From the Top 20 to the Next 200: Expanding the Startup Revolution
Startup Genome has become known for our Top 20 ranking of startup ecosystems. Yet we are continuously expanding the scope of our ecosystem assessments and the activities we engage in with ecosystems around the world. Our mission is to improve the vibrancy and growth of every ecosystem in the world, not just those at the top.
It’s no secret that the usefulness of state and city rankings is seriously limited, especially for places that aren’t large, global cities. Which is to, say, most regions on earth. Why should Des Moines care how Silicon Valley and New York City compare to each other, or why should Manchester care about how London and Berlin stack up?
Despite their limitations, however, rankings of top-tier cities can be useful. We can learn from the strengths (and weaknesses) of those places. And, we can use their size and performance level to refine empirical and analytical methods that can then apply elsewhere.
Four years ago, in an online article for an economic development journal, researchers Yasuyuki Motoyama and Jared Konczal did something rare in the world of scholarly publishing. They had a little fun.
After showing that rankings of state economies and business climates were a “magical land” of “poorly explained methodologies,” they ran 1,000 simulations of state rankings. By randomly assigning weights to different variables, they showed that anyone could create their “favorite state ranking.” Tweak some variables, for example, and Maine makes 112 appearances in the top 10 rankings for innovation and entrepreneurship. Vermont ranks number one overall 16 times.
Rankings, it is clear, are only as good as what goes into them — they depend enormously on how the ranking creator fiddles with the dials and knobs. Why, then, does Startup Genome publish a ranking of the Top 20 startup ecosystems?
When we first published the Global Startup Ecosystem Report (GSER) in 2012, we wanted to drive attention to the importance of startup ecosystems. The notion of “ecosystems” for entrepreneurship was still moving from academia to the popular mind. Dan Isenberg had just begun to write and speak more widely about an “entrepreneurship ecosystem strategy” and Brad Feld’s book on “startup communities” was published that year.
To highlight the idea and importance of startup ecosystems, we started with a ranking. For all their faults, rankings are definitely good at one thing: drawing attention. Why else would cities heed rankings on the best places for dog-walking, retirement, or volunteering?
Yet we also started with a Top 20 ranking because we knew we were undertaking a long-term process of assessing startup ecosystems and identifying their growth (or contraction) mechanisms. Focusing initially on the top-performing ecosystems was a way for us to draw on their knowledge and lessons, and highlight success stories from those 20 places.
Six years and multiple reports later, we have moved far beyond the top 20 ranking. Partly, this is a matter of arithmetic — there just isn’t much movement among the top 20 on an annual basis. In our latest GSER, released in March of this year, three spots turned over among the top 20 compared to our prior ranking.
We will continue to publish a ranking of the top 20, for the principal reason that these are the startup ecosystems setting the global standard, and a key part of our assessment is benchmarking. Every startup ecosystem, irrespective of size, wants to know three comparisons: to its own development, to peers, and to the global leaders.
Ranking the top 20 ecosystems has also allowed us to test and refine our assessment metrics. Too many academic attempts to study entrepreneurial ecosystems begin with a theoretical starting point, rather than an empirical one. What we need to improve startup ecosystem performance is a larger set of stories within a conceptual model, all supported by rigorous evidence. Every ecosystem is unique in some respect, and our assessment accounts for this, while also establishing a common framework that is used to apply lessons across different places.
The Global Report also only includes a small slice of all the data we collect and analyze for each ecosystem — about 20 percent. Some ecosystems outside the top 20 perform remarkably well on individual indicators in our model.
Our drive to go beyond a ranking of the top 20 is also a matter of mission. In our analysis of the data we have collected from over 10,000 startups across the world and many secondary sources, we realized that, while startup activity and excitement are spreading, startup value creation is not. In fact, if we look at ecosystem value — our combined metric of exit value and startup valuation — there is a dramatic skew.
In the United States, four ecosystems account for 80 percent of total ecosystem value. In Europe, it’s five; and in Asia, just three. (Out of the ecosystems we assessed.) That concentration, moreover, hasn’t budged. The top four ecosystems in the world account for roughly the same share of global ecosystem value as they did ten years ago.
This must change. If the value being created by startups continues to concentrate in only a handful of places, emerging ecosystems will wither, compounding economic difficulty everywhere. More places — of all sizes — need to grow vibrant startup ecosystems. We have, accordingly, broadened our assessment to include more places across the world.
Many places, of course, have taken steps to activate their ecosystems — they have established or attracted accelerators, created new funding mechanisms, and generated lots of buzz around startups. Yet this is where ecosystems can get stuck — without continued resource attraction and global connectedness (two key performance factors in our Lifecycle Model), enthusiasm and interest will fade.
This is our mission: not to have every startup ecosystem jostle for a top 20 spot. But to have 200 ecosystems grow in size and come closer to the global frontier of performance. To that end, we are actively seeking new partners in this work, and have been adapting our Model to ensure that it is applicable to more types of places.
We are also working to expand what we provide to ecosystems. A profile in the Global Report and deep-dive (private) Member Assessment are not always enough to catalyze change and drive action in an ecosystem. Leaders and champions and connectors in each place ask for guidance on what to do and how to go about doing it. Beyond our assessment and analysis of ecosystem performance, we are collaborating with several ecosystems to develop and implement key actions.
More people in more places deserve the chance to participate in the global startup revolution.