This article originally published on the Center for American Entrepreneurship Ideas Blog
My new book with CAE Advisory Board member Brad Feld published yesterday. The Startup Community Way: Evolving an Entrepreneurial Ecosystem is essential reading for entrepreneurs, community leaders, policymakers, and other key stakeholders looking to entrepreneurship as an engine of innovation and economic growth. As more cities, regions, and nations embrace entrepreneurship, it is widely recognized that the environment in which a startup operates plays a role in the likelihood of its success. For this reason, the topic of “entrepreneurial ecosystems” has begun to play a bigger role in many economic policy agendas.
The Startup Community Way details the key characteristics, critical behaviors, and basic function of startup communities and the related but distinct concept of entrepreneurial ecosystems. The book offers guidance to practitioners and observers about how to better understand and engage with communities of support and knowledge-sharing for the benefit of entrepreneurs anywhere. We convey a clear philosophy and process of bottom-up discovery for entrepreneurs, community builders, and civic leaders to apply as they navigate the inherent uncertainty of these systems.
The Startup Community Way establishes the systemic properties of startup communities and entrepreneurial ecosystems, explaining why their complex nature leads to predictable mistakes. A complex web of interdependent people, organizations, resources, conditions, unique to each time and place, combine in unanticipated ways to unlock value for entrepreneurs. Value creation unfolds through the continual interactions between system participants, resulting in a whole that is greater and substantially different from the sum of its parts.
Because of this, participants must take a fundamentally different approach from the top-down initiatives that are common in much of our civic and professional lives. Here are five suggestions for policymakers in Washington to consider to better support high potential entrepreneurship in communities throughout the country.
Think in systems. Classical economic and policy models teach us to understand a system by reducing it into its constituent parts. However, complex systems are understood through the interaction of the parts, not the parts themselves. A reductionist approach provides only minimal insight into the impact of a policy. Failing to think systemically can produce unanticipated, and unwanted, side effects. Although it’s important for policies to help ensure the “parts”—startups, organizations, programs, etc.—are better optimized, policies that promote collaboration, connectivity, and shared learning are critical too.
Recognize there is more than one type of capital. A common complaint in startup communities and entrepreneurial ecosystems is that there isn’t enough capital. This typically means financial investment, and specifically, venture or angel capital. While policies promoting investment may be welcomed—a point I make below and previously described a long history of—don’t forget about the other types of capital. In the book, we describe Seven Capitals: intellectual (technologies, ideas, information), human (talent, knowledge, skills), financial (revenue, equity, debt), institutional (anchor organizations, markets, stability), physical (density, infrastructure, quality of place), network (connectedness, relationships, bondedness), and cultural (attitudes, mindset, behaviors) capital. Many of these lie squarely in the realm of government policy.
Support people and networks over buildings and institutions. As the economy evolves from an industrial-era hierarchy to an information-age network, intangibles—knowledge, cultural norms, relationships, etc.—are increasingly valuable. In this context, high-trust relationships facilitate the informal exchange of ideas, talent, and capital. Key influencers with existing capabilities and credibility in the startup community play an essential function as stewards who get things done. These change agents should be empowered by policymakers. Too often, they get crowded out by new, publicly-funded initiatives that are run by individuals with connections to the government rather than the entrepreneurs. Even the most well-designed policy needs an implementation strategy. These private actors, as opposed to bureaucrats, are the key.
Push funding and authority to the states and localities. Each startup community is unique. Frameworks are helpful and principles apply broadly, but what ultimately works in each place and time will vary. Today’s entrepreneurs require not only flexible policy, but one that reflects these unique local conditions. For this reason, federal entrepreneurship policies can be more effective by pushing funds and decision-making authority to states and localities. One recent example of this is the New Business Preservation Act, which was introduced into the U.S. Senate and House in March. The legislation would send $2 billion to the states to match private equity investments in high-potential companies.
Prioritize agile experimentation and learning over rigid planning and execution. Although startups, as a whole, drive productivity, innovation, and job growth, the most likely outcome for any particular startup is failure. Like startups, startup communities are also highly uncertain and unpredictable. Outcomes cannot be controlled, only guided and influenced. For this reason, policymakers should ensure a broad agenda that promotes learning, adaptation, and resilience; not on rigid plans. The agenda must reflect not only the interdisciplinary nature of entrepreneurship but the inherent uncertainties and long-term commitment required for meaningful change to take shape. Given the inconsistency of political cycles, policymakers must solidify policies or funding streams over a longer time period.
These are just a few ideas from a much longer list that U.S. federal policymakers can consider to provide more lift to startup communities and the entrepreneurs who benefit from them in places around the country. If you’d like to learn more about startup communities, entrepreneurial ecosystems, and The Startup Community Way, please pick up a copy now.
