Stern - Innovation driven entrepreneurial ecosystems: A new agenda for measurement, policy and action
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Stern - Innovation driven entrepreneurial ecosystems: A new agenda for measurement, policy and action
- 1. Innovation-Driven Entrepreneurial Ecosystems: A New Agenda for Measurement, Policy and Action Scott Stern, MIT, CBS and NBER OECD Blue Sky III Forum September, 2016 Lab for Innovation Policy and Science
- 2. • Enabling Shared Understanding Through Meaningful Metrics • Leveraging Digitization and Big Data to Develop and Test New Metrics • Assessing Innovation-Driven Entrepreneurial Ecosystems in Real-Time and at an Arbitrary Level of Granularity
- 3. Field of Dreams… 3 #MITREAP
- 4. Some Thinkers such as Richard Florida imply that regions are engaged in a war for talent and the creative class to be the NEXT Silicon Valley 4 #MITREAP
- 5. With many “Silicon Xs” strategies being implemented around the world…. 5 #MITREAP
- 6. “…we don’t want 50 Silicon Valleys; we want 50 different variations of Silicon Valley, all unique from each other and all focusing on different domains.” Marc Andreesen, 2014 6 #MITREAP
- 7. How can we invest in innovation- driven entrepreneurial comparative advantage? #MITREAP6
- 8. A global program designed to help regions accelerate economic growth & social progress through innovation- driven entrepreneurship (IDE) built upon a region’s unique history, capacity and comparative advantage. Partner regions form stakeholder teams and commit to a two-year learning engagement working with MIT faculty and the broader REAP community through a series of action-learning activities to assess, build and implement a custom regional strategy for enhancing IDE ecosystems. Mens et Manus 28 @MIT_REAP The MIT Regional Entrepreneurial Acceleration Program (MIT REAP)?
- 9. MIT REAP Framework 9 @MIT_REAP System Strategy Stakeholders
- 10. Cluster Based Comparative Advantage 10 @MIT_REAP System I-Cap E-Cap IDE Ecosystem Economic Impact Social Progress Foundational Institutions Cluster Based Comparative Advantage MIT Framework
- 11. MIT Framework Strategy Determine regional comparative advantage & how it will accelerate IDE creation and growth in region Accelerators Prizes & Competitions Early-stage Capital Approaches Diaspora Networks & Immigration Policy Select Your REAP Strategic Interventions 32 @MIT_REAP
- 12. Engaging regions all over the world… 12 @MIT_REAP
- 13. Stakeholders are Key for Designing and Implementing Acceleration Strategies…. • IDE Ecosystem-led growth is different from traditional economic development approaches • Collaboration across key stakeholders is crucial for collective impact and acceleration at the ecosystem level Entrepreneur Risk Capital CorporateGovernment University Innovation Ecosystem Stakeholder Model
- 14. Shared Metrics and Evaluation Enable Stakeholder-Led Accleration! Setting a Common Agenda Shared Metrics & Evaluation Stakeholder Engagement & Communication Backbone Support Organization Action IDE Ecosystem Acceleration
- 15. STAKEHOLDER-LED ACTION REQUIRES SHARED UNDERSTANDING…. SHARED UNDERSTANDING IS ENABLED BY METRICS…. BUT HOW CAN WE DEVELOP REAL-TIME ACCURATE AND GRANULAR METRICS THAT CAN (POSITIVELY) ENABLE THIS PROCESS?
- 16. CONSIDER THE DEBATE OVER THE STATE OF AMERICAN ENTREPRENEURSHIP….
- 17. “America’s great challenge is to … bring about a substantial increase in the numbers of highly successful new companies … Nothing less than the future welfare of America and its citizens is at stake.” Litan, Robert E. “Inventive Billion Dollar Firms: A Faster Way to Grow.” SSRN Working Paper #1721608 (2010).
- 18. “The problem is that it is very difficult, if not impossible, to know at the time of founding whether or not firms are likely to survive and/or grow. This is true even with venture-capital backed firms” Ian Hathaway and Robert Litan, 2014. “Declining Business Dynamism: It’s for Real”. Brookings Institution.
- 19. While the quantity-based measures of entrepreneurship and dynamism are on the decline, funding and salience of high-growth businesses seems to be on the rise! Quantity Based Measures • Decker, Haltiwanger, Jarmin, and Miranda (2013,2015) • Haltiwanger, Jarmin, Kulick, and Miranda (2015) • Hathaway and Litan (2014a, 2014b) Funding of Venture-Backed Firms 2008 2009 2010 2011 2012 2013 2014 2015 "Billion $" $30.43 $20.33 $23.52 $29.91 $27.70 $30.28 $50.99 $59.70 $- $10.00 $20.00 $30.00 $40.00 $50.00 $60.00 $70.00 VENTURE CAPITAL INVESTMENTS IN U.S. (B$)
- 21. • How can we measure high-potential entrepreneurship in a systematic and timely way? • How can we utilize real-time granular measurement of entrepreneurial quality to gain new insights and accelerate innovation-deriven entrepreneurial ecosystems?
- 22. REAP AND ENTREPRENEURIAL QUALITY MEAUREMENT TEAM
- 23. Three Steps to Measuring Entrepreneurial Quality (at or near the time of founding) Business Registrations “Digital Signatures” of Growth Potential “Success” outcomes can be mapped to initial “digital signatures”
- 24. Our Approach • A novel approach to the measurement of entrepreneurial quality, combining three interrelated insights – Business Registration as a Practical Requirement for Growth. Some form of business registration (incorporation, partnership, LLC, etc) is a practical and non-controversial requirement for ventures seeking to achieve a meaningful growth outcome. Public, comprehensive and comparable over time and place. –
- 25. Business registration is a practical and non-controversial requirement for ventures seeking a meaningful growth outcome. Public, comprehensive and comparable over time and location.
- 26. Examples of Business Registration
- 27. Our Approach • A novel approach to the measurement of entrepreneurial quality, combining three interrelated insights – Business Registration as a Practical Requirement for Growth. Some form of business registration (incorporation, partnership, LLC, etc) is a practical and non-controversial requirement for ventures seeking to achieve a meaningful growth outcome. Public, comprehensive and comparable over time and place. – Markers of Entrepreneurial Quality are Observable at or Near the Time of Business Registration. Firms with the potential and ambition for a meaningful growth outcome likely have different “start-up characteristics” including measures directly observable within business registration records, as well as publicly available measures that can be matched in a systematic manner .
- 28. A Tale of Two Bookstores
- 29. Patenting and Firm Growth: Helicos Biosciences Corporation • December 5, 2003: Founded in Cambridge • May 24, 2004: First Patent Application • December, 2009: IPO as HLCS
- 30. Our Approach • A novel approach to the measurement of entrepreneurial quality, combining three interrelated insights – Business Registration as a Practical Requirement for Growth. Some form of business registration (incorporation, partnership, LLC, etc) is a practical and non-controversial requirement for ventures seeking to achieve a meaningful growth outcome. Public, comprehensive and comparable over time and place. – Markers of Entrepreneurial Quality are Observable at or Near the Time of Business Registration. Firms with the potential and ambition for a meaningful growth outcome likely have different “start-up characteristics” including measures directly observable within business registration records (firm name) as well as publicly available measures that can be matched in a systematic manner (e.g., have they applied for a trademark or patent?). – Meaningful growth outcomes can be observed with a lag, creating the potential for a mapping between growth and start-up characteristics. Rather than assume the relationship between start-up characteristics and entrepreneurial quality, investigate relative importance of different factors by developing a predictive model of growth based on start-up characteristics •
- 31. Growth and Start-Up Characteristics • Regress growth on start-up characteristics: • gi,r,t+k is a binary growth outcome (IPO or high value acquisition, but could be others) • Xi,r,t are start-up characteristics • s is lag allowed for growth to be achieved (6 yrs) • Divide sample into training sample (70% of obs where growth is observed), test sample (30% of obs where growth is observed, for validation), and prediction sample (where growth has not yet been observed but for which prediction is possible). qi,r,t =1000´P(gi,r,t+s | Xi,r,t )=1000´ f (Xi,r,t )
- 32. Our Approach • A novel approach to the measurement of entrepreneurial quality, combining three interrelated insights – Business Registration as a Practical Requirement for Growth. Some form of business registration (incorporation, partnership, LLC, etc) is a practical and non- controversial requirement for ventures seeking to achieve a meaningful growth outcome. Public, comprehensive and comparable over time and place. – Markers of Entrepreneurial Quality are Observable at or Near the Time of Business Registration. Firms with the potential and ambition for a meaningful growth outcome likely have different “start-up characteristics” including measures directly observable within business registration records (firm name) as well as publicly available measures that can be matched in a systematic manner (e.g., have they applied for a trademark or patent?). – Meaningful growth outcomes can be observed with a lag, creating the potential for a mapping between growth and start-up characteristics. Rather than assume the relationship between start-up characteristics and entrepreneurial quality, investigate relative importance of different factors by developing a predictive model of growth based on start-up characteristics • Entrepreneurial quality is the estimated probability of growth given startup characteristics. ˆqi,r,t
- 33. How do the “digital signatures” of companies predict growth? (NB: Prediction NOT causal) Change in the Probability of Growth Has Short Name 248% Firm Named after Founder -70% Corporation (Not Partnership or LLC) 405% Trademark in First Year 501% Patent and No Delaware Registration 3,534% No Patent and Delaware Registration 4,470% Both Patent and Delaware Reg. 19,640% Sectoral Controls Included State Controls Included Guzman and Stern, 2016.
- 34. A New View of the Skew
- 35. Entrepreneurial Quality Index Average estimated quality within a group of start-ups EQI Regional Entrepreneurship Cohort Potential Index The number of startups within a particular region expected to later achieve a growth outcome RECPI Regional Entrepreneurship Acceleration Index Estimates the ability of an ecosystem to convert entrepreneurial potential into realized growth events. REAI Entrepreneurial Quality Statistics
- 36. New Population-Level Entrepreneurship Indices • Entrepreneurship Quality Index (EQI). Average estimated entrepreneurial quality within a group of start-ups: • Regional Entrepreneurship Cohort Quality Index (RECPI). Expected number of growth events within a regional start-up cohort: • Regional Ecosystem Acceleration Index (REAI). The ratio of realized vs. expected growth events in a region: • Attributes: – Panel or cross-sectional – Arbitrary level of granularity – Not necessarily geographic in scope EQIr,t = 1 Nr,t ˆqi,r,t iÎ{Ir,t } å RECPIr,t = EQIr,t ´ Nr,t REAIr,t= #GrowthEventsr,t / RECPIr,t
- 37. Where is Silicon Valley? Science, 2015
- 38. Address-Level Visualization of Silicon Valley
- 40. The Quality of Entrepreneurship in Kendall Square
- 41. The Quality of Entrepreneurship in Kendall Square
- 42. THE STATE OF AMERICAN ENTREPRENEURSHIP
- 43. The State of American Entrepreneurship
- 44. RECPI / GDP: The State of American Entrepreneurship Over Time • RECPI / GDP shows – a sharp raise in potential during the late 1990 – followed by a drop (but NOT a collapse) in 2001 – and more moderate increase after the Great Recession. • Nowcasted Index tracks closely and documents “boom” since 2010 Peak of dot-com bubble Great Recession Guzman and Stern (2016)
- 45. Silicon Valley RECPI: @pmarca view of the world
- 46. The State of American Entrepreneurship • In contrast to the secular and steady decline observed in the BDS, RECPI has followed a cyclical pattern that seems sensitive to the capital market environment and overall economic conditions. • US RECPI increase over the 1990s, with a spike in 1999-2000, followed by a decline to a higher level than had existed in the 1980s. After a decline at the beginning of the Great Recession, strong growth in US RECPI since 2010. 2014 registers the third highest level of US RECPI (and highest in absolute value).
- 47. Potential Versus Realized Growth Outcomes • The highest potential cohort occurs in 2000 • But the best performing cohort occurs in 1996
- 48. Guzman and Stern (2016)
- 49. Entrepreneurship and Economic Growth • Possible to examine the relationship between regional entrepreneurship metrics and subsequent economic growth • Without an exogenous shift in the supply of entrepreneurial quantity and/or quality, no casual interpretation • But useful for evaluating growth impact of policies that “set the table” for certain state of entrepreneurship • For each MSA in our sample, we estimate (in logs): – Levels of GDP, EQI, and Obs are averages of 2001-2003 – GDP Growth is to average GDP of 2012-2014 GDPGrowthi =a +bGDPi +gEQIi +dObsi +ei
- 50. Entrepreneurial Quantity Has a Weak Postiive Correlation with 10-year Economic Growth • Elasticity: .04 (p<.05)
- 51. • Elasticity: .08 (p<.01) Entrepreneurial Quality Has a Much Stronger Relationship to 10-year Economic GDP Growth
- 52. Entrepreneurship and Economic Growth Regression of GDP Growth at MSA Level. Dependent Variable: LN(GDP,2012-2014/GDP,2001-2003) Largest Cities All Cities (1) (2) (3) (4) (5) (6) Ln(Avg(Obs,2001-2003)) 0.0384* -0.0109 0.0170 -0.00884 (0.0154) (0.0221) (0.0294) (0.0130) Ln(Avg(EQI,2001-2003)) 0.0803*** 0.0641** 0.0684** 0.0494* (0.0191) (0.0218) (0.0252) (0.0201) Ln(Avg(GDP,2001-2003)) 0.0509** 0.0238 0.0102 0.0145 (0.0173) (0.0120) (0.0285) (0.0182) Constant -0.218 0.809*** -0.288* 0.426 0.446 0.496 (0.141) (0.165) (0.138) (0.266) (0.285) (0.257) N 63 63 63 63 63 150 R-sq 0.093 0.240 0.158 0.278 0.283 0.062 Robust standard errors in parentheses * p<0.05 ** p<0.01 *** p<0.001
- 53. • How can we measure high-potential entrepreneurship in a systematic and timely way? • How can we utilize real-time granular measurement of entrepreneurial quality to gain new insights and accelerate innovation-deriven entrepreneurial ecosystems?
- 54. MIT REAP Framework 54 @MIT_REAP System Strategy Stakeholders
- 55. Stakeholders are Key for Designing and Implementing Acceleration Strategies…. • IDE Ecosystem-led growth is different from traditional economic development approaches • Collaboration across key stakeholders is crucial for collective impact and acceleration at the ecosystem level Entrepreneur Risk Capital CorporateGovernment University Innovation Ecosystem Stakeholder Model
- 56. Shared Metrics and Evaluation Enable Stakeholder-Led Accleration! Setting a Common Agenda Shared Metrics & Evaluation Stakeholder Engagement & Communication Backbone Support Organization Action IDE Ecosystem Acceleration
- 57. 57 Entrepreneurial Potential (RECPI) in All Spain Provinces @MIT_REAP
- 58. Ecosystem Measurement and Regional Acceleration Strategy 1. Now-casting: Up-to-date measures of the as-is state allow you to identify current strengths and weaknesses, and identify bottlenecks and opportunities 2. Place-casting: Measures of geographic variation allow for identification of strengths and weaknesses across regions, and identify drivers and enablers of IDE ecosystem strength 3. PPI Must-Win Battle Assessment: Systematic measures of ecosystem strength and weaknesses allows for tracking of change over time and so enables assessment of PPI Must-Win Battles (on a real-time basis) 4. Unique Growth Drivers: Tailored measures of entrepreneurial growth and drivers allows for evaluation of what “works” in a given environment, and how PPIs can be adapted for regional and local circumstances. Facilitates practical experimentation. 58 @MIT_REAP
- 59. 59 Team Singapore Team Morocco Team London Team Scotland http://www.cando.scot/scale/ http://www.phoshackathon.com/ http://growth-builder.com/ http://sginnovate.sg/
- 60. MEANINGFUL METRICS AS A TOOL FOR SMART ACCELERATION…. 60 @MIT_REAP System Strategy Stakeholders
- 61. • Enabling Shared Understanding Through Meaningful Metrics • Leveraging Digitization and Big Data to Develop and Test New Metrics • Assessing Innovation-Driven Entrepreneurial Ecosystems in Real-Time and at an Arbitrary Level of Granularity
Editor's Notes
- Better graphic? Slide structure for the 3 S’s: overview- key elements – example System IDE Framework (iCep & eCap +linkages etc accelerated by catalysts ) Inputs vs outputs whole> sum of parts Engagement of all stakeholders! / shared measurement All needed for effective and exclusive change Stakeholder Pentacle Backbone organization Collective impact Shared measurement Strategy Version of framework, highlighting catalyst How do you choose strategy for implementation? What is a regional strategy? How to make directed investment and action to leverage what you have and identify how to push out the frontier in such a way that will compliment efforts Strategy choice- choosing and winning must win battle + catalyst ! Emphasize role of choice - Josh Lerner – not Bolavard of Broken Dreams but fixed dreams ?
- System IDE Framework (iCep & eCap +linkages + clusters + accelerated by catalysts ) Inputs vs outputs whole> sum of parts Engagement of all stakeholders! / shared measurement All needed for effective and exclusive change
- Quick introductions (1 min/ region) – name, organization & role in REAP team
- Thanks to important and insightful work by John Haltiwanger, Ron Jarmin, Javier Miranda and coauthors, we know that benefit of startups for economic growth spring from a handful of fast-growing, young companies. For innovation and entrepreneurship to propel the economy, we need more startups capable of meteoric growth.
- Can’t tell from start which firms have the potential for meteoric growth
- Quantity-based measures (BDS) document a 30 year decline in entrepreneurship and business dynamism , with only a very modest leveling off (and uptick in high-tech) Outcome-based measures (PWC/NVCA MoneyTree Report) indicate high-growth entrepreneurship is on the rise early stage angel and VC funding on a significant upswing (unit just recently) Growing number of students joining startups Fear of bubble The Business Dynamics Statistics (BDS) provides annual measures of business dynamics (such as job creation and destruction, establishment births and deaths, and firm startups and shutdowns) for the economy and aggregated by establishment and firm characteristics. The BDS is created from the Longitudinal Business Database (LBD), a confidential database available to qualified researchers through secure Federal Statistical Research Data Centers. The use of the LBD as its source data permits tracking establishments and firms over time.
- Quick example: Tale of two bookstores Around time of their founding, difficult to tell that Harvard Bookstore and Amazon would have such different trajectories. So, what data and methods can we develop to find the firms that have the potential to be amazon’s in the sea of mom and pop bookstores? How can we identify and map growth potential from the start? Quantity based measures treat them as equivalent EQ measures ranks Amazon in top 1% of distribution at time of founding
- Reports core empirical relationship (based on logit regression) Examines how presence or absence of startup characteristic correlates with the probability of growth (conditioning on the presence or absence of other characteristics) Substantial changes in the predicted likelihood of a growth outcome are associated with characteristics observable from business registration filings (nowcasting) as well as characteristics observable with a lag Corporations 400% more likely to grow Firms with short names 250%x more likely to grow Firms named after founding 70% less likely to grow. Firms that register in DE and apply for a patent are 196x more likely to grow Can use findings to construct, for every registered firm, its underlying probability of growth at time of founding Probability of an average firm is low (1/3500) For firms with multiple positive startup characteristics, this probability jumps to 1/100 Startup characteristics are digital signatures not causal drivers of growth Digital signatures of growth ambition and potential Registering in DE or filing for a patent will not guarantee that the business that does them will grow But, the firms that have historically engaged in these activities have been associated with skewed outcomes .
- Out of sample tests show method works To test the predictive capability of the model and evaluate the skewness of entrepreneurial growth potential, compare estimated probabilities of growth outcomes to realized ones (in a ten-fold cross validation in out of sample test 65-72% of realized growth events fall within top 5% of the model’s estimated entrepreneurial quality distribution 51% of realized growth events fall within top 1% of the distribution of EQ 10-80% in top 10% of the distribution Model highly predictive. EQ highly skewed. Characteristics are highly predictive of a very rare outcome Show skewed nature of growth outcome Indicate that distribution of initial quality is itself skewed from the start (It is not that all firms start out equal and some happen to grow) [[growth potential is a key dimension of heterogeneity among newly founded firms]]]
- EQI: The sum of the quality score for each individual firm/number of firms in a given region for given year To create an index of entrepreneurial quality for any group of firms (i.e., within a cohort or satisfying a particular condition), take the average quality within the group Aggregate of quality at the region-year basis by estimating average of Theta (I,r,t) within that region {I r,t} – all firms in region r and year t. Nr,t = number of firms in that region year; Theta for firm I in region r at time t Excludes any location specific measures (do not assume startups from a given location are associated with a given level of quality) Excludes time-based effects (e.g., changes in available financing) Measure of the potential of a region given the “intrinsic quality of firms at birth, which can then be affected by the impact of the ecosystem or shocks to the economy between formation and growth outcome. RECPI Average quality of new firms multiplied by the number of new firms within a given cohort-region REAI The ratio of realized to expected growth events in a region __________________________________________________
- Nowcasting Entrepreneurial Quality in Kendall Square Size of bubble = number of high-potential growth firms Color of bubble = level of entrepreneurial quality CIC and Cambridge coworking center (biggest dot Dark colored dots: wetlab accelerators and biotech lab spaces corporate (IBM accelerator)
- Nowcasting Entrepreneurial Quality in Kendall Square Size of bubble = number of high-potential growth firms Color of bubble = level of entrepreneurial quality CIC and Cambridge coworking center (biggest dot Dark colored dots: wetlab accelerators and biotech lab spaces corporate (IBM accelerator)
- Great variation across regions in Entrepreneurial Quality/growth potential
- The “View” from Silicon Valley with Marc Andreesen’s head to the right
- Better graphic? Slide structure for the 3 S’s: overview- key elements – example System IDE Framework (iCep & eCap +linkages etc accelerated by catalysts ) Inputs vs outputs whole> sum of parts Engagement of all stakeholders! / shared measurement All needed for effective and exclusive change Stakeholder Pentacle Backbone organization Collective impact Shared measurement Strategy Version of framework, highlighting catalyst How do you choose strategy for implementation? What is a regional strategy? How to make directed investment and action to leverage what you have and identify how to push out the frontier in such a way that will compliment efforts Strategy choice- choosing and winning must win battle + catalyst ! Emphasize role of choice - Josh Lerner – not Bolavard of Broken Dreams but fixed dreams ?
- Understand As-Is State (Nowcasting): Across a wide variety of actions you might take, when diagnosing problems, there are basic things you need to know about how your region is doing/real-time. Common metric for an entrepreneurship ecosystem are important as a precursor for many forms of action. Understanding distributions of differences across regions & benchmarking (Place-casting): you can assesse relative strengths and weaknesses across regions. This allows you to leverage the strength of regions, but also identify weak spots (example: Puerto Rico, we see “university districts”; identifying conditions in regions that might accelerate e’ship). Assessment of Policy and Program Interventions: Better understanding the ROI of public/private monies being put forth in any region. Some of you, entrepreneurship is a goal in of itself, some of you find it has to be grounded in an ROI. This measurement framework gives you the mechanics to understanding that ROI. Social Progress too! Identifying the distinctive qualities of growth entrepreneurship (IDE) in any region: By taking a systematic approach, that allows you to baseline/benchmark, you can start to better experiment/evaluate (example: are people migrating?).
- Better graphic? Slide structure for the 3 S’s: overview- key elements – example System IDE Framework (iCep & eCap +linkages etc accelerated by catalysts ) Inputs vs outputs whole> sum of parts Engagement of all stakeholders! / shared measurement All needed for effective and exclusive change Stakeholder Pentacle Backbone organization Collective impact Shared measurement Strategy Version of framework, highlighting catalyst How do you choose strategy for implementation? What is a regional strategy? How to make directed investment and action to leverage what you have and identify how to push out the frontier in such a way that will compliment efforts Strategy choice- choosing and winning must win battle + catalyst ! Emphasize role of choice - Josh Lerner – not Bolavard of Broken Dreams but fixed dreams ?