What is the best startup ecosystem? There’s no shortage of reports trying to answer that question. Take your pick for 2015.
We crave these lists because our education system, culture and business world have all taught us to appreciate the value of competition. And it does have some value.
My Answer
When asked personally, I would always start with the SF Bay Area as #1. Although some locals refer to it as three distinct ecosystems, it’s really a single ecosystem with bad traffic. The data supports the #1 ranking, but just as important is my personal experience on the ground. Things generally do work faster and better in this ecosystem.
But I was wrong.
The Nature of Networks
My change of heart started because I was constantly being asked to rank startup ecosystems in Asia, where the answer is not obvious and the competition is intense. Beijing, Singapore, Hong Kong, Bangalore, Tokyo, and many more contenders. Which is the best?
To answer that question, first let’s take a detour to discuss networks. Twitter is not about 140 characters, it’s about the network of people. A smartphone can be used on its own, but the real value is being connected to the network. Uber could not exist without a network. We automatically understand the power of network effects for companies and people.
Most of the energy in building startup ecosystems right now is focused on local optimization in order to be better than the competition. To climb up the rankings. But this quickly reaches diminishing returns precisely because of local constraints. Opposition to immigration. Housing prices. Traffic. If this starts to sound familiar in your city, it’s because these are common challenges in almost every major startup ecosystem in the world.
A New Perspective on Ecosystems
Instead of focusing primarily on local optimization, startup ecosystems should spend more energy on building connections to other ecosystems. Fortunately, this process is already happening and startups are leading the way by growing their teams remotely, connecting with cross-border capital and finding global customers. But it’s still the early days in this trend and more can be done at the overall ecosystem level.
As we know from personal and business experience, becoming more connected across diverse worlds is a powerful way to increase value.
Similarly, when two startup ecosystems are more connected, they both receive more value because it is not a zero sum game and those connections will then feed back into the local ecosystems. They will both be better off on an absolute basis, and of course also move up in the rankings.
We know that network effects don’t stop at the local level. Instead, positive feedback loops continue to increase across the network as it scales.
This system perspective exposes the reality that our current ranking system is missing an obvious point. The #1 startup ecosystem in the world is not the SF Bay Area, or any other individual ecosystem, but instead the overall network of connected startup ecosystems.
The network is the ecosystem.