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Guide to Startup Ecosystems

A Founder’s Guide to Startup Ecosystems

Mar 1, 2023

It takes a village to change the world. Startup creation is an industry built by disruptors who ask people to change their habits or how they do things, whether incrementally or in other significant ways. So really, the startup culture is built around changing the world.

Whether we like to admit it or not, people are invariably habit-based creatures who don’t like change. In most cases, it takes coaxing for anyone outside the most fervent early adopters to change their current habits, processes, or routines. To be successful, most startups require customers to not only change some aspect of their lives but, in many cases to also sacrifice their attention or give up money.

Since Kahneman and Tversky ran their groundbreaking research into behavioral economics that led to Kahneman’s Nobel Prize and the book Thinking, Fast and Slow, further studies have been done on the topic. A startup may find early success by simply being cool or engaging for early adopters, but to reach profitability, it will often need a team who understands both business and psychological dynamics that are far beyond the founders’ expertise. 

The startups that have grown to become behemoths (the FAANG companies) each started from humble beginnings but thrived because of their proximity and access to several aspects of the startup ecosystem. 

Apple would likely not have gone far had the garage Steve Jobs worked in been anywhere other than Los Altos. Google would not have likely. progressed beyond the garage stage had Brin & Page not been students at Stanford. And Microsoft may not have changed the computing world had Bill Gates not attended a private school in Seattle that was an early adopter of computers. 

This guide to startup ecosystems covers what they are and how startup founders today can identify the right environment to help them thrive.

It Takes a Village

The initial idea and passion may very well be the most important part of a startup, but it’s typically not the determining factor for whether a startup succeeds or not (or even makes it to the market). 

Although it would be increasingly difficult to track how many potential startups never make it past the idea stage, it’s a fair assumption that far more ideas never make it to market each year than those that do.

While the founder or founders of a startup are the ones who bring that initial spark of an idea, it is in large part the startup ecosystem that determines whether that spark turns into a flame. It is often the ecosystem that provides the founder research, nurtures the idea and forces them to ponder its applications, teaches them how to interpret the business potential and product-market fit, and either does or does not fund the idea to take it to the next stage. 

The founder ecosystem includes three main components:

  1. The startups themselves
  2. The startup enablers
  3. The ecosystem service partners

Let’s break down each into its sub-components to get a better look at what makes up the startup ecosystem. 

The Startups 

The capacity to have and understand ideas has long been considered by philosophers as one of the main components of being human. Entrepreneurs are a special class of humans who not only have the capacity for thought and ideas but are also innovative– viewing the world differently and tackling problems from a different perspective.

As such, the startup itself is a vital component of this ecosystem. While the other components are vital to support elements to bring those innovative ideas to the world, without the ideas and those who bring them, said support is unnecessary. 

The Startup Enablers

The capacity for innovative ideas typically comes from some level of Subject Matter Expertise (SME). While there are the rare serial entrepreneurs like Elon Musk or Richard Branson who have an innate sense of knowing when something can be done more efficiently or to make a profit, most startup founders have a level of expertise in their field that allows them to know, at a technical and applicable level, where the status quo can be challenged.

While this expertise is enough to fuel the change from the initial idea to the drafting, coding, or perhaps even MVP stage, it doesn’t always translate into how to fund and introduce that idea to the market in a way that is likely to be successful. For that part of the process, we have the enablers.

Startup enablers are people, groups, companies, or institutions who provide a vital element that assists the startup founders in progressing their idea or startup beyond its current state. While the idea of the founders is the initial spark, the startup enablers are who allow that spark to be coaxed into a fire. Startup enablers can include all of the following:

  • Colleges, universities, or training programs
    • Research, coding camps, or mentoring
  • Investors of all levels
    • Business forums, angel investors, venture capital, etc.
  • Incubators, accelerators, innovation centers, or venture studios
  • Agencies, consultants, and freelancers
  • Advisory organizations 
  • Events 
  • Corporations
    • Nike, Microsoft, Amex, and PepsiCo have each created accelerators, investment funds, and other programs to support and leverage startups
  • Research organizations

The Ecosystem Partners

If the first step of the startup ecosystem is the “spark” (startup), and the next stage helps turn that spark into a flame (enablers), a well-functioning ecosystem also needs those who help keep that fire going long enough to provide some runway, or at the very least not allow it to go out.

These ecosystem partners may seem tangential, but often they can be just as vital as the enablers. The startup ecosystem partners do not have a direct role in the startups themselves but assist in creating an environment that fosters a positive startup culture.

Examples of startup ecosystem partners can be:

  • Government (local, state, or federal)
  • Media
  • Service providers
    • Bookkeepers and CPAs, IT services, internet & telecom, etc.
  • Corporations
    • Strategic partnerships or competition
  • Transportation
    • Founders and employees of thriving startups need easy access to their offices and travel

From the macro level, a thriving startup ecosystem needs a virtuous cycle of new startups moving into funding, market-entry, and progressing toward their maturity for it to survive – just as with any ecosystem in nature.

When a startup goes public, is acquired, or receives enough organic customers to exit the equity funding cycle, these startup employees may be released back into the ecosystem to find their next startup to join and assist along its path to exit the startup trajectory. 

Likewise, mature companies in innovation, technology, healthcare, and other spaces play their roles in training and giving real-world experience to employees. These workers may one day have the entrepreneurial drive that leads them to either form startups themselves or offer expertise to founders in other burgeoning sub-niches that align with their expertise.

Let’s go through a few examples of why these startup ecosystem partners are so integral to the process.

Government

Barcelona, Spain, is in the midst of building its own startup culture and has been progressing along nicely. However, a taxi driver strike in the country led the government to outlaw Uber (for a time, the ride-hailing app is now back in the country in full force).

Had the government not rescinded this decision, it would have removed a crucial part of the startup ecosystem. Current employees of Uber are getting real-world experience, which could train them to either form or join new startups.

Aside from banning or allowing certain startups, the government also sets the business climate–which can greatly affect whether startups or investors are present or can thrive in the area. The anti-business climate in California has been credited with forcing an exodus of mature companies from the state and is likely just one of many reasons that so many startup ecosystems have been forming in other parts of the US. 

The local governments in cities like Birmingham, Dallas, and Atlanta have firmly embraced startup ecosystems and innovation hubs, understanding the vital role that they play in luring talent and jobs to the area. Whether tax incentives, direct investment in infrastructure, or any other aspect needed to build a pro-business environment, the government can play a large role in whether a startup ecosystem has a chance in a specific locale. 

Media

Emerging startups are in a constant search of new customers, and the media has a large role to play in that search. The local media in areas with a growing or mature startup ecosystem should be tied into the startup culture itself, helping inform the public about innovations that are taking place in their backyard.

“Earned media” is the best kind to aim for at an early stage because startups seeking capital or customers need to find the most reach for the lowest cost. Profiles, stories, and updates on innovation hubs or startup ecosystems can help them thrive in many ways, from finding customers to investors or talent.

How to Identify the Right Ecosystem for Your Startup

If you are a startup founder who is location-agnostic and trying to find the best place to attempt to turn your spark into a flame, you would be wise to do your due diligence into the startup ecosystems that are emerging all across the world. In the US, Silicon Valley used to be the place where all startups went to find what they needed, but more and more options are emerging across the country every day.

It’s easy to take a narrow view and only focus on a single aspect of the startup ecosystem, seeking the best place to meet that need. Many startups focus on the best place for them to find funding or to build their MVP, but that is only one small sliver of what a startup will ultimately need to find success. 

For startup founders who are serious about bringing their idea into the world, each of the elements listed above is key to giving your startup the best chance at success. As with any ecosystem found in nature, a deficiency in any aspect of the cycle can indicate future problems or issues as compounding effects begin to take place.

Take the time to find a complete startup ecosystem rather than simply one piece of the puzzle, and your startup will be primed for the most successful outcome.

article by Lauren DeSeno

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