Our first term at the London Interdisciplinary School was focused on understanding complex systems. With new professors every two weeks, we learned how to understand complexity theory from a variety of different viewpoints. The below paper is a 2,000-word essay on understanding how an entrepreneurial ecosystem acts as a complex system.
An Entrepreneurial Ecosystem (EE) is an excellent example of complexity theory at work. Complex systems lie in the gap between completely dependent and completely independent systems (Sayama 4), just as entrepreneurial pursuits lie in the gap between mere ideas and fully developed businesses. An EE is created from “the micro-interactions of its individual participants, which, when aggregated, construct the complex system” (Roundy et al. 9). The self-organisation, emergence, openness, adaptation, and dynamics of an EE is what allows it to be a complex system (Motoyama and Knowlton 7).
EEs rely on connections and community more than anything else (7). Their development requires decentralised interactions with limited central interventions (Carayannis et al. 793), with an emphasis on no “single agent… in control of the behaviours of the EE or its actors” (Roundy et al. 9). This flattened structure promotes a community of support where overlapping mentorship and financing allows entrepreneurs to “navigate and progress through different development stages” (Motoyama and Knowlton 23). Within these structures, communication is commonplace not only between entrepreneurs, but also their various support organisations (21). While an EE is an inherently competitive place, agents within the system naturally self-organise to mutually support and communicate with one another in a way that allows mentors to become mentees and ventures to thrive (18). It is this positive feedback loop that allows for the maintained success of an EE (18).
The physical organisation of an EE is nearly as important as its social organisation (18). Motoyama and Watkins’ 2014 study of the St. Louis, Missouri EE shows that “the locations of entrepreneurs and support organisations were extremely concentrated” (Roundy et al. 9). When agents function within close proximity to one another, they are more likely to interact and create informal structures of self-organisation within the larger EE (14). Columbia University assistant professor Jorge Guzman explains that geographical location matters because it assists agents within the system to “connect with ideas… find capital, hire employees,” and helps determine a venture’s success in the market (Chupaska 11). The closer an agent is to the geographical or socio-cultural “innovation epicentre,” the more effective and connected they are, and thus organising into a more tight-knight and successful ecosystem is probable (Roundy et al. 11).
The physical proximity of the agents within an EE does not just provide for natural self-organisation (Carayannis et al. 793). It also allows for emergence to more easily occur within the system (793). Emergence is “the creation of a new ‘order’ – structures, processes, and system-wide properties that come into being within and across system levels” (Roundy et al. 7). Spaces such as coworking centres, incubators, and accelerators allow for three forces to work together to influence emergence: “injections of resources into the ecosystem,” “coherence of entrepreneurial activities,” and the bringing together of entrepreneurs with adaptive and intentional purpose (19). Entrepreneurs and ventures do not work with only one support however, and, as stated earlier, it is the overlap of resources that helps EE to thrive and grow (Motoyama and Knowlton 23).
Emergence within EEs also comes about through the constant exchange of ideas and social interactions (Roundy et al. 19). Ventures within an EE come to rely on one another not only for “exchanging ideas and knowledge, but also for adjusting components or complements” (Bouncken and Kraus 7). While a venture is an autonomous business, its role within the EE relies heavily on the agents surrounding it, whether those be accelerators, mentors, other ventures, or a combination (Carayannis et al. 793). When a venture within the system thrives, it brings new resources, mentors, and capital back into the community. When it fails, it harms the community as a whole. This positive feedback loop is what can lead to the successful emergence or collapse of an economic ecosystem (Roundy et al. 14).
Complex systems are “influenced by [external] resource flows into the ecosystem” (10), which are essential to sustain an EE’s openness. Outside stimuli can cause entire phase changes, or simply micro-phenomena level impacts, constantly adding to the complexity of the system (Sala et al. 11). Entrepreneurial systems tend to meld into one another with influences from universities and accelerators that bring in new human and financial capital on a regular basis ((Roundy et al. 10). This constant inflow provides the outside influence needed for continual success within the system, while ill-defined but still present borders allow a degree of community and cooperation essential to the ecosystem’s success (10).
Adaptability is inevitable within all EEs. The ecosystem will naturally morph and evolve as new components are added and taken away from the system, and the agents will change with it (15). Entrepreneurship has an essential reliance on ambiguity, and it is that willingness to change that makes EEs so adaptable (Sandefer). Entrepreneurial ventures, especially in their early stages, often “pivot” (change their strategy or product) (Sala et al. 3). These changes are often considered risky, as they could “jeopardise the firm’s survivability,” however companies like Nokia and Facebook survived pivots and ultimately saw lots of success because of them (3). Despite the risk, continuous modifications to the ecosystem shape how the community responds to “endogenous and exogenous disturbances and allow it to adapt to changing and novel conditions” (Roundy et al. 13). These adaptive responses are the reason EEs continue to survive and thrive through modification. Constant disruptions magnify into larger phenomena which ultimately allow for major growth within the system (Sala et al. 4).
The chaos theory teaches us that small forces can have large impacts, and with the acceptance of ambiguity comes a natural acceptance of dynamic changes on all scales (Sayama 153). Because an EE consists of so many agents – founders, mentors, investors, etc. – oftentimes changes can arise simply from micro-level cognitions and behaviours that can ultimately lead to a new influx of capital and change the entire system (Roundy et al. 19). Chaotic systems are extremely sensitive – the smallest change can make a huge difference (Sayama 154). Something as simple as an investor saying no to a company or an employee leaving a business could make reverberations on the entire system. But, because these systems are dynamic and adaptable, they continue on, perpetually in motion and continuously constructing themselves anew (Arthur 19).
Entrepreneurial ecosystems are, at their core, deeply complex (Roundy et al. 9). They exhibit self-organisation, emergence, openness, adaptation, and dynamics – five of the key components of a complex system (9). The continuous fluctuating presence of EEs within communities across the world impacts not only those inside of it, but their external communities as well (3). EEs are a large source of innovation in our world, brought about by their inherent complexity.
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Chupaska, Stephen. “Location Matters for Entrepreneurship.” Columbia Business School, Columbia University, 29 Oct. 2019, https://www8.gsb.columbia.edu/articles/ideas-work/location-matters-entrepreneurship.
Motoyama, Yasuyuki, and Karren Knowlton. “Examining the Connections within the Startup Ecosystem: A Case Study of St. Louis.” Entrepreneurship Research Journal, vol. 7, no. 1, 2017, https://doi.org/https://doi.org/10.1515/erj-2016-0011. Accessed 15 Nov. 2022.
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Sala, Pavan Kumar, et al. “A Qualitative Research Study of the Tech Startup Journey through Entrepreneurial Pivoting.” International Journal of Entrepreneurial Behavior & Research, vol. 28, no. 4, 10 May 2022, pp. 1050–1074., https://doi.org/https://doi.org/10.1108/IJEBR-07-2021-0528. Accessed 16 Nov. 2022.
Sandefer, Jeff. “The One Key Trait for Successful Entrepreneurs: A Tolerance for Ambiguity.” Forbes, Forbes Media, 17 May 2012, https://www.forbes.com/sites/acton/2012/05/17/the-one-key-trait-for-successful-entrepreneurs-a-tolerance-for-ambiguity/?sh=15e4f9487604.