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Entrepreneurship plays a critical role in establishing or revitalizing any economy. Look no further than Michigan to know that this is true. Thanks to a strong pipeline of talented workers from private and public universities that are supported by entrepreneurship organizations, Michigan’s entrepreneurial ecosystem is gaining the momentum it needs to be recognized on a national scale. By 2016, there were 141 active venture-backed startups based or with offices in Michigan, a 48 percent increase from five years prior. And in October 2017, Ann Arbor gained its first unicorn — Duo Security, a SaaS provider specializing in cyber security, which raised the largest round of venture capital in Michigan history.
Revving up a growing entrepreneurial ecosystem isn’t an easy task. Every environment has its own context, and its own challenges, but we’ve seen that the positive results can lift the morale and outlook of a region. Since its launch earlier this fall, the Michigan Academy for the Development of Entrepreneurs (MADE) has been working to help entrepreneurs in developing countries around the world find their own success, using what we’ve learned in Michigan and from entrepreneurs around the world. While startups in places like Asia and Africa grapple with different resource challenges and economic conditions than startups in the United States do, there are some lessons that any emerging ecosystem should keep in mind.
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1. The most important step is connecting with your customer
While understanding the basic fundamentals of cash flow and knowing how to manage a staff is important, businesses everywhere must put finding the customer first if they want to be successful. For Midwestern businesses, that might be a challenge for marketing. For startups in some developing economies, the search can be less abstract: Infrastructure challenges can make connecting with customers more difficult. For example, in Vietnam, the single biggest platform for ecommerce is Facebook — but in rural Morocco, a lack of infrastructure makes ecommerce virtually impossible. Interpersonal connections and marketplaces remain indispensable.
2. Success begets success
In the United States, the story of every successful startup cluster begins with capital — and one of the best sources of capital is another company’s exit. We’ve also seen that for every $1 a Michigan startup receives from a Michigan VC firm, it attracts $4.61 of investment from outside of Michigan. Cash is the fertilizer, and the more of it in the environment, then the more likely the economy will grow.
This logic doesn’t always hold in developing economies, one of the hallmarks of which is no middle class and a huge income disparity. When wealth is created in these environments, there are many places that the money can be reinvested in besides another startup: to fund education, for example, or to buy more land. That being said, more wealth generated by new venture activity has the potential to lift the income threshold and lead to a more stable, flourishing economy.
3. Give your talent the fulfillment they need
A major challenge for small communities is talent, no matter where they are located. But talent isn’t just about having smart people — it’s about having people with the skills needed to build a business, and a community that can support them. In the Midwest, that talent gap often takes the form of local workers who are educated, well-trained, and experienced in running a business, but who might not choose to stay and work in their communities if there aren’t opportunities that appeal to them.
Robust entrepreneurial ecosystems with more activity have the potential to attract top talent away from more metropolitan areas. It can become a self-sustaining cycle once it gets going, but may take a significant event or local unicorn to get it kicked into action. In developing countries, that more often looks like workers who have limited skills, who need the determination and resources to invest in themselves — and who need an ecosystem that can provide them with that base.
4. Take local differences into account
What works in Silicon Valley doesn’t always work in Chicago — and what works in Kosovo might not work in Vietnam. When it comes to translating what has worked in one place to another, the details become local, and critical. Some business climates trust banks and credit lines; others operate solely in cash. In some places, the local language is widely spoken; in others, that local language could be six different dialects. Just as the National Venture Capital Association has local chapters to better understand and focus on the small ecosystems being built all over the United States, context is everything for entrepreneurs looking to get off the ground no matter where they are.
While languages, customs, and currency differ from country to country, one thing doesn’t: When entrepreneurs and innovation win, it can lift the outlook of an entire economy. With the right resources and support, the Midwest has stepped up to create the jobs and standing it needs to survive in the modern economy — and developing ecosystems around the world are doing the same.
Stewart Thornhill is the executive director of the Zell Lurie Institute for Entrepreneurial Studies at the University of Michigan’s Ross School of Business.
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