SEGRA Challenge: Startups and Regional Ecosystems2016.segra.com.au › perch › resources ›...

Faculty of Business, Justice and Behavioural Sciences

SEGRA Challenge:

Startups and Regional Ecosystems

Prof Mark Morrison*, Prof Morgan Miles# and Dr Larissa

Bamberry*

* Faculty of Business, Justice and Behavioural Sciences,

Charles Sturt University

# Dept of Management, Marketing and Entrepreneurship,

University of Canterbury


Challenge background

Literature Review of the Elements of

Entrepreneurship Ecosystems in Regional Areas and

how to develop them

Three surveys:

Survey of Incubators, Accelerators and Business Support

Groups in Regional Australia – completed for NSW

Survey of Entrepreneurship Ecosystems in Regional

Australia – seeking funding

Survey of SEGRA Challenge Sites (Cairns and Atherton

Tablelands) – partially completed for Cairns


The Regional Context

Perceived that Australia’s regional areas face a

number of challenges to innovation (Perrem

2012):

Too small and geographically dispersed to achieve

critical mass

Government reducing R&D funding in major regional

industries

Lack of human capital


The Regional Context

However there are reasons to be optimistic:

• Larger regional firms perform as well as urban firms on

marketing and organisational innovation (Perrem 2012)

• Larger inner regional centres which have universities have

higher capacity to absorb and leverage innovation due to higher

levels of human capital

• RDCs based in regional Australia have the capacity to help

develop university-RDC-private sector research that can help

create and commercialise innovations

• Many areas of entrepreneurial opportunity – agriculture and

food security, mining and the resources sector, tourism and

others


What is an Entrepreneurial

Ecosystem?

“A set of interdependent actors and factors

coordinated in such a way that they enable

productive entrepreneurship” (Stam, 2015:

5)


Key elements, outputs and

outcomes of the entrepreneurial

ecosystem (Stam 2015)


Limitations of Stam’s Model

Excludes enterprising individuals that are

critical for entrepreneurship to occur

Excludes natural capital endowments which

are often critical framework condition for

regional communities


Augemented Model of Regional

Entrepreneurial Ecosystems

FRAMEWORK

• NATURAL CAPITAL

• Institutions

• Culture

• Infrastructure

• Demand

SYSTEMATIC

• ENTERPRISING INDIVIDUALS

• Networks

• Leadership

• Finance

• Talent

• Knowledge

• Support services/Intermediaries

Elements

ECONOMIC GARDENING

• Next-Stage-Growth Programs

• RDCs and University tech transfer

• Entrepreneurial and Management Capabilities Development programs

INCUBATORS

STARTUP SUPPORT

• Capital Gains Tax policy relief

Activities

Viable Businesses that leverage Regional Comparative and Competitive Advantages

• Growth in profitability

• Growth in number and quality of jobs

• Better quality of life

Regional Economic Development


Framework Conditions


1. Natural Capital

Includes: Sub-soil capital (energy, minerals, water)

Soil – and above soil capital (arable land, forests,

rivers, lakes, sea coasts)

Natural and heritage areas

Geographic proximity

A large proportion of regional activity is based on

leveraging natural capital

But, it is not the only factor influencing regional

economic activity


2. Formal Institutions

Government

• market structures, property rights, infrastructure and

information provision

• directly support of ecosystems (strategic partnerships

with industry, research institutions, funding academic

programs and other initiatives eg R&D incentives)

Universities

• Stimulating and facilitating entrepreneurship

• Creating entrepreneurial capabilities

Others: RDAs, RDCs, Peak Bodies


3. Cultural Capital

• Entrepreneurship is positively linked to culture that

supports individual initiative and positive risk taking

(Woodside et al. 2016)

• Social legitimacy of entrepreneurship is positively linked

to entrepreneurial intentions (Kiber, et al 2014)


4. Infrastructure

• Positively associated with startup activity, but is specific

to the type of infrastructure and industry context

(Audretsch et al. 2015)

• Road / Transport / Ports / Water traditional infrastructure

required for an industrial economy

• Universities / Telecommunications / NBN critical

infrastructure for the digital/tech economy


5. Demand

• Includes access to markets, major customers

and value chain partners

• Regional ecosystems often challenged with this

element, which reduces opportunities and

increases costs


Systematic Conditions


Enterprising Individuals

• Entrepreneurship is the nexus of enterprising individuals

and attractive opportunities (Shane and Venkataraman

2000)

• Innovation ecosystems rely on a supply of people who are

willing to pro-actively accept and attempt to manage risks

while employing innovations to exploit market inefficiencies

or exploit new technologies to disrupt markets

• These individuals are not uniformly distributed


2. Networks

• Leveraging networks requires both political and social capitals

Political capital to provide access to power, organisations and

connections to resources (Emery and Flora 2006)

Social capital includes trust , norms and networks that facilitate

coordinated actions (Putnam et al. 1993).

• Collaborative relationships are critical for the development of

entrepreneurial ecosystems, which are facilitated by social

capital

• For SMEs this includes the ability to link with larger firms


3. Leadership

• Effective regional leadership is an enabling factor to develop

social networks, inter-organisational cooperation, financial

and political support, entrepreneurial culture, support

programs (Kasouf and Miles 2016, Markeley et al. 2015)

• Need a visible set of entrepreneurial leaders who provide

direction and are role models for the ecosystem (Stam 2015)

• In urban contexts are typically a strong group of

entrepreneurs (Feld 2012) but in regional contexts fewer

larger organisations, entrepreneurs, angels and other

stakeholders


3. Leadership

• In regional areas greater need for government agencies,

universities, research institutions to take a leadership role

While some suggests that ecosystem development should

largely be driven by entrepreneurs, evident that successful hubs

in both urban and regional areas have substantial government

investment (Lerner 2010, Mason and Brown 2014)

Evidence that regional entrepreneurial ecosystem development

programs that have substantial government and university

leadership can be very effective eg Markley et al.’s (2015)

“Entrepreneurial Communities Framework” which was applied in

Kansas


4. Finance

• Perception in regional Australian that access to short

term and intermediate term debt and equity is

constraining entrepreneurship (Adhikari et al. 2016)

• Also lack of access to informal equity and venture capital

funds (Harrison et al. 2010)


5. Talent/Human Capital

• Includes capacities, qualities, knowledge and skills, and has

been repeatedly associated with entrepreneurial success

(Unger et al. 2011)

• Works on the basis of clustering of human capital in a region,

which may be a challenge for regional Australia given the

small population base and geographic dispersion

• Opportunity for regional universities to build entrepreneurial,

managerial and technical (STEM) talent

Growing interest in entrepreneurship study in Australian universities

(Mazzarol 2014) but Australian universities generally do not see

producing entrepreneurs as a major part of their role (Spike Innovation

2015)


6. Knowledge

• Universities are the foundation of an ecosystem’s knowledge

infrastructure and are central to regional development,

particularly in declining regions where they can help build up

industrial clusters

• However, not all areas in regional Australia have access to

universities and not all universities are effective in this role

• Brown (2016) noted the problems with Scottish universities

supporting innovation policy and SME development

• Need for greater engagement of Australian universities with

entrepreneurship programs that work closely with industry (Mazzarol

2014)

• Need for more applied research in areas relevant to regional

advantage (Prime Minister’s Manufacturing Taskforce Report 2012)


7. Support services / Intermediaries

Lot of interest in Australia and internationally in incubation

and accelerators:

• Incubators provide working spaces and often advisory and

support services for new and existing but relatively young

businesses

• Tech accelerators involve intensive and short 3-6 month

programs which are supported by seed capital in return for equity

if funded when the program ends. In return they received access

to technology, mentoring, knowledge and networks.

Lots of problems with incubators and tech accelerators

which makes relying on them solely for regional

development problematic


Problems with incubators and tech

accelerators

• Lack of evidence that incubators enhance survival, innovativeness or

growth of firms (Tamasy, 2007)

• High rates of business failure in accelerators (Hathaway, 2016)

• Successful ventures moving offshore to where the market and scale up

financing is located (Mazzarol, 2016)

• Tech businesses do not generate large amounts of employment (Mason

and Brown, 2014)

• Established firms most capable of transformational growth, not start ups

(Brown and Mason, 2015)

• Not suited to supporting the development of existing businesses due to 3-

6 month time commitment away from the existing business.


An alternative for regional areas

Economic gardening, which involves development

and support for existing businesses, is an

alternative.

Particularly where focused on existing managed or

high-growth businesses that are seeking growth

and increased profitability

• Next Stage Growth (NSG) Programs


Venture by Motive and Objective

(Morris et al., 2015, 2016)

•Opportunity driven/ income replacement

•Necessity driven/ income replacement

•Opportunity driven/ wealth creating

•Necessity driven/ wealth creating

Managed Growth

High Growth

LifestyleSurvival


Next Stage Growth Programs

Focus on developing managed and high growth firms because of

the greater economic return

Focus on developing innovation but in new and traditional

sectors

Focus on developing technical, managerial and entrepreneurial

capabilities, including:

Opportunity Recognition/Assessment/Exploitation, Innovation and Creativity,

Entrepreneurial Marketing and Selling – Value creation, Networking, Lean

Operations, TQM

Regional Australian example is the EntruBiz program in

Victoria (Markley et al. 2015)


Distinctions between Tech-Startup and Job Growth-Oriented Regional Entrepreneurship Policy

CHARACTERISTIC TECH STARTUP FOCUSED

POLICY

JOB-GROWTH ORIENTED POLICY

Focal businesses Tech start ups Managed and high growth ventures in all industries

Policy intervention strategy Transactional forms for

support of accelerators and

a startup ecosystem

with capital gains tax relief,

public subsidies of

accelerators, etc.

Economic Gardening - Next Stage Growth programs,

Incubators and Infrastructure with enhanced public

investment in regional roads and transport assets,

universities, Rural R&D corporations, NBN, and tele-

communications. Tax and regulatory relief.

Plus support other efforts to develop regional

ecosystems (eg leadership, human capital,

knowledge, networks, cultural capital, access to

finance).

Objective of policy makers To create a vibrant

innovation and

entrepreneurship

ecosystem

To support new and existing business that have the

ability to: (1) create jobs, (2) generate income and

(3) contribute to the region’s economic development

by integrating into other regional firms’ value chains

Objective of entrepreneur Wealth creation for

founding equity holders at

liquidity event

To be an economically sustainable business that

creates jobs and income for owners, their families

and employees through normal business operations

Potential sustainable

economic impact on

regions

Low – with viable Startups

leaving regions and moving

to major urban centres

Medium – High - with viable firms growing in the

region and contributing to regional development


Evaluating the Cairns Ecosystem

Pre and post evaluation of the ecosystem

after the start of the theSPACE program

Involves supporting the Ecosystem plus

incubation and support for existing businesses

Seven expert interviews (local government,

state government, major corporate,

university)


Framework Conditions -

Cairns


Natural Capital


Formal Institutions


Adequacy of Infrastructure


Cultural Capital


Systematic Conditions -

Cairns


Networks


Leadership


University involvement in ecosystem


Support from Large Businesses for

the Ecosystem


Talent/Human Capital


Access to Finance


Availability of Support Groups

(agreement that there is availability)

Post

Pre01234567

Post

Pre


Overall rating of ecosystem

SEGRA Challenge: Startups and Regional Ecosystems2016.segra.com.au › perch › resources ›...

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