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The worst thing is we frequently don’t realize the negative impact we created.
Startup communities are made up of many different actors with many different personality styles (kinda like a family). And like families many of those connective tissues are dysfunctional. There is no judgement here, it is simply our personalities exercising their right to shine.
What are some of the more common community personalities or archetypes?
- Community Cheerleader – always happy and thing are up and to the right
- Community Curmudgeon – we are doomed
- Community Gadfly – shows up at every event; involved in every new activity
- Community “Expert” – they know everything, just ask them
- Community Frump – somewhere between the cheerleader and the curmudgeon
- Community Connoisseur – has good knowledge and pontificates about that knowledge
- and too many others to mention.
Full disclosure – I am a community cheerleader and one of those glass half full guys. It is my personality and general state of mind.
What is a community cheerleader and what role do they play in the community?
Let me share my definition of a community cheerleader through my own experiences:
- I hold weekly open office hours with founders
- I blog and share my thoughts weekly
- I network like crazy and always spend part of each day connecting people
- I am a storyteller and many stories are others (did you know that . . . did you hear about . . . )
- I talk about our community with energy and passion with anybody who wil listen
- I guest speak at local colleges, universities, high schools, key events (or anywhere they will have me)
- I tour interested leaders motivated to find out how we do things here (Raleigh/Durham NC)
- I smile a lot
- I share my energy with others
The archetype that I don’t understand is the Community Curmudgeon. Without them knowing it, they accidently poison the community well. This has a direct negative impact on the direction of the community. You see, we influence our friends’ friends without us even knowing it.
Combine the community curmudgeon with a passionate group of first-time entrepreneurs and we have a recipe for disaster. First time entrepreneurs are the lifeblood of a growing community. By definition, they are susceptible to the influence of others as they fill their brain with best practices. Fill that brain with negative thoughts – “we have no good investors”, “our mentors are stupid”, “this is no place to grow your company” – and don’t be surprised with negative outcomes.
What would you do? I would move somewhere else where the attitudes were less toxic. Big negative outcome for the community.
Is this metric a leftover from days long gone?
One integral segment of a mature startup community are the institutions in the region, which I define as colleges, universities, city/county/state/province/federal government, non-governmental organizations (Chambers) and corporations. By definition these entities have a primary goal which is not necessarily everyone else’s primary goal in a startup community.
Therein lies a serious friction point.
Every month or so I work with my local economic development players who bring with them their goal of creating net new jobs in the area. I applaud and support these efforts with my time and energy by serving as the “startup” representative during their recruiting tours.
Almost every week I work with the same archetype all over the world who again have the same goal – create net new jobs in their region. The problem is that they view a startup community (and its growth) as a vehicle for net new job growth.
The consequence of a net new jobs lens is that you are dependent on monitoring the new jobs that a startup(s) create which is the wrong metric for measuring your startup community.
As an entrepreneur, my job is singular – build the best darn company I can with the resources available to me. An outcome of my success is that I will probably hire people to execute my vision. But adding staff is an outcome not the reason why I am in business.
Let me remind you that Instagram had 13 employees when it was acquired by Facebook in 2012. Imagine if Instagram was headquartered in your town. From a pure economic development lens, it would be seen as a failure with net new jobs of +10 (after founders). Yet, Instagram was acquired for $1 Billion dollars. The ripple effect for your startup community if Instagram was in your town would be felt for quite some time.
It is time we develop a set of metrics that better reveal the activities that inspire more founders to start companies, the activities that create growth advantages for those companies to scale, and the activities that open up opportunities for those founders and companies to exit and do it all over again. Every city or metro today should have a robust startup community as a key element of their economic growth strategy. Just don’t measure success the way your father did.
There are lots of point of view but determining your formula may just unlock your community
By now, just about every decent size city in the world has a group of passionate leaders trying to grow their startup community. Some leaders have a government or non-government position of influence. Some leaders come from an academic (teaching or research) position. Some leaders are current or former entrepreneurs. And some leaders are investors.
Regardless of your current day job, your community goal should be very well aligned among these players; to grow your startup community. With that goal in mind, I would posit that the best growth tool impacts the total number of entrepreneurs. But yet, much if not all of a community leaders focus seems to be about supporting existing founders and very little activity about finding, inspiring and creating new entrepreneurs.
The one most common underrepresentation in every community is the number of founders or entrepreneurs in the community.
There are a number of well-documented thought pieces that attempt to determine the optimal number of entrepreneurs in a specific geographic area. I have seen researchers suggest as many as 20% and as few as 2%. Like many complex systems, there are also definitional issues.
For the sake of this post, I am defining entrepreneur as a high-growth entrepreneur and not a main street entrepreneur. If you want to take an even tighter stance, we can choose to just include adults (though I would add that there are many budding entrepreneurs in middle & high school as well as college).
My non-scientific working hypothesis is this: every geography (city, metro, town) has 5-10% of their total adult population as potential future or current founders. For even the smallest of cities/towns (let’s say 150,000 people and 95,00 adults or 60+%) this would yield a total addressable market of 3,250 to 7,500 entrepreneurs. In the interest of taking an even more conservative view (maybe we filter by education or awareness), we can cut that in ½ again and target 1,620 to 3,500 total entrepreneurs in a city of 150,000.
I would imagine that not one city or community has optimized to that number. In most developing or even emerging communities that I work in, I typically see 50-200 engaged entrepreneurs.
Want a meta community goal to shoot for that everyone can get behind? Shoot for identifying and engaging 2% of your adult population to consider entrepreneurship. That is how many entrepreneurs should be in your community.
In 1957, a group of eight Silicon Valley executives lead by Robert Noyce resigned from famed Shockley Semiconductor to start a rival in Fairchild Semiconductor. This sort of thing happens all the time in Silicon Valley today, but at the time, it was a watershed moment that sent reverberations throughout the industry. The Traitorous Eight, as they became known, changed the course of innovation forever by injecting the region with an entrepreneurial ethos that continues to this day, and has made Silicon Valley the envy of the world.
Around the same time, nearly 6,000 miles (~10,000 kilometers) away, a very different type of revolution was taking place in Communist China. In 1958, Communist Party Chairman Mao Zedong launched the Great Leap Forward—a wide-sweeping series of economic and political reforms aimed at transitioning China from an agricultural economy to an industrialized one, and at consolidating power behind the socialist regime.
One of the first initiatives was the Four Pests Campaign, an effort to eradicate insect, rodent, and avian populations that were thought to be threatening the health and well-being of the Chinese people. Birds, in particular the tree sparrow, were the most aggressively targeted because they fed on human grain and fruit supplies. The sparrow, it was feared, would cause starvation of the Chinese people.
And, the campaign was successful—pushing the tree sparrow nearly to extinction in less than two years. The result? The disruption of a delicate ecological system that contributed to the Great Chinese Famine of 1959-1961, killing an estimated 15 to 30 million people. What went wrong?
By eradicating the tree sparrow, the government exacerbated the very problem they were trying to solve.
It turns out that not only did tree sparrows eat grains targeted for human consumption, they also fed on insects that were an even bigger drain on grain supplies. With a key predator out of the way, the insect population swelled and grain supplies collapsed, which is how the eradication of the tree sparrow contributed to widespread famine. The policy was terminated in 1960 when it became clear what a disaster it was.
So, why on earth am I linking the Great Chinese Famine with the essence of Silicon Valley’s entrepreneurial spirit and with startup communities today? Because these are important lessons in the law of unintended consequences, which are common in complex adaptive systems like startup communities.
The Chinese government took a heavy-handed, top-down approach to preserve food supplies and created a much bigger problem by not thinking systemically—unleashing a destructive feedback loop. At the same time, the Traitorous Eight took the seemingly isolated and relatively inconsequential decision of escaping a misguided (and reportedly tyrannical) William Shockley with the aim of creating something better for themselves. And yet, what it helped spark was a new way of doing business in an new technological era. It’s hard to believe their immediate plan was to transform the regional business culture—one that is now emulated globally to promote innovation-driven entrepreneurship. But that’s what happened anyway.
The lesson for startup communities is that you might not know if a proposed course of action will produce famine or feast—this can only be determined through trial and error, an informed intuition, some humility, and a desire to learn from mistakes. This is also why big ticket initiatives or programs should be considered carefully. Take a more measured approach first and see what works and what doesn’t, learn, adapt, and change course as needed. The biggest successes are often not the result of efforts at the level of “species eradication”, but rather, at the level of “let’s try doing something we’re already doing, but better.”
A major tip of the hat to Nicolas Colin, who during a conversation on complex systems and startup communities, alerted me to the Four Pests Campaign, which I had previously been unaware of.
In The Startup Community Way, my upcoming book with Brad Feld, we explain that startup communities must be viewed through the lens of complex adaptive systems. Such systems are characterized as having many elements (people and things), interdependencies (connections between them), feedback loops (actions lead to reactions), and as being in a constant state of evolution (never at rest).
We make the effort to explain the complex systems framework and tie it to startup communities because the nature of these systems requires a very different type of engagement than we are used to in most of our professional and civic lives. Complex systems require different skills (diversity v. expertise), mental processes (synthesis v. analysis), tactical approaches (experimentation v. planning), and goals (right conditions v. right outcome), among other factors we discuss in the book.
One prominent condition in complex adaptive systems that I want to talk about today is Basins of Attraction. In neoclassical economics, it is assumed that the economy (also a complex adaptive system) is moving towards a point of stability—an equilibrium. This is done for reasons of simplifying mathematics, but it also has the impact of making many economic predictions unreliable.
Instead of a single point of stability, Basins of Attraction takes the view that there are many such potential “resting places” and that a complex evolutionary process will determine which of these wins out. Basins of Attraction in complex systems—like startup communities—can be thought of as a sort of center of gravity where things can get stuck. Critically, they can get stuck in “good” or “bad” outcomes.
A critical job of startup communities, then, is to apply maximum pressure over a sustained period of time to “push” the system out of a bad outcome—freeing it from the powerful gravitational forces holding it back and allowing it to move to a better state of being. This means that in order to move a startup community forward, you need to introduce a lot of instability—to “shock” the system out of its slumber.
To visualize this, I’ve produced what I’m calling The J-Curve of Startup Community Transition. I adopted it from the political scientist Ian Bremmer, whose 2007 book The J Curve: A New Way to Understand Why Nations Rise and Fall, plots a similar J-curve relationship between stability and openness for nation-states. Here, I show a relationship between stability and vibrancy or sustainability of startup communities.
The J-Curve of Startup Community Transition demonstrates that communities can become locked-in to a state of low vibrancy, which is hard to break free. This state is a low performing one, and if it persists, the startup community will persist in a zombie-like condition. In order to get to a more vibrant and lasting condition, low performing startup communities will have to go through a transition period where things become less stable—this can be a painful experience, but a necessary one.
What I think of as introducing instability is trying big bold ideas—initiatives that may result in repeated or even spectacular failures, that mix things up, and that push the boundaries of people, forcing them to improve. This transition will be uncomfortable for many, because it directly challenges powerful incumbents, entrenched interests, controlling powerbrokers, and stale yet comfortable ways of thinking and behaving.
Nobody knows which ideas will ultimately be the right ones, but it has to be done. That is why we focus on taking an empathetic, open mind into a process of trial and error—trying many things until you figure out what works and what doesn’t. That is also why we promote a radical embrace of inclusion, because the best ideas often come from unexpected places. Many approaches will fail, but it only takes one or two good ones to fundamentally alter a startup community’s trajectory forever. Find those. Be bold. Mix things up. Get unstuck.
Recently, Brad Feld and I have been working hard on The Startup Community Way, a book on how to harness the complexity in the entrepreneurial age. It’s a follow-up to Brad’s, 2012 classic: Startup Communities. We completed a chapter that documents the growth of startup activity globally over the last decade—from startup deals to investors to startup programs—but recently decided to scrap it from the book. But, we wanted to put those data points to use, so I’ll publish some of them here.
(Note: if you want a comprehensive look at trends of venture deals, see Rise of the Global Startup City: The New Map of Entrepreneurship and Venture Capital, a report I published last September with my friend and colleague Richard Florida. It covers a decade of venture capital deals across more than 300 global metropolitan areas that span 60 countries.)
Here, I’ll document the rise of three types of investor groups: venture capital firms (from Seed through later-stage VC), corporate venture capital groups, and a third group for accelerators and incubators. These groups have been pre-populated by PitchBook, my source in this analysis.
I tabulated the active universe of these three investor groups annually between 2002 and 2018, and broke them down as being headquartered in either the United States or the Rest of the World. Active investors are categorized either as “new” (founded that year) or “existing” (founded prior to that year and made at least one investment in the three years prior).
The first three charts here show the active number of firms by year by investor type, activity status (exiting or new), and the new firm share of total.
For all three groups, we see a remarkable rise in the number of active firms, with the sharpest rises coming from corporate venture capital and the broad accelerator and incubator group. Venture capital firms increased in a straight linear fashion, and they are about 2.5 the number of active firms today as in 2002. Corporate venture firms have seen a rise of a similar magnitude, and accelerators and incubators are now at about a factor of 8 compared with the beginning of the period.
The new firm share of global venture capital firms raised from around 6 or 7 percent in the mid-2000s to 10 or 11 percent in the first part of this decade before collapsing after 2015. Accelerators and incubators increased from around 8 percent to as high as 24 percent before tailing off the last few years, and CVCs meanwhile expanded the most—increasing their new firm share from 3 to 4 percent to as high as 15 percent. The stock of existing firms is so much larger for venture capital that it masks the sizable growth in activity over the period, compared with the others.
The sheer collapse of new firms across all three groups is stunning. I have no doubt that there has been a major pullback in the number of these firms being launched in recent years, however I suspect the numbers will increase some with time—venture founding events frequently come with time lags in venture capital databases. But, it won’t change that much—the substantial and continued rise of new venture capital firms, accelerators and incubators, and CVCs is over, or it is at least on hold.
What’s also interesting to me is the resiliency of firms in the sector once launched. Even in spite of the massive growth of new firms, we see that they still make up a small share overall—and even when the growth of new activity slowed, the overall level of active firms (the “stock”) stays more or less the same. This of course varies across the groups (VC firms are the most resilient, accelerators and incubators are the least), and of course, the overall levels will come down some with time.
Next, let’s look at the distribution of new investor formation by geography—comparing firms headquartered in the U.S. versus those in other countries. The charts below show the number of new firms by firm type, broken down by either geographic group, and the share of new firms that are HQ’d in the US.
The charts tell two stories. First, we see that the Rest of the World launched new venture capital firms and corporate venture groups at a similar and at times faster pace than the United States did for much of the period, that changed dramatically after 2012 (VCs) and 2015 (CVCs) when the U.S. headquartered share spikes. This is interesting because, as documented in Rise of the Global Startup City, most of the growth in venture capital deals came from outside of the U.S. the last half decade.
Second, we see that the opposite occurred for accelerators and incubators, which grew more outside of the U.S. than inside of it since about 2008. Unfortunately for this group, we can’t break it down between accelerators and incubators (these are vastly different things, as I wrote about here and here), but this is an interesting and useful data trend no less.
To close, although not shown here, the rise of new firm activity among venture capital firms and corporate venture arms—though significantly elevated in recent years compared with a decade ago—is nowhere near what it was at the height of the dotcom boom. The new firm share of VC firms was 18 percent in 2000 and 28 percent for CVCs in the same year! Accelerators and incubators are really a thing of the recent past, so the results are different. So, in the context of that broader history, we’re at much more subdued levels of new firm entrants.
I’ve often heard people say “building startup communities (or startup ecosystems) is not about the ingredients, it’s about the recipe.” What they mean is that a focus on the individual people, institutions, and resources will provide only limited insight or success, and that what matters most is how these things all come together. Integration is the right concept, but a recipe is the wrong analogy.
Recipes, like chicken noodle soup or chocolate chip cookies, are simple systems. These recipes require some understanding of techniques and tools, but once learned, they are replicable with a high degree of certainty. The process of creating these “systems” can easily be broken down into constituent parts, such as chopping vegetables or sifting flour, and their integration (mixing) requires little precision.
Recipes become complicated when they involve a twenty-course tasting menu at a restaurant with three Michelin stars. Producing and serving these meals is surely a challenging problem, requiring highly specialized expertise, coordination of many factors, and consistency at scale. But these systems are also ultimately solvable, and when mastered and carried out with care, they can be replicated with relative precision. Restaurants do this repeatedly every night in cities around the world.
Startup communities and startup ecosystems are nothing like this. They are complex systems, meaning they have many “agents” (people and things), interdependencies, and are in a constant state of evolution, which makes fully wrapping your arms around them a challenging task. Most importantly, no one is in control. Such systems cannot be fully understood, predicted, controlled, or replicated; they can at best be guided and influenced. And yet, many strategies used in startup community building today still attempt to impose a complicated systems worldview onto what is an inherently complex system. This is the central problem facing startup community building in practice today and why so many well-intentioned efforts fail.
A better approach for building startup communities is not one steeped in a fixed set of ingredients, a rigid prescription of rules, and where engineered, linear processes are carefully calibrated through tight control. Instead, dealing with complex systems is best done with an informed intuition, trial and error, humility, and a desire to learn. It is more about getting the conditions right than aiming for a specific outcome. This is why you can learn more about startup community building from raising a child than you can by flawlessly executing even a complicated recipe (or system).
To drive this point home, I’m going to pull a passage from Complexity and the Art of Public Policy: Solving Society’s Problems from the Bottom Up, by the economist David Colander and physicist Roland Kupers, which I think captures this idea perfectly. (this quote has been slightly modified to improve readability where text was streamlined):
One approach to parenting is to set out a set of explicit rules for the child—”this is what you are to do; this is what is best for you, and these are the consequences of your not following the rules.” That is the idealized “control approach” to parenting.
There are two problems with this—the first is that most parents are not sure which rules are the correct ones. If they pick the wrong ones, then the child’s welfare won’t be maximized. The second problem is that the child may not follow the rules—do you then give in or not?
The true alternative to top-down control parenting is the parenting equivalent of the complexity approach we are advocating; a laissez-faire activist approach. In a laissez-faire activist approach you have as few direct rigorously specified rules as possible. Instead, you have general guidelines, and you consciously attempt to influence the child’s development so he or she becomes the best human being possible.
Instead of focusing on the rules, the focus of complexity parenting is more on creating voluntary guidelines, and providing a positive role model. (emphasis added).
This is why, in my upcoming book with Brad Feld, The Startup Community Way, we’ll be talking a lot about the behaviors, attitudes, and leadership qualities that promote healthy startup communities, and not about ingredients or recipes. We understand that startup communities require a different set of guidance, tools, and techniques than most of us are used to applying in our professional lives (which occurs because most workplaces are structured in a top-down, hierarchical way).
But the reality is, we all deal with complex systems everyday—from cities to our bodies to any situation that involves interacting with other people. Complexity is all around us. Our hope is that we’ll do our part to help you uncover how to apply what you already know to a different type of problem: that of building a vibrant startup communities in the city where you live. We can’t wait to share our ideas with you.
There are many aspects of life where more is better and as such there are many times we employ strategies to maximize the more. A few examples that many of us live by are:
- Priceless Art
- Time with loved ones
- Goals in ice hockey (ok maybe just me).
In terms of startup community building, there are a plethora of activities that local leaders utilize to create lift. (For clarity, I am using the word “activities” in a very broad sense.) These may include:
- Coffee meetups ~ 1 Million Cups
- Grant Programs
- Pitch Competitions
- Learn to Code Academies
- Networking Socials
- Startup Weekends
- Recruitment Events
- Venture Funds
- Community Blogs
The list literally goes on and on. Developing communities are first challenged to convene the various actors across the ecosystem. This has an immediate positive impact as the tribe begins to organize. Participate in this over a few months and some momentum begins to build.
As a community matures, activities naturally increase as newly motivated leaders step up and attempt to fill various voids. In many mature communities, there may be as many as 2-3 events every week.
I find the number, the diversity and the cadence of these activities to be one of the critical signals as to the maturity of a community.
But beware. There is a trap that evolves in some minds that if the first handful of activities start to build some very visible momentum, then more activities would have an even larger effect. Unfortunately there I a ceiling to the # of activities and the subsequent impact.
In terms of startup community building, the more is better strategy has a very visible limit to its effectiveness. Once a critical mass of organizing activities are achieved (different trigger points for different communities), then the strategy should shift to building more meaningful activities.
Which came first, the chicken or the egg? Great football players make great coaches or great coaches make great football players. I call these circular arguments but they are actually causality dilemma’s and they drive people crazy.
In startup communities I believe the same argument or dilemma exists but with another anchor to the circle. Great companies.
My circular argument goes like this: Great leaders build great companies which build great Communities which build great leaders which build great companies.
For some of you this makes a lot of sense. You are probably the more vision & abstract type of thinker. For those of you who skew to a more precise and factual point-of-view, your head probably just blew up.
“You want answers! I want the truth! You can’t handle the truth.” (Insert Tom Cruise and Jack Nicholson in A Few Good Men or Rudy Giuliani, “truth is not truth”).
Well I have a little surprise for you. While laying out this framework I have tricked you by getting you to eliminate the things that are not necessarily catalysts for a great startup community (space, capital, government programs or even Startup Weekends – all of which can help tremendously).
The one catalyst for a startup community are the entrepreneurs themselves.
I have a pet phrase I use every day, “no entrepreneurs – no entrepreneur community”. They are the center pivot for everything. Without them the rest is just noise. Without them the rest of us are useless. I think it’s funny and sad when I hear community leaders working hard to help spawn, grow and accelerate their startup community and never once spent more than 15 minutes with a local entrepreneur.
Let me repeat – everything starts with the entrepreneur. Serve them. Build your community around them. And when you are conflicted with multiple choices of what to do next, ask yourself this one question – “what action of mine would help the entrepreneur the best”.
Last week, Endeavor Insight (the research arm of Endeavor Global) teamed up with the Bill & Melinda Gates Foundation to publish a new report on fostering productive startup communities. The report was authored by Rhett Morris and Lili Török of Endeavor, and I think it is one of the best pieces of empirical work I’ve ever seen on startup communities.
Why such a strong endorsement? Because it helps fill a pretty big information gap for two of the most important principles for building startup communities—networks over hierarchies and entrepreneurs as leaders. At present, the evidence-base is thin, due to the fact that there are no shortcuts to doing this type of work well (building network maps with vital information about the nodes and relationships among them)—it requires painstaking, on-the-ground data collection, which is expensive to do and requires a lot of time (it took Endeavor 18 months to complete the study). Thankfully, Endeavor has done the work in two cities so that we can all learn from it, and more importantly, use to help persuasively state the case for bottom-up community-building.
The research takes a case study approach, studying in extensive detail the startup community networks in Nairobi and Bangalore. To do this, the authors collected information on the individuals and organizations involved in the startup communities in each of these two cities, and mapped the relationships among them. The main result: Bangalore’s startup community is more productive (more high-growth firms and companies at scale) because the network is denser and because the biggest influencers are themselves entrepreneurs; the opposite is true in Nairobi.
The report begins by setting context on the importance of entrepreneurship, by demonstrating that a relatively small number of high-growth companies create most economic value in jobs. This is true in most countries and cities, and as we can see here from the report, is more the case in Bangalore versus Nairobi.
In other words, most businesses don’t produce much in the way of jobs or output, but a small number create a lot of those things, and they drive economic growth. Displayed differently, the report shows that Bangalore’s high-growth business sector is much more productive than is Nairobi’s.
In other words, Bangalore has been better at producing businesses that achieve very high rates of growth and reach a large scale.
That of course leads to the question of why in one city but not the other? There are a number of factors that could affect this, but central to this study—and two in which I mentioned before are often neglected due to measurement challenges—are networks (relationships) and leadership.
More specifically, Nairobi not only lacks the network density of Bangalore, but it critically lacks the right type of influencers. As the network graphs below make clear, the most influential people in the Bangalore startup community are successful entrepreneurs—those that have guided companies to scale—and non-entrepreneurs are not very influential. In Nairobi, the opposite is true.
Pretty impressive right? I encourage you all to read the report itself—it’s not too long and it’s written very well (succinct yet weighty). The report summarizes the following five findings, followed by a graph explaining the differences between on bottom-up, network-based approaches to startup community building (recommended) versus top-down ones (not recommended).
Finally, the report concludes with some recommendations, which I’ll spell out here.
- Avoid the myths of quantity (ie, quality over quantity any day—something I call the More of Everything Problem)
- Follow local founders who have reached scale
- Listen to leaders of the fastest-growing firms to identify the most critical constraints in the local entrepreneurship community
- Expand existing mechanisms that leaders of companies at scale use to influence upcoming founders
- Invite leaders of companies at scale to positions of influence at existing support organizations
Couldn’t agree with that more. Well done, Rhett, Lili, and your team.