The EERN Blog

Engage with leading researchers, policy makers, and practitioners

The importance of an entrepreneurial ecosystem for creating systemic entrepreneurship: Lessons from the Amazon rainforest and Silicon Valley (Part 1)

So what do the Amazon Rainforest and Silicon Valley have to do with each other? On face value, not a great deal. However, when we explore them at a deeper level, together they show us a lot about the importance of environments and ecosystems.

Ecosystems are best known in the ecological sense; yet, in the professional world ecosystems are increasingly recognised as a way of explaining complex and integrated phenomenon. In recent years, the use of the analogy of an ‘ecosystem’ has also wrestled its way into the entrepreneurship vernacular. As more is being understood about the nature of entrepreneurship in the modern world, as well as the sort of environments that support it, the term ‘entrepreneurial-ecosystems’ has become a new buzzword.

Through the work of Daniel Isenberg in his seminal publication ‘Leading an Entrepreneurial Revolution’, the famed work of Babson College and UC Berkeley and their work on the entrepreneurial ecosystem and, increasingly practitioners of entrepreneurship the world over, the analogy has been recognised as relevant for describing entrepreneurial environments.

So why is the ecosystem analogy relevant for entrepreneurship?

If we take the specific analogy of the most intricate ecosystem in the world, the Amazon rainforest, we can see how it relies on a complex array of factors that exist together in a very specific way to enable the rainforest to prosper. Each entity in the system both supports and reinforces the existence of another in a fine and complex balance which can be easily disturbed.

This complexity and fine balance is also true for entrepreneurship, particularly the creation of ‘systemic entrepreneurship’ whereby entrepreneurial behaviour is encouraged and reinforced by those in the system to the point of being self-sustaining.

Let’s think for a moment of a Brazil Nut tree (Bertholletia excelsa) existing in a rainforest ecosystem as an entrepreneur. Brazil Nuts rely on good nutritional earth, water and sun for survival, while entrepreneurs rely on human capital, resources as well as the light of an opportunity. Where Brazil Nuts rely on several animal species to pollinate and germinate for its survival, entrepreneurs rely on markets, advisors and networks for pollination and germination of ideas.

The analogy remains true for the different stages of development of the Brazil Nut, which like an entrepreneur, requires different conditions and support through the different stage of growth.

At the initial conception, a Brail Nut needs an opportunity to gain reliable access to soil, water and crucially light as a seedling as well as some luck against predators. During its development the Brazil Nut needs to keep moving towards the light, while being highly reactive to its environment on its growth path in order to take advantage of gaps in the canopy to access sunlight, all while seeking the resources its needs for its growth to ‘cross the chasm’ into an established entity. During its maturity phase the Brazil Nut more strongly embeds itself in its environment, creating its own space, able to draw upon its own well-established source of nutrients. All the while, the Brazil Nut pollinates and germinates to become more resilient to new threats or predators.

At the initial conception, an entrepreneur needs a market opportunity, the ability to access the required resources such as human capital, technology and finance and some luck against competitors. During their development, the entrepreneur needs to develop their business by interactively testing and improving their concept and be highly responsive to market signals to access a gap in the ‘market’, all while seeking the resources its needs for its growth and to ‘cross the chasm’ into an established entity. During the maturity phase, an entrepreneur embeds the business more strongly in its environment, creating its own space, able to draw upon its own well-established source of resources. All the while, the entrepreneur pollinates and germinates its contacts and networks to become more resilient to new threats or competitors.

What is driving talk about ecosystems in relation to entrepreneurship?

Like changes in climate can have devastating effects on rainforests, changing market opportunities can have devastating effects on entrepreneurs, business and more generally, our communities. For this reason, there is ever great emphasis being placed on entrepreneurship by governments as a means for developing more flexible and resilient citizens and societies in the face of a rapidly changing and increasing globalised world.

However, unlike a virgin rainforest, entrepreneurship doesn’t always just naturally happen, and on these occasions, the system needs support to stimulate it. Whilst isolated cases of entrepreneurship can occur, to reach systemic entrepreneurship enough of the ecosystem needs to be in place. Since politicians and regional practitioners are attempting to stimulate entrepreneurial activity in their region, they need to identify how to build a more supportive environment which increases the likelihood of entrepreneurial success.

Whilst entrepreneurship can be undertaken in both prosperous (opportunity driven) and challenging (necessity driven) settings, the task for those responsible for developing entrepreneurial activity is to go beyond the individual and to enamour the collective. In this sense, the desire is to develop a type of critical mass of activity that then becomes a self-sustaining ecosystem, much like a virgin rainforest functions.

The epitome of an entrepreneurial ecosystem

The case of Silicon Valley is often touted and proclaimed as the ideal model that other regions can hope to emulate. However, it must be remembered that it has taken 70 years for Silicon Valley to develop to its present state. The Valley has some of the world’s leading universities (cultural and intellectual capital), a strong venture capital market (economic capital) as well as some high-profile success stories, businesses such as HP and Apple, which decided to stay in the region and have then attracted others to build an amazing network of individuals and businesses (strategic as well as network capital). This means that although very few (if any) regions could in fact reproduce the success of the valley, lessons can still be learned from this case and are aligned with our analogy of the Amazon rainforest.

Silicon Valley has developed an ideal ecosystem for entrepreneurship whereby the largest companies in the world (the 40-metre-high Ceiba that shadows over the rainforest), interact with ambitious entrepreneurs hungry for success (the ultra-responsive seedlings fighting to get access to the light), driven by highly educated, talented graduates and alumni who cut their teeth within entrepreneurial companies (the pollinating insects provide a very strong source of ‘cultural and intellectual capital’). This is all fuelled by a highly-networked and experienced mentoring and venture capital industry supported by expert incubators and accelerators (this ‘network capital’ helps to stave off predators and provide necessary nutrients for the seedlings).

Through this comparison of the Amazon Rainforest and Silicon Valley ecosystems, four capitals emerge as part of a holistic entrepreneurial ecosystem: (i) cultural and intellectual capital, (ii) strategic capital, (iii) network capital, and (iv) economic capital[1]. The entrepreneurship ecosystem analogy also highlights how interconnected elements can combine to create something much greater than the whole and develop its own self-sustaining (systemic) environment for entrepreneurship.

In the case of Silicon Valley, the substantial contribution of Stanford and Berkeley Universities to research and technology as well as of outstanding human capital has been traditionally overlooked. However, universities are increasingly recognised as key actors of the entrepreneurial ecosystem, whose role includes their contribution in delivering entrepreneurship education and supporting the creation, incubation and acceleration of companies. In some regions, universities are even considered engines of their own regional ecosystems. For this reason, our next blog post will be dedicated to university-driven entrepreneurial ecosystems.


Blog take away: Elements of a systemic entrepreneurial ecosystem

  1. Cultural and intellectual capital, including contributions to knowledge and experience;
  2. Strategic capital, related to improvements in reputation and authority;
  3. Network capital, comprising support from networks and relationships; and
  4. Economic capital, consisting of increases in finances or resources.

 

[1] Van der Sijde, P. C. 2012. Profiting from knowledge circulation: The gains from university-industry interaction. Induustry & Higher Education, 26 (1), 15-19.

 

Leave a Reply