Innovation Diary: Success breeds success: Why startup networks are important

Tom Welsh
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BRITAIN is the best place in Europe to be an entrepreneur. This, at least, is the conclusion of a study released by Ernst & Young last week. While the UK lags behind the US, South Korea and Australia, the G20 Entrepreneurship Barometer credited Britain’s regulatory framework, its tax system, its culture, and its financial sector as all boosting chances for startups.

We have our weaknesses, of course. UK entrepreneurs are among the most pessimistic in the G20 and five years of falling real incomes threaten Britain’s long-term position. But the strength of what E&Y calls UK entrepreneurial ecosystems, and the phenomenon of successful firms feeding back into the success of other startups, is formidable. As Scott Button, co-founder of Unruly Media UK, has said of London’s oft-maligned tech cluster, the phrase Silicon Roundabout “was a bit of a joke initially”. Some estimate it hosted just 15 tech firms in 2008. But according to UHY Hacker Young, it was the UK postcode with the fastest rising number of startups in the year to March 2013, with 15,270 firms formed. Success breeds success.

A more modest version of this trend can be seen in the Lancashire town of Burnley. To some raised eyebrows, the Department for Business named it the most enterprising place in Britain last week. But this isn’t as strange as it sounds. The town’s businesses have clubbed together to form Burnley Bondholders, which works to promote local enterprise by challenging negative perceptions. They have attracted £10m to the area.

Anecdotally, Button says Unruly Media benefitted from being located alongside similar firms. But academics like Michael Porter of Harvard Business School and Daniel Isenberg of the Babson Entrepreneurship Ecosystem Project have done serious research in the area. Porter found that strong startup clusters contribute positively to survival rates. Babson’s Ten Rules for Revolutionaries, meanwhile, warn that while “clusters don’t create entrepreneurs.. successful entrepreneurs like to help others.”

Networked ecosystems could also help make potentially disruptive new technologies viable. 3D printing, for instance, is expected to transform the production of hardware – from architectural models to jewellery – as apps transformed software. But a May 2013 report by McKinsey noted that, “while it does have the potential for disruptive impact on how products are designed, built, distributed and sold, it could take years before that impact is felt beyond a limited range of goods.”

Sales of personal 3D printers grew by about 300 per cent a year between 2007 and 2011, yet wide ownership is still distant. While personal 3D printers can cost as little as $1,000, the average industrial printer is a hefty $75,000. McKinsey notes that “much of the potential value of 3D printing for consumers and entrepreneurs will depend on the emergence of an ‘ecosystem’ to support users.”

This is what makes the seed stage investment by Balderton Capital, the venture capital firm, into Amsterdam-based 3D Hubs so exciting. James Wise of Balderton stresses that 3D printing is still just potentially disruptive. But 3D Hubs aims to make it more locally accessible by “unlocking” idle printers, and facilitating transactions between printer owners and those who want prints. Crucially, Wise says, it will also allow people to more easily search for advanced 3D printing capabilities.

Wise thinks that 3D Hubs could join a number of companies that are networking businesses, while lowering barriers and costs to entry. Users could access open-source digital design via Thingiverse, raise crowdfunded capital on Kickstarter, then buy a 3D printed prototype on 3D Hubs. “We’re opening up the possibility to launch the next product from your bedroom,” he says.

Tom Welsh is business features editor at City A.M. @TWWelsh