What is an entrepreneurial ecosystem?
Table of Contents
Definition of Entrepreneurial Ecosystem
The entrepreneurial ecosystem is a set of different individuals who can be potential or existing entrepreneurs, organizations that support entrepreneurship that can be businesses, venture capitalist, business angels and banks, as well as institutions like universities, public sector agencies and the entrepreneurial processes that occur inside the ecosystem such as the business birth rate, the number of high potential growth firms, the serial entrepreneurs and their entrepreneurial ambition (Mason & Brown, 2014).
These entities are formally and informally interconnected creating a performance within the local entrepreneurial environment.
So that a system can function together, the interaction between this subsystems must be done so they can reach their purpose (Mason & Brown, 2014).
Entrepreneurial ecosystems are formed as combination of social, political, economic and cultural elements within a region.
The entrepreneurial ecosystem improvement created by the different elements generates a support to develop and help to grow the startups that are being build up. As well, new entrepreneurs are encouraged to risk and start looking for funding for their projects (Stam & Spigel, 2016).
The Domains of the Entrepreneurship Ecosystem
The following figure shows what Isenberg (2011) described as the domains of the entrepreneurship ecosystem. The six domains of the entrepreneurship ecosystem are policy, finance, culture, supports, human capital and markets.
These domains show that the entrepreneurial ecosystem contains a change from a traditional economic thinking to a newer economic view of people, networks and institutions (Stam & Spigel, 2016).
One characteristic of entrepreneurial ecosystems is the flow of information during the entrepreneurial process. In this “rich information” environment, individuals can have access to the knowledge of the buyers, the new technologies, the operating possibilities, the equipment availability, marketing concepts and therefore find the opportunities of products and services that are needed (Mason & Brown, 2014).
The entrepreneurial ecosystem must have an interconnected relationship and cooperative approach between the different actors that is composed by. In order to be a dynamic ecosystem, people and ideas exchange between themselves in order to create new ventures, merge current businesses and bring up new innovations together (Auerswald, 2015).
The result of the interaction of the different domains of the ecosystem is the entrepreneurial activity. This output is considered as the process in which the individuals turn the opportunities into innovations.
Gradually, the outcome of the new service or product will bring to society new value. The entrepreneurial activity will have form of an innovative and or high growth potential start-up, as well as entrepreneurial employees (Stam & Spigel, 2016).
The government regulatory pillar is different across the regions of the world, and every governmental policy can accelerate or slow down the ability to open and expand new businesses.
Within this domain, it has components such as the ease to start a business, tax incentives, and laws that could be business friendly. As well, physical structure is part of this domain, where the access to basic infrastructure, telecommunication and transport have an impact on businesses (World Economic Forum, 2014).
For businesses, it is beneficial to have financial reserves so that they can maintain their growth as they acquire more resources. The financial resources are a key aspect since it gives the support to hire people, to buy or lease properties and equipment, to invest in marketing and sales, and to keep track on customers.
The financial options that businesses have to start can be from friends and family, angel investors, private equity, venture capital or the access to debt. The greater the availability of financial resources, the faster the scale of businesses (World Economic Forum, 2014).
It has been debated that leading entrepreneurial ecosystems have a strong cultural support for entrepreneurship.
The aspects that are considered within the cultural support are the tolerance of risk and failure of entrepreneurship, the preference for self-employment, the success stories and role models, the research culture, the positive image of entrepreneurship, and the celebration of innovation (World Economic Forum, 2014). All of this actions create the entrepreneurial culture.
There are a variety of individuals, institutions and organizations that ease the business creation and their expansion. Some of this actors could be seen as mentors, advisers, professional services like accounting, human resources and legal, incubators and accelerators as well as entrepreneurial networks (World Economic Forum, 2014).
Human Capital Domain
The human capital domain is represented by the quality and quantity of its workforce. Depending on what are the skills that employees have, it is the type of working environment that it could be generated.
The components of this domain are the management and technical talent, the entrepreneurial company experience, the outsourcing availability and the access to immigrant workforce. The combination of this components can affect the pace in how businesses grow. Also, within the human capital domain it is considered the education and the training.
Where on an entrepreneurial ecosystem it is believed that education can promote the ability to get new knowledge and be able to identify opportunities and challenges inside markets and workplaces. Education of the human capital is composed by the pre-university and university education as well as entrepreneur-specific training.
As well as the relevance that universities take by promoting a culture of respect for entrepreneurship, playing a key role in idea-formation for new companies and being the source of employees for businesses (World Economic Forum, 2014).
The markets domain is the representation of the customers who are willing to pay for the companies’ products and services. Entrepreneurial ecosystems with accessible markets that can be reached are important to help businesses grow within a region.
A key aspect to consider is also the potential of customers. The components that are in the markets domain are the domestic and foreign market, small, medium and large businesses as customers, as well as government purchases.
Isenberg, D., 2011. The Entrepreneurship Ecosystem Strategy as a New Paradigm for Economic Policy: Principles for Cultivating Entrepreneurship. The Babson Entrepreneurship Ecosystem Project.
Mason, P. C. & Brown, D. R., 2014. Entrepreneurial Ecosystems and Growth Oriented Entrepreneurship. OECD LEED Programme and the Dutch Ministry of Economic Affairs.
Stam, E. & Spigel, B., 2016. Entrepreneurial Ecosystems, s.l.: Utrecht School of Economics.