What is Self-Propelling Entrepreneurial Ecosystem Development?
Self-Propelling Entrepreneurial Ecosystem Development occurs when actors, such as entrepreneurs, support organizations, donors, philanthropies, and investors, utilize their understanding of ecosystem dynamics to create a thriving, self-propelling entrepreneurial ecosystem. Key features of such a model include:
- Local entrepreneurs receiving funding and support from local organizations as opposed to the support going to expat firms.
- Local founders are serving as mentors and investors for companies within the region and beyond.
- Expat-led companies are no longer critical to the growth of successful local companies through investment and mentorship.
- Exits benefit local investors and profits are used to reinvest in the local economy.
- Decision makers have an ongoing feedback loop to hear from successful founders and quickly coordinate across public and private spheres to support local scaleup entrepreneurship.
- Employees at successful entrepreneurial companies receive active support in starting their own spinout companies and trust among entrepreneurs is high.
Endeavor Insight’s research has come up with six principles that organizations can use to support and fund high-impact entrepreneurs in their local ecosystems:
1. Focus on Scale and Local Capacities
Each business built by local founders represents an experiment on the types of industries and business models that can thrive in that market. Groups of successful founders who have reached scale (employ 50+ full-time individuals) are indicators of the type of companies that have a local competitive advantage.
Decision makers should look toward founders of scaled companies who possess insights on local capacities when making their own choices on how to support entrepreneurs. Listening to successful founders’ challenges allows for a comprehensive understanding of real constraints within an ecosystem. In nascent ecosystems, where there may not be many entrepreneurial success stories to build off of, decision makers can still consider the local economic situation in terms of existing industries, institutions, and even geography.
As we discussed previously in our blog Five Lessons to Foster Growth in Entrepreneurship Communities, the development of a handful of companies to reach scale are responsible for the vast majority of job creation in a region. Additionally, founders with connections to experienced entrepreneurs who have scaled companies are more likely to reach scale themselves.
2. Align Actions with Goals
Entrepreneur support organizations and other decision makers should design their programs and select portfolio companies in accordance with their intended outcomes. Selection criteria and program goals should be made clear to entrepreneurs so they can make informed decisions on the benefits of support services. It is helpful to understand companies’ business models by innovation type as certain businesses, especially in emerging markets, are better suited for impact outcomes.
The Argidius Foundation notes in its 2021 report “How to Fulfill the Potential of Business Development Services using SCALE”, a well-aligned selection process facilitates the formation of a dynamic cohort that can engage in peer-to-peer learning. When evaluating success, programs should use impact metrics that focus on the entrepreneurs’ performance, such as the number of customers or employees they have, rather than the completion of the program’s activities.
3. Increase Support for Evidence-Based Solutions
Decision makers should understand the types of support that successful entrepreneurs have utilized to grow their companies and focus on increasing the capacity of specific initiatives that are already working. Interviews conducted by Endeavor Insight show commonalities in the needs of entrepreneurs growing in the same ecosystems. Addressing the most pressing issues that founders of scaled companies have faced in the past is likely to make the greatest impact on an ecosystem. This allows future generations of entrepreneurs to be serviced more effectively.
Listening to entrepreneurs can provide valuable and unexpected insights to support organizations. For example, after implementing a feedback survey, Villgro Africa found that its entrepreneurs rated the due diligence of its selection process to be the second most valuable service of the program, after access to capital. By relying on entrepreneurs, support organizations mitigate the risk of acting on preconceived notions and are instead acting on entrepreneur-tested insights.
4. Tailor Support for Innovation
Innovation is needed to solve global issues, such as climate change, food insecurity, and inadequate healthcare. Entrepreneurs are playing a large role in developing cutting-edge, tech-enabled solutions to these challenges in different markets.
In order to better suit innovative founders, support organizations should increase support for specific issues like raising capital, acquiring technical talent, and accessing facilities to test prototypes. Providing up-and-coming founders with access to innovative entrepreneurs who have a deep understanding of the relevant sector, geography, and business model will provide the most value to these early founders.
Certain business models, like those with physical products, have longer development timelines and need flexible capital for R&D and prototyping. Endeavor Insight’s research on hundreds of innovative entrepreneurs has found that co-founding teams of invention-based enterprises that combine specialized tech or engineering talent with business experience outperform teams without a mix of skills.
5. Encourage Founder Reinvestment
Strong founder-to-founder relationships are important for success, but are often rare or exclusive. The value of peer-to-peer learning is immense, and the cultivation of those connections often requires facilitation by support organizations in the ecosystem.
Endeavor Insight’s research has found that companies are two-to-three times more likely to scale if they are connected to other experienced entrepreneurs through mentorship, investment, or prior employment. Successful founders often have the capacity to mentor fellow entrepreneurs and may include mentee companies in their angel investment portfolios. Decision makers should invite founders of scaled companies to participate in program design meetings, advisory boards, and investment decisions to better connect them to founders in the local ecosystem.
6. Enable Self-Propelling Local Development
Primary involvement from local and returnee (those who have had educational or professional experience abroad) founders is crucial to building a self-propelling ecosystem.
Endeavor Insight interviews have found that local entrepreneurs are more aware of the context-specific needs of their customers and have greater connections to local institutions. They are therefore more likely to become leaders within their local entrepreneurial communities.
These founders should be encouraged to pay it forward as angel investors and mentors for up-and-coming entrepreneurs in their home markets. Local-led companies also bolster a region’s industry expertise and feed the pipeline of new companies through serial entrepreneurship and spinouts, which are startups founded by former employees. In the case where expatriate founders dominate the local entrepreneurial community, decision makers can encourage expats to contribute to local capacity building through steps such as being angel investors, supporting workforce development, and opening R&D facilities in the local market. Decision makers can level the playing field for local and returnee founders by facilitating access to networks and resources from outside the local geography.
As Miami continues its development as an entrepreneurial ecosystem, it’s important that all of the entrepreneurial ecosystem’s actors keep these six principles in mind – Focus on Scale and Local Capacities; Align Actions with Goals; Increase Support for Evidence-Based Solutions; Tailor Support for Innovation; Encourage Founder Reinvestment; and Enable Self-Propelling Local Development.
While it may be tempting to rely on trends set by other ecosystems, it’s important to remind ourselves that the needs of Miami are unique to itself and must be met accordingly.
Research for this blog can be found on Endeavor’s Insight Report, “Self-Propelling Ecosystem Development”. Additional reporting provided by Endeavor staff member Eric Marroquin with support from Laura Ginebra.