Texas
01 November 2018

What Is an Innovation Ecosystem and How Are They Essential for Startups?

Written by Mike Millard 

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In the United States and around the world, organizations, and institutions like governments, universities, investors, and corporates – to name a few – are looking to develop or be part of innovation ecosystems. There has been a lot of conversation around creating innovation ecosystems, and now the talks are shifting toward how to improve these ecosystems and how to make them more effective and efficient.

What is an innovation ecosystem and why is it important? Why do we need them? And, what role do stakeholders play in developing a sustainable innovation ecosystem?

The Innovation Ecosystem

Merriam Webster defines “ecosystem” as the complex of a community of organisms and its environment functioning as an ecological unit.

An “innovation ecosystem” is the term used to describe the various players, stakeholders, and community members that are critical for innovation.

An innovation ecosystem includes universities, government, corporations, startup accelerators, venture capitalists, private investors, foundations, entrepreneurs, mentors, and the media. Each plays a significant role in creating value in the larger ecosystem by transforming new ideas into reality through access and financial investment. Local, state, and federal entities can and should play a part in developing the ecosystem. Understanding growth, water, electricity, transportation, and affordable housing are critical to growth, and our partners in the public sector know this all too well.

Similar to Merriam Webster’s ecosystem where the organisms support each other so they can function together (and survive), players in innovation ecosystems help each other, too. These collaborations occur in a variety of ways including events, cross-promotion, and sharing of resources. Working together in this capacity demonstrates the power of collaboration and creates a community that supports each other’s goals, missions, visions, and values.

The Importance of the Innovation Ecosystem

Innovation ecosystems create an active flow of information and resources for ideas to transform into reality. Through these ecosystems, we are building a process by which more innovators and entrepreneurs can develop and launch solutions to solve real-world problems, faster.  This process creates expertise in new areas, helps to diversify the economy, and allows businesses to meet their customers where they are. Additionally, an innovation ecosystem provides the means to create economic stability and resource sharing.

These startups are also creating jobs and opportunities. However, we can’t forget that they are also busy building new technologies that apply across industries and audiences. They are speaking with everyone in the ecosystem, identifying their key partners, and turning these in-kind and financial investments into tangible products that impact the way we all live, work, and play.

The value of an innovation ecosystem lies in the access to resources for the startups and the flow of information for the ecosystem’s stakeholders. This information flow creates more investment opportunities for the right institutions to connect with the right ideas for their businesses and portfolios, at the right time, for the right reasons.

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Innovation Ecosystems Focus on Value Creators

The focus of innovation ecosystems is the value creators - the innovators and startups creating jobs and solving problems. The ecosystem puts their energy into learning who the best startups are which provides deep value for corporates and funders leading to a domino effect.

Recently, Austin has seen three investment firms set up office and launch new venture funds. Organizations like Quake Capital, Moonshot Capital, and Mithril Capital Management are setting roots in Austin. I believe they see the value of the ecosystem and know that critical players like MassChallenge Texas, Capital Factory, Capital City Innovation, Founders Institute, Techstars, and Impact Hub, and others will develop quality startups for potential future investment.

In October, Boston recently held a Global Summit gathering ecosystem experts together to discuss all things Innovation. The summit was a joint effort between Bridge to MassChallenge, MIT’s REAP program, and the Boston Consulting Group. The emphasis was on corporate collaboration with regional entrepreneurs, universities and governments to explore and take advantage of their regions strengths and build from there. 

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Word boards from two Global Summit sessions in Boston 2018

Effective and Efficient Innovation Ecosystems Breed Success

It took Boston and Silicon Valley years, if not decades, to build their ecosystems. Building these ecosystems takes time – and that’s why a laser focus on the long-term goal is essential.

We can look to President Kennedy for inspiration through his work in establishing the long-term goal of putting humans on the moon. Kennedy found his long-term vision while creating short-term goals to drive behavior and outcomes. The long-term vision coalesced specific behaviors that fueled short-term goals that mobilized the government toward action in measurable ways. I believe the same principle works for innovation ecosystems.

An ecosystem may want to establish itself as the best place for innovation as defined by the rate of investment or how fast are startups funded by VCs, corporates, and Angels relative to its peers. It may also want to create more transparent communication from startups to investors and create awareness for relevant opportunities and useful information for broader investment pools. Another success indicator may be how many startups and innovations are being funded by out of state venture capitalists (versus in state) and how many stay in the state once funded.

Whatever the KPI, the premise is to establish a clear vision and goal and tie sound metrics to it. Doing so will help ecosystem leaders know whether it is on track and how to course correct along the way to stay aligned with the broader vision. *Note: each ecosystem’s metrics depend on the maturity of the ecosystem. Silicon Valley and Boston will have different metrics than emerging ecosystems.

As an ecosystem, when you transform the practical flow information and accelerate the turning of ideas to reality – through investment and support – it will yield results of increased expertise, increased job growth, increased diversification, and faster rate of an investment over time.  We can see this in Silicon Valley and Boston.

What attributes and make an innovation system better?

  • Transparent communication vehicles from startups to investors including angels, VCs, and corporates.
  • Preparing innovators (both university and novice) to be more skilled in the startup lifecycle and funding process to make investor engagements more productive and meaningful.
  • Assist large corporations in identifying critical technologies for piloting, partnering, acquisition, projects, or investment to help them innovate faster.
  • Help VCs find the best companies for their portfolios to invest in a more timely and efficient manner.
  • Highlight innovation wins from startups and corporations with the more media attention to increase awareness.
  • Create an ecosystem that drives and diversifies the economy allowing companies to go from concept to seed to growth and Series A – all in its backyard.

Getting Started

As with anything, getting started is the hardest part. It takes guts to show up and lead in a way that you believe make the world a better place for all. For those who value innovation and see startups as a path forward toward a better world, here are a few tips to get started:

Audit the existing activity in the current landscape:

Take stock of the action happening in your locale around innovation. Where are the new ideas? Who is leading these ideas? What industries do these new ideas represent? How are new ideas supported? Who are the connectors? Understanding these factors will help you know your place in the current landscape.

Understand interest from the public and private partners:

Local, state, and federal entities can and should play a part in developing the ecosystem. Understanding growth, water, electricity, transportation, and affordable housing are critical to growing in a sustainable manner and partners in the public sector know this all too well. Make it a point to understand these partners, their needs, and goals. Then align the innovation activity to show the partners how they can work in the ecosystem to achieve their goals and change the world.

Look at the what the others are doing:

One of the most amazing features about innovation ecosystems is that they are rarely competitive, they are supportive communities who recognize that there is plenty of pie for everyone. Take time to look around what at innovation ecosystems. What can you learn from their successes and failures to bring to your ecosystem?

When you have all the information, create a plan to bring together key players to talk about what is currently happening, where you want to go and how you are going to get there - together. Most importantly, don’t let the ideas stay ideas – take action and watch new ideas blossom around you. And, of course, if at any time you have questions or need guidance throughout this process, MassChallenge is here to help. 

 

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Mission

MassChallenge strengthens the global innovation ecosystem by accelerating high-potential startups across all industries, from anywhere in the world.