How to Build a Thriving Startup Ecosystem

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“I didn’t come here to tell you how this is going to end. I came here to tell you how it’s going to begin. I’m going to hang up this phone, and then I’m going to show these people what you don’t want them to see. I’m going to show them a world without you. A world without rules and controls, without borders or boundaries; a world where anything is possible.” – Neo, Matrix

We believe for the first time in history, in our current generation, we have the opportunity to unleash the human potential of nearly everyone on the planet.

The democratization of information catalyzed by the first two decades of the Internet will only continue to accelerate as mobile devices become cheaper access points to the World Wide Web and aggressive projects like Project Loon (Google) and Titan Aerospace (Facebook + Internet.org) ramp up global Internet connectivity. More people than ever will have the information to be able to pursue their ideas and build them into useful products and services for their community and the world.

Information itself is necessary but not sufficient to enable people to build companies and organizations. That’s why many major cities are trying to brand themselves as “Silicon Something” to encourage people to bring valuable products and services to life.

We don’t believe in “Get Silicon Valley Quick” schemes. Silicon Valley, like Rome, wasn’t built in a day. While there are a number of building blocks, the ultimate “secret sauce” that makes Silicon Valley work is its culture. Over many decades, Silicon Valley has cultivated a culture of intense optimism, openness and trust. A culture that has been shaped by millions of events and people who have paved this path for upcoming entrepreneurs.

In order to create a vibrant startup ecosystem with the culture that can give birth to many high-growth innovative companies, a number of foundations must be in place. Using a framework borrowed from Maslow’s Hierarchy of Needs, we outlined a five level pyramid called the Startup Ecosystem’s Pyramid of Needs.

This pyramid is our thesis and we look forward to having discussions around this framework. Our pyramid is a guide that we think makes sense in many cases, but each ecosystem has to experiment around this and see if the framework can be improved upon. We’d love to hear suggestions and stories of how ecosystems are developing in line with this framework or outside of this framework.

Startup Ecosystem’s Pyramid of Needs

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Level 1: Stability – having stability is a basic requirement for a city (or country) to flourish and is a particular focus for emerging economies. This includes rule of law, enforcement of laws, basic infrastructure to enable exchanges and commerce, and a basic health system. If these requirements are not met, people will worry more about safety and social stability than channeling energy to developing higher levels of needs. While entrepreneurship is certainly possible under a wide range of conditions, we are trying to construct a foundation that is strong enough to support the high growth companies that we typically label startups (as opposed to a small business or sole proprietorship).

Level 2: Rights – once the needs of stability are met, the next building block include rights and civilian participation. People should have the right to own their physical and intellectual property. Governments and corporations must have enough accountability and transparency for citizens to want to actively participate. More equitable participation by a city’s citizenry allows more voices to be heard and ideas to be exchanged.

Level 3: Incentives – as we move higher up in needs, people need incentives to take the types of risks inherent in startups, both in terms of financial and social rewards. A well-structured capitalist system should allow the expected benefits to outweigh the short term challenges faced by all startups. Companies need to operating in a fair playing ground where startups are allowed to reap the financial reward of their innovation.

Level 4: Opportunity – with the appropriate protections and incentives in place, founders need to have the right opportunities. Open access to information via the Internet and a robust educational system are needed. Also, having well-functioning capital markets is vital for entrepreneurs to get started. These capital markets can range from having micro-lending institutions to angel investors to institutional investors and public investors. We noticed from our travels that many ecosystems are good at giving birth to startups but lack the larger investors to help them grow which is why a full capacity capital markets is an important and high building block of the pyramid.

Level 5: Culture – ultimately, the highest level in a startup ecosystem is culture. After all of the other prior needs are built up to a satisfactory level, people will begin to naturally pursue opportunities and seek entrepreneurial activities. Over time, examples of even a small number of successes can catalyze many more people to jump in. Even in Silicon Valley, where there are only a handful of big companies created each year, people look at those winners as reasons to take a shot themselves. As startup activity bubbles up, the community becomes more connected, ideas meet and mate and then run off in new directions. Some of those ideas become reality. Building a small critical mass of the startup culture will help attract the right people to join, slowly expand, and even edge out the wrong people. Startup districts can form within cities and make a meaningful impact on culture.

While it is the entrepreneurs who nurture the highest need of a startup ecosystem, culture, corporations and governments are actually quite vital in building out many levels on the Pyramid of Needs. In fact, they are the strongest force in shaping the stability, rights, incentives and opportunity for a city or country.

It will take a lot of work from multiple stakeholders to both create and sustain a thriving startup ecosystem. Let’s move forward together and nurture a world where more people can build their dreams.

Ympact – Startups in Action