Ecosystems. What are they for and why we should push to have them?
N. Segre
Israel is considered by many to be one of the most thriving and developed Innovation Ecosystems in the world. A few years ago, I had the opportunity to accompany a group of executives from one the largest Chinese conglomerates during a trip to Israel. After a full week of meetings with investors, startups, corporates, army, and government officials, in the closing session of the trip one of the more senior executives raised his hand with a question. “You keep on talking about ecosystem this, ecosystem that, but what IS an ecosystem?”
Definition
What the Chinese executive might not have understood, is that it is very hard to give one definition to what an innovation ecosystem is. If we want to look for the clearest (and shortest definition), we can find the following:
All important economic, social, political, organizational, institutional, and other factors that influence the development, diffusion and use of innovations.
This definition can leave us, a little perplexed, as it basically means everything and everyone. But this is also the beauty of an ecosystem — in order to make it flourish, there is a need for everyone to be a part, and an active part in the creation and growth of it.
What one might also notice, that although the definition regards innovation ecosystem — there is no mention of the word technology, tech, programming and other words which might be regarded upon as the main point of innovation.
So, who are the Innovation Ecosystem Players?
To understand better this magical world of ecosystems, we can divide the players into five main categories:
1. Governments
This obviously includes all the institutions that fall under this title, regional, municipal, national, intergovernmental and others. All these fall under the same category and have the role of legislation, regulation, and incentives.
Their role is a crucial one in emerging markets or those in distress, granting the needed access, rules, tax benefits and funding at a higher level to ensure the proper foundation and execution of the ecosystem.
It is clear, that, at times, these institutions do best, when they don’t interfere with the work of the ecosystem but become an enabler to make things work better.
An example of this could be in what we can call “lost funds”, in which the purpose is not to have a direct return on investment, but instead move the economy in order to have a return in a different way (If government A invests a lost fund in Company Y, it will create jobs in the company and around it that will yield return in a form of employees paying taxes)
(See how the Israeli government shaped their role in the ecosystem: https://embassies.gov.il/hanoi/opinions/Pages/What-made-Israel-a-startup-nation.aspx)
2. Universities and Research centers
Universities have of course a very crucial role of educating, but also have a role of research and experimentation which is vital for the growth of innovation.
Think of how many patents, ideas, technologies, and life changing solutions have been and will be stormed up in a research facility? From drip irrigation to machine learning, and quantum computing from cherry tomatoes to artificial intelligence all of these were born in a lab.
So, what is the challenge here? Well, the main challenge is learning how to extract this research from the lab and finding it the correct market need. How do you convince a researcher that writing a paper and being published is a great honor, but taking that research and creating a company, commercializing it and selling it, can be life changing for him and for millions of others?
(Want to see an example of a company that was born in a lab?https://www.youtube.com/watch?v=WAAt4gRdOlQ)
3. Risk Capital
Yes, risk, those who risk their capital in the ecosystem. Which basically means all and any form of investors, business angles, club deals, Venture Capital, Private Equity, Accelerators, Incubators — all those that risk their capital (In cash or in equity) in that uncertain, risky, and volatile thing we call innovation.
Here, the main concept for an ecosystem to grow and flourish is the understanding that, to make money, you need to spend money (knowing that you will also lose some of, but what you will make, will make it all worth it!). Risk capital requires patience and expertise. It requires knowledge and knowhow. It requires risk taking and vision.
In the end of the day, investors don’t only fuel the ecosystem with money, but they are also a fountain of knowledge, they know who things work and they have the view on what is happening, more importantly what will be happening, in the world of technology. They are also an important connector, networkers by trait, connecting the dots, it part of their role.
(Want to understand better Risk Capital? https://www.investopedia.com/terms/r/riskcapital.asp#:~:text=Risk%20capital%20is%20typically%20used,put%20risk%20capital%20in%20them.)
4. Corporates
Corporates are often thought of as those that the technology and innovation are trying to disrupt. Startups challenge the status-quo, which is mainly kept by these companies.
However, also with this in mind, corporates are a significant player in the ecosystem. Yes, they set the status-quo. Yes, generally speaking they are the slow ones, the bureaucratic ones. The ones who are focused on their margins and take less risks in “trying out new things”.
Having said that, this is one of the main opportunities they present to the market. They know the clients, they know their markets and they need the help of the ecosystem to push forward and well, survive.
Corporates who have open innovation processes, partner with Accelerators, create CVCs (Corporate Venture Capital) are able to tap into the innovation. Become clients of startups, become partners of startups and finally also buyers of those said startups.
(Here are some examples of innovative corporates: https://www.qmarkets.net/blog/titans-of-transformation-5-outstanding-examples-of-innovation-in-business/)
5. Talent
Human Capital. Entrepreneurs. Risk Takers. Visionaries. Disruptive Thinkers. Movers and Shakers. Innovators. Inventors. Magicians. Creatives. Technologists. Designers.
I think this point is pretty clear.
Ecosystems are flexible and breathable. They vary according to the geography, the maturity, the needs and, well, the ecosystem itself. In addition, each one of these players is independent — they play on their own in the goals they have and in the way they work. More importantly, they are interdependent. They have to interact, they have to work together in order to ensure the growth of the ecosystem, that as a subsequence will result in their own growth.
When we talk of innovation, do we need any ecosystem or a system?
In a panel about innovation in Italy a couple of months ago, I was challenged by a fellow panelist who stated, that ecosystems are nice, but in order to really create something we need a working system.
When you think about this question knowing that my fellow speaker was a representative of a government institution, it is clear that they need a system to make things work.
Do we need a system when we talk about innovation, or do we need to find a way to make the ecosystem work together? In my view an ecosystem is like the palm of your hand, each player is a finger. They are all independent, but are also fragile when on their own, but when they work together, the create the strongest fist. This is why we need to push to create ecosystems, spearheading local and global excellence and always pushing to learn from each other, benefit from each other, work with each other, talk to each other.
In an ecosystem — the success of one player — is the success of all players.
