Creating Startup Clusters_ What Role for Local Government_ _ McKinsey & Company

23/7/2014

Crea Creating ing grow growth clu cluste sters: What role role for loca locall gov governm rnment? | McK McKinse insey y & Com Company Log in

Client Serv Service ice Insights & Publications

Register

Insights & Publica Publications tions Late st st th in in ki kin g

In du du st str ie ie s

Fu n ctio n s

Re g io n s

Th e me s

About Us Alumni Careers Global Locations

Articl e

Creating growth clusters: What role for local government? A systematic approach to implementation could help start- up ecosystems flourish.

Search

July 2014 | by Julia Julian n Kirchherr, rchherr, Gundbert Scherf, and Katrin Katrin Suder Suder

zed countries aim to enc ourage Many governments in industriali in industrialized entrepreneurship and start-up activity to spur job creation and economic growth. To what extent go vernments are c apable of doing so is uncertain. Nonetheless, policy makers at the regional and municipal levels are closer to the sources of innovation than those at the national leve l. For example, innov ation in the form of start-up activity tends to occur in large metropolitan areas, initially without the involvement of policy makers. Take Berlin, B erlin, where whe re a vibrant ecosystem developed in the past several years without systematic syste matic go v go v ern men t int erv ent ion . While an ena blin g po lic y co nte x t mig ht no t be a pr ec ond itio n for see ding entrepreneurial activity, it may become more critical when taking a cluster to scale. To flourish, entrepreneurial activity requires a concentration of talent, infrastructure, capital, and networks—key success factors of a start-up ecosystem, as epitomized by Silicon Valley. Not all economic-policy instruments aimed at nurturing start-ups are at the city lev el. Still, Still, local local policy makers should think systematically about what it takes to support a start-up ecosystem. When doing so, their focus co uld be on tackling the bottlenecks and constraints that might otherwise inhibit a vibrant start-up ecosy stem rather than picking winners winners by supporting investment in particular sectors or business models.

Contact Cont act us Site map Frequently Frequent ly as ked questions Local language information Privacy policy Terms of use © 1996-2014 McKinsey & Company

More specifically, suc h local initiatives can help link entrepreneurs to schoo ls and universities, ease administrative matte rs for foreign workers and founders wishing to settle in a location, support de velopme nt of suitable infrastructure infrastructure and connectivity, and communicate and market the attractiveness of a location vis-à v is o the r st art -up -up centers. centers. New York, for example, founded a tech campus for applied sciences; Tel sciences; Tel Av iv built wor king spaces for entrepreneurs; Berlin is is in the process of setting up a privately managed manag ed fund fu nd to raise c apital for start-ups. Establishing a coherent and supportive entrepreneurial policy at the city level is challenging. Municipal decision makers should identify identify bottlenec ks in the start-up ecosystem and design and carry out initiatives to address them. These moves require a project-oriented, dynamic, and capable organizational structure. This article outlines an implementation approach that local policy makers can use to strengthen a start-up ecosystem. It discusses, in particular, the concept of the start-up startup delivery unit—an unit—an approach employed employed recently by the mayor and municipal gove rnment of Berlin. Berlin.

Spurring inn i nnovation ovation in a dynamic, multistakeholder environment Berlin, London, New Yo rk, and Tel Berlin, Tel Av iv are c ities that stand out for their vibrant start-up ecosystems. London started its East London Tech City in 2010; New York and Tel Aviv have estab lished New York Digital Digital City City and Start-up City City Tel Av iv. In 201 4, Berlin started started implementing several initiatives. These cities faced commo n challenges in defining defining and carry ing out the initiatives, including having to deal with many stakeholders that create t he potential for bo ttl ene cks . A suc ce ssful s tar t-up po lic y must fulfill t wo req uire men ts: The ability to keep pace with the start-up env ironment. The start-up world is v ola tile ; inv est or s and foun der s, an d th eir nee ds an d ac tiv itie s, c hang e ra pidl y . Policy makers cannot pick winners in such an environment. Instead, they should focus on enabling structures that can address mor e fundamental requirements.

PDF

P ri n t

E-m a i l

Share

McKinsey Insights Our latest thinking, delivered seamlessly to iPad or Android devices. Apple App Store Google Play store

Aboutt this content Abou The material on this page draws on the research and experience of McKinsey consultants and other sources. To learn more about our ex pertis pertise, e, please visit the Public Sector Practice. Practice .

Related articles Government by design: Four principles for a better public sector Big data, big new businesses

Stay connected E-mail alerts Twitter Facebook LinkedIn

The ability to succ eed in a multistakeholder multistakeholder env ironment. When starting starting initiatives to spur innovation, there are many competing interests: stakeholders from the private sector, such as venture capitalists, corporations, and start-ups; diverse lev els of governments; and universities and research institutes. Bringing Bringing together and managing those stakeholders and interests are essential to succ essful implementation. implementation.

McKinsey Insights YouTube RSS

We hav e fo und t hat s tar t-up deli v er y unit s—situ ate d pr imar ily in th e ma y or ’s office—are an effective, effective, pr agmatic way of realizing these two requirements. Start-

http: http://w //ww ww.mck .mckinsey insey.com/insights/p .com/insights/pub ublic_secto lic_sector/Creatin r/Creating_gr g_gr owth_ owth_cluste clusters_Wh rs_What at_role _role_f _for_lo or_local_gov cal_governmen ernment? t?cid=oth cid=other-em er-eml-alt-mip-m l-alt-mip-mck ck-oth -oth-140 -1407 7

1/4 1/4

23/7/2014

Crea Creating ing grow growth clu cluste sters: What role role for loca locall gov governm rnment? | McK McKinse insey y & Com Company up delivery units are inspired by broader governmental delivery units, an approach employed worldwide to facilitate program implementation. Governments Governmen ts have used delivery unit unitss for more than 15 years to rigorousl rigorously y track performance, identify obstacles early, solve problems, and correct course. They v ary in sc op e and size b ut g ene rall y are not to o la rge . The y ca n be ce ntr alize d o r with in line age nc ies. McKi nsey ’s stu dy of de liv ery unit s and wor k with governments on them show that the most successful share several important characteristics: an outstanding leader with a track record of delivering outcomes, direct access to top leadership, talented staff with excellent communication and problem-solv ing skills, skills, and the ability to use soft power to infl influence uence ministries.

Employing a start-up delivery unit unit A d eliv ery unit dri ve s and co or dina tes star t-up ac tiv itie s and help s c itie s pr og res s much more rapidly than they otherwise might. The unit should mirror as much as possible the ad hoc way start-ups do business and provide a credible focal point for immediate problem re solution, stakeholder engagement, and response. We have identified three important steps to launch a start-up delivery unit. Hiring the right talent

Policy makers’ experience in London and New Yo rk suggests that finding finding the right kind of people to work in start-up delivery units is challenging. The The participants must understand how to function not only in the v olatile world of start-ups but also in the steadier, slower-paced enviro nment of public administration. Successful start-up delivery units hire an established entrepreneur as their managing director and seek the be st talent they can find from within public administration and established companies. Rotating employe es in and out of the unit can help it remain fresh, open to new ideas, and impro ve dialogues. One way to help overcome skepticism of start-ups toward policy makers is engaging an established established entrepreneur to lead the deliv ery unit. In London, Eric Eric v an de r Kle ij, t he fo unde r o f the s uc ce ssful s tar t-up Ad ept ra, was a ppo inte d to lea d the London Tech City I nvestment Organisation (TCIO); (TCIO); in in New Y ork, Rachel Sterne Haot, the former CEO CEO of the global crowdsour ced news start-up GroundReport, was a ppo inte d c hief d igit al o ffice r o f the NY C Digit Digit al pr ogr am. The job description should be similar to other top government or private-sector roles. The ability to truly shape the city’s start-up ecosystem is critical. Direct reporting lines to the mayor ensure not only flatter hierarchies and clear chains of command but also imply a career launchpad for the managing director o f the unit through enhanced v isibility. Of cour se, competitiv e salaries and sufficient sufficient budget help attract talent as well. London’s TCIO, TCIO, for ex ample, has an annual budget of £2.1 million pounds, 61 perce nt of which is spent on the salaries of the delivery unit. Even competent leadership will only succeed if complemented by a cutting-edge team consisting of 8 to 12 talented private- and public-sector employees. Getting start-up founders themselves to dedicate substantial time is difficult. difficult. Instead, the delivery unit could aim for entrepreneurial talent from other private-sector companies and go vernment bodies. London’s TCIO hired staff staff from Siemens, as well as lo ng-te rm p ubl ic ser v ants pre v iou sly inv olv ed in tra de a nd inv est men t promotion. A ddit ion ally , to ensu re t he d eliv ery unit will no t re v ert to the som ewh at sl owe rpaced wo rld of public administration, permanent rotation o f staff staff into and out of the unit is an option and has proved to boost morale in other public-sector contex ts (for example, in Denmark, Denmark, Germany, Germany, and Norway ). Conducting ‘delivery labs’

Once the delivery-unit team is in place, a “delivery lab” can be used to inject ideas and translate high-level strategies into detailed implementation plans. A lab is an intense inten se problem-solving problem-solving environment environment that co llocates the 20 to 40 key people needed to c rack a problem. Delivery labs can also help build team spirit and momentum. Labs may comprise workshops of several days with relevant stakeholders, including venture capitalists, corporations, start-ups, diverse levels of gover nments, universities, and research institutes. For instance, the lab would attempt to pinpoint the key are as of actions in a start-up ecosystem. Questions like the following may be answered: What can we do to increase capital availability in our city? How can we ensure there are enough coworking spaces at reasonable prices? Taking Taking into account that the start-up env ironment changes rapidly, analyses and solutions should be updated regularly. Ideally, such labs are conducted annu annually. ally. To assess the status of a start-up ecosystem in a delivery lab, a systematic and data-driven analysis aiming to clearly define and redefine the challenges to be addressed is valuable. By prov iding a data-driven basis for decision making, this analysis not only aids in obtaining buy -in of stakeholders stakeholders but also helps the delivery unit to regularly update problem definitions and identify the root causes of problems. Based on the problem definitions definitions and the identified identified root c auses, delivery labs can also be used to assess whether ex isting solutions are still still adequate. Some employ


2/4 2/4

23/7/2014

Crea Creating ing grow growth clu cluste sters: What role role for loca locall gov governm rnment? | McK McKinse insey y & Com Company “premortem analy sis,” a managerial tool used in the private se ctor to identify implementation obstacles (ex hibit). In step one of such an analysis, all initiatives initiatives to be implemented are out lined. Then, delivery delivery -lab participants are asked to imagine a worst-case scenario for each initiative and predict why it might fail. fail. Next, responses to e ach potential failure are designed. To track the progress of initiatives, some start-up delivery units publish an annual report after a delivery lab.

Exhibit Some delivery labs use ‘premortem analysis’ to pinpoint implementation obstacles.

Enlarge

Focusing Fo cusing on quick wins a nd correc ting actions frequently

The pressure to produce results is great, given the volatility of the start-up environment and stakeholder impatience. Thus, start-up delivery units risk ov erpromising and underachieving. To minimize this possibility, possibility, initiatives should be bas ed o n est imat ed i mpa ct on s tar t-up ac tiv ity (usu ally mea sure d by ho w muc h activity can be enhanced along the funnel from start-up creation to growth and maturity) and the feasibility o f implementation (a more qualitative internal assessment). Experience shows that this often will differentiate differentiate those initiatives that either have high impact but are difficult to carry out or are easy to do but have little effect. Since speed and ability to reac t to changing conditions is cruc ial in a start-up environment, the mo st successful delivery units go for the low-hanging low-hanging fruit first. first. In Berlin, the city carried out a start-up competition for university students to help foster entrepreneurial spirit among graduates. It also plans to cre ate a digital director y aimed at enhancing start-ups’ networks; start-ups will be able to list a short descr iption of their business idea idea and identify identify b usiness contacts that co uld help them. In addition, the city is digitizing digitizing select administrative proc esses to lessen the bureauc ratic burden o n start-ups. These kinds kinds of initiatives initiatives c an offer early, fast victories for the delivery unit, showing stakeholders that it can produce results. But policy makers must be realistic. Start-ups are a moving target, so c ities likely likely wo n’t ge t th eir initi ativ es r ight the first time , no mat ter ho w c auti ou sly the y plan . A s suc h, su cc ess ful de liv ery unit s do n’t wa ste tim e se arc hing for t he p erfe ct design. Instead, policy makers should mimic the approach taken by most startups: launch the initiative, analyze the launch, learn what went wrong—and then adjust it and relaunch. This This rapid prototy ping allows policy makers to max imize the utility of an initiative by repeatedly and quickly adjusting to the needs of startups and sustaining momentum through prompt ac tion, all while running at minimum cost. A n ex amp le is the New Y or k City Open Data in itia tiv e, w hic h aim s to spur innovation and the founding of new digital digital tech start-ups by pro viding public data and hosting “hackathons.” At nyc.gov, data sets were added gradually and the web site ’s func tio nalit y was i mpr ov ed l ittl e b y litt le, m ov ing fro m a b eta v ers ion t o


3/4 3/4

23/7/2014

Crea Creating ing grow growth clu cluste sters: What role role for loca locall gov governm rnment? | McK McKinse insey y & Com Company the one av ailable today. This not only allowed a fast start start for the site but also offered developers the opportunity to create apps using the open data already available there. A nother case is the start-up campus Tempelhof in Berlin. Berlin. Instead of waiting to launch the start-up campus at its anticipated capacity of 25,000 square meters—which would take more than three y ears—B ears—Berlin erlin decided to go with an early v ersion and move in start-ups from from day one. Using the launch-relaunch approach, Berlin seeks feedback feedback from the start-ups to improv e infrastructure for more recently arrived renter-participants, all while generating revenue for the campus.

A s the co mpe tit ion fo r inv est men t and ent rep ren eur ial ta lent rea ch es g lob al proportions, municipal support for nascent entrepreneurial clusters becomes a must-have, especially for large metropolitan areas. City policy makers may find delivery units useful as they try to strengthen a start-up ecosystem. In introducing such an approach, policy makers should pursue the start-up model: rather than designing the perfect instrument and policy, they should see themselves as continuous problem solvers and work closely with the entrepreneurs and innovators around them. About the authors Julian Ki Julian Kirchher rchher r and and Gundbert Scherf are are consultants in McKinsey’s McKinsey’s Berlin offic e, w here Katrin Suder is is a director. The authors w ould like to thank Holger Holger Haenecke Haenecke and Lea Thi Thiel el for their contributions to this report.

P DF

Pri nt

E-m a i l

About Abo ut Insights & Publications

Share

The creation of knowledge supports McKinsey’s core mission: helping our clients achieve distinctive, distinctive, lasting, and sub stantial performance im provements. We publish ou r insights and those of external experts experts to help advance the practice of manag ement and provide leaders with facts facts on which to bas e busine ss a nd policy decisions. Views expressed by third-party third-party authors are theirs alone.


4/4 4/4

Creating Startup Clusters_ What Role for Local Government_ _ McKinsey & Company

Recommend Documents