How can your community develop a unique competitive advantage? One answer is to cultivate successful entrepreneurs. Numerous studies have shown that local entrepreneurs create the majority of new jobs and economic growth.
However, founders don’t exist in a vacuum. They need a supportive environment, but it can be hard to figure out which types of support are most important. For example, is working to increase access to finance the most critical need for your city’s entrepreneurs? Or, should leaders work to improve the quality of the local workforce?
Our team at Endeavor Insight recently worked to answer questions like these for the city of Miami. We used a new assessment tool that is based on our research on entrepreneurship in more than 100 cities across the world. (Check out this recent World Economic Forum report for an example of our work.)
The next three sections share our new assessment framework and the most interesting findings from this project. If you are working to build expertise on the needs of entrepreneurs in your own city, these tools and examples can help you to frame the challenges and opportunities in your local community.
THE ENTREPRENEURSHIP ECOSYSTEM ASSESSMENT FRAMEWORK
We started our assessment by examining the local entrepreneurship ecosystem, which is made up of individuals, companies, governments, and other organizations that interact to influence the development of local founders and their firms. This includes local investors, incubators and accelerators, chambers of commerce, government officials, and, of course, the entrepreneurs themselves.
In our research, we have found that successful ecosystems follow a specific cycle of growth, in which successful local entrepreneurs reinvest their financial, intellectual, and social capital into the next generation of entrepreneurs and companies. We used our knowledge of this cycle to create a framework that allows us to evaluate each of its components.
The growth cycle has four steps that each have a number of subcomponents, as shown above.
Step 1: The growth of an ecosystem begins with local entrepreneurs who seek to build scalable companies. This requires that they have the desire to live in the local community and the ambition to build a scalable business.
Step 2: The second step is reached when the companies of local entrepreneurs begin to grow significantly. To do this, entrepreneurs must possess the ability to achieve their vision. Research has shown that this also requires companies to have access to customers, talent, and finance.
Step 3: The third step of the cycle occurs when entrepreneurs who have achieved significant success — taking a company public, selling a firm or reaching significant scale (e.g., $100 million or more in revenue) — choose to stay in the community and remain engaged in the ecosystem. This requires them to have the desire to live in the local area and the ambition to reinvest their time and resources into other entrepreneurs.
Step 4: The cycle culminates when successful entrepreneurs reinvest their financial, intellectual, and social capital into the next generation of local entrepreneurs and companies. The most common ways that successful entrepreneurs reinvest are by acting as mentors, early-stage investors, and role models. Reinvestment can also occur when entrepreneurs and employees from successful companies choose to launch new firms, which are often referred to as spinoffs.
HOW WE USED THE ECOSYSTEM ASSESSMENT FRAMEWORK IN MIAMI
Our team gathered data from more than 100 early-stage and growth-stage companies and conducted interviews and focus groups with local entrepreneurs, investors, policymakers, and other stakeholders. We used this data to create the following assessment of Miami’s ecosystem.
We found that Miami’s entrepreneurship ecosystem has four major strengths. Entrepreneurs report that access to customers is high, support for entrepreneurial firms is growing, and the local quality of life is effective at attracting and retaining successful founders and companies. Evidence supporting each of these assessments is below.
However, Miami’s leaders must address four major weaknesses that slow the growth of local companies and the development of the ecosystem: poor access to early-stage financing, poor access to human capital, low-levels of mentorship among successful entrepreneurs, and a lack of promotion of local entrepreneurial role models.
USING THE ASSESSMENT TO BUILD A PLAN OF ACTION
After completing the assessment, we worked with local stakeholders to identify new initiatives that can address Miami’s challenges. The final report recommended four programs that have been successful in other cities: an early-stage investment education summit, an award that promotes local mentorship, a program to highlight examples of local high-growth companies, and a recruiting program for entrepreneurial firms.
WHAT WE LEARNED ABOUT ASSESSING ECOSYSTEMS
In the course of our work, we have learned several lessons for assessing ecosystems:
First, conducting an assessment of a local ecosystem is not easy. In most cities, there little to no existing information on entrepreneurs’ performance or on the availability of resources like financing or market access. This means that an assessment must gather a great deal of data directly from stakeholders using interviews, surveys, and focus groups.
Broad participation is also critical. Different stakeholders will see the same problems from a variety of perspectives. For example, we learned a great deal about Miami’s challenges in the area of access to finance by speaking to entrepreneurs, local VCs, and local angel investors. Each of these groups shared different pieces of knowledge and experience, which enabled us to gain a deeper understanding of this issue.
Finally, data must lead the way. Even though gathering information is difficult, having tangible data enables different groups of stakeholders to come together and have meaningful conversations about the strengths and weaknesses of the local entrepreneurship community. To do this, we used tools that we’ve developed during research projects with Stanford and the World Economic Forum over the past two years.
We encourage you to use the examples from this assessment in Miami to help you think about the strengths and weaknesses of your own local entrepreneurship ecosystem. Our team will continue to share more of the research studies that were used to develop the ecosystem assessment tool during the next few months. The full report from our work in Miami is embedded below.
Editor’s note: Much of the content in this post is adapted and excerpted from the City Hubs for Entrepreneurship Series Report on Miami that is embedded above. This project was funded through the generous support of Knight Foundation.
Contributed by Rhett Morris.