Measures of Entrepreneurial Ecosystems:

Why do we need them, who will need them, and what will be done with them?

Sul Kassicieh, Allan O'Connor, Sabine Menu, Takao Ito

1． Introduction

Many authors have attempted to draw together a perspective on entrepreneurship that

captures the influences of the environment. However, the description of the relationships

between the entrepreneur, their firms and the broader environment or ecosystem, has varied

among theorists. Based on the variations in viewpoint, this paper stops to ask three important

questions that underpin the rationale of entrepreneurship ecosystem measurement: 1) Why is

it important to measure entrepreneurial ecosystems? 2) Who will make use of a measure of

entrepreneurial ecosystems? 3) What will measures of entrepreneurial ecosystems be used

for? The contribution of this paper is to illustrate a holistic view of entrepreneurial

ecosystem, and focus on the measurement based on our international comparative studies

within USA, Australia, France and Japan.

The structure of this paper is as follows. In section 2, we review the literature associated with

entrepreneurial ecosystems. Section 3 will explain the holistic view of our new model from

viewpoints of measure’s importance, human-being network of entrepreneurial ecosystems,

and mathematical and statistical model including data collection of our research. Possible

implications emerging from the results will be discussed in the paper. Section 4 will mention

the limitations of this paper and provide directions for future research.

2． Background

Entrepreneurial ecosystem is a rather new notion, mostly developed in the U.S. literature by

groups in and industrial organization, innovation systems, clusters and industrial districts.

The importance of the connections and interdependencies between firms as well as within

institutional networks in delimited geographical spaces have been highlighted to explain

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either the process of innovation or firm growth (Becattini, 1990, Porter, 1998, Carlsson et al.,

2002). What is new is the focus on the entrepreneur and to investigate their relationship to

the environment. Many metrics have been used to study the entrepreneurial system at both

the micro and macro levels (Kassicieh, 2010) but we need to understand the system beyond

these metrics. An emerging definition of an entrepreneurial ecosystem has been about

describing a system whereby entrepreneurship does not start and stop with the actions of an

entrepreneur or their firm but instead it includes the supporting elements, multiple sectors and

actors working together to create a supportive environment for entrepreneurship to thrive

(Nadgrodkiewicz, 2013).

As can be seen in this paper, there is no unified definition of an entrepreneurial ecosystem.

Each stakeholder, from scholars to universities and from government bodies to industry,

insist on their preferred set of criteria. In addition, no definition fits all contexts. The

definition differs between developed and developing economies. The types of opportunities

sought by companies in different types of countries are different. The role and style of public

bodies are different as well. Add to that the element of culture and you can see the difficulty

in developing common agreement about what constitutes an econsystem, its behavior, its

metrics and its effect on entrepreneurial activities.

Because of the multivariate dimensions outlined in the literature, there is no unified

comprehensive measurement framework for entrepreneurial ecosystems. Different groups

have defined their own metrics to evaluate public policies geared to help entrepreneurial

activities (see ANDE, 2013). On the academic side, ambitious programs such as the Global

Entrepreneurship Monitor (GEM) have aimed to outline national variations in the

entrepreneurial process. To measure the dynamics of entrepreneurial ecosystems, Stangler

and Bell-Masterson (2015) have proposed a measurement framework based on four major

indicators. They are:

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 a) Density: New and young firms per 1,000 people; share of employment in new and
young firms and sector density, especially high tech.
b) Fluidity: population flux, labor market reallocation and high-growth firms
c) Connectivity: program connectivity, spinoff rate and dealmaker networks
d) Diversity: multiple economic specializations, mobility and immigrant populations
However, we still lack a better understanding of some dimensions, such as the types and

results of interconnections among firms and with institutional networks. Our goal in this

paper is to contribute to an updated, comprehensive and dynamic measurement framework of

entrepreneurial ecosystems in order to better define the nature, dynamics and mechanisms of

entrepreneurial ecosystems across countries and time.

Given these variations and limitations, this paper seeks to ask three important questions that

underpin the rationale of entrepreneurship ecosystem measurement:

1. Why is it important to measure entrepreneurial ecosystems?

2. Who uses these measures? and
3. What will they be used for?

3． A new approach of entrepreneurial ecosystems

The overall model of this research is illustrated below.

Investors 1) Density
2) Fluidity
3) Connectivity
Government 4) Diversity
Individual 5) Cross-section
analysis
University 6) Time series
analysis
7) Network analysis
Industry 8) Cluster analysis
9) Computer
simulation etc.

Importance to measure entrepreneurial ecosystems

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3-1. WHY measure?

To better define what an ecosystem is and what are the conditions and ways that enable

entrepreneurship to thrive, an updated, comprehensive and dynamic measurement framework

is needed.

The description of the relationships between the entrepreneur, their firms and the broader

environment or ecosystem, has varied among theorists. For instance, substantivists have

viewed opportunity as the symbolic interaction between entrepreneurs and their environment

(Dimov, 2011) while others suggest that an ecosystem reflects the interactions and

interdependencies mapped as industry value chains (Adner and Kapoor, 2010). By

introducing a systems perspective into the study of entrepreneurship, the notion of

entrepreneurial ecosystem acknowledges that entrepreneurship does not start and stop with

the actions of an entrepreneur or their firm but instead it includes the supporting elements,

multiple sectors and actors working together to create a supportive environment for

entrepreneurship to thrive (Nadgrodkiewicz, 2013). The spontaneous, trading-based nature of

an entrepreneurial ecosystem as well as the role of voluntarist policy action has also been

debated (Porter, 1998; Feldman et al, 2005; Chabaud, 2009). Stangler and Bell-Masterson

(2015) focused on the issue of the vibrancy of entrepreneurial ecosystems based on an

innovative compilation of the many studies mainly done in the U.S. context.

However, several limitations exist. Do direct factors such as availability of financing or other

forms of governmental support matter? Do factors such as the sense of belonging to the

place, the presence of an entrepreneurial culture or the considerations by entrepreneurs of

corporate social responsibility affect the ecosystem? Do issues such as diversity in it many

forms (gender, age, national origin/culture, etc.) influence the number of startups in a region?

Another major factor is the availability of data from different countries and regions and

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whether they have been collected in the same way and whether the categorization is the same

across countries (for instance in France, ethnic background data cannot be collected).

In many situations, we tend to use publicly available data rather than data that is specifically

collected for these purposes although groups as GEM and the Competitiveness Forum have

collected data to support measurement in this area. However, this approach might not explain

the different patterns of success of, for example, Silicon Valley as opposed to Boston’s route

128. Each region may score differently on these conditions and have come to their position

from a different perspective as explained by the variance of inputs such as the intentions and

capabilities of a firm’s managers to network (Saxenian, 1994). The nuances in measuring

entrepreneurship have not been fine-tuned. For instance, does the number of support

programs lead the entrepreneur to a smaller or a larger network of people?

Taken to the extreme, the “garbage can model” of organization (Cohen, March and Olsen,

1972) suggests that positive outcomes at best happen randomly, or more precisely, because of

a specific configuration of actors, institutions, and events. As a result, quantitative data

collection can at best provide a picture of the potential favorable conditions for

entrepreneurship to develop, but not an analysis of the actual mechanisms through which an

entrepreneur might be influenced (and possibly helped) by the ecosystem (s)he is in. This can

only be done through a combination of qualitative case-study analysis and quantitative data.

Alternate approachs to evaluating an entrepreneurial ecosystem has been suggested by

O’Connor and Reed (2015). Their very recent study of Adelaide’s (Australia) entrepreneurial

ecosystem involved researching what the entrepreneurs seek from their environment in terms

of support as their businesses progress from an idea to the point of exit. The study examined

the relevance and attraction to various support groups, activities and programs such as

networking and start-up events, formal education, industry education, co-working spaces,

incubators and accelerators, advisory services, government assistance and investors. In

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concluding their findings, they suggest that an evaluation of an entrepreneurial ecosystem

needs to address such factors as relevance, accessibility, strength, continuity and economic

and social responsiveness

We are interested in defining a set of indicators that can be reproduced in various contexts on

the ways an ecosystem works and impacts entrepreneurship. Neither the literature on clusters,

industrial districts or on national or regional innovation systems provide us with hypotheses

to be tested. For instance, the cluster literature has evaluated the benefits of inter-firm

cooperation in absolute terms, neither by comparing with other modes of integration (Pitelis,

2012) nor by trying to understand the modalities under which performance is met (Ehlinger et

al, 2007). Innovation measures focused on the firm (e.g., OECD, 2007) or on the macro-level

(e.g., Global Competitiveness Report, 2015) but is that sufficient to complete the picture we

need to define the entrepreneurial ecosystem.

3-2. WHO needs these measures?

Cluster analysis assumes a systemic link between the economic performance of specific

regions and that of the nation that hosts those regions. The fundamental cluster theory

includes four components (resource factors, demand factors, firm behavior and

related/supporting industries) and two influencing factors: government and chance (Porter

1990). Focusing on systems of entrepreneurship however include more explicitly the

individual level of analysis as well as firm and country level factors and indicators (Acs,

Autio & Szerb, 2014). The competitiveness of a nation, state or region perhaps may be best

summed up as being dependent on the type of factor and resource conditions, the

organization and structure of its current and historical firm competitiveness framework, and

the human factors that underpin change and development (Audretsch, 2015).

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From this brief overview it can be seen that the primary interest in measuring an

entrepreneurial ecosystem appears to be related specifically to the issues of national or

regional competitiveness. The importance of entrepreneurial ecosystem measurement will

tend to relate directly to the importance of improving national/regional competitiveness

through stimulus, support and/or structural change interventions. Measuring the ecosystem

harks back to the adage ‘what gets measured gets managed’ and this raises our second

research question that seeks to determine who manages the entrepreneurial ecosystem. This

next question is important as it is key to understanding what is relevant to those who seek to

manage an entrepreneurial ecosystem before we turn to the last question of what use will be

made of the ecosystem measurement.

In an entrepreneurial ecosystem’s perspective, many stakeholders (scholars, policy-makers,

industry, investors) need these measures. Today, mainly public organizations produce the

data measuring entrepreneurial ecosystems and the goal in these cases is to assess and guide

public policies & programs.

As Governments have been increasingly placing entrepreneurs at the center of economic

growth (Acs, Storey, 2004; Audretsch et al. 2007), they have been thought to be able to

influence positively or negatively entrepreneurial activity (Minniti, 2008) through

regulations, policies and assistance schemes for selected industries that impact the

development of an entrepreneurial ecosystem. From the 1990s Porter's claim (1998) of a role

for Governments in achieving a nation's competitive advantage became a reference to many

policy-makers in search of new tools to foster economic development (Menu, 2011). In

Europe, the cluster model has become a reference in all the 28 Member states with more than

2000 clusters (European Commission, 2013). For instance, the mission of the French

competitiveness clusters has been to bring firms and research centers together, generate

synergies around R&D collaborative innovative projects and more generally to promote an

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environment favorable to innovation and growth. Up to 2 billion euros have been transferred

from the Government to research centers and companies for the purpose of R&D

collaborative projects.

The measurement of regional ecosystems' performance ("scoreboard") has become a key

priority for the European Commission 1 and is part of the evaluation of cluster policies. Goal

is to advise policy-makers in EU member states in how best drive the development of

regional ecosystems. The purpose is to analyze the framework conditions for clusters by

assessing innovation, entrepreneurship and cluster through indicators in more than 270

administrative regions and 80 industries or sectors. Entrepreneurship comes second in this

analysis whose first goal is directed towards understanding the grounds for emerging

industries (European Commission, 2014).

We face two possible directions in assessing the relevance and added-value of public data

collection, thus the role of government bodies: either we consider Government as being one

of the stakeholders among others (and therefore evaluate the role and difference with other

stakeholders), or we investigate the strategies put in place, governance tools, implementation

of programs and so forth, and see whether it has enabled “windows of opportunity” in the

ecosystem following the “garbage can model”.

3-3. WHAT is measured?

Today, as reviewed in the ANDE report (2013), there are generally four categories that aere

assessed:

1
« The objective of the Regional Eco-system Scoreboard is to identify, describe and capture
favorable, cluster specific framework conditions for regional eco-systems that offer fertile cross-
sectoral collaboration spaces for innovation and entrepreneurship. It shall provide policy-makers
with insights into the weaknesses of their regional business environment that may prevent them
from fully exploiting the opportunities in these collaboration spaces. The "Regional Eco-system
Scoreboard" will rely on a statistical indicator system, which will facilitate the identification of
bottlenecks in the regional eco-systems that hold back the performance, especially in innovation,
entrepreneurship and cluster development”
(http://ec.europa.eu/growth/smes/cluster/observatory/cluster-mapping-services/regional-ecosystem-
scoreboard/index_en.htm)

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 - Entrepreneurship determinants (education, aspirations, VC, support programs

- Entrepreneurial performance (e.g., business creation rate, number of businesses,

particularly high-growth firms, employment rate, survival rate, death rate)

- Impact on growth and jobs

- Evaluation of programs (focus groups on awareness, use, relevance).

Several areas of interest are missing. These include:

- Data collection on the mechanisms between entrepreneurial action and the

environment (social context of entrepreneurship)

- Comparable indicators through places and time

- An analysis of the available public data that is not specifically dealing with policy

guidance

4． Future direction

Each one of the areas listed above in the why, who and what sections require further

examination separately and in connection to each other. The intent here is to create a

taxonomy that enables us to understand these issues separately and collectively and how

they can enhance the entrepreneurial ecosystem and its resulting effects.