The startup ecosystem in a given country is often discussed in light of funding, breakthrough technology & solutions and M&A. But there is much more to it – a tremendous importance of that ecosystem for national economies, their growth and development. It's important to note, however, that not the scale, but the quality of a startup ecosystem can signal the potential of the economy.
Entrepreneurial talents with high potential are very scarce and represent the most precious human resource of every nation. Some governments do a better job in regulatory support for that resource than others. But there is a general consensus that the quality entrepreneurship culture is of a crucial importance for every country, city and citizen.
Sandile Shabangu, the Founder of The Startup Foundation, a nonprofit organisation supporting innovative youth entrepreneurship in South Africa, and other professionals have been emphasizing reasons why national governments should support and encourage ambitious entrepreneurship:
- Innovations. Startup nations (such as Israel) are able to drive economic development built on innovative technologies and solutions mainly brought by ambitious entrepreneurs. Innovation in those countries boosts operational productiveness for businesses across industries.
- New jobs attracting quality international workforce. Startups are often comprised of the most talented, ambitious and skilled workforce. Due to resource constraints, they cannot afford to maintain averagely-skilled, merely-used departments; hence, they are looking for the best of the best, often international talent. In fact, as the Kauffman Foundation reported, new businesses account for nearly all net new job creation and almost 20% of gross job creation. Moreover, companies less than one year old have created an average of 1.5 million jobs per year over the past three decades.
- Bringing new competitive dynamics into the economic system. Healthy competition in any market is beneficial for businesses and customers as it naturally curates the business environment. Startups usually represent the most dynamic companies that constantly improve available solutions. As a result, they ‘force’ the environment to keep up, allowing businesses to increase efficiency and improve services.
- Promoting the research-innovation system. High-tech companies at a different stage are often connected to the academic ecosystem through collaborative research, projects and pilots. Not only do they promote collaborative innovation and research-based approach in business, they open up a source of relevant knowledge to young student communities and benefit from the academic perspective they can receive from experienced scientists.
- Bringing the values of proactivity into the society. “Startup entrepreneurship changes the values of the society and brings a new mindset in line with the society based on knowledge and creativeness.”
- Moreover, startups have a direct impact on the cities that they make their homes. In spite of starting small, companies like Microsoft and Google now have a tremendous impact on their communities in Redmond, WA and Mountain View, CA. They have transformed the environments by bringing the best talent and building whole cities around their HQ. Boosting the employment for young professionals, they drove an influx of international students and highly-skilled workforce to their cities.
- Fostering improvement of the regulatory environment. Innovation is rarely foreseen in the legislation, which creates uncertainties and grey areas in business (new business models, unregulated areas of operation, new types of services, etc.). A dynamic startup ecosystem is a force that drives quality change in legislation, creating business-friendly environments. As a result, it boosts the flow of international businesses that are looking to expand in a new market. New businesses bring healthy competition and taxes. Some of the most progressive governments have been working on easing the way for innovators into national economies through regulatory sandboxes.
- Startups create whole new industries. RegTech, InsurTech, FinTech, EdTech are some of the massive industries created by entrepreneurs. Each of them is of a significant benefit for respective industry, economy and a new area of exploration for entrepreneurs. Solutions conceived within those industries even threaten traditional players and force them to innovate and transform.
- Development of supportive environment. It may be similar to the chicken and the egg dilemma, but explosive entrepreneurship culture led to the growth of a supportive environment in form of accelerators/incubators, which connects international professionals in the quest to discover some of the most disruptive and promising solutions. Needless to mention, the accelerator/incubator/innovation lab ecosystem itself generates international talent and knowledge exchange, and creates a runway for startups to take off into the global market.