A few years ago I shared my views on attributes I found across emerging tech ecosystems that helped them flourish. Originally, I wrote the post as an answer to a question I was posed. As such, in this post, I’ve reviewed what’s happened in Europe over the past 4 years, and have added to that original post in hopes of helping anyone trying to answer the same question I was asked.

Aside from helping economies move forward through the creation of jobs and wealth, a thriving ecosystem allows startup founders to connect with other founders and share stories about how to overcome technical and commercial problems they may be facing.

Building anything new is hard, never mind alone and in a vacuum, thus sharing experiences with others should not be under-appreciated. Additionally, a growing ecosystem unlocked pools of capital be they private or public that are already existing in the local community and put them to work on improving and developing the community further.

Using London as an example, I’ve seen the local ecosystem evolve from its nascent stages, to where it is today, rivaling New York (according to Mayor Michael Bloomberg) at the global scale (this stat was from when I originally wrote this, but still feels true today).

This growth has been due to many factors, and I don’t want to seem to oversimplify what is arguable a very complex set of interplaying variables, but I do want to highlight some of the ones that stand out the most for me as drivers of a maturing ecosystem.

Local concentration of founders and other ecosystem players

In Steve Johnson’s book ”Where Good Ideas Come From,” he talks about the power of a network and how proximity of nodes aids the network’s speed of development.

London has exploded since 2014 when I wrote this article originally where I mentioned the emergence of TechHub and later on Campus and Tech City to bring together many would-be founders and growing companies. Now, players like WeWork make co-working spaces a freely available option, and new spaces like RocketSpace, Runway East, and Second Home create alternative communities to boot.

In addition to co-working spaces, if you visit local buzzing digs such as Ozone Coffee, it is quite common to see investors and well-known founders intermingling. It is through this intermingling, across cafes, pubs, bars, and restaurants, that creates the serendipity that is required to have more ideas and decisions ”just happen.”

The local culture’s support tone towards founders and local entrepreneurial heroes

Whilst it’s never easy to start a company, the process can easily be made twice as hard if you don’t have the support of your friends, family, and community. If your family thinks you are insane for not taking that corporate job and your friends think so as well, there is social friction in the ecosystem which prevents the unlocking of innovation.

Tolerance for failure is another aspect that is important for a culture of entrepreneurial innovation to occur. Failure both in terms of the personal failure, but also the legal failure. In a culture where failure brands and stays with you for life financially and socially, risk taking will naturally be discouraged.

While these aspects of a community are hard to change quickly, this is something that local governments and schools can help change through targeted campaigns (as can be seen, for example, in other forms of government intervention programs and their success rates in changing popular perceptions such national health issues).

Groups in the UK such as the ICE group also do an amazing job of bringing together founds to learn from each other, share war stories, and help overcome some of the personal challenges founders go through in their journey.

Quality of local education and engineering training

In London, we have some amazing universities, and thus, every year, a new crop of recently graduated engineers and other majors interested in starting a business enter the workforce.

For the most part, most large cities has distinguished academic bodies, so rarely is it about capability, but sometimes about offering students a place to experiment new ideas and providing them with applied internships. Universities are increasingly developing internal incubators to allow students to exercise a more applied version of their education, which either leads to new developments, or more experienced founders. In the UK (and increasingly abroad), organisations like Entrepreneur First do an amazing job of helping graduates with meeting other talented individuals, creating amazing ideas and forming companies.

Additionally, programs that help teach entrepreneurship to students, such the NEF, or to the public at large, such as Startup Weekend can greatly lead to an increase in the quality of the workforce and entrepreneurial mindset of a community. Programs such as CodeFirstGirls and Spear can also be huge enablers for many members of the community who wish to enter the tech ecosystem.

Availability of HR talent and immigration reform

Aside from students, other individuals with experience are needed in a growing ecosystem. One quick way of bridging a shortage in staff in an area is to create immigration policies that allow for talented and capable individuals to enter the county and its labor force without major hurdles.

This is an area that many countries struggle with, particularly when the local population starts taking a protectionist slant towards employment opportunities. Nothing helps accelerate an ecosystem’s growth as the importing of highly skilled migrant talent.

The UK has, in many ways, led innovation in this area, originally with the creation of the Highly Skilled Migrant Programme (no longer available unfortunately) and the Startup Visa for founders in startups that have received £50K in investment. Innovations likes these have made some great strides in solving this problem for the UK, and I’m surprised how few other countries have attempted to solve this (Naturally Brexit will bring some challenges with this, but hopefully they will be solved).

Access to successful mentors or serial entrepreneurs

It goes without saying that there are plenty of smart and accomplished in Europe. Companies such as Soundcloud Skype, Transferwise and more were born out Europe and there are plenty of new companies that are creating technologies in hardware, fin-tech, and other areas.

The challenge for any emerging ecosystem is identifying these individuals and finding an efficient way for these potential mentors to meet promising new companies and founders.

A strong and growing media presence

As the old adage goes, “If a tree falls in a forest and no one’s around to hear it, does it make a sound?” Likewise, a successful startup story without an amplifier doesn’t help inspire others to do the same.

Of course, the media isn’t only about highlighting success stories, but also helps keep the ecosystem honest by bringing to light causes, political initiatives, key players, and even the occasional startup post-mortem to help founders navigate the emerging local tech industry.

Since 2014, there has been an explosion of media covering tech in Europe, ranging from publications such Techcrunch and Tech.eu to video channels and podcasts (have you checked out our podcast here? — http://podcast.seedcamp.com/)

Access to infrastructure

Building a tech startup is near to impossible if you don’t have access to a reliable and fast internet connection and access to key services such as hosting companies, social networks, and search engines (some countries block these services for various reasons). A lot of the prior is no longer the case in the UK, but continues to be a problem in other geographies… and sometimes it isn’t access infrastructure, but rather things like access to data, hosting/processing infrastructure, and search engines, and key internet platforms.

This does mean some countries really struggle, but these problems tend to be ones that local governments are almost always keen on resolving quickly — not just for the tech community, but also for other communities. If censoring is an issue in your local ecosystem, that can still make things more challenging.

Access to experienced capital

Capital comes in many forms, but experienced capital can really make a difference to new companies. Experienced capital is not just about having made money before, but rather understanding what early-stage startups are like and that they don’t fit the return profile, regularity, forecast-ability, or structure of real estate or private equity investments.

Experienced capital also knows how to coach and help founders along their journey rather than just auditing founders the way a public company analyst may.

Investors that understand how the global fundraising process works and know how to scale a company are hard to come by, so for sure any local ecosystem that has a few of these are very lucky, and the ecosystem as a whole can grow greatly by increasing the knowledge share between these individuals and the rest of the investment community.

Tax relief for investors investing in risky companies

Investing in startup companies can be lucrative if you do well and manage to back the minority of companies that do well. However, you will likely lose on most investments you make in the asset class because of its inherent risk.

This has always been the fundamentally difficult thing for new investors to digest when choosing to invest in startups versus, say, a well-structured financial product from a brokerage firm.

However, tax incentive schemes for investors led by the government, such as the SEIS program in the UK which allows investors to offset income tax and capital gains tax on positive returns on an investment, can greatly increase the attractiveness of high risk investments to investors.

Ecosystems who have government support to help investors invest more, generally manage to unlock stored pools of capital that can be repurposed to help stimulate the economy.

Tax relief for successful founders

In the same spirit as the above, ecosystems that offer founders some sort of tax relief on gains when exiting a company can effectively reduce the tax impact on them. This allows founders to have more available capital to invest in new startups. In the UK, this program is called Entrepreneur’s Relief.

Although not every exit will leave founders with a disposable net worth to invest in new startups, by creating the structure that encourages this, it merely becomes a numbers game of how many founders who are successful contribute back into the economy.

Couple with investor tax incentive schemas, you effectively create a virtuous circle of wealth creation that can be repurposed for further wealth creation.

Sure, not every founder will do this, but you just need a few to take this up, for it to be greatly effective.

Access to experienced legal counsel

Experienced lawyers can save a company a lot of time and money. I’ve seen deals go sour because someone’s counsel was not well-versed in standard terms or venture dynamics.

Lawyers are there to help you make things easier and protect you from things going wrong in the future, and not the other way around, but not all ecosystems have legal counsel that is well versed in venture law.

Initiatives such as the seedsummit termsheets, the series seed termsheets, and the BVCA documents — all available online — are good starting points for startups in emerging ecosystems to learn about what is normal and what is not. Then, if in the process of evaluating counsel for your company there is a mismatch between what you’ve seen and what they are familiar with, that is potentially a red flag.

Simplified local legal systems

Part of the legal challenge is not only just finding the right kind of lawyers to hire, but also in having the ecosystem have laws that help support Entrepreneurs. For example, laws that make it difficult to hire and fire employees make it hard for a startup to control cash burn as early founders will inevitably have to expand and contract as their companies go through natural peaks and troughs.

Simplification of the legal bureaucratic burden on the founder can make a huge difference: little things like allowing e-signatures can greatly speed up how quickly deals are completed vs having to have a notary sign or other more complicated structures which can slow things down.

And lastly, and considering how many successful startups come from after a founder has had at least one failure, a government’s treatment of company bankruptcy as either a black flag for the founder for ever more or as a state that does not tarnish one’s reputation from being able to try again.

To wrap it up…

In conclusion, whilst there are many variables to consider in how to help develop a local ecosystem, the above list are some that I see as almost very crucial to kick it off.

For example, note that I didn’t include things like interest rates or a thriving local M&A market… if an M&A market is present, for example, its great, but frankly, most foreign M&A markets pale in comparison with the global M&A market led by the top international corporations.

As such, a better place to start to try and influence change is to address the variables that are easier to adapt in the short term. In the longer term, as the ecosystem blossoms, the local corporates will take notice and will want to get involved.

 

If you like this post, please feel free to share with your local government officials to initiate a dialogue about how to spur growth of your local community’s ecosystem.

We’re delighted to welcome David Mytton, founder & CEO of Server Density – a company we first backed in 2009 – as the newest EiR in the Seedcamp nation. With first-hand experience building product, scaling the backend, hiring an engineering team and selling to developers, David joins to support our portfolio companies on tech and engineering related problems.

In this post, David sheds light on a major stumbling block that many startups come up against: how to source and hire quality engineers. Over to you David!

How to find and hire good engineers seems to be a common problem amongst startups of all sizes. Whether you’re looking for your first non-founder hire, an executive level CTO or are building out a large team, sourcing and hiring engineers is difficult.

In this post I’ll start at the beginning with how to go about sourcing candidates – getting applications into the top of the funnel in the first place. A followup post will go into how to run the actual hiring process itself.

Groundwork – what is it like to work here?

Your first task is to put in place the foundations needed to get people to apply. You don’t need to do any (or all) of these things but they are worth the one-time investment which will pay off with a larger candidate pool in the future.

The key question you have to answer is: why would I want to work for you?

You need to provide evidence to help potential applications answer this question and then the followup: why would I want to work for you instead of Company X.

You essentially need to show off!

So how do you do that? This can be through your website and/or the job ad itself, but you should be thinking about the following:

A good way to find out what to include is to ask your current team and/or think about what questions you had when you joined your first company.

Most businesses are quite bad at showing off their policies, even when they are positive and a great selling point. You can stand out by being transparent and having the candidate already partially sold on working for you before they even speak to you.

This is a good opportunity to consider whether your policies are appropriate for different types of people. Fresh graduates renting with friends have very different requirements from an industry veteran living with a family.

Showing you have thought about key things like a code of conduct and maternity/paternity leave also has an important effect on encouraging more diverse applications. With the diversity challenges in the IT industry, it is beneficial to show candidates that you have thought about this in depth and already applied policies within the company. Having to adopt policies dynamically if problems arise is not a good way to build a trusting, friendly work environment.

The job ad

The ad itself is probably the first time a potential candidate has encountered your organisation, so it has to sell both the job itself and the company. Many of the things above can be included in the ad so it works as a standalone article e.g. if it is read on a job board outside your own website, or sent via email.

Things you might want to consider including in the ad:

Where to source candidates

Unless you have a big reputation, you’re unlikely to get many direct applications with the ad solely on your own website. Even the biggest companies use various methods to bring candidates in. There isn’t just a single location that will work so you need to put time and effort into all of these.

Job boards

Job boards are a relatively quick and passive place to get your job ad out. They’re about volume so aren’t necessarily going to get you targeted candidates, but will help to increase the reach of your ad.

There are specialist job boards for different types of roles and people. For example, PowerToFly is a recruitment platform for women whereas RemoteOK is specifically for remote jobs. I recommend building a list of the main job boards relevant to your role and then posting on all of them.

Other ones to check are AngelList, weworkremotely.com, jobspresso.co, workingnomads.co and WorkInStartups.

Candidate search platforms

Direct candidate search is time consuming but is a good way for you to filter through profiles on specific search terms and then directly get in touch with people who fit the criteria.

LinkedIn and StackOverflow Careers are two popular examples, with StackOverflow being very specifically for engineering roles.

LinkedIn also has a job board product which is worth using because the ads show on your business profile and it has a huge audience, but you will be able to be more targeted if you spend the time to search profiles. The problem with LinkedIn is it is very general and I’ve found engineers are less likely to maintain active accounts and/or pay attention to messages which are often spam.

Other sites to consider using include Snap.hr, Hired and AmazingHiring.

Community involvement

Much more long term but often with good quality results, getting involved with the relevant engineering community groups will help you build a profile and meet people with similar interests. This can be specific technology meetups e.g. London Python or focused on techie-types in a certain geographic area e.g. Oxford Geeks.

Speaking at meetups and conferences is a good way to build your reputation. Aim to educate and/or tell an interesting story rather than going with the goal of selling/hiring, but remembering to mention what it is you’re looking for at the end of your talk! It is usually easier to get a speaker slot at a meetup because the organisers are usually looking for people to give talks. These can then lead into conference slots in the future.

In London, the SiliconMilkRoundabout event which is a larger scale jobs fair. They have minimum requirements for applicants so there is a quality bar to the people you meet as a company.

Education links

Although limited to graduates or academics, building links with universities and other educational establishments can help you with a regular pipeline of (inexperienced) talent. This is essential for building a company in the long term but does have training overheads because they are all going to be relatively inexperienced. Timings are also linked to academic terms so this isn’t as useful for immediate hiring needs.

Building an internship and educational recruitment program is quite involved but there is a good book on this topic: Recruit or Die.

Recruiters

I have left recruiters to last because I think they’re the least effective method of finding people.

I have written about this in more detail elsewhere but the problem is that in all cases, the incentives are misaligned. You need a recruiter who 1) is looking for good candidates that fit your criteria; 2) who will find you someone who is good to work with; and 3) someone who will will stay with you for a long time

The only way to find a recruiter who can hit all three of these is by hiring someone full time in-house. Using a success fee or retainer through a recruitment agency means the financial incentives simply don’t match. Either the incentive optimises for finding someone quickly or to create a long process which maximises the retainer income.

Hiring a full-time recruiter who you know gets your company values and will actually work in the same office and probably sit next to the person they hire is the best way to align incentives..

However, in-house recruiters have all the overhead as a full time employee so aren’t necessarily appropriate for small numbers of hires. They only really make sense for growing big teams.

A possible compromise is an exclusive, contract recruiter who is working for you for a defined length of time e.g. 6-9 months. That person can get into the company culture and take the time to find the right candidates, but then leave once they have built the team.

The advantage of using recruiters is they supposedly have good networks of people, although that is really only true for the top end executive search firms, if you’re looking for contract roles or for less skilled general administrative positions (not engineering).

The best engineers can pick and choose a small number of places they want to work at, so they don’t use recruiters. This means for hiring engineers, it’s really tricky to find a recruiter that will actually deliver.

The best way forward is either having someone full time on your team to focus on this and/or focusing on the other sourcing options above to seek out the candidates yourself. Indeed, building your early team is probably the most important thing you can be working on. Without a good team, you can’t build and deliver a quality product to your customers.

By Nick Levine, Advisory Lead at Propel by Deloitte

Measuring KPIs can be beneficial for high-growth businesses in order to allow them to see whether they are hitting overall company targets, alongside providing investors and senior team members with up-to-date management information. These data points can help set the strategic direction of businesses, as well as enabling them to analyse the overall profitability of different business departments.

How can KPIs inform financial models?

A forward-looking financial model is essential to high-growth businesses. This can be used to underpin fundraises, as well as allowing companies to forecast how they are going to perform ahead of time. A robust financial model is underpinned as KPIs, which act as data points to help build up accurate and complete financial models. Whilst common expenses, such as operating expenses, wages and rent are easy to forecast – costs related to driving demand, revenues and cost of sales are harder to predict.

Being able to understand the unit economics of your business will provide a solid framework to set and measure KPIs which can inform your financial model. Unit economics are the direct revenues and costs associated with a particular business model expressed on a per-unit basis. For example, they may include customer acquisition costs and gross profit margin per products.

Which KPIs are right for my business?

Choosing the KPIs most relevant to your business will vary according to whether you sell physical goods or services.

If you are selling goods you will need to get a handle on your gross profit margin. For example, if you run a restaurant business you will need to measure the gross profitability of individual dishes in order to make sure that the same quantity of ingredients is included across your range. If your target gross profit percentage KPI for a dish is less than you forecast this could mean that your suppliers are becoming more expensive or that you will need to enforce stricter portion control in the kitchen.

Software service-based businesses KPIs will focus on scale. These companies need to ensure that their churn rate (i.e. percentage/number of customers cancelling) is consistent and fed into their financial model. Letting this KPI lapse will undermine the ability to accurately forecast future revenues. Additionally, this could have knock-on implications for customer acquisition costs, which may need to be reduced accordingly.

All high-growth businesses, irrespective of sector or focus, will need to focus on their cash burn rate. They will need to be in a strong position to go out to market and raise more funds with enough money in the bank to ensure that they can retain a strong negotiating position.

How can I measure and assess my KPIs on a monthly basis?

The simplest way to do this is in an Excel spreadsheet. Take exports from your actual financial data and manipulate this manually to crunch down into your chosen KPIs. If the month-on-month comparisons show strong variance this will create the need to understand what has happened and whether this could impact your forecast.

In this scenario, you may need to liaise with different departments. For example, your sales team should take ownership of revenue related figures and the partnerships/marketing team should be responsible for customer acquisition costs.

Can I automate measurement of my KPIs?

Using third-party software tools can take out the grunt work of manually manipulating monthly KPIs yourself, as well as reducing the chance of human error. Forecasting and reporting dashboards seamlessly connect to cloud-accounting software and blend both financial and non-financial (i.e. number of sales, website visitors) information to present this as timely management information.

Having a real-time view of these KPIs on a dashboard, can inform decision making and can act as data points to review on daily basis as opposed to just being a month-end process.

Propel by Deloitte delivers bespoke data analytics to help you track how your business is performing today, and a whole range of business planning support to help you forecast for tomorrow. Contact us to discuss how we can support you.