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Term: entrepreneurial ecosystem

27 Feb 2014

The concept of an entrepreneurial ecosystem refers to the collective and systemic nature of entrepreneurship. New firms emerge and grow not only because heroic, talented and visionary individuals (entrepreneurs) created them and develop them. New ventures emerge also because they are located in an environment or “ecosystem” made of private and public players, which nurture and sustain them, making the action of entrepreneurs easier. For example, the existence of prior ventures, the availability of start-up financing mechanisms, a patent system and a culture tolerating failure all facilitate the creation of new firms. Conversely, the ecosystem can hinder entrepreneurship as is the case in corrupt societies or if an entrepreneur tries to introduce a radical innovation when no technical standard yet exists.
According to D. Isenberg , an entrepreneurial ecosystem consists of elements that can be grouped into six domains: a conducive culture (e.g. tolerance of risk and mistakes, positive social status of entrepreneur); facilitating policies and leadership (e.g. regulatory framework incentives, existence of public research institutes); availability of dedicated finance (e.g. business angels, venture capital, micro loans); relevant human capital (e.g. skilled and unskilled labour, serial entrepreneurs, entrepreneurship training programmes); venture-friendly markets for products (e.g. early adopters for prototypes, reference customers), and a wide set of institutional and infrastructural supports (e.g. legal and accounting advisers, telecommunications and transportation infrastructure, entrepreneurship promoting associations). Based on this definition, governments can evaluate whether they have a strong entrepreneurial ecosystem and what actions they should put in place, knowing that each entrepreneurial ecosystem is unique and all elements of the ecosystem are interdependent. Therefore, generic reasons for explaining or creating a functioning entrepreneurial ecosystem or importing a single element from such an ecosystem are of little practical value. Successful dynamics often result from the identification of local assets, which may be in very limited numbers (like the firms Shockley, Fairchild, and HP who helped create the Silicon Valley, or Digital Equipment Corporation who contributed to Boston’s cluster). Focusing on innovative ventures specifically, other scholars have developed measurement scales that allow for international comparisons. For example, Jonathan Levie and his colleagues have identified some weaknesses of the Scottish entrepreneurial ecosystem, which can be transformed into priority issues, namely:  a need for more financing for growth (venture capital), increased effective networking, skills for growth (especially sales skills), a more significant contribution from universities, a growing number of role models and positive messages.

Entrepreneurial ecosystems in real life

The absolute model of a successful entrepreneurial ecosystem is the well-known Silicon Valley with its numerous and often leading high-tech companies and a very well-developed venture capital base. Many countries and regions have tried to emulate it, though often with limited success. Israel, Ireland and Taiwan also represent very dynamic entrepreneurial ecosystems. Such ecosystems have been developed for specific sectors: Germany did so in the life sciences domain with “BioRegio“, launched by the Federal Ministry of Education and Research in 1995, which sustained vivid entrepreneurial dynamics in biotechnology and made this programme famous Europe-wide. Developing dynamic entrepreneurial ecosystems is currently one of the objectives pursued by the European Commission which, in its “Entrepreneurship 2020 Action Plan“, talks of “creating an environment where entrepreneurs can flourish and grow” through better access to finance, better support for new businesses in crucial phases of their lifecycle, easier business transfers, or clearer and simpler regulations.

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