How to build an ecosystem? The entrepreneur comes first.
by Thomas L.
After a couple years in NY, Boston and SF, I went back to my home country, working for a Berlin-based startup called iversity over the summer. Experiencing Berlin was quite a surprising experience – it felt like Germany, but not really. Entrepreneurship has arrived, but I left puzzled, wondering what it takes to create a vibrant startup ecosystem.
We define Entrepreneurship as the pursuit of opportunity beyond the resources currently controlled. So clearly, the emergence of an entrepreneurial ecosystem has to be led by entrepreneurs. While talent, universities, capital and policy feed entrepreneurship, it takes individuals who pursue these opportunities to create entrepreneurial momentum.
Berlin has shown little respect to limiting factors. It has disregarded the lack of venture capital or favorable policy. Bankruptcy law makes it harder for entrepreneurs to reengage in company formation after prior failure. Risk aversion and an attitude towards failure that deemphasizes learning drive most local engineers towards established companies like Siemens or BMW.
Yet, Berlin has created hype around itself as an entrepreneurial city. In his “How to be Silicon Valley” essay Paul Graham states: “Now you could make a great city anywhere, if you could get the right people to move there.” Consciously or not, Berlin has understood that it needs to attract the right people first.
The city has leveraged that talent is increasingly mobile. People travel more, work from anywhere and followers of the startup religion have similar access to entrepreneurship education (from Skillshare to reading the Lean Startup to VC blogs). This creates an even playing field and brings people to where they want to be, rather than where they need to be.
Further, talent seems to aggregate in hubs. When competing with other cities with equally unpromising policies, underdeveloped entrepreneurial ecosystems and greater economic difficulties in other parts of Europe, the coolness of a city should not be underestimated. Creating a startup city closely resembles creating a platform business. It might not be a winner-take-all market, but there is only space for a few players in a given area.
Along with its coolness, few metropolitan cities are cheaper than Berlin, appealing to the cash constraint entrepreneur. However, it is much more than just cheap rents (probably a fifth of what it would be in NY or SF), arty people and good clubs. By now, an infrastructure including co-working spaces and accelerators has emerged and more people are presented with entrepreneurship as an option.
Equally important, the city has entrepreneurs who are in the lead and care about making Berlin THE destination in Europe. Usually, it was some app that created a lot of buzz at SXSW. This year, it was a city. Austin had a German Haus, Berlin parties and multiple panels at which Berlin entrepreneurs (none of whom are from Berlin, most not even German) encourage to migrate to Berlin and ensure that “no one speaks German anyway”.
Still missing are positive network effects and more exits. Entrepreneurship flourishes when successful entrepreneurs reinvest in other entrepreneurs in their local community. The model of risk capital as pioneered by Doriot, Rock, et al. in the US may not be fully developed. However, capital is inherently liquid and will follow entrepreneurial opportunity. And even the policy side has taken notice: Last week Angela Merkel visited a few startups and engaged with the local community.
For now it’s just the hype – and that’s okay. Berlin’s environment is still far from perfect, but people are curious about the city. The city has created virality and does a good job in customer (i.e. “entrepreneurship”) acquisition. Now it needs to reduce its churn and convert these people into entrepreneurs that pursue opportunities beyond what the city can currently offer.
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