized organizations that work together.
- Have startup mentors that help entrepreneurs across several programs (not just one).
- Share ideas and learning because they understand that ideas mean nothing (execution does).
Remember: the definition of an ecosystem is “a group of interconnected elements, formed by the interaction of a community of organisms with their environments.” Startup ecosystems that operate with a “me-first” mentality die, and they die quickly.
2. Map the Local Market
As an extension to the above point, to foster a collaborative mentality it is important to first map out all of the local startup organizations in your city.
At the scores of startup events that I host every year, almost all new entrepreneurs are oblivious to the local startup resources available to them (even in Silicon Valley!). Since they are scared that somebody is going to steal their idea, they have been plotting their startup in secrecy and don’t know about any local startup blogs, events, bootcamps, mentorship programs, or co-working spaces in their city. They think they have to start a company all alone in their dark basement.
To help startup leaders map their ecosystem, promote collaboration, and help newcomers, we released a free template a few years ago called the Startup Ecosystem Canvas. It it a essentially a worksheet that represents a sequential view of a startup ecosystem, where you can list local all of the entities in your city that help startups: including co-working spaces, networking events, professional networks and groups, accelerators and incubators, educational institutions, government organizations, and more.
Going through the exercise of filling this out will not only give you a 360 degree view of your ecosystem, it will also give you extremely helpful content to distribute to help your existing startup community across local blogs or social media. Plus, if you are in a market where few (or none) of these organizations exist, then you have begun the process of plotting the specific needs of your startup market, which will help you determine which gaps need to be filled.
3. Gather the Network
This is probably the most important step in the process.
First, if you are in a very nascent market, you need to schedule a dinner with the top startup entrepreneurs in your city. For example, when the Founder Institute first opened a chapter in Colombia five years ago, I hosted a dinner with about ten of the top tech entrepreneurs in the country. To my surprise, when we sat down to do introductions, almost all of them had never met each other before! I can’t explain how valuable that one dinner was for creating connections and pushing their ecosystem forward. We are still seeing the benefits today, as our startups from Colombia have raised over $2 million.
Second, no matter what type of startup market you are in, you need to host startup events. At the Founder Institute, we host over 1,000 local startup events around the world each year, where local startup experts share their lessons learned and provide feedback on startup ideas. These events are all free and open to the public, with names like “Startup Pitch Bootcamp”, “Startup Founder 101”, and more. The goal of these events is to create a low-pressure, open environment where people share ideas, make connections, learn about the opportunities to launch a company in their city, and become inspired. The benefits of these events cannot be understated: in fact, co-founder relationships, meaningful partnerships, and ideas that become companies are created at most of the events that we host.
We host most of our startup events on Meetup, which is a great platform that helps local people find your events, and there are many others services depending on where you are located.
4. Work with Your Government
It may sound like I was bashing government involvement at the top of this article, but I was truly not. My point is that governments cannot create a startup ecosystem out of thin air. Rather, their crucial role is supporting a community once it is organically formed and after the roots of an authentic startup ecosystem have been seeded.
Connect with the Chamber of Commerce in your city to see what they have to offer small businesses that are just starting up, and get local government officials and organizations involved in your events. Or, even better, get involved in your city’s politics by attending council meetings to make your case for why startups can be beneficial to the city. Work with your government to get a small amount of funding for a big event, with big speakers. Then, build off the momentum of that event to launch other programs to help entrepreneurs.
5. Stay Honest
A common mistake that I see in local startup ecosystems is that people “grade on a curve”. In other words, they treat a local startup as “exceptional” just because it is better than all of the other local startups.
This is a problem because, every day, the market for products is increasingly becoming global (especially for digital products). This global market does not “grade on a curve”. Just because a company is leaps and bounds ahead of your local competition does not mean that it is a viable company.
Admittedly, this is a tricky thing to judge. For example, if somebody is building messaging app specifically for the needs of your local market, does their UI have to be as slick as WhatsApp? No, of course not. Focusing a product on the needs of a local market first is almost always the best choice.
To handle “grey areas” like this when mentoring startups, I reccommend the following:
- Focus on metrics, and metrics only. If somebody is seeing amazing growth with zero advertising on the ugliest product you have ever seen, who are you to judge? Let the market decide.
- In the case of zero (or poor) metrics, give brutally honest feedback. In other words, resist the temptation to be nice, and be as honest and straightforward as possible. Building a successful company from the ground up is one of the most challenging things somebody can do, so it is easy to have the inclination to be overly empathetic for early-stage founders. However, in reality, this is almost always disservice to the entrepreneur. In the Founder Institute we have a “no threes allowed” for our startup mentors, which helps immensely, but I encourage you to develop a system that fits your own personality and style.
I hope the above steps help, and I have one final point:
Don’t be the person that complains that there is no local venture capital.
Flashy stadiums and corporate sponsorships typically do not come when a sports franchise has no star players and a losing record. Instead, they come after years of developing their promising talent, and after some wins.
I can tell you from experience that strong companies with great metrics will get funded no matter where they are based. If your startup ecosystem creates a strong company, the funding will follow – whether from international investors, or through the increasing viability of online funding networks.
Focus first on creating a strong startup ecosystem with a bottom-up mentality. Then when great companies are formed, the capital will follow, and a sustainable startup ecosystem can be formed.