Some less than great news about Fanduel, one of the most prominent success stories of Edinburgh's entrepreneurial ecosystem. According to the New York Times, both it and its main competitor Draft Kings are running low on cash.
“Within the past three weeks, the New York-based FanDuel has laid off more than 60 people, and both companies have acknowledged that they are months behind in their payments to vendors, especially to the array of public relations and lobbying firms that they have employed across the nation to persuade individual state legislatures to legalize daily fantasy games — the most critical component of rebuilding their business.
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One of the things that separates Edinburgh from other entrepreneurial ecosystems of its size is that remarkable emergence of two high-growth unicorns, Fanduel and Skyscanner. These have become leading icons of the city's tech community. They're celebrated, the CEOs of both companies often give talks at events and it's something that city leaders can point to when trying to attract the attention of global investors and tech giants. But more than a symbol, these companies act as magnets, attracting highly skilled workers to the region who can then either startup their own firms or become highly valuable employees at other startups. Their success has helped build a culture within Edinburgh's tech community that says "I can do that." If you see something is possible, it becomes possible for you to do yourself. It's the business equivalent of this Pokemon ad (which I love)
But what happens when that success story succumbs? What would happen if (knock on wood) Fanduel and Draftkings make a desperation merger that results in widespread layoffs in Edinburgh and the loss of its local offices?
Immediately, the impact would be big but not devastating. LinkedIn shows about 100 Fanduel employees based in Edinburgh. These are all really highly skilled people, both on the tech and managerial side. I have no doubt that those who wanted to would quickly find jobs at other local tech firms, from large ones like Amazon's local R&D lab to Skyscanner to smaller but still up and coming tech firms. Others would go abroad or down south to London depending on how deep their ties are to the city. We might even see a small spike in entrepreneurship as people who have been playing around with the idea of starting a company now take their severance and make a play.
Longer term, it's hard to say. I feel that while right now Edinburgh (especially it's digital tech sector) has a very positive, supportive culture. But I think that this culture is rather fragile. We don't talk about failure. Richard Yemm and Pelamis Wave Power — a wave energy company in Edinburgh that went into administration in 2014 — used to be the toast of the town. Everyone was celebrating the advances it made. But after it went into administration not another word was spoken about it (except to blame the Chinese for stealing their technology).
I've seen similar things happen in Ottawa after the collapse of Nortel in 2000. I've written about it with varying amounts of puns here and here and wrote a pretty decent book chapter about it here. Ottawa saw about a decade of retrenchment after the collapse of Nortel, with significant loss of talent to other regions. While the economy has recovered, the technology scene has shifted far away from the heavy duty networking technology Nortel was known for towards SaaS, including Shopify, one of the world's leading e-commerce platforms.
What I noticed in Ottawa after the collapse of Nortel but before the rebirth of its SaaS economy was a big depression in it's entrepreneurial culture. In a recent article I've written in the Journal of Economy Geography, I show how this lead to fewer people finding entrepreneurial mentors, a crucial ingredient in a thriving entrepreneurial ecosystem. There were other knock-on effects: the lack of a strong entrepreneurial culture made it hard to create a cohesive entrepreneurial community. There was a big divide between the new startups downtown and the tech companies in the suburbs. They just didn't see eye to eye. The city didn't know who to support or how to support them because the firms couldn't come together in an organized fashion.
So what does this tell us? It means that while the collapse of any one firm might not have immediate impacts on a city's entrepreneurial ecosystem, it does suggest that entrepreneurial cultures can be very fragile in small-sized ecosystems with just a few real big success stories. It's more than a bruised ego, a damaged entrepreneurial culture can discourage the kind of risk taking that startups need to scale up and can make it harder to attract new angel investors and venture capitalists to the region.
How can ecosystems preempt this? There's no one silver bullet. Firms fail. It's part of life. All you can do is be prepared for it. One thing places can do is try to be more tolerant of failure. Celebrate failure as a learning opportunity rather than as personal failure. It's hard to do but necessary. Second, ecosystems should make sure that people recycle through it rather than leave. If Fanduel folds, there is an amazing pool of highly skilled, talented people. How can we make sure that they find jobs in the ecosystem rather than heading to sunnier climes? After the collapse of RBS, Edinburgh set up a senior management bank to help tap the talent pool that suddenly became 'available.' But it's also about providing targeted support for the recently laid off to make sure that local firms have a first shot to offer them new opportunities or that they receive startup support relevant to their needs and abilities.
Will Fanduel suddenly collapse? I hope not. But an ecosystem so dependent on its successes that it can't outlive them isn't a very stable ecosystem to begin with.