Entrepreneurial Ecosystems and the Emerging Start-up Boom around the World
Introduction: Why are Some Places Preferred by Entrepreneurs ?
Have you ever wondered why entrepreneurs and start-ups tend to cluster around particular geographical locations? Have you asked yourself the question as to why Silicon Valley in California in the United States, Bangalore in India, and Shenzhen in China tend to have more start-ups than the other places such as London, New York, or even Mumbai?
What is so special about the places mentioned above that entrepreneurs flock to certain geographical locations for launching their ventures and the majority of the start-ups tend to cluster in those places?
While some experts believe that it is the weather and the fact that existing start-ups are already in those places and hence, it is easier for new start-ups to simply follow their lead, there are others who point to the very essential fact that these places tend to have entrepreneurial ecosystems that encourage innovation and foster a culture of entrepreneurship.
What is this elusive thing called entrepreneurial ecosystem and why does it matter?
Entrepreneurial Ecosystems and the Wisdom of Crowds
For starters, entrepreneurs need access to quality talent or the human resources who are creative, innovative, hardworking, and above all have a passion for creating something new and more importantly, turning their ideas into concrete businesses.
This means that places such as Silicon Valley, Bangalore, and Shenzhen are attractive because they tend to have large employee pools that the start-ups can tap to staff their ventures. Having said that, this is also the case with other places and cities in the world where there are enough resources that can get the job done.
So, why are they not the start-up capitals of the world? The answer to this question can be found in the Wisdom of Crowds explanation wherein people tend to follow whatever the crowd is doing in the assumption that the crowd knows what it is doing.
Thus, once Bangalore became the IT capital of India, there was no looking back as millions of graduates and engineers found their way to the place in search of employment.
Existence of Incubators
Moreover, the fact that entrepreneurs like to base their start-ups in places that incubate other start-ups means that places such as the Silicon Valley that is already home to many famous and emerging start-ups has a thriving ecosystem in place that not only attracts talent but other entrepreneurs who can access the incubators fort their ventures.
The incubators here refer to the combination of VCs or Venture Capitalists, Angel Investors, and financial institutions that can provide the much needed seed capital for the entrepreneurs. Thus, while access to quality talent is the first determinant, access to finance and funding is the second determinant.
Taken together, these two factors ensure that new entrepreneurs would like to base their start-ups in places where famous business personalities reside in the hope that they can benefit from their advice as well as any funding from them.
Indeed, it is quite common for entrepreneurs in Silicon Valley and Bangalore to rub shoulders with earlier generation entrepreneurs in gatherings and professional body meetings where they can benefit from the advice of those personalities.
Role of the Governments
We have discussed access to talent and incubators being two factors that determine where the start-ups are located. Equally important is the role of the governments in this regard as entrepreneurs need a government that works for them and not against them by passing laws that throttle creativity and stifle entrepreneurship.
This means that either the government aids and encourages the start-ups or simply gets out of their way instead of placing obstacles on the path of the entrepreneurs.
In this regard, it is indeed the fact that most start-up capitals in the world have governments that either actively encourages them or simply let them be the way they are.
This explains to a large extent why Silicon Valley and Shenzhen have emerged in recent years to become innovations hubs while Bangalore which for a long time had successive governments that encouraged entrepreneurs is now losing the race to Hyderabad and other cities where Apple, Amazon, Google, Facebook have announced that they would locate their operations there.
Power of Incentives
The reason for this is again the power of incentives at work. Entrepreneurs tend to go wherever they feel welcome and wherever the infrastructure and the governmental policies are supportive.
Thus, in this extremely competitive world, these prerequisites for innovation are the reasons why some cities emerge as innovation hotspots whereas others lose the race.
Emerging Start-up Hubs
Having said that, it is also the case that the emerging start-up boom in the world is also spreading to newer places and countries. For instance, Israel, Ireland, and the Midwest in the United States are now competing with the big names such as Silicon Valley, Shenzhen, and Bangalore.
In addition, some European cities are also attempting to join the league of innovation hubs. Thus, neither the entrepreneurs nor the governments can take anything or anyone for granted when the stakes are high and hence, each must complement the other in terms of services delivered and returns generated to ensure that they remain competitive all the time.
This is the message that VCs and Angel Investors have been telling all stakeholders that while the crowd does tend to flock at certain places, it also tends to migrate to other places if the conditions deteriorate in the former and are encouraging in the latter. To conclude, entrepreneurs need ecosystems to thrive and hence, they tend to flock to wherever such systems are in place.
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Authorship/Referencing - About the Author(s)
The article is Written By Prachi Juneja and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.
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