Natural Selection of Successful Businesses; with Dr David Hardman MBE
As the economy moves on from the Covid-19 pandemic it is apparent that trends slowly emerging pre-pandemic were accelerated by the viral intervention. There will be fundamental changes to the way we work and use business spaces. The question is, should these changes influence the way we look at business support interventions? Indeed, is it generally time to reconsider the basis on which interventions are conceived, planned and delivered to ensure they are fit for purpose in today’s economy? Also to shape them to be sufficiently attractive to entrepreneurs to encourage them to start and grow their businesses in the region?
The survival of the fittest
Organisms best adjusted to the prevailing environment are the ones that are most likely to be successful, survive and reproduce. This is of course Darwin’s 1859 theory of evolution; those that thrive are those that have adapted through short term physiological responses and/or longer-term genotypic plasticity.
In stable environments selection can secure long periods of dominance - witness the 65 million year rule of the dinosaurs. But in rapidly changing situations adaptation also occurs in a matter of a few generations: The Peppered Moth, which in the early 1800s were nearly all light in colour, became nearly all dark within 95 years. It was in effect ‘industrial melanism’, a response to the soot that covered their habitats; an adaptation that reversed as pollution was reduced by the Clean Air Act in 1956.
We apply ecological terms to describe business and innovation ecosystems but in doing so we should engage with the full principles of natural selection when considering the implications of the interventions we plan. The analogy recognises that economic ecosystems are also intrinsically dynamic, subject to external influences. In this instance the selective pressures on the survival of businesses established in each regional ecosystem are defined by technology development, socio-economic and political pressures. These forces mean that the relative competitiveness, economic stability and growth of a region change over time as they impart changing selective pressures on businesses established in the locale. As a consequence, when addressing the ‘Levelling up Agenda’ there is a need for local sets of interventions, ones that will necessarily vary in different economic areas as each is starting from different evolutionary points in time.
The impact of changing economic ecologies on the UK’s industrial cities is obvious across the last century or two. These cities were characterised by high concentrations of manufacturing enterprises engaging in similar or complimentary work. Clustering facilitated local supply chains and a fluid supply of workers all living in the surrounding communities able to walk to work. As old industries were superseded or moved to other parts of the globe, new competencies were required to be incorporated into the mix to sustain economic momentum; which in many places was slow to happen.
Today 84% of the UK population lives in urban settings. However, as the incorporation of new competencies has not been equal across the country, spatial inequalities have resulted and many cities have not delivered to their fullest economic potential. Andy Haldane, until recently the Bank of England’s Chief Economist, noted that one way to account for slower productivity growth in cities is that it arises, not as a result of slower rates of innovation, but from slower rates of diffusion of innovation - adoption.
Technology and economic clusters
The stability and lifetime of an economic cluster is defined by the longevity of the activity/technology that underpins it. In the past longevity could be considered in terms of generations; today change occurs at such a rapid pace so the status quo can only be measured over periods of two to five years. This has been very apparent in the last two years; witness the accelerated digital innovation that occurred during the Covid-19 pandemic influencing the way many of us live our lives. The fact that it is not everyone, is in itself an issue. It highlights the need for city-based levelling-across as much as country-based levelling-up. Other major external pressures around the corner come from the move from a carbon- to knowledge/information-intensive economy, environmental protection and the need to address the challenges arising from our own increasing lifespans.
Humanity has long clustered together to gain advantage. City-enabled proximity leads to partnerships as citizens experiment and innovation results. In this, the ‘place’ agenda is central; the capital components available in any given ‘place’ define the selective pressures that will come to bear on the businesses that comprise the local economies.
Today people are again choosing to work and live in places that are walkable/connected by public transport. Today’s entrepreneurs aged 18 to 30 are more collaborative than their predecessors - clustering together to learn from each other, often in the more bohemian, cheaper margins of smart cities. Companies are started in collaborative spaces, where they can mingle with other entrepreneurs and have efficient access to everything from legal advice to sophisticated lab equipment. Larger businesses and corporations come to cities to be located close to talent.
How we can limit restrictions on business growth
Interventions to support businesses and the local economies need to address the limiting selective pressures that restrict business growth. These pressures result from a lack of component critical mass in a region. Addressing the gaps through interventions changes the economic environment and so directly impacts the evolutionary progression of the businesses therein.
Top-down interventions all too often assume that successful innovation can be elicited by edict which in reality is not often the case. There is always a major intangible that is much harder to create by design or intervention. This magic equates to the culture behind the place and the knowledge creators.
The character of physical space influences how things happen. Alongside this is the intangible diverse mix and quality of human capital that promotes new ways of doing business. Hence the cultural and social drivers define ‘place’ and the type or people that congregate there. But these places need to be curated so as to ensure individuals with related or complementary objectives do not become buried in city infrastructure, limiting their connections and thwarting delivery of the economic growth they could promote and so limiting productivity.
Interventions too often focus on single components of this complex economic ecology. Strengthening one component in isolation just shifts the factor limiting successful growth elsewhere. Interventions need to be considered as part of a holistic connected web of activity not a linear process. Delivery should be sustainable, additive and dynamic and reflect prevailing needs.
It is important that interventions are fit-for-purpose, designed for the now. Intervention design needs to start with an assessment of the present. The last two years have shown how landscapes can change literally overnight. The business world adapted to a virtual existence and it seems the impact of the Covid pandemic is still to largely play out. But the adoption of digital innovation advanced by five years in an equivalent number of months. These changes should be reflected in the future business support interventions, at the very least in terms of delivery mechanisms if not form.
For a business to be successful it needs:
Product(s) addressing market needs
A competitive edge
A defined business strategy
A credible team
Investors and Collaborators
Time to deliver – which in turn requires a place with resources - a supportive environment
All of these determine success and hence are points of potential intervention if critical mass is not available in their chosen place. Interventions need to be about sustained support to create an effective escalator to propel businesses forward.
The choice of entrepreneurs and business founders
Entrepreneurs and business founders have a choice as to where to base themselves and establish their businesses. A founder’s ambition certainly defines at least the initial rate of business growth. His/her aspirations tend to be calibrated by personal experience of what has gone before; what s/he perceives as possible in the location. How many successful startups have there been, how many have survived and grown, not necessarily to 'unicorns’, but that helps! In this way a region’s economic ecology influences expectations and so fulfillment.
In order to attract and retain the future leaders of new successful businesses a dynamic and attractive landscape needs to be offered and supported, to provide to be:
proactive, engaging and catalytic
diverse and inclusive
Engaged social capital should be visible and proactive across the whole landscape. Arguably we build too many walls and not enough bridges (after Isaac Newton), there is a need to break out of the many current intervention silos and develop a deep Social Capital comprising public and private leaders working as:
Champions and Communicators: Leaders that champion the importance of innovation, promote and communicate successes to local, national and international audiences
Conveners and Facilitators: Leaders that convene cross-functional groups to deliver strategic initiatives that accelerate economic development and social prosperity
Funders and Policymakers: Leaders promoting strategic investments and policies alongside private investment capital to fuel growth
Recruiters and Retainers: Leaders to drive inward investment
No one group should come to dominate and all should work together within partnerships.
Skills, talent and business growth
As in the industrial cities of the past, skills and talent remain the crucial capital element. Even more so in a knowledge-driven economy where in reality the key component of the 2020’s supply chain is access to knowledgeable [digital] talent. A region can also aid success by readily adopting the new products and services being developed to create demand pull as the basis for a thriving and attractive marketplace. The Public Sector, including NHS procurement has a major role to play in aiding technology adoption.
Returning to biological principles. The aim is to promote survival of the best businesses that will drive opportunity and prosperity defined by global measures. We need to create a business landscape based on an economic ecology that ensures a business potential is not stifled by local conditions. If a founder finds local factors do limit his/her aspirations s/he has two options, move on to somewhere these limitations are not a negative factor or accept the situation and remain, but in doing so deliver against more limited ambitions, stunt the opportunity and growth of the business or worse still see it wither and become extinct.
A consequence of this assessment is that in order to enable global businesses to grow anywhere in the UK a levelling across agenda needs to work in parallel with that of the levelling up agenda. Indeed the former may be a prerequisite for the latter.