🚨🚨🚨New paper alert!🚨🚨🚨
My colleague Tara Vinodrai and I have just published a new research article in Entrepreneurship and Regional Development: Meeting its Waterloo? Recycling in entrepreneurial ecosystems after anchor firm collapse. This is a really cool article and I’m really happy that it’s now public. I’m going to tell you why it’s cool through the medium of Simpsons screencaps.
Entrepreneurial ecosystems, as you might recall, are the interdependent actors and factors in a region that support high-growth entrepreneurship. Normally our perception of ecosystems is fairly linear: things start small, maybe a research university helps seed a few high-tech startups. But things grow as investors, mentors, advisors, and other supporters help spur innovative new ventures. As those firms succeed, it brings even more attention, particularly from politicians who can help things grow.
Our Dean is far less crusty
But what happens when things go bad? What happens when one of those big, successful, famous firms collapses? After the loss of a major firm we see something called /entrepreneurial recycling/. This is when people leave their old firms and re-enter the economy.
Let’s imagine you’re working at a big tech company that collapses because of managerial incompetence.
NOT LENNY!!!!
You know things are going to hell. You can quit now and look for another job or wait around, but then you’ll likely get laid off anyways. So what do you do? It’s a tough decision!
Gotta keep some egg-heads around
Well, first you could find a job somewhere else! Your home city’s economy is in the tank, but there are lots of opportunities elsewhere. Pack up the children and move to Cypress Creek!
You only move twice is no longer demographcally accurate given changing career trajectories
Or, maybe the economy still isn’t too bad. Maybe you can find a nice, stable job at another big local employer. That way you don’t have to move and get to keep all your friends. It might require some re-training, but it should work out.
Or maybe you’ll create your own future! Throw caution to the wind and become an entrepreneur. Use the skills and insights you developed at your last employer to make a new product and maybe….make a killing.
Bill Gates didn’t get rich by writing a lot of checks
Or maybe you get a job at a hot young startup with all the coolest amenities.
Anything after Season 8 is not worth a GIF
You could also just not get a job! That’s an option too.
Look, philosophy grads actually have very good career outcomes. Its the biology students who are doomed.
So, lots of options but we’ve never had really good numbers to track what happens to people who leave a sinking ship. How many become entrepreneurs? How many take their talents to innovative new startups? And how many people leave the region or take low-productivity jobs?
To do this, we used an innovative new methodology using social media data (to be explored in a future post) to track the career histories of engineers and programmers who left the smartphone company Blackberry after it started to decline in 2008. Our main question was: how many people who left the company entered Waterloo’s very vibrant entrepreneurial ecosystem? How many started their own high-growth ventures? How many worked for local tech startups? How many left the region entirely, taking with them their ideas and technical talents? While some previous studies have looked at who leaves a region after a job loss, really no one has looked at recycling back into the ecosystem after a major crisis.
Interestingly, very few of these former Blackberry workers actually started high growth firms themselves. Out of the total dataset of more than 750 technical workers, only 12 went on to start high-growth or innovative technology ventures. In total, only 6.8% of the dataset were entrepreneurs of any kind.
Look maw, actual data!
However, we saw substantial recycling back into the ecosystem from former Blackberry workers. More than half of Blackberry workers stayed in the region, which is really important for ensuring that a sudden shock doesn’t cause a massive outflow of economic activity and smart people. About 25% (192 out of 782) of the technical workers we identified who lost their jobs after 2008 entered Waterloo’s local entrepreneurial ecosystem. This meant that they subsequently found a job at a locally founded, high-growth startup.
It’s a bit hard to contextualise these numbers. Similar data needs to be gathered for other regions after a shock to a major anchor firm to figure out if these rates of entrepreneurship and recycling are high, low, or average. Helsinki and Nokia are the most obvious comparison and I’m looking forward to giving that a try, once I figure out Finnish.
What’s the Finnish translation for “growth hacking ninja”?
However, the most interesting finding to me was the increase in the proportion of workers entering the ecosystem over time. From 2008 to 2013, 17.8% of workers leaving Blackberry got jobs in the local ecosystem. Between 2014 and 2018 this increased to 37.7%. We see this as evidence that the institutions of Waterloo’s ecosystem strengthened, making it easier for local startups to attract really talented workers and increasing the willingness of these workers to take jobs at riskier startups and scale-ups. This is really interesting because is suggests that recycling isn’t static: it’s affected by the institutional and economic structure of the region.
So, what are the take-aways from this paper? (1) Anchor firms are important to how ecosystems work. They attract people in who then go on to enter the ecosystem in one way or another. (2) Ecosystems are evolutionary. We already knew this, but this is a neat bit of empirical work to show it. (3) We get a first indication of the levels of recycling we observe in the real world. Recycling has been mostly talked about in a theoretical “of course this is what happens” sense, but now we have some real data to show that its happening. (4) We use a really cool methodology to get this recycling data that allows us to really understand how people’s career trajectories change over time. I’m really looking forward to using similar techniques to better understand many different aspects of entrepreneurial ecosystems and the economic geography of innovative regions.