INSIGHT - Entrepreneurial Ecosystem Mechanisms

This post is based on research published in our monograph “Entrepreneurial Ecosystem Mechanisms” (Wurth et al., 2023), which is an extension of our paper “Toward an Entrepreneurial Ecosystem Research Program” (Wurth et al., 2022).

From Buzzword to Research Program: Understanding How Entrepreneurial Ecosystems Work

Almost three years ago, my colleagues Erik Stam, Ben Spigel, and I published “Toward an Entrepreneurial Ecosystem Research Program” in Entrepreneurship Theory and Practice. In that paper, we identified a paradox: the entrepreneurial ecosystem concept had become extremely popular among researchers, policymakers, and practitioners, yet remained theoretically underdeveloped and empirically fragmented.

Since then, the field has continued to evolve rapidly. Our recent monograph, “Entrepreneurial Ecosystem Mechanisms,” published in Foundations and Trends in Entrepreneurship, builds on our earlier work and takes a deeper dive into the causal mechanisms that drive entrepreneurial ecosystems. We’ve expanded our systematic review to include 181 empirical studies (up from 62 in our previous work), providing the most comprehensive synthesis to date of what we actually know about how entrepreneurial ecosystems function.

The Mechanisms Framework: Understanding Ecosystem Dynamics

One of our core contributions is the development and refinement of a conceptual framework that identifies five key mechanisms explaining how entrepreneurial ecosystems work.

Entrepreneurial ecosystem mechanisms (Wurth et al., 2022).

1. Interdependence of Ecosystem Elements

At the heart of our understanding of entrepreneurial ecosystems is the recognition that their elements—actors, resources, institutions, and connections—are deeply interdependent. This isn’t just a matter of co-location but reflects complex interactions and feedback loops among various components.

In our expanded review, we found substantial empirical evidence that entrepreneurial ecosystems indeed function as complex adaptive systems. The elements interact in non-linear ways, creating feedback loops and co-evolutionary dynamics that extend beyond simple cause-and-effect relationships. As one study noted, “ecosystem configurations can vary significantly, and new policies or investments should develop support among underlying social and cultural attributes.”

This interdependence manifests in several ways. For instance, universities adapt to the state of the ecosystem and contribute in multiple ways, often beyond their traditional remit of teaching and research. Similarly, entrepreneurial support organizations orchestrate collaborations beyond their regular realm, while “dealmakers” foster connectivity and knowledge spillovers within the ecosystem.

Perhaps most importantly, we found that ecosystem elements are related in unique ways for every ecosystem. There is no one-size-fits-all configuration, which has significant implications for both research and policy.

2. Upward Causation: From Ecosystem to Outputs

The second mechanism explores how entrepreneurial ecosystems enable productive entrepreneurship—the outputs of the system. Initially, ecosystem research focused primarily on high-growth ventures, but our expanded review reveals a broadening scope to include social entrepreneurship, female entrepreneurship, and creative industries, among others.

Different ecosystem configurations lead to different types of entrepreneurial outputs. For example, some ecosystems foster high-tech entrepreneurship while others support knowledge-intensive business services or social enterprises. Even within the same ecosystem, different “subsystems” can produce different outputs—a phenomenon increasingly recognized in the literature.

Interestingly, while most studies show positive relationships between ecosystem quality and entrepreneurial outputs, there is also an emerging body of research questioning these links. Some studies find that entrepreneurial ecosystems, or at least many of their elements, have limited impact on entrepreneurial activity, particularly in remote or peripheral regions or for certain types of entrepreneurship.

3. Upward Causation: From Outputs to Outcomes

Beyond producing entrepreneurial activity, ecosystems ultimately aim to drive broader economic and social outcomes. Our review shows growing evidence that entrepreneurial ecosystems foster economic growth through more efficient resource allocation and knowledge spillovers.

However, this research reminds us that supporting the founding of high-potential startups is not enough—ecosystems must also support their growth, as the quality of entrepreneurship is more relevant than the quantity for economic development. Moreover, the quality or maturity of the entrepreneurial ecosystem matters, particularly at the regional level.

Recent research has begun exploring broader socioeconomic benefits beyond traditional economic metrics. Entrepreneurial ecosystems have been linked to sustainable innovation, addressing grand societal challenges, and diverse social benefits including reduced crime and inequality.

4. Downward Causation and Path Dependencies

The fourth mechanism recognizes that entrepreneurial ecosystems evolve over time, influenced by their own outputs and outcomes. This creates path dependencies—historical trajectories that shape current dynamics.

Our expanded review provides stronger evidence for these feedback effects. Entrepreneurial output feeds back into the regional ecosystem, and individual entrepreneurs drive its evolution and resource dynamics. High-growth firms typically have a greater impact on the entrepreneurial ecosystem than new ventures in general.

A particularly important process is entrepreneurial recycling, where successful entrepreneurs reinvest their wealth, knowledge, and connections back into the ecosystem. Local institutional structures support this recycling and mobility after external shocks, facilitating the re-entry of failed entrepreneurs as well.

Interestingly, our review revealed gender differences in how entrepreneurs benefit from and contribute to ecosystems. The framework conditions of entrepreneurial ecosystems have different influences on the re-entry decisions of males and females who experience business failure, and women and men benefit in different ways from entrepreneurial ecosystems and their elements.

5. Inter-Ecosystem Links

Finally, our framework recognizes that entrepreneurial ecosystems don’t exist in isolation. They’re connected to other ecosystems through the flow of people, ideas, and resources.

Our expanded review, while still finding this to be the least-studied mechanism, provides stronger evidence that entrepreneurs, other ecosystem actors, and ideas move between ecosystems across spatial, cultural, and linguistic barriers. Transnational entrepreneurs play a key role in creating momentum and initiating institutional change in less-developed ecosystems. Even when returning to their home ecosystem, they continue to benefit from non-local connections in addition to their embeddedness in their home region.

Digitalization also plays a role, helping entrepreneurial ecosystems overcome spatial barriers and increase access to resources beyond their boundaries. There are also spillover effects from large metropolitan centers to adjacent peripheral regions.

The State of Entrepreneurial Ecosystem Research

Beyond these five mechanisms, our monograph offers a comprehensive assessment of the current state of entrepreneurial ecosystem research. We analyzed 181 empirical studies published in top-tier journals, revealing several interesting patterns.

The academic literature on entrepreneurial ecosystems has grown significantly since the mid-2010s, with research on interdependencies and ecosystem outputs dominating the field. There’s a noticeable lag in research on socioeconomic outcomes, downward causation, and inter-ecosystem links—likely due to the challenges of gathering longitudinal data and measuring broader impacts.

Methodologically, we see a healthy diversity of approaches, with qualitative studies predominant in research on interdependencies and inter-ecosystem links, while quantitative approaches are more common in studies of outputs and outcomes. However, there’s still a bias toward European and North American contexts, leaving significant gaps in our understanding of entrepreneurial ecosystems in other parts of the world.

Is Entrepreneurial Ecosystem Research Just a Fad?

In our analysis, we also confronted a critical question: Is the entrepreneurial ecosystem concept just a passing fad? Our answer is nuanced.

Yes, there is intense enthusiasm for the concept, evidenced by the growing number of studies and policy initiatives. No, it’s not short-lived, as we’re witnessing continued growth over more than a decade.

However, we found that out of 420 articles in high-quality journals claiming to conduct empirical entrepreneurial ecosystem research, the majority (56%) don’t actually engage with the core principles of entrepreneurial ecosystems as complex socioeconomic systems. Many use the term metaphorically or apply it to non-territorial units of analysis like organizations or platforms.

This creates a risk that entrepreneurial ecosystem research becomes fashionable but superficial—a label to claim novelty without contributing to knowledge accumulation. As we note in the monograph, echoing findings in sustainability studies, there’s a lot of “scholarly bullshit” in so-called entrepreneurial ecosystem research.

The good news is that there’s a substantial and growing amount of credible research, with the 181 empirical studies in our review providing a solid foundation for future work.

Looking Forward: A Research Agenda

Based on our comprehensive review, we propose several directions for future research:

More relational studies: We need research that addresses “how” things happen within ecosystems, exploring novel data sources and non-standard methodological approaches.
Leadership in ecosystems: More in-depth and large-scale research into the nature, quality, and roles of leadership in entrepreneurial ecosystems is needed.
Stronger causality tests: Future studies should better test for causality, using (quasi) natural experiments or longitudinal data.
Beyond economic metrics: There’s a paucity of studies analyzing the effects of entrepreneurial ecosystems beyond traditional economic development measures.
Inter-ecosystem connections: More research on how entrepreneurs, ideas, and resources circulate between ecosystems, within and between countries, is essential.
Greater geographical diversity: More authorship and studies from beyond Europe and North America are needed to better understand entrepreneurial ecosystems in diverse contexts.

Implications for Policy and Practice

For policymakers and practitioners, our review offers several insights:

Context matters: There is no one-size-fits-all approach to entrepreneurial ecosystem development. Policies must be tailored to the unique configuration of local ecosystems.
Quality over quantity: Supporting high-potential startups is not enough—ecosystems must also help them grow, as the quality of entrepreneurship is more important than quantity for economic development.
Systemic approach: Interventions should address the interdependence of ecosystem elements rather than focusing on isolated components.
Path dependencies: Policy should acknowledge historical trajectories and how the current state of the ecosystem affects the potential impact of interventions.
Beyond boundaries: Strategies should consider connections between ecosystems and how to foster beneficial flows of people, ideas, and resources.

By developing better data and knowledge about the nature and development of entrepreneurial ecosystems, stakeholders can conduct more effective diagnostics, prioritize policies more wisely, and better monitor and evaluate their impact.

Conclusion: From Metaphor to Mechanism

The entrepreneurial ecosystem concept has evolved from a powerful metaphor to a substantive research program that enhances our understanding of entrepreneurship-led development and provides actionable knowledge for improving conditions for entrepreneurship.

While we’ve made significant progress in identifying the causal mechanisms that drive entrepreneurial ecosystems, in many domains we’re still just scratching the surface of the empirical evidence needed for fully understanding their nature and development. More replication and extension studies are needed, as well as research that fills the voids in our knowledge base.

The value of the entrepreneurial ecosystem approach lies not in its popularity as a buzzword but in its ability to generate insights that can improve both research and practice. By focusing on rigorous empirical investigation of the mechanisms that drive ecosystem dynamics, we can move beyond metaphorical uses of the concept toward a more substantive and useful understanding of how entrepreneurial ecosystems actually work.

As we conclude in our monograph, “Only in this way can we improve each entrepreneurial ecosystem in its own right, acknowledging and building on place-specific heritage, and make the transdisciplinary entrepreneurial ecosystem research program work.”

Entrepreneurial ecosystems have developed from a powerful idea and concept into a transdisciplinary research program, increasing our understanding into entrepreneurship-led development and providing actionable knowledge for improving the conditions for entrepreneurship and development. In this monograph we take stock of the progress to date and synthesize the findings of 181 empirical scientific entrepreneurial ecosystem studies through a systematic literature review. We organize the review around five key mechanisms that explain the nature and development of entrepreneurial ecosystems: (1) interdependence of its elements, (2) upward causation explaining entrepreneurial ecosystem outputs and (3) outcomes, (4) downward causation and path dependence, and (5) inter-ecosystem links. We summarize the findings and outline opportunities for research and discuss policy implications in the light of a transdisciplinary entrepreneurial ecosystem research program. This monograph is of interest for scholars of all academic disciplines that provide knowledge that is relevant for the understanding of entrepreneurial ecosystems, entrepreneurship and entrepreneurship-led development, but also for all stakeholders involved in the development of entrepreneurial ecosystems.

Entrepreneurial ecosystems have become a prominent concept, yet in its current state, the concept itself represents a paradox. While it draws on a rich intellectual history and provides an opportunity to synthesize different strands of research, it is also under-theorized and the mechanisms that govern ecosystem evolution are not well understood. This paper takes stock of recent advancements in ecosystem scholarship and synthesizes the empirical reality of the causal mechanisms. We use these dynamics to position ecosystems in a broader context, within and beyond the domain of entrepreneurship research, and propose a transdisciplinary research program for ecosystem research and practice.