Does social dimension beat geographic clustering in creating tech innovation ecosystems in cities?

The title of this blog entry is one of the many questions we’ve been asking in our research to identify key success factors for urban tech innovation ecosystems. We wanted to better understand what causes tech innovation and entrepreneurship to grow faster in some cities, as well as explore the potential of these ecosystems for creating new sources of employment and growth.
 
Traditionally, the focus has been in clustering: building technology parks or innovation districts where companies, research and development (R&D) labs, universities and other actors were placed together in a defined geographic district or area. We have challenged this unidirectional focus and looked beyond geography to understand how connections and the social dimension of the ecosystem impacted on its growth and sustainability.
 
The answer we are getting is that the social dimension not only matters, it matters quite a big deal. The social dimension is the “glue” of the ecosystem and expands it beyond geographic boundaries of districts or technology parks. Networking assets (specific actors and events that work as social networks nodes) keep this social dimension together, being central to the ecosystem.
 
When we explored the impact of the social and the geographic dimension of tech startups in their success (in terms of capital rising), we found a positive and significant correlation for the social dimension. We did not find any correlation for geographic location.
 
These findings are not yet conclusive, but they point to one important direction: policies need to focus more on the social dimension. Ecosystems need to be understood as a community that requires active nurturing and maintenance in order to thrive and grow. The geographic dimension seems to be a tool for the development of social connections, but it does not develop these connections by itself (something else is needed). This means that the focus of policy to support the ecosystems should pay attention to the development of networking assets that kick-start communities, build networks (such as  meet-ups and mentoring) and provide platforms for community building ( such as collaboration spaces).
 
These are the policies that some cities, such as New York, Amsterdam or Helsinki, have been successfully implementing to expand and sustain their tech innovation ecosystems.  Policies that only focus on the geographic dimension will have less impact and ignore one of the most critical factors for a sustainable ecosystem.
 
Our goal is to formulate a framework to understand these ecosystems -- including their social dimension -- and to test how critical the social dimension of these ecosystems is for their growth and sustainability.  We focus on information and communications technologies (ICT) in particular, because this is where we have been witnessing the fastest growth in startup and employment creation. We have worked in New York because it is a live case study of tech ecosystem growth with an abundance of available data.
 

After conducting a literature review, the framework we proposed has four key properties relevant to city innovation ecosystems: people, infrastructure, economic assets and enabling environment.  These factors are common in other frameworks, but we added an additional layer: the social dimension of the ecosystem. The framework revolves around the hypothesis that connections and communities, represented as networking assets, are central and a key success factor for ecosystem growth and sustainability (see figure at right).

Networking assets for this research are understood broadly, and include any event (such as meet-ups or competitions) t hat increase the potential of collisions or social connections. Networks of mentors and collaboration spaces are also included.
 
Next, we tested the framework hypothesis using publicly available sources of data in New York -- as well as interviews and additional data provided by Endeavor Insights from their own research -- that includes survey data of over 600 entrepreneurs in the city. The initial results we obtained support the hypothesis that the social dimension of the ecosystem is one of the critical factors for the growth and sustainability of the ecosystem, and that networking assets are central to this social dimension:
 

• The social dimension of networking assets (using accelerators and incubators as a proxy) expands the ecosystem beyond geographical clustering or technology districts’ boundaries.
• Networking assets (using accelerators and incubators as a proxy) are central to the ecosystem’s social dimension, being nodes of connection for startups and other stakeholders. 
• There is a significant and positive correlation between a startup’s success (measured as capital rising) and its social dynamics. However, that correlation is not present in the geographic location of startups.

 
These findings are still preliminary and we need to test them for causality and in other environments different than New York. The sources of data we used were limited, and many sources relied on self-reported data. However, they provide insights into the importance of the social dimension of the ecosystem and the role of networking assets as a critical success factor for these ecosystems.
 
This is consistent with, and reinforced, by recent research of Endeavor Insights on the social dimension of the technology urban innovation ecosystem, which finds that social connections have been critical in the growth and sustainability of the New York ecosystem. In addition to Endeavor Insights, some of our other ongoing research partners include the University of Chicago Computation Institute and Harris School of Public Policy, and other partners within the Global Entrepreneurship Research Network (GERN), as well as selected city partners from both developed and emerging countries. 
 
We will continue working on this research and increasing the scope of analysis and breadth of cities, to understand the role of the social dimension and importance of networking assets in different urban environments.  
 
This research has been developed by a team led by Victor Mulas and includes Hallie Applebaum, Michael Minges, Kathy Qian, Nga Phuong Nguyen and Mary Alexander Sherman.  Matt Gee and Nick Eng from the University of Chicago (Computation Institute and Harris School of Public Policy) provided advice and guidance.