Elements of an Innovation Ecosystem

6th May, 2014 No Comments Blog , NYC , Public Policy

I have been thinking a fair amount lately about what it takes to make a successful start-up ecosystem.  (I am focused, unsurprisingly given my background, on technology communities.)  There are a limited number of thriving start-up ecosystems globally (Silicon Valley/San Francisco, Israel, New York, Boston, Chicago, London, and Berlin among them, together with a handful of cities in South America, India, China and Vietnam).  Some of these, such as New York, Chicago, London and Berlin have come to be recognized as successful engines for company and product creation only in the past few years, though all have had growing company formation activity for much longer.  At the same time, there are numerous efforts underway to create new innovation ecosystems, particularly as elements of urban renewal efforts, in places like Detroit, Las Vegas, Providence, Chattanooga, Brazil and Chile.

Clearly, there is a set of ingredients that makes some of these ecosystems successful while other cities and regions fail to catalyze a local innovation economy.  Many have studied these elements (and a number of those students are at work on some of the aforementioned urban renewal efforts).  As an investor in the New York ecosystem for the better part of the last decade, and an operator and investor in Boston before that, I have developed my own list of the elements which have been important to the growth of the companies and communities with which I have been involved, and which I think are fundamental to a sustainable innovation ecosystem.  I will list and briefly describe each element here, using New York City as an example to illustrate some of the points.

  1. Talent.  First and foremost, the innovation economy comprises people.  Founders with passion and relevant experience, product developers, salespeople, technologists.  All are necessary for the growth of any new technology company.  According to the new NYC Tech Economy Study, New York City has over 290,000 people in technology jobs.  That fact does not mean that hiring a developer is easy, but it does mean that there is a strong foundation of talent for the technology ecosystem.
  2. Customers.  New companies need people or institutions who will use and buy products.  At some level, many companies can reach customers anywhere through the Internet and existing logistics networks.  On another level, though, product development and sales, especially direct sales, are much easier as a local endeavor.  New York is the headquarters for more companies and industries than almost any other global city, at least in the service economy.  It is a capital of finance, fashion, media, and real estate as well as of international institutions of all kinds (e.g. the United Nations).
  3. Capital.  Many new technology companies depend on outside investment to fund product development and, for a time, operations.  A thriving angel and early-stage venture capital community is therefore important to an innovation ecosystem.  Debt and later-stage equity investment is also crucial, but both are generally available to more mature companies from institutions that typically invest with wider geographic dispersion than early-stage investors.  New York has a burgeoning angel and seed fund community, and passed Boston as the #2 venture capital market for information technology investments some years ago.
  4. Academic institutions.   Colleges and universities supply talent (#1) but also provide intellectual capital.  They are, in other words, an important source of new ideas and technologies that are the precursors to new products and innovative companies.  I have been personally involved in Cornell NYC Tech, the new graduate campus in New York City that is a collaboration between Cornell University and the Technion.  New York is home to numerous other excellent academic institutions, including NYU, Columbia, PACE, CUNY, and others.
  5. Heroes.  Entrepreneurs benefit from proximity to examples of start-up success.  We are all aware of global icons like Steve Jobs and Elon Musk.  It is particularly powerful to see heroes arise from one’s own ecosystem; these people are not just icons, but examples that could conceivably be emulated and individuals who might be contacted directly given proximity.  New York is now flush with such leaders, including, but certainly not limited to, Steve and Heidi Messer, Wiley Cerilli, Nat Turner, David Karp, Mike Lazerow, Kevin Ryan, Dwight Merriman, Bre Pettis, and many others.
  6. Guides.  Guides are sometimes called mentors, but the latter is an over-used term these days.  A guide is just that – a source of useful advice and help on the journey to commercializing innovation.  There is some overlap here with heroes, but guides provide regular, one-on-one feedback whereas a new company founder might have limited or no direct interaction with relevant heroes in his or her ecosystem.  Guides can be other entrepreneurs, investors, service providers, professors, partners, customers, or anyone else with relevant experience and contacts.  Here, too, New York City is overflowing with people who are ready and able to help; just witness the mentor lists of incubators like TechStars NY and ERA.
  7. Support services.  Providers of support services include lawyers, recruiters, real estate owners and brokers, local government officials, public relations professionals, branding and design firms, and many others.  They are often not given credit for their importance in an innovation ecosystem – until you have tried starting a company or writing a contract without a good lawyer.  Here, too, New York is chock full of great resources.
  8. Gathering places.  To paraphrase Tony Hsieh, innovation requires collision.  My own thought on this – and I am not the only one who views the world this way – is that every new idea is the novel combination of two or more existing ideas.  Such combinations are much more likely to happen when two or more people with different experiences and a shared context get to talking.  Collisions require gathering places where such conversations can happen:  meetups, coffee shops, bars, conferences, hackathons, etc.  Many such places have developed in New York over time, including numerous bars and restaurants, the NY Tech Meetup and many other meetups, and, of course, many, many conferences.
  9. Comparative advantage(s).  This last one is perhaps harder to define than the others, but is no less important.  Successful ecosystems have unique characteristics based on history, location, skills, local companies, and other resources that make them the best place to start a company with a particular product aimed at a particular market.  New York City is comparatively rich in customers, both in the form of businesses and consumers.  It is also well-located between the major technology and finance centers of Silicon Valley, Europe and Israel.  It is also a melting pot of various cultures.

Each of these elements takes time to mature, and any ecosystem therefore can take years or decades to develop scale.  New York is very much on its way, and I am curious and excited to see it continue to develop.  I am also very interested in the efforts to more purposefully engineer new innovation ecosystems as listed at the outset of this post, and welcome discussion on the topic.

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