The role of growth ecosystems in entrepreneurship

The Google HQ

In this post I want to discuss the role of growth ecosystems in entrepreneurship and innovations and especially focus on the Silicon Valley as the greatest ecosystem of all times. Several months before I’ve listened to the keynote speech of Adeo Ressi from Founders Institute given at the TechCrunch Moscow 2013 event. To put Adeo’s keynote speech in one sentence:

Silicon valley is not a place – it’s mindset and people

As I tend to agree with practically everything he said during his speech and at the same time am sure that this event wasn’t properly promoted in both Europe and US, I will describe his main points and combine it with my own opinion and experience.

Silicon Valley based companies have a huge success over decades so no surprise other countries and even other states in the US want to copy it. The main problem is that they copy the wrong thing. VC money is great, but they can’t work without an ecosystem. If you have VC money but there are no good companies to invest in – VC money doesn’t matter. If there are no great employees company can hire – VC money doesn’t matter. Once company grows and needs to find partners, if there are none – VC money doesn’t matter. More of the same in case there is no merger or IPO market. As Adeo said:

VC money alone is not worth a lot without an ecosystem

Same applies to copying the facilities part – facilities alone or together with VC money can’t create a new Silicon Valley. The example of Skolkovo near Moscow which was meant to be the Silicon Valley of Russia shows that it is not about facilities and VC money.

However, what needs to be copied prior to everything else is the mindset. There are several aspects of mindset that are crucial in Silicon Valley’s success, and Adeo has listed them as follows:

  • Collaboration instead of competition, no zero sum game. In Silicon Valley people do not believe in zero sum game – they are ready to go have a lunch with a CEO of their competitor company and to discuss possible ways of collaboration because they believe that they’re growing and improving the overall market.
  • Flat ownership. Employees need to be outstanding professionals and need to be motivated to make company better every day. The best motivation is not salary but equity. Flat ownership means that the distance between co-founders’ equity and ordinary employee equity shouldn’t be 100:1 or even 1000:1, there are no giant gaps. A lot of equity in Silicon Valley based startups is given away to useful people like advisors, the idea is to bring many people who might be a competitive advantage and will be engaged in the success of the company.
  • Companies begin with the end in mind. Most of the companies are structured to go for an IPO or big exit from day 1. Investors in Silicon Valley are not too aggressive (as it often happens in other parts of the world) and don’t try to own too much in the very beginning. They have the end goal in mind and if the company goes public and no one else will own anything it defeats the whole purpose.
  • Money and knowledge recycling. People give back to the community. When a company makes a big exit, the co-founders become millionaires and do not stop their contribution to the community – they share their knowledge becoming advisors and investors in new startups and recycle their money and knowledge so that the community benefits from it. As I see it, this principle is widely spread in Finland – I’ve been to a keynote speech of Ilkka Paananen, CEO of Supercell, who has shared his philosophy and ideas with Aalto students, I’ve visited Slush which gets a lot of contributors from world famous Finnish companies like Rovio Mobile and their CMO Peter Vesterbacka.

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