“We expect too much of new buildings, and too little of ourselves.”
Last week, the European Investment Fund—the small business investment arm of the European Union—announced a new $2.6 billion fund-of-funds to support venture capital deployment in the continent. The EIF is already the most active LP in European venture funds by a long shot. Two additional leading European LPs are also government-backed—the British Business Bank and the European Regional Development Fund.
That got me to thinking: is this the best way to stimulate startup activity in the EU? Is a lack of venture capital the biggest constraint facing European startups right now? If so, is this the right way to go about it? How else could that money have been used? What is the opportunity cost?
This move may be a perfectly good one. I don't have enough information to say one way or the other. But, it is prompting me to write about something that I’m seeing in startup communities everywhere: what I’m calling The More of Everything Problem.
More of Everything thinking goes something like this: if we just get more of everything, we can create a vibrant startup community… more capital, more innovation centers, more accelerators, more incubators, more university programs, more startup events... more, more, more. It follows linear systems thinking whereby an increase in critical inputs (resources like capital and talent) results in an increase in desired outputs (startups, value creation), and by how much.
The problem is, More of Everything doesn’t really work.
There is a sizeable body of research on what makes some regions consistently able to produce high-growth companies compared with other regions. Overall, what appears to matter most is a density of smart people of prime entrepreneurship age (mid-career) with an orientation towards entrepreneurship and the pursuit of enterprise in knowledge-intensive activities—plus a bunch of other stuff that we aren’t measuring very well in a systematic way (namely, network and culture).
You may have noticed that a number of factors in The More of Everything playbook are missing from that list—venture capital, research and patenting, university programs, accelerators and incubators, and government innovation programs and startup funding. In study after study these factors fail to register statistically meaningful relationships with high impact entrepreneurship in a region, once one accounts for more robust factors like a density of talent.
Does this mean that these factors don’t matter? No! Of course they matter! But, they are not enough. They alone won’t produce a steady stream of high impact startups in a city. What differentiates entrepreneurial regions from others is how these factors integrate as a system—one that promotes collaboration, inclusivity, stewardship, an entrepreneurial mindset, and exhibits many other social, cultural, and behavior attributes conducive to the process of innovation and entrepreneurship.
Many people look to the example of Silicon Valley as something to be re-engineered at home, failing to adopt the right lessons. To begin with, the individuals responsible for the creation of Silicon Valley didn’t set out to build the world’s most innovative region—it emerged because of what they were doing, or more to the point, how they were doing things. What differentiated Silicon Valley from everywhere else at the time was a bottom-up culture of openness, collaboration, and a commitment to the region over individual people, companies, or institutions.
In other words, what made Silicon Valley was behavior, mindset, and seeding the environment for an innovative system to emerge—(most) everything else came later, and there was no central plan to make it all happen.
The appeal of More of Everything is understandable—the actions are controllable, tangible, and often immediate. More of Everything feels good in the short term because you can see things happening in front of you. But over the longer term, More of Everything disappoints unless the underlying social, cultural, and behavioral obstacles in a startup community are addressed. To borrow from Victor Hwang and Greg Horowitt in their book, The Rainforest, “attempts to foster innovation that do not focus on changing human behavior are doomed to fail.” This is key.
Alternative names to More of Everything could be the Resource-Based Approach to Startup Community Development or the Old Economy Way of Building a New Economy. Either way, the idea is the same: increasing critical inputs results in an increase in desired outputs, in a linear, controllable, and predictable way. It is factory production meets information economy startups. While nifty, this thinking is wrong and counterproductive.
So, before continuing down The More of Everything path, consider an alternative. Sometimes the answer is more of something. But often, a more relevant question is how well something is being done. Are you getting the most out of what you already have? What can be done to improve community cohesion today? To what extent are the existing pieces integrating in a productive way?
In my experience, the answer to these questions comes not from adding, but from activating and transforming. That makes it an issue of culture and mindset, and means that seemingly small changes in behavior—adopted widely and practiced consistently—can have a big impact on outcomes down the road. It's not always the big moves that get you where you need to go.