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The Rise and Potential Impact of Decentralized Ecosystems on Innovation

Geography is less and less correlated to startup success

calendar icon February 21, 2021

The days of Silicon Valley as “the place to be” for innovation has been on the wane for some time. This by no means is a “dis” to the Bay Area, where I’ve lived for more than 25 years. But truth be told, geography is less and less correlated to startup success.

Did the pandemic accelerate the trend? Probably. But even pre-Covid, the tech community has seen an increase in the rate of successful startups founded outside of traditional tech centers. In a Zoom and Slack-driven world, more people are choosing to be where they want to live rather than where they have to work. And in an interconnected world, the talent and technology that’s resident in communities around the world is being successfully commercialized by entrepreneurs and reaching global markets.

Startup Genome continues to rank Silicon Valley as the top ecosystem, but they are now tracking 270 startup ecosystems in over 100 countries. In their 2020 Global Ecosystem Report, they observed that “In the lead up to the [Covid-19] crisis, the dominating trend for ecosystems globally has been the growing democratization of tech across geographies.” They report that in 2013 only four ecosystems had generated a startup with a valuation of greater than $1 billion. By 2019 more than 80 ecosystems had done so.

So, what does this trend mean for enterprise innovation? It provides a wealth of opportunities but also some real logistical and strategic challenges.

The Benefits

The continued rise of distributed ecosystems is expanding startup culture in new regions and providing opportunity for a larger universe of would-be entrepreneurs. These ecosystems bring the prospect of distributing wealth, lowering the cost of company-building, and tapping into centers of expertise.
In an ideal world, distributed ecosystems will lead to a global, liquid marketplace for innovation. Everyone who participates would have:

  • Access to the best available solutions to solve their needs;
  • Connections to market opportunity and capital; and,
  • An engine of economic development.

If having stronger ecosystems means that a greater number of promising entrepreneurs will start a company and solve worthwhile problems, that’s a win for enterprise innovation and everyone else.

The Challenges

Entrepreneurial success in Silicon Valley has relied in part on density, personal relationships and a degree of serendipity. When you put enough people focused on innovation in the same physical space, you’re going to have more interactions and positive outcomes. For a long time, having a physical presence in a handful of key ecosystems gave enterprises the opportunity to be an active participant in these outcomes.

But as the startup community becomes more and more fragmented, having eyes and ears in the Valley, London, New York and Tel Aviv just isn’t sufficient. Enterprises need to develop strategies to gain access to potentially hundreds of regions where a dedicated presence isn’t practical. We need to create “virtual density” across the global ecosystem.

Social networks play a role, but they’re super noisy. For innovation teams with specific use cases, it’s a challenging environment to maintain quality over quantity.

Databases also play an important role and they’re getting better at applying growth scores and other intelligence features. But they lack the context of personal relationships that has played a central role in effective ecosystems.

This is where trusted partners with a local presence have stepped into the gap. Accelerators, angel groups, early-stage VCs, universities and consulting firms act as filters and bring a personal context. But each of these partners has limited reach and as the number of these relationships grow, they can become unwieldy and expensive.

The Role of Software

The shift from centralized to distributed networks is exactly why digital tools like Startgrid will play a critical role in managing ecosystems of the future. They provide access to the best available emerging technology across geographies, an easy way to manage trusted partner networks, scalable workflow, and market intelligence. For enterprise innovation teams, they provide access while avoiding process breakdown and a signal-to-noise problem.

The sooner we improve connectivity across regions using software, the sooner we can support entrepreneurs, build successful ecosystems and solve important problems. That’s a win for everyone playing a role in startup ecosystems.

Sources: The Global Startup Ecosystem Report 2020. February 2021 version 1.4. Startup Genome