UNDERSTAND | April 7, 2016

GERN Members Connect the Dots: Best Practices to Map and Measure Ecosystems

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The Global Entrepreneurship Congress in Medellin, Colombia, attracted overflowing audiences during two days of discussions that involved the world’s leading policymakers, researchers, and practitioners. For everyone, an essential question was how to go about inputting support – be it capital, mentorship, peer support, market research, professional advice, etc. – so that it results in new, growing and successful startups. A first step in the process is to shine a light on the ecosystem and map out who the actors are, what they are doing, and the connections among them.

Around the world, a plethora of mapping efforts are underway to do just this, by a wide variety of organizations, for a wide variety of purposes.  A GERN-organized session, moderated by Rhett Morris of Endeavor Insight, focused on the various frameworks its members are using.

“The world is operating at about half its entrepreneurial potential,” began Zoltan Acs, who leads the Global Entrepreneurship Development Institute (GEDI), a research organization that examines the links between entrepreneurship and economic development, and measures national ecosystems in more than 130 countries.

He is able to make this estimate because he built a highly respected global index that measures entrepreneurship in more than 130 countries.  The framework incorporates individual and institutional variables collected from a variety of data sources, captures the dynamic nature of entrepreneurial activity, and through a unique algorithm, identifies ecosystem bottlenecks.

His presentation focused on walking through the data, analysis, and results of three countries: Canada, Colombia, and Singapore.  More can be found at thegedi.org.

“Entrepreneurship is highly complex and has many moving parts,” said Arnobio Morelix, a senior analyst at the Kauffman Foundation who leads the effort to analyze entrepreneurial trends in the United States at the state level, and in the forty largest metropolitan areas.  “While obvious, it’s worth repeating that starting a business, running a new small business, and growing a business each present different challenges and involve different processes.”

The framework he employs to bring together the latest data available is designed to capture the dynamic evolution that occurs in the three distinct phases: startup (new business creation), small business operations (what Kauffman terms “Main Street”) and scaling up (growing and high-growth companies).

"We measure startup activity by examining the rate of new entrepreneurs, the percentage of those who are motivated by opportunity (as opposed to necessity), and the density of startups (new firms by population)," Morelix told the audience. “At the Main Street stage, we examine the rate of business ownership, small business density and firm survival rates.”  To capture how many firms are scaling up, “we examine startup growth rates, the share of scale ups, and the high-growth density.

The Kauffman Index of Entrepreneurship series compiles these measures as a tool for national, state and local policymakers.  The 2015 Main Street index that Morelix developed revealed a reversal in a six-year downward trend in small business activity, which is only now back to pre-2008 financial crisis levels.

Rhett Morris returned to the podium to describe the methodology Endeavor Insight developed for comprehensively mapping the connections among ecosystem actors.  The method captures the connections among entrepreneurs, mentors, investors, former colleagues by combining data from AngelList, CrunchBase, and LinkedIn, with interviews of local entrepreneurs.  Applied to Medellín, it visually shows the significant role that a few successful firms have on new firm formation and the development of the ecosystem.  The database is designed to be queried along multiple analytical dimensions, so that researchers and practitioners can gain greater insight into how dense networks of entrepreneurs and those who support them can better be fostered.

In Toronto, Malavika Kumaran, of MaRS Data Catalyst, are implementing the methodology to map the key players and firms driving innovation and entrepreneurship in Ontario, Canada.  The recently designed project will include qualitative variables, to ascertain how connections are made, and which drive successful outcomes.  The goal is to understand what kind of support entrepreneurs need most and at which stage in their firms’ development so as to better predict when connections should be purposefully facilitated.

Victor Mulas, of the World Bank, has conducted an extensive review of the various tools used to map and measure ecosystems.  His presentation focused on key lessons:

  1. Support programs can kick-start ecosystem development and ameliorate the effects of low entrepreneurial density
  2. Support program are not enough, sustainability requires the development of sustainable institutions and infrastructure
  3. An increasing number of funders per startup, which reduces risk and validates market opportunity, signals ecosystem maturation
  4. Locally grown mentors and “smart” investment is critical for sustainability

Based on these lessons, he recommends that to build and sustain ecosystems, efforts be directed toward developing communities of entrepreneurs through networking events, competitions, and meetups, attracting and developing specialized talent, and changing perceptions by raising awareness about benefits of entrepreneurship and celebrating entrepreneurs.

As governments around the world search for ways to increase job creation and economic growth, the cutting-edge research these world-leading experts are conducting offer policymakers across the globe proven methods for assessing the vibrancy of their local ecosystems, and frameworks within which to identify needs and allocate resources to propel entrepreneurs.

Peter focuses on building the Global Entrepreneurship Network's capacity to impact entrepreneurship ecosystems around the world. For the Global… About the author