According to “Startup Ecosystem Rankings Report 2019” Bangladesh was ranked at 87th out of 100 countries – an ascension from a previous rank of 104th in 2017. With inefficient public institutions and very weak credit and funding avenues and myriads of challenges, the startup explosion in Bangladesh is an interesting phenomenon to observe. At any rate, Dhaka is still leagues behind the top 20 Startup Ecosystems in the world and the indispensable elements that form and sustain these ecosystems needs to be spelled out. The role of entrepreneurs and their startups have a significant impact on determining the competitiveness of a country- competitiveness ensures that the seeds of startup bloom and successful startups keep the engine of the competitive economy warm. How? Through the creation of startup ecosystems.
Brad Feld, in his book Startup Communities: Building an Entrepreneurial Ecosystem in Your City, mentioned the PhD works of AnnaLee Saxenian, who noted that even though Silicon Valley and Boston’s Route 128 were both hotbeds of tech startups back in 1980s, only Silicon Valley came out on the top. Saxenian argued that external economies alone were not sufficient to explain startup success, she proposed that it was the culture of openness and information exchange that lead to the creation of Silicon Valley as we see today (ranked number 1 in The Global Startup Ecosystem Report 2015). This network model allows early startups to be shielded from external shocks and challenges to a great extent and more importantly helps them foster. Although every country will have its own unique startup community success story, there are some common threads that link these success stories.
The eventual success of a Startup ecosystem and how it can be achieved in Dhaka, is a question that cannot be answered in a single write-up albeit the profundity of such a research outcome can be immensely beneficial. As for now we look into what makes a startup ecosystem essentially an ecosystem.
Incubators and Accelerators offer a very unique way to grow new startups, but they do differ in essence. Conner Forrest encapsulates the key difference by pointing out that Incubators ‘incubate’ disruptive ideas in the hopes of creating a business model and a company and so focus on innovation or newness, while Accelerators ‘accelerate’ growth of an existing company and focus on scaling the business. Accelerators are the “hackers”, who compress the entire training, planning and commercialization period for aspiring entrepreneurs to a startling three to four months and provide them with mentors and guidance in return for a small portion of equity. Incubators, on the other hand, can either be independently run or can also be sponsored by VC firms and even governments. They do not necessarily have an application process and often provide the sharing of space for the companies called a co-working space. Despite the mainstream belief that Incubators, Co-working and Accelerators are what a Startup Ecosystem is all about, Professor Daniel Isenberg in his Harvard Business Review article vehemently argues the otherwise. He points out that there are no such empirical study to confirm and says they are not only of little importance but some startups and entrepreneurs find them distracting or even detrimental to their success. Nevertheless, Support Organizations and mentorship continue to be a noticeable element in most Startup Ecosystems.
Elder and more successful siblings AKA Large companies
In a survey by the World Economic Forum, it showed that Large Companies do play an important role in the development of Startup Ecosystems. The key contributions of large companies are mainly that they provide early access as customers and licensors of technologies. Also they can become strategic investors- their decisions have important consequences for the cash needs of early-stage companies, and they act as mentors and provide learning that can help identify new aspects of the business model and explore untapped opportunities. Perhaps the most important role they play is offering Go-to-market partners – distributors and resellers, access to outlets, logistics. Fled also brings up the example of how Google gives free space in its Boulder Startup Community. In Telenor’s Bangladesh unit GrameenPhone is also providing a similar platform called GP Accelerator aimed towards creating a profitable rapport with Startup enthusiasts. However, the World Economic Forum added the dark sides of Large Company affiliations along with the perks, namely- regulatory value capture, imposition of implicit transaction and litigation costs and may even have the potential to hinder the progress of early-stage companies. Regardless of potential problems, in reality however, as Daniel Isenberg puts out “Entrepreneurs and entrepreneurship definitely do not occur in a business vacuum.”
Universities are one big catalyst
Although Isenberg believes that entrepreneurial education had very little to initiate the Startup revolution in the hearts of cities with top ecosystems, he does concur with the claim that university professors have a role to play in the building of Startup Ecosystem. In fact, Professors themselves may also be entrepreneurs. Fled, too, somewhat agrees with the idea that the role of Universities are not to be inflated, but he goes on to stress that they are a crucial “feeder” to the system. The universities, according to him, provide five important resources: students, professors, research labs, entrepreneurship program and technology transfer offices. Universities also play the role of fostering a culture of respect for entrepreneurship.
Service Providers deal with the mess you can’t
Consultants need to do the tedious job of giving meaning to the Startups effort. They understand the needs of entrepreneurial businesses and can assist young firms in avoiding stumbling blocks and perform non-core activities that are outsourced. For very early-stage startups, they may provide free services. They realize the importance of creating a pool of successful startups, who would eventually become their clients when they grow big and plan for new and expansionist projects. Consultants work very closely with a thriving startup community so that the new data generated from such vibrant interactions can be used to create meaningful information that would help both the consultant and the startup ecosystem in the future.
No fund, no game
The far cry that “we have no capital down here” is ironically heard everywhere in the world. This goes to show it’s a common problem, and nascent startup communities everywhere and throughout history have encountered the age old question- “Where’s my fund?” While it is true that fund and capital are indispensable to the formation of startups, there is nothing inherently wrong about funds not flowing from tap like water. The presence of alternative sources funds in the form of Venture Capital, Private Equity, Angel investors and Crowdfunding, however, are signs of a budding ecosystem. For instance the Global Startup Ecosystem Ranking uses the amount of VC investments and the average time taken to raise a round as the sole measure of the Fund index. The network among early stage startups with later stage startups and the rapport among them lead to a vibrant community of alternative fund investors as well. Networks strengthen trust and the investment scene is built on trust.
Entrepreneurs: The tragic hero in the edge
It’s absurd to imagine a startup society without the presence of entrepreneurs, which is not to say that pre–existing entrepreneurs are mandatory for the birth of an ecosystem. Brad Fled identifies the Entrepreneur as the “leader” of the ecosystem and everything else as the “feeders”. In an interview with MIT Technology Review argued that it’s all up to the entrepreneurs to lead the ecosystem story using a very bottom-up approach. Also, the World Economic Forum advocates for a culture of respect towards entrepreneurial spirit as an imperative for Startup Ecosystem. Even failed entrepreneurs are a big asset to the ecosystem since they can go and join as a valuable and experienced human capital for another new startup. It is important to understand that an ecosystem is not comprised of successful entrepreneurs only.
Something to consider for the future….
The idea of common threads stem from Compass’ (formerly known as Startup Genome) reports which identify five indexes of measuring the effectiveness of Startup Ecosystem:
- Performance index (30%) measures the total performance and performance potential of startups in a given startup ecosystem, taking into account variables such as revenue, job growth, and potential growth of companies in the startup ecosystem
- Funding index (25%) measures how active and how comprehensive the risk capital is in a startup ecosystem
- Market Reach index (20%), measures access to customers allowing the startup to scale rapidly, based on its local and cultural markets, and its ability to scale globally to markets with different languages and needs
- Talent index (15%) measures how talented the founders in a given startup ecosystem are, taking into account age, education, startup experience, industry domain expertise, ability to mitigate risk and previous startup success rate.
- Startup Experience index (10%) is the degree of startup experience in an ecosystem and the degree to which its startups espouse practices that are known to positively impact a startup’s success factors based on The Startup Genome Report series.
In addition to understanding the components listed above, it is also noteworthy to bust the myths surrounding ecosystems like “banks are of no help to the ecosystem”, “family is a hindrance to startup culture” and “everything in the world is unfair to you”.
Most startups have a difficult time trying to make things work. According to Forbes, 90% of startups fail. Developing startup ecosystems takes huge amounts of time, effort, and resources, and is not something that happens overnight. It is a continual effort from entrepreneurs, governments, and corporations working together to develop a startup ecosystem.
Most countries have taken measures to ensure the growth of startups locally by providing them with a good foundation. Laying a strong support system that provides financial backing and industry connections to startups can help them improve their success rates. Hence, it is critical that there are strategies in place to ensure the growth of startups locally.
An ecosystem is necessarily a self-sustaining dynamic system of interconnected and interdependent components just like the ecosystem of living organisms ubiquitous in nature. What is important, however, is the access to markets and technologies and the ontology of the interconnectedness. The ecosystem itself becomes an entity and whole of its parts working together becomes greater than its sum. A rough analogy can be drawn by pointing out how a zoo of well positioned animals put in cages fails to amaze us like a safari park does without placing animals in any specific order or confinement.