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Innovation That Matters

What will it take for our nation’s cities to drive more startup activity that can transform the industries that matter most to society? In this study, we provide new perspective on this question through an in-depth look at entrepreneurial communities in eight U.S. cities. The purpose of our research is to provide a framework that city leaders can utilize to foster new innovations that improve the lives of local citizens.

Check out the second edition of Innovation That Matters published in 2016 Here

Author

Patrick McAnaney Research

Contributors

Michael Hendrix Director, U.S. Chamber of Commerce Foundation Malavika Kesavan

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Introduction Expand

What more can be done to harness the power of startups to help solve the biggest needs of our global society?

We believe that driving innovation in the civic sector—the collection of complex, highly-regulated industries with entrenched institutional players intended to serve the public good—requires a different approach than that of traditional tech. When it comes to improving our most well-established civic institutions such as schools, energy grids, healthcare systems, and local governments, it truly takes 
a village to create meaningful change. In these industries, startups need a broad-based and collaborative approach that integrates them into the wider community of actors. 1776 is built on the premise that facilitating such integration will allow more entrepreneurial innovation to emerge and grow in ways that benefit society.

In partnership with the U.S. Chamber of Commerce and its affiliates, we traveled the country to study the state of civic entrepreneurship in eight U.S. cities: Austin, Boston, Chicago, Detroit, New Orleans, New York, San Francisco, and Washington, D.C. The purpose of the Innovation that Matters report is to share best practices for developing civic startup ecosystems from local communities across the country. The role of this partnership, and 
the research we present here, is to offer our cities, as well as the entrepreneurs and citizens within them, a model they can digest and apply to their own environment.

Each city shouldn’t try to reinvent the wheel. There is much more that those of us working in the civic sector can and should learn from each other. Lessons learned in other cities and industries can be applied to local circumstances. Our analysis is intended to provide useful guiding principles regarding ecosystem development, both for those in the trenches building startups and for city leaders eager to support such initiatives.

The Innovation that Matters Report

Our study tested the philosophy outlined above using the hypothesis that broad-based connectivity is the key ingredient for fostering successful civic entrepreneurship.

For each city, we surveyed local civic entrepreneurs and compiled data for an index on
 the development of teach city’s startup ecosystem. We then convened diverse groups of stakeholders in each of our core industries—education, energy, health, and cities. Our listening tour roundtables included entrepreneurs, investors, incubators, industry experts, corporations, government leaders, and representatives of civic institutions. We asked them for their views on what works—and what doesn’t—when it comes to growing their ecosystems, and we took note of the principal themes that emerged from the discussions.

What we found was a strong confirmation of our original thesis. We confirmed that the “secret sauce” of ecosystem development lies in the creation of effective networks that bring together broad arrays of stakeholders within an industry; facilitate open exchange of ideas; and bridge cultural gaps between different groups to promote effective collaboration. Furthermore, we found that despite the supposedly unique nature of each of the industries that we studied within the civic sector—education, energy, health, and cities—all four share a common set of opportunities, challenges, and solutions for growing their startup ecosystems in ways that separate these industries from the traditional tech sector. The following sections explain these concepts further.

To understand how cities can develop entrepreneurial ecosystems, it is first necessary to understand what these ecosystems are. The term “ecosystem” refers to a broad community of actors involved in entrepreneurial innovation in the civic sector. These actors operate in similar fashion across the industries we studied, from education and energy to health and smart cities. We refer to this community of actors and the way they work together as the “Civic Entrepreneurial Ecosystem.”

The Civic Entrepreneurial Ecosystem consists of five elements:

1. The Network Effect: The underlying goal is to build an open, fluid, and dynamic network that helps startups make the connections they need to succeed and links different groups, both hyper-locally and hyper-globally.

2. The Triangle of Civic Entrepreneurship: The main protagonists in this network are the Entrepreneurs, Civic Institutions, and Citizens, whose three-way interactions define the ecosystem and form what we term the Triangle of Civic Entrepreneurship.

3. The Supporting Roles: There are several supporting actors who provide direct help to entrepreneurs: investors, advisers, established companies, universities, professional services (accounting, legal, real estate), and cheerleaders (associations and business groups, bloggers, event organizers). Building successful businesses requires help from all of these groups; startups cannot achieve their goals by going at it alone.

4. The Platform: There is also a basic platform of broader environmental building blocks—an accommodating regulatory environment, quality of life, creative thinking, and density—that the network needs in order to flourish.

5. From V1.0 to V2.0: Once these network conditions have been met, creating a robust ecosystem requires a second, more direct layer of intervention. Community members should actively identify company stages and determine the best ways to empower entrepreneurs to overcome the unique hurdles they face at each stage.

To visualize these elements, we use the following graphic:

Download the full report and read the section titled “The Framework: The Civic Entrepreneurial Ecosystem” for detailed information on this concept.

Using the Civic Entrepreneurial Ecosystem concept as a baseline, we then looked at how these ecosystems actually work in the eight cities featured in this report.

Civic Entrepreneurship Index

First, we used quantitative analysis to get an objective look at how far each city has come in creating its ecosystem, compiling 45 metrics from various databases and reports and combining them with a survey of 230 civic tech entrepreneurs to build a robust index that assesses the progress to date of the local community in a variety of areas. Our “Civic Entrepreneurship Index” featured five categories:

Leadership: Influence of Serial Entrepreneurs

Institutional and Corporate Support: Influence of Civic Institutions (Schools, Hospitals, Utilities, Government Agencies) and 
Corporations

Capital: Influence of Angel and Venture Capital Investors

Talent: Influence of Workforce

Community Support Structures: Influence of Support Organizations and Startup Peers

Based on their stage of development, cities were classified as nascent, emerging, established, or leading.

Analyzing the overall results of the index led us to the following key findings:

1. Network Connectivity is the “Secret Sauce” Driving Ecosystem Growth: How entrepreneurs perceive the overall cohesiveness of their startup community is positively correlated (0.83) with the development of startup ecosystems.

2. Each City is Making Progress Toward Establishing a Civic Entrepreneurship Ecosystem: While some cities are further along than others, there are clear signals of growth in each community we studied, providing evidence that momentum in civic entrepreneurship is not limited to any specific city.

3. Institutional and Corporate Support is Still a Somewhat Untapped Resource: Our survey revealed limited interaction overall between entrepreneurs, civic institutions, and corporations in their local communities. A major, remaining opportunity is to better connect these groups to create a more effective and collaborative network.

The State of Your City

For each city, we surveyed local civic tech entrepreneurs, asked them to rate the support they receive from actors within the ecosystem on a 1 to 5 scale, and noted the percentage of respondents who recorded either a 4 or 5, indicating strong support. Filter your city to see how it falls in relation to the national survey average for leadership, talent, community programs, capital, corporate support, and civic institution support.

*Detroit did not have a statistically significant number of survey responses, and was not included.

Download the full report and read the section titled “Civic Entrepreneurship Index” for detailed information on the index, including city-specific findings.

While the Civic Entrepreneurship Index paints a useful picture of each city’s progress, it only tells part of the story. To truly understand today’s innovation landscape, it is necessary to go beyond the numbers and explore the real experiences of people working on the ground in each of these cities and industries. We knew that we needed to listen directly to the community in order to learn how to accelerate change.

To do this, we spent six months traveling to eight cities and organizing 38 roundtables, in which we heard from 366 local stakeholders who represented startups, civic institutions, corporations, government, foundations, industry experts, and other groups working on civic innovation. We brought these diverse constituencies together and posed a broad topic to the group: “Explain the strengths and weaknesses of your local ecosystem.” As participants shared their views, we noted the frequency with which certain themes were brought up. These themes form the core of the findings from our listening tour.

Our insights from these discussions focus primarily on the parallels across cities and industries. The roundtables confirmed to us that our core industries have far more in common with each other than they may realize; there are fundamental business model similarities that highlight the unique nature of civic sector entrepreneurship and its contrast to the traditional tech industry.

Opportunities: Key factors creating change in today’s civic entrepreneurship landscape

During our roundtable discussions, participants across our core industries repeatedly mentioned the following five themes as having a significant influence on the emergence of entrepreneurial activity in their ecosystems. Together, these opportunities are causing a major shift in the entrepreneurial landscape:

1. The Asset Base: Cities are learning how to tap into existing resources to grow their startup communities.

2. The Evolving Civic Sector: Changing business models are reinventing civic institutions and creating new openings for entrepreneurs.

3. The Disruptive Urgency: Concerns about industry disruption have increased institutions’ and corporations’ willingness to work with startup companies.

4. The Citizen Engagement Factor: Civic institutions are looking for new ways to directly connect with citizens in order to improve the quality of their services.

5. The Dual Paths: Partner or Circumvent: Startups increasingly have the option to work with established organizations in entrenched industries or to go around them if those organizations resist change.

Challenges: Barriers to promoting successful entrepreneurial innovation in the civic sector

Despite the opportunities for change that are revolutionizing today’s landscape, the path forward is still not clear. During our roundtable discussions, we repeatedly heard participants describe in direct and candid terms the many roadblocks they had encountered while trying to foster civic innovation. These are not small hurdles that can easily be overcome, but rather intractable challenges that continually obstruct meaningful change.

To understand today’s landscape, it is important not only to understand the opportunities that are causing new shifts, but also the challenges that favor maintaining the status quo. During our roundtable discussions, participants across our core industries repeatedly mentioned the following five themes as major impediments to increased entrepreneurial activity in their ecosystems:

1. The Alignment Gap: Even with the resources in place, actors within an ecosystem often do not collaborate effectively.

2. The Bureaucratic Maze: When engaging with civic institutions, entrepreneurs must navigate a series of complicated relationships and long time frames in order to gain traction.

3. The Credibility Dilemma: Startups face a chicken-or-the-egg problem of getting initial customers to pilot technology when its efficacy is still unproven.

4. The Risk Disincentives: Civic institution administrators and employees face strong motivations to avoid taking risks that could endanger their organizations or careers.

5. The Noise Factor: The explosion of startup activity has made it more difficult for civic institutions to distinguish high-quality startup technologies, creating “startup fatigue.”

Download the full report and read the section titled “Listening Tour Insights” for detailed information on these concepts, as well as industry-specific findings.

Beyond explaining the current state of their ecosystems, including opportunities and challenges, we also asked participants to do something more difficult: suggest best practices and solutions from their own experiences that could be applied in other circumstances. As we listened to anecdotes, examples, broad concepts and other pieces of feedback, we began to notice specific themes emerging. These themes represent the most important factors we identified for overcoming 
the challenges mentioned above and advancing the evolution of civic startup ecosystems.

It is important to note that these solutions are not exact “how-tos” to be exactly copied. Rather, they represent broad guiding principles that can help local community leaders—serial entrepreneurs, government officials, foundations, business associations, and others—to think about how to approach the task of fostering more innovation that matters. Our goal is to provide an overarching framework for leaders to reflect upon, digest, and apply in their own unique ways to specific local circumstances. The purpose is not to provide a blueprint, but rather a theory that can be used to guide individual actions.

1. Establish System Connectivity: Connect the dots between ecosystem actors to address The Alignment Gap and create a collaborative community

Map the Network 
- Outline the ecosystem and create tools to explain it. This involves identifying the key actors, what roles they play, what projects they are working on, how they interact with each other, and where the missing links remain

Convene the Players– Bring the key stakeholders together, allow them to familiarize themselves with each other, and establish clear goals and action plans

Empower the Intermediaries 
- Strengthen the role of key actors who can act as go-betweens, translating between different groups to bridge cultural gaps and create alignment

  • “The Old Hands”: Startup employees or mentors with in-depth industry experience
  • “The Intrapreneurs”: Institutional actors who interface with entrepreneurs and 
front line staff
  • “The Honest Brokers”: Matchmaking groups that add value by making connections across the ecosystem, but particularly between startups and civic institutions
  • “The Champions”: Front line staff within civic institutions who act as early adopters of technology and influence peers to follow their lead

Celebrate Successes 
- Promote awareness of successful projects and innovations that have demonstrably furthered civic entrepreneurship through events, media exposure, or general word-of-mouth storytelling to generate excitement and create buzz

2. Embrace the Friction: Allow conflict and competition to flourish in the ecosystem as a necessary complement to collaboration, in order to create more effective and dynamic solutions

3. Build the Market: Open opportunities for startups to propose and create new solutions to existing needs of civic institutions 
through problem-focused challenges and programs to promote prototyping

4. Turn the Lights On: Partner with startups to construct datasets and create information that reveals what already is happening within civic institutions

5. Unlock Hidden Capital: Build mechanisms to better channel communities’ existing wealth toward startup activity

Download the full report and read the section titled “Listening Tour Insights” for detailed information on these concepts.

Conclusion Expand

This research is meant to be a starting point for facilitating conversation about driving entrepreneurial innovation in the industries that matter most to our society’s wellbeing. The scope of these issues is immense, and we by no means intend for this work to offer definitive conclusions about exact models to replicate. Rather, we believe that innovation is a constant process of sharing insights and perspectives to create communities of learning where our collective thinking can continually evolve. Our hope is that this work will contribute to such a shared dialogue and set the stage for further action to promote innovation that matters.

Want to learn more about civic entrepreneurship? See our four-part Innovation that Matters follow-up series:

Part One

What Makes Startup Economies Tick?

Part Two

Mapping the Network: Finding Your Local Startups

Part Three

Growing Pains: What Do Startups See as Their Biggest Challenges?

Part Four

Can “New Power” Reshape our Relationship with Government?

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In-depth analysis

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  • Over 300 entrepreneurs surveyed, 38 discussion roundtables and 8 cities visited—all synthesized into the Innovation That Matters report;
  • A deep-dive in the top challenges that today's cities and entrepreneurs in entrenched industries face;
  • A quantitative assessment of 8 top U.S. cities' startup ecosystems, accompanied by qualitative insights from each city's corporates, entrepreneurs, and leaders;
  • Solutions to create an entrepreneurial ecosystem in the industries that are changing our lives and driving innovation in civic tech.

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