The startup ecosystem consists of a group of people, startups, and related organizations that work as a system to create and scale new startups. Startup ecosystems are formed often in a relatively limited area with a center of gravity like a university or a concentration of technology companies. This ecosystem draws together key actors and stakeholders that gravitate towards growth ventures, including new entrepreneurs, mentors, incubators, sources of talent such as universities and corporations, investors and supporting services like startup-savvy law and accounting agencies.
The startup ecosystem for an entrepreneur
The startup ecosystem supports all individual entrepreneurs. Some startups relocate to new locations simply because the ecosystem there is better. It’s the responsibility of the entrepreneur to be proactive and utilize the benefits of the ecosystem, but if you are proactive you will definitely get support.
The startup ecosystem can, of course, support you with capital from investors and other entities providing funding if you are able to create something that is attractive for them. But we would argue that even more valuable is knowledge and experience the ecosystem entities can provide an entrepreneur. This is especially important for a first time entrepreneur.
The ecosystem also supports failed entrepreneurs. Even though your first try may be a catastrophic failure, it doesn’t mean that you will make the same mistakes again – your next try may succeed, or maybe the one after that. A failed entrepreneur is an experienced entrepreneur. Many startups also prefer hiring entrepreneurs (even if you’ve failed) because in the early stages of a startup all employees should be intrapreneurs.
When more is better
There are many sayings in the startup world and their truthfulness can be questioned. One of these sayings is “nine out of ten startups fail.” While the nine-out-of-ten estimate of how many startups fail might be a little pessimistic, statistically it’s more likely your startup will fail than succeed. But in the startup world, a single startup isn’t the most important unit. The ecosystem is.
If your company fails but you’ve been active in the ecosystem and shared knowledge with others, you’ve taken the ecosystem forwards and you or someone else might succeed in the future. And you shouldn’t avoid sharing your learning with others. By helping others, they will probably support you in the future.
The ecosystem needs a great number of companies to have a chance to produce success. Startups are such high risk businesses that even the smartest and most skillful team might fail. But if there are for example 20 startups with great teams and ideas supporting each other (and even some other ecosystem entities supporting them), it’s already quite likely that some of the startups will grow to be international successes.
This is why the startup ecosystem should be looked at as a whole and not through individual startups and their success or failure.
What makes an ecosystem thrive?
In order to thrive, an ecosystem needs a number of things to happen at the same time. There needs to be ideas and entrepreneurially minded people to pursue them, which often requires some kind of academic backdrop, such as the Stanford and Berkeley universities in the Bay Area, SUTD in Singapore or Aalto University in Helsinki, with all the student-led activities like Slush, Aaltoes, Junction, Wave Ventures and Kiuas. The ecosystem also needs access to talent who want to work in growth ventures. Access to capital is also critical. Ecosystems should also somehow be close to the type of customer the startup serves.
Within an ecosystem, key actors are all close enough to make fast progress possible. Entrepreneurs meet to exchange ideas and interact with universities and other talent pools to attract employees. Support functions like legal firms and accountants learn by interacting with entrepreneurs and startups. Investors learn to understand which types of entrepreneurs, teams and startups are most likely to succeed and, by enabling radical growth, also increase the number of large-scale exits. This in turn pumps new capital and knowledge into the ecosystem from startup entrepreneurs and employees after exit, who are likely to feed both money and knowledge back into the ecosystem, creating a positive feedback loop.
Ecosystem example: the Finnish games industry
The games industry in Finland talks openly about what works and what doesn’t. In traditional industries, this information would be considered a trade secret and guarded with care. In the Finnish games industry, a games entrepreneur can have a chat with the most successful companies in the field and get advice. This is one of the industry’s biggest success factors.
The success of the Finnish games industry can be looked at from a few different angles. In 2016, the global turnover of mobile games was over $40.6 billion, and the Finnish games industry was responsible for $2.9 billion of that (7% of the total). It's safe to say that the Finnish games industry has been an impressive actor in the global market.
Something to acknowledge is that one company is responsible for over 50% of the Finnish gaming market, Supercell. And a few other successful gaming companies like Rovio, Small Giant Games, Remedy and Seriously cover the majority of the rest in the market. Someone could argue that ecosystem doesn’t matter, but only a few companies do. But even if success is shared between only a few companies, without the whole industry and ecosystem, the few probably wouldn’t have succeeded. The success of gaming companies in Finland is largely due to the vibrant and supportive ecosystem that has enabled the creation of these companies.
Insights from an entrepreneur – Virta Health
Sami Inkinen is a serial entrepreneur. He is the co-founder of Trulia, an online real estate listing service which made an initial public offering in 2012 and was acquired a few years later. After that, he founded Virta Health, a company aiming to reverse type 2 diabetes without medication. Sami shares with us why he thinks entrepreneurial people are also better employees for growing companies and why we need more entrepreneurs.
Can you elaborate a bit why you think entrepreneurial people are better employees for a growth company?
“There is a fundamental difference between running something and building something. In a growth company, you’re growing and building so you need to have builders on your team. The skills required of these builders are very similar to the ones you need if you are an entrepreneur. So, in order to build a successful growth company, you need a lot of people who can operate like an entrepreneur. Entrepreneurial people never get stuck – they overcome obstacles like lack of money or resources, and are skilled at finding creative solutions to the most difficult problems.”
What is the Virta Health entrepreneur factory?
“We at Virta Health have the ‘Entrepreneur Factory’ concept. I have watched more and more companies being established by my old employees from Trulia. It has become clear that a company is like a tree that spreads thousands of seeds. The seeds start to grow and become new trees. Given my experiences and learnings, I wanted to cultivate this phenomena even more.
“Why are we doing this? First of all, even though it sounds fluffy, it is important to inspire people and make them realize that anything is possible. Second, I want my employees to learn new things. The third reason is that I believe that this is a retention tool for entrepreneurial-minded employees. Finally, as a CEO and co-founder myself, this is an opportunity for me to connect with people who don’t normally work directly with me on a daily basis.”
How would you advise other scale-ups to create an entrepreneurial atmosphere and how do you do it?
“As a scale-up, you have ways to create an entrepreneurial atmosphere. You can inspire people, tell stories and set an example of what it is like to start this crazy obstacle course of entrepreneurship.
“Another critical thing to do is to reward risk-taking and not punish failures. If you don’t reward risk-taking, no one is going to try to shake things up, take risks or go above and beyond what you asked them to do. Do you promote the person who takes a risk with a wild idea that might add a lot of value, get a big customer, or launch a new product – or do you promote the person who week after week grows something a little bit?”
Why do we need entrepreneurs?
“If you think about the value society produces as a pie, we have to focus on making the pie bigger rather instead of just thinking about how to share the pie. The bigger the pie is, the easier it is to share as well. I see entrepreneurship as the only way to do this: when we have more companies, we have more jobs and more people to pay taxes. I would say that entrepreneurs are the drivers of the economy.”
What is the purpose of a company?
“I think one of the most important things is to define the purpose of the company: this is why we exist. You can’t bullshit it, and it isn’t something that can just be made up. Building a company is a long journey and if you have no idea of your purpose and the company’s greater meaning, it’s very easy to lose interest – even as a founder.
“That’s also one of the reasons I left Trulia. I was excited about the process of hiring people, building a product and making something that people use. But then I realized that I couldn’t spell out our mission. Yes, I founded the company, but I could no longer tell why it existed – I literally ran out of meaning.
“One of my big career realizations was that if I ever end up starting something else, I should define the purpose for myself very concretely. Something that is inspiring and big, but also very practical. At Virta Health, our mission is to reverse type 2 diabetes in 100 million people by 2025.”
How do you take the first step?
“When you know your purpose, you often get the kind of feeling that cannot be analytically calculated. You just have to go make it happen and take the first step. You can study, research and think about it as much as you want, but nothing will happen unless you make it happen. You simply have to try – even if you might fail.
“Often, one of the first steps is quitting your job. At the same time when we were getting Trulia off the ground, I was supposed to start working in consulting after graduating from Stanford, but I felt a calling to work on Trulia. I called the consulting company and told them ‘I’m building something new, so I’m not coming back. Here’s the signing bonus, I have to go.’
“What was the worst thing that could have happened? I run out of money and have to move back to Finland to live with my mom? I went through the worst-case scenario in my head and realized that I had nothing to lose and that this was a once in a lifetime chance. The sooner I do it, the easier it will be.”
Sign up to solve exercises
Your "not-a-business plan"
Throughout the course, we will ask you to fill in simple free text fields about various aspects concerning startups. At the end of the course, we will compile these answers into your “not-a-business plan” (as startups are in continuous motion, we feel that a traditional business plan will just hold you back). However, these questions may help you discover where your very own company could get started up.
