4 questions for new Entrepreneurship Support Organizations (ESOs) on financial sustainability

Part 1 in 3-part blog series on how to support entrepreneur support organizations (ESO)s.

Over the last three years, I supported ESOs with a solid commitment to their purpose. Most of my advice and support focus on the ESO's ability to find a business model that provides continuous funding. Here are 4 questions and answers I typically go through with ESOs to find a suitable business model for them.

1. ESO Founder: Can we earn money from investing in startups like the famous accelerator Y Combinator?

My Response: Capital gains from seed investments are not sustainable for most accelerators and ESOs. Y-combinator is a startup program wrapped around a VC Fund. Most accelerators don't have the track record or network to raise funding for the next five years. So unless the founders of your program are wealthy, you probably need to think of another model.

2. ESO Founder: Can we make money to support startups by renting our co-working space?

My Response: Be careful; income-generating activities like rent from co-working can be essential to ESO financial models, but most of those who pay for co-working is not the startups you want to help.

3. ESO Founder: How do we focus on inclusive economic development and hope that government agencies or foundations will provide financial support?

My Response: This is a common source of funding for ESOs, but it is essential to ensure your purpose is aligned with the donor. Organizations lose their purpose when a government agency or foundation controls their programming. Also, be aware of governments' and private foundations' long fundraising cycles and the heavy administrative process they require.

4. ESO Founder: How do we control our strategy to stay true to our vision?

My Response: The ESO should have diversified revenue and funding from multiple organizations. Have some income-generating activities like co-working with members aligned with your purpose. The ESO should have multiple donors supporting its activities. Ultimately if the ESO has proven its ability to start and grow ventures, it will be easier to find financial backers.

Part-3 Support Communities of purpose in an entrepreneur Ecosystem

3rd in a 3-part blog on actions that create an impactful entrepreneur ecosystem

Part-1 Shake What Your Mama Gave You

Part-2 The Forgotten Voices of Entrepreneurs

Your entrepreneur ecosystem does not need a strategy; it needs a purpose (or probably multiple purposes). In my previous 2 Blog posts, I showed that many government agencies, foundations, and donors use the wrong toolset to plan additional funding to support an ecosystem. They follow global "Best Practices" that are based on other communities' strengths, or they use ecosystem analysis tools that provide limited insights or are based on biases toward Venture Capital. These approaches are helpful but do not unlock an entrepreneurial ecosystem's potential.

I have learned the best way to grow and support a local entrepreneur ecosystem is to find and support communities with purpose. Each ecosystem has a group of organizations and people with a strong passion for supporting entrepreneurs with a purpose. This purpose could support gender inclusion, small business, climate technologies, or veteran entrepreneurs. This passion for supporting energy ecosystem builders should help ignite others to join. The purpose is so important that MIT's D-Lab report on understanding ecosystems puts it at the center of an ecosystem. They highlighted purpose-driven ecosystems like social entrepreneurs in the food sector in Philadelphia that continue to drive progress in that sector.

Why support an Entrepreneur’s Community Purpose rather than a Broader Strategy

• Higher return of Impact: A community of purpose is committed to its goal and is putting its resources toward that goal, so these are ecosystem initiatives with legs.

• Collaboration: A common purpose naturally brings people and organizations to work on similar issues and tackle similar problems.

Facilitating actions

It’s hard to keep actors engaged in a multi-year strategy in my experience of doing this work for governments and donors. Ecosystem actors want actions to solve problems today, not a strategy. I understand people's opinions that actions without a plan are like traveling without a map. But those who work in entrepreneurship can relate more to poet Mike Tyson's reflections on a changing battlefield that needs adjustments. This is why getting an ecosystem to take action to build trust and learn and adjust is more important than creating strategic plans.

The lessons I shared 10 years ago in the slide below are still suitable today. Driving successful actions and broadcasting them will inspire others to join an ecosystem's purpose, creating the momentum for other actors to want to join the purpose. A flourishing ecosystem is a self-learning environment of actors, not a centralized planning organization. So put your plans away and start taking action to help communities driven by purpose.

My Entrepreneur Ecosystem Scaling Model from 2012

Part-2 The Forgotten Voices of Entrepreneurs

2nd in a 3-part blog on actions that create an impactful entrepreneur ecosystem

Part 1- Click Here

We All love Data, but some of its Superfluous Poppycock.

NBA legendary coach Greg Popovich of the San Antonio Spurs said about the rise of sports analytics: "I look at the analytics. Some of it is very worthwhile. Some of it is superfluous poppycock." Regarding ecosystem data and analysis, I agree with Coach Pop; some of it helps make an informed strategy, but some are “superfluous poppycock.”

Ecosystem analysis is helpful to governments, donors, and foundations to justify funding entrepreneurship activities. In my experience conducting 15 entrepreneurial ecosystem strategies, the most critical data is capturing entrepreneur voices. That said, many regions use other ecosystem analysis tools that are helpful but are often biased or lack deep insights. Here are some examples of exciting ecosystem analysis tools that provide imperfect analysis to drive an impactful entrepreneur ecosystem strategy:

1. Entrepreneurial ecosystem maps or maturity analysis provide exciting but insufficient information to create concrete steps. Most ecosystem maps use Gap analysis. The analysis will present gaps in service offerings, types of entrepreneurs being supported, or stages of support. The analysis provides potential areas of needed support. Maturity models present the current stage of ecosystem development vs. “top” ecosystems like Silicon Valley. Although these analyses are helpful and show a broad category of missing support for the next step in ecosystem development, they provide little understanding of priorities or specific actions to the entrepreneur’s needs today.

2. Several startups and business ranking tools show skewed data that will lead to poor analysis and, thus, poor strategies. I find too many startup ecosystems' rankings are heavily based on financial metrics that measure venture capital, exits, and valuations. Utilizing these rankings typically leads to an ecosystem strategy of more public funding toward capital or tax credits for investors.

The Voices of Entrepreneurs is the Most Important Data to Capture

Entrepreneur analysis tools like Global Entrepreneur Monitor (GEM) or the Global Accelerator Learning Initiative (GALI) have set up a robust process and system to collect the voices of entrepreneurs. That is why we get some unique insight from these tools. For example, GEM provides some of the best understanding of entrepreneurial culture in a country. However, there are two difficulties in collecting the voices of entrepreneurs: 1. the process is resource intensive and 2. entrepreneur “opinions” are different than entrepreneur “actions.” Some ways to manage this are the following:

1. Hacks for collecting entrepreneur data:

Without a significant budget, there are hacks to reduce the cost of collecting entrepreneur voices. One hack is to get other ecosystem actors like investors, entrepreneurs, support organizations, media organizations, government agencies, and business associations to help collect data. Enlisting these organizations to help to ensure the data and analysis will benefit them and the greater ecosystem. Being involved should include giving them the chance to design the analysis and output reporting. By creating this alignment, it will be easier to leverage these organizations' entrepreneur networks and resources to collect data. In addition, as in-person events start up again, use these opportunities to engage directly with entrepreneurs to conduct interviews since online surveys are challenging to complete. Ensure you can use several events to represent your targeted population for a random sample.

2. Truly understanding entrepreneurs' needs!

I’ve read at least 50 entrepreneur ecosystem studies based on entrepreneurs' surveys, and all state their most significant issue is lack of financing. But if you talk to the entrepreneur, financing masks their real issues, lack of product-market fit, or no real go-to-market strategy. The best data collection methods will capture entrepreneurs' actions rather than their opinions. One of the best reports I have seen on how to help SMEs was done by a German Research Group (sorry don't have access to it) about 12 years ago. About 100 CEOs were interviewed on their journey to growing their company; interestingly, many reached success by starting as middle managers in Multinational corporations. This insight showed the need for ESOs to do outreach to middle managers who have a side startup and need help launching it.

To develop an impactful ecosystem strategy, you need to listen to your local entrepreneurs while leveraging other ecosystem analytical tools and recognizing their biases and limitations.

Part-3 Support Communities of purpose in an entrepreneur Ecosystem