ARE START-UP ECOSYSTEMS THE SAME? TYPOLOGY OF START-UP

CITIES IN THE SLOVAK REPUBLIC

Marek Lavčák

Oto Hudec

The faculty of Economics at The Technical University of Košice

ABSTRACT

Following the year 2000, start-up movements expanded from the USA to Europe. The form of innovative entrepreneurship based on the principles of problem-solving, taking needs of common consumers into account by means of innovations, has become generational and reached young people all over Europe. One of the specific features of start-up entrepreneurship is represented by the networking of actors as well as the tendency to cluster people into interest groups or even communities. The ever increasing significance of this phenomenon leads to the need to investigate the process of local entrepreneurship and start-up communities’ formation, also as a part of more extensive ecosystems and support infrastructure.

The main aim of this paper is to identify the most important centres of start-up communities in the Slovak cities and to identify the key factors that influence their formation, evolution and specific features. The position of universities in the ecosystems is taken into consideration following the experience of successful ecosystems formed at technological universities in the USA. Investigation of the most significant personalities, institutes, partner companies and activities brings the overview of natural relations and processes that had influenced the development of the local support ecosystem of the key start-ups in the selected cities. Based on the case studies considering the key start-up cities in the Slovak Republic, we will identify the key environment factors affecting setting up new start-up companies, to derive a typology of the cities and to consider the role of universities and classify the ecosystems as interconnected/fragmented. Taking into account that in

Slovakia an entire concept of innovative entrepreneurship support was formed only a few years ago, the analysis hereof may represent a significant contribution to identifying the processes and strategies suitable for the formation of viable ecosystems that shall support the starting start-ups and spin-offs.

JEL: L26, L31

KEYWORDS: start-up, ecosystem, community, entrepreneurship, Slovakia

INTRODUCTION

The concept of start-up has different interpretations, often even misused for designation of

any starting company. The leading personalities of the global start-up community share a similar

view on the start-up definition.

Paul Graham (investor and co-founder of Y-combinator) defines start-up (Graham, 2006)

as the company that has the potential to grow fast in a short period of time and requires various

forms of outside capital for the new company.

An entrepreneur, investor and educator Steve Blank (creator of Lean start-up methodology)

describes the term start-up (Blank, 2012) as a temporary organization used to search for a

repeatable and scalable business model. From his point of view, the established company is

then a permanent organization designed to apply and implement the tested repeatable business

model.

Eric Ries denotes start-up (Ries 2010) as a “human institution” developed in order to create

a new product or service regardless of the size or business activities of the organisation

emphasising the difference between the feasibility and the need of a certain product; making the

company able to ignore natural barriers existing in the large organisations and to aim at research

and development of new solutions or implementation of the existing solution in a new segment.

As a human institution hires creative employees and creates a corporate culture that brings

results. The value generated by the company is not set solely in the product itself but also in the

people who have created it.

Taking all the basic characteristic features of start-up companies identified by several

authors, we can identify the basic elements of start-up companies:

potential to grow fast (global ambitions),

initial stages of formation of companies and development of products are financed by

the outside capital,

flexible and repeatable business model (scalability),

newly developed or innovative product which observes mostly unmet needs,

team spirit, creativity and corporate culture represent the basic values of the company.

The difference is vivid in comparison to common business practises characterised by their

focus on the profit, reduction of production costs and a lack of scalability.

1 ORIGIN OF SILICON VALLEY PHENOMENON

In connection with start-up companies, the territory of Silicon Valley – the south region of

San Francisco Bay in the northern part of California in the USA should be mentioned. The name

was created around 1971 when the company Intel placed the first microprocessor on the market

and the USA got ahead of Japan in the technological development. One of the basic elements

used for the production of microprocessors, microchips and electronic components up to this

date is silicon. The name later becomes a metaphor for the whole electrical engineering industry.

Silicon Valley is currently a territory with the highest concentration of technological companies

and venture capital in the world, (according to Forbes, more than 50 billion USD was reinvested

in Silicon Valley, compared to 22.5 billion USD on the whole territory of Asian continent).

A.L. Saxenian points out the porousness of the boundaries between companies and

innovative inclusiveness of the region as the basic determinants of success (Saxenian, 1985).

Other present factors include technology-oriented universities with a long-standing tradition and

active connections to a large number of technology-oriented companies in the region.

Although other regions, cities and states strive for achieving the same success as Silicon

Valley, it is evident that even the phenomenon of Silicon Valley itself would not arise without

specific circumstances.

According to Isenberg, the key factors for success of Silicon Valley include:

strong local aerospace industry subsidized by the U.S. government,

the open California culture ensuring a high level of inclusiveness,

Stanford University’s supportive relationships with industry,

a mother lode of invention from Fairchild Semiconductor,

a liberal immigration policy toward doctoral students,

and pure “luck” in relation to the right combination of random events.

The specific factors are unlikely reproducible in other regions of the world. Regarding

the formation of ecosystems, it depends on the particular place, its characteristic and specific

features that make it unique (Isenberg, 2010, Baumol, 1990). However, some positive examples

of partial success include e.g. Tel Aviv since 1993 with no natural resources, military necessity,

and far from markets for its products; Berlin since 1997 thanks to transformation in business from

subsidized industry to developing advanced services; Madrid since 2005; Talin since 2006 owing

to the school reforms and massive support of IT. The main difference between these centres and

the Silicon Valley is the fact that the Silicon Valley was formed on a technological basis,

aerospace industry subsidized by the government as well as technological breakthrough related

to the discovery and launch of production of microchips by Intel. Other world centres have not

been based on the critical discoveries (Virgincom, 2014; Startupblinkcom,

2015; Startupestoniaee, 2016).

2 ENTREPRENEURIAL ECOSYSTEMS

The importance of the environment for entrepreneurship and innovation business in the

form of start-up companies leads to underline the importance of an entrepreneurial ecosystem.

In biological terminology, the term ecosystem means a set of organisms and components

existing in a certain environment (applied when explaining the formation of the environment and

relationships among its components), the mutual relationships among the components of the

ecosystem as well as the relationships between components and the environment. This

approach may be used in the economic terminology and of the entrepreneurial environment. In

general, an entrepreneurial ecosystem (Feld, 2012) should comply with nine attributes listed in

the following table.

Table 1 Nine attributes of entrepreneurial ecosystem

Attribute Description

Leadership Strong group of entrepreneurs who are visible, accessible and

committed to the region being a great place to start and grow company.

Intermediaries Many well-respected mentors and advisors giving back across all

stages, sectors, demographics and geographies as well as a solid

presence of effective, visible and well-integrated incubators and

accelerators.

Network density Deep well-connected community of start-ups and entrepreneurs along

with engaged and visible investors, advisors, mentors and supporters.

Government Strong government support for and understanding of start-ups to

economic growth.

Talent Broad, deep talent pool for all levels of employees in all sectors and

areas of expertise. Universities are an excellent resource for star-up

talent and should be well connected to community.

Source : (Feld 2012)

Although there is hardly any general guide to formation of the entrepreneurial ecosystem, it is

worth to mention principles recommended to public leaders when forming a vibrant ecosystem

(Isenberg, 2010):

To emphasize the role of local conditions and bottom-up processes (to shape the

ecosystem to local conditions instead of emulating Silicon Valley, to engage the private sector

from the start and to help to grow new ventures organically),

To emphasize ambitious entrepreneurship (to favour the high potentials and celebrate

successes),

To emphasize institution (to reform legal, bureaucratic and regulatory frameworks and change

a deeply ingrained culture).

The ecosystem attributes (Feld, 2012) as well as its building principles (Isenberg, 2010) explain

why any start-up ecosystem is significantly predefined by the local conditions it grows up. The

entrepreneurial ecosystem concepts emphasize a cultural change, leadership and close links

within the community of interdependent actors. Functioning ecosystem should ensure all the

relevant sources (talent, services, support, capital, etc.) to its associates and vice versa.

3 COMMUNITY

Professional communities represent specific groups of people sharing an interest in business,

technology trends and experience with global projects which improve their knowledge by meeting

and communicating with each other. (Learninglandscapes.ca 2016). Members do not

Support services Professional services (legal, accounting, real estate, insurance and

consulting) are integrated, accessible, effective and appropriately

priced.

Engagement Large number of events entrepreneurs and community to connect, with

highly visible and authentic participants (e.g. meet-ups, pitch days, start-

up weekend, boot camps, hackathons and competitions)

Companies Large companies that are the anchor of a city should create specific

departments and programmes to encourage cooperation with high-

growth start-ups.

Capital Strong, dense and supportive community of venture capitalists and other

types of investors.

necessarily have to work together in one place on a daily basis. On the other hand, an endeavour

to share day-to-day experience and formation of synergy effects support the persisting trend of

shared working spaces (co-working centres) for starting technology-oriented companies, which

combine collaborative ideas and strong community nature. Such communities represent an ideal

space for sharing tacit knowledge, explaining why they are pinpointed in the theory of local start-

up community formation. (Wenger et al., 2002).

Feld (2012) considers community as a centre of the ecosystem and based on his

experience from Silicon Valley applied when working with the community of entrepreneurs in a

small town of Boulder in Colorado, he compiled a thesis with four pillars to form a viable start-up

community:

1. Entrepreneurs must lead start-up community,

2. The leaders have a long-term commitment,

3. Inclusiveness of anyone who wants to participate in it,

4. Continual activities that engage the entire entrepreneurial stack.

Transfer and distribution of knowledge are therefore one of the key tasks the community and

ecosystems shall provide with their members. Industries are relying on specific knowledge and

innovation input that affect the innovation processes (Asheim and Vang, 2005). The knowledge

base distinction takes into account knowledge-creating processes as it looks at the interplay

between actors and the knowledge that is created, transmitted and absorbed. A distinction has

been made between three types of industrial knowledge bases - analytical, synthetic and

symbolic (Asheim et.al. 2007). The knowledge base typology shall also serve to classify start-up

ecosystems. A brief specification of individual knowledge bases is introduced in the following

table:

Table 2 Specification of individual knowledge bases

ANALYTICAL

(science based)

SYNTHETIC

(engineering based)

SYMBOLIC

(artistic based)

Developing new knowledge

about natural systems by

applying scientific laws; know

why

Applying or combining existing

knowledge in new ways; know

how

Creating meaning, desire,

aesthetic qualities, affect,

intangibles, symbols, images;

know who

Scientific knowledge, models,

deductive

Problem-solving, custom

production, inductive

Creative process

Collaboration within and

between research units

Interactive learning with

customers and suppliers

Learning-by-doing, in studio,

project teams

Strong codified knowledge

content, highly abstract,

universal

Partially codified knowledge,

strong tacit component, more

context-specific

Importance of interpretation,

creativity, cultural knowledge,

sign values, implies strong

context specificity

Meaning relatively constant

between places

Meaning varies substantially

between places

Meaning highly variable

between place, class and

gender

Drug development Mechanical engineering Cultural production, design,

brands

Source: (Asheim, 2007)

4 RESEARCH QUESTIONS AND METHODOLOGY

Awareness of the Slovaks about the term start-up and innovative business has raised rather late

in comparison to other European countries (Germany – 1997, Spain – 2005, Czech Republic–

2008). The first activities regarding the support and education of innovative and technologically

minded entrepreneurs were recorded in Slovakia in 2010 when the young local community arose

in Bratislava. Meetings and discussions of the IT specialists who used to meet on a regular basis

at StartupCamp were the first impulse. This concept evolved over time into a civil association

which also moved to the Eastern part of Slovakia in 2011 thanks to students from Košice.

In the years 2011-2013, co-working centres with a comprehensive education concept that late

transformed into business incubators have been established in three cities of Bratislava, Košice

and Žilina as a basis of the local start-up ecosystems. However, the ranking of Slovakia in

comparison to other countries is still not high (KPMG Technology Innovation Survey 2014 and

Word Economic Forum’s Networked Readiness Index 2014). Nevertheless, all three local start-

up ecosystems became strong and active enough to study their similarities as well as differences.

Two following research questions are studied in the paper:

RQ1: Are there any differences between individual ecosystems of Slovak start-up centres in

respect to their previous history?

RQ2: What knowledge base is dominant in the Slovak start-up centres? Are the start-up

companies and local ecosystems in Slovakia formed in the business or academic environments?

The following qualitative research was conducted during 2015 and 2016 on a sample of 12

respondents who represent the leading representatives of communities in individual local start-

up ecosystems. Telephone and Skype interviews with the main representatives of local start-up

communities represent the primary method of collection of information. Four interviews have

been made for each local community to understand the evolution, knowledge bases, stimuli,

milestones, leaders, networks, personalities and institutions, relations to be able to sketch the

start-up ecosystem and community. Subsequently, identification of the nature of individual local

communities and ecosystems made possible to assign the examined cities into categories

according to dominant knowledge base and main driving force.

5 CASE STUDY BRATISLAVA

5.1 Overview

Bratislava as the capital of the Slovak Republic, is obviously the seat of local headquarters of the

most significant international companies. In the recent years, the start-up ecosystem of the

capital is more viable than ever and offers various forms of support to small and start-up. There

are several success stories in the start-up ecosystem of Bratislava, which currently represent an

important motivation factor for establishing start-up companies in Bratislava and second tier cities

(Košice, Žilina, etc.).

5.2 Ecosystem and community

Bratislava was the first city where a local community focusing on innovation entrepreneurship

and start-up companies has been formed. Committed IT and business specialists willing to share

their knowledge and experience represented the catalyst of the process. Establishment of the

first co-working centres and hubs was supported by private resources, which helped to create a

profile for the commercially oriented group. Relationships with high-profile companies such as

ESET, SYGIC or SOITRON were not limited solely to the financial support. The community was

formed under the supervision of experienced entrepreneurs, which delivered a sufficient flow of

business skills affecting positively the development and orientation of the whole community in

Bratislava.

According to the statements of the main representatives of the community in Bratislava, the

formation of ecosystem may be associated with the beginning of community formation. Self-

proclaimed group of committed personalities had a strong relationship with the local companies,

universities and government which supported these activities. The private sector is engaged

financially and provides to community know-how on B2B, Big Data and cyber security – the most

powerful topics of projects formed in Bratislava.

Figure 1. The Evolution and the milestones of the start-up ecosystem in Bratislava

Based on interviews with local community leaders, local entrepreneurs and partners

2010meetings of

specialists within StartupCamp O.Z.

2011formation of first co-working centres and

conceptual education for start-ups

2012/2013making contacts

with multinational companies and

local firms

2015establishment of

the first accelerator The

Spot Booster

6 CASE STUDY ŽILINA

6.1 Overview

ŽIlina as the fifth largest city with the population of 85 000 inhabitants has a good tradition in the

industry and a strong base at the technologically-oriented University. The city has become an

important industrial centre owing to the arrival of KIA Motors as well as the cooperation in the

field of applied research of biotechnologies and transport. VTP Žilina represents a major player

in the field of innovations and their promoting and stimulation – the organisation which has been

active for 15 years and focusing on the support of young entrepreneurs at universities. This

association and the majority of activities to promoting the emergence of young entrepreneurs are

closely linked to the University of Žilina and the local companies such as AZET and KROS.

6.2 Ecosystem and community

Žilina is the youngest Slovak start-up city. A compact and distinctive community was formed only

in 2012 on a strong academic basis owing to the VTP Žilina – an organisation established by the

University in 2001. The contribution of VTP represented a systematic pressure for a change in

the system and flexibility of education at the University of Žilina. In 2011, the course

“Entrepreneur as a profession” was introduced under the auspices of VTP. The core topic of lean

canvas methodology for making business models made it popular with many students. With a

group of teachers connected to local companies such as AZET, KROS and others, the project

Banka Žilina started in 2015, which formed a space for the co-working centre, lectures and

seminars, starting businesses on the University grounds as well as smaller companies and also

AZET development centres. Despite the creation of new office premises outside of the university

campus, the local community remains firmly linked to Žilina University, which works as its

umbrella organisation and the main partner.

The leaders of the Banka Žilina project and VTP Žilina describe the existing ecosystem as still in

its developing phase. Despite a stable research and academic basis, there is a lack of support

from the local government and cooperation with local and national companies. An interesting fact

is that several young companies that have managed to get stabilised and already settled on the

market, turn back to community and provide lecturing and mentoring at the University.

Figure 2. The Evolution and the milestones of the start-up ecosystem in Žilina

Figure 1 Source : Based on interviews with local community leaders, local entrepreneurs and partners

2001Establishment of VTP

Žilina o.z.

2011The first Startup Weekend Žilina

2012

Enforcement ofuniversity subject: "Entrepreneur as a

profession" at University of Žilina

2015Openning of the

reconstructed building ofBanka Žilina

7 CASE STUDY KOŠICE

7.1 Overview

Košice with the population of 240 000 is the second largest city in Slovakia and a metropolis of

the Eastern part of the country. The last decade has drawn to the city a large number of IT

companies, such as T-systems, Ness, Global Logic, AT&T, Siemens, IBM and Eset. The

presence of relevant universities and support activities aiming at the increase of interest in

entrepreneurship for young people and university graduates has brought several start-up

projects. The environment for innovative business has been formed through the cooperation of

various institutions, companies and individuals.

7.2 Ecosystem and community

Community in Košice has been affected by the activities and community in Bratislava from the

early beginning. The civic association StartupCamp putting together the start-up activities in

Bratislava transferred rapidly its model and activities also to East of Slovakia thanks to students

from Košice. First members of the community included a small number of professional business

fans, young students and starting entrepreneurs from the field of technologies. In 2013, these

activities intersected the Technical University of Košice and local companies at the first Startup

Weekend. This was the beginning of transformation of the environment for start-up companies

in Košice. Owing to the companies such as T-Systems, FPT Slovakia and IBM, sufficient

pressure was exerted on the Technical University of Košice and IT Valley cluster employing more

than 8 000 IT workers. Local community and its events were later supported by the local

government, which helped to form a three-pillar base for creation of a strong ecosystem to

support innovations and start-up companies. Non-profit organizations which operate in co-

working hubs and provide training activities represent the most significant step. According to

Boulder’s, insufficient level of involvement of local entrepreneurs who may provide the

community with knowledge of business drive still constitutes the issue of the ecosystem. Such

activities are currently provided externally in cooperation with local communities from Slovakia,

especially from Bratislava.

Figure 3. The Evolution and the milestones of the start-up ecosystem in Košice

Figure 2 Source : Based on interviews with local community leaders, local entrepreneurs and partners

2011meetings of specialists

within StartupCamo O.Z.

2012Openning of the star-tup centre Eastcubator and

the first Startup Weekend Košice

2013Comprehensive

educational program in the field of

entrepreneurship within the project AZU

2014Reopening of the start-up

centre Eastcubator andeducation programs in cooperation with local

firms

8 CONCLUSIONS

The main aim of the paper is to compare the determinants for the formation of start-up

movements in three Slovak cities – Bratislava, Košice and Žilina. In Bratislava and Košice,

activities of groups of independent and professional individuals constituted the first impulse for

the formation of a complex entrepreneurial ecosystem, while the ecosystem in Žilina was formed

on a strong academic basis.

The solid inclination to entrepreneurship in Bratislava had an impact on the formation of

ecosystem from its very beginnings and the community found its path thanks to experienced

entrepreneurs involved in education and sharing of their experience with the community of

starting entrepreneurs. The range of involvement of academic environment within Bratislava is

rather low.

Košice city was significantly influenced by specialists whose business was based on their

experience in corporations actively involved in the business ecosystem in Košice mostly by

supporting the local community activities. The local universities later become involved in the

activities of the community supporting it in the form of space, personnel and promotion.

Activities of the ecosystem in Žilina are closely related to the university which is considered as

entrepreneurial; they are based in the academic environment interlinked with local firms. The

Žilina University works as the leader of the whole community.

A period needed for the formation of a start-up community oriented on support and education of

entrepreneurs is relatively short and ranges from 1 up to 3 years (based on the observations

made in Slovak conditions). Creation of a complex ecosystem for support of start-ups is much

more complex and in order to do so an active three-sector cooperation is necessary.

According to several authors led by Isenberg, an effective collaboration with the private sector,

the involvement of the government and a local entrepreneurial community to an appropriate

extent while taking strengths and weaknesses of the given territory into account are the keys to

success when forming a complex ecosystem. Regional and local governments often mistakenly

aim at imitating or copy the concept of success of Silicon Valley. This is, however, impossible.

According to Feld and Isenberg, not even Silicon Valley itself would not have to repeat its

success. Feld also puts a strong emphasis on the community base of an ecosystem focusing on

the interconnection with experienced entrepreneurs in the region and close relationship between

the community and universities in his theses. The formation of a successful ecosystem for start-

up companies should be ideally based on the cooperation among the private sector, public sector

and entrepreneurs that are altogether active in supporting the transfer of knowledge and

experience.

Regarding the conditions of Slovak start-up centres, no significant impact of the regional history

on the community’s and ecosystem’s primary focus has been observed. Although, history of the

region indirectly influences the community through local universities. Study programs shape an

individual’s formation.

In this respect, there are significant differences among the selected Slovak regions regarding the

prevailing knowledge base within the ecosystem. Unlike Bratislava and Košice, Žilina has shown

itself as an ecosystem based on the academic basis where analytical knowledge base prevails.

This may be caused by the fact that the activities at the University of Žilina had supported the

formation of local community and interconnection of local entrepreneurs and university

environment represented especially by VTP Žilina and Banka Žilina is still strong. Local

companies such as KROS and AZET have the opportunity to cooperate with the ecosystem and

they are actively involved in the community’s activities.

The community of avid business fans and young entrepreneurs began to form the ecosystem for

support of start-up companies in Bratislava and Košice. All these activities have been strongly

interconnected with the private sector and large companies in the given regions from the very

beginning. Bottom-up approach to ecosystem formation helped to create a relatively stable

environment. Large companies as well as small local firms take part in the education of the

community in Bratislava and Košice. Synthetic knowledge base prevails in both cities. Bratislava

and Košice differ from each other in the extent of university involvement. While universities in

Bratislava develop their own activities with no (or weak) interconnection with the local start-up

community, the community and its partners in Košice are actively involve at the university and

there are signs of cooperation and collaboration. Large companies such as T-systems and FPT

Slovakia who involve the community in activities of the university ensuring the supply of new

community members.

The following table shows the characteristic features comparison of individual start-up

ecosystems in Slovakia:

Table 3 The characteristic features comparison of individual start-up ecosystems in

Slovakia

Factor Bratislava Žilina Košice

Beginning of

community formation

2010 2012 2011

Involvement of local

entrepreneurs

significant significant insufficient

Involvement of the

local government

moderate moderate moderate

Prevailing nature of

partner relationship

with local companies

and organizations

Finances, PR, expert

consultations

Expert

consultations

Finances,

expert

consultations

Overall nature of

relationships within the

ecosystem

collaboration collaboration collaboration

Clear plan for

community progress

Yes No Yes

Inclusiveness of

community

High High High

Type of events required

in community -lectures,

seminars discussions,

technical, business,

law and accounting

Discussion/business Seminar/business Workshop/technical

Main topics that the

community is

concerned with

B2B applications,

Cybersecurity

B2C applications B2B,

Hardware

Source : Based on interviews with local community leaders, local entrepreneurs and partners

A high level of involvement of university within a local community results in sophisticated

research projects. However, there is a lack of commercial applicability and often goes beyond

the needs of real customers, which has been proven by the case studies. The combined impact

of universities and companies excluding a significant interference is considered as an acceptable

option that does not affect the nature of starting companies. Local start-up communities can be

categorised according to the prevailing type of knowledge within the ecosystem and the key

factor affecting the nature of new projects as follows:

Table 4 The typology of knowledge bases in Slovak startup centres according to

Asheim’s thesis

Dynamics of ecosystem development can be influenced by involved and experienced

entrepreneurs who are engaged in activities of the community, an appropriate extent of

involvement of local government (sufficient to support a strong community, however, not so

excessive so that it may influence or dictate the community’s orientation). According to the case

studies, the factors considered can serve to differentiate the main start-up centres in Slovakia.

System and legal support from relevant state organizations represent an important aspect which

enters into the process of ecosystem formation on local as well as regional level.

Type of knowledge

Key role

In the ecosystem

Analytical Synthetic

Symbolic

Prevailing influence of local

enterprises

Bratislava

Prevailing influence of

universities

Žilina

Significant influence of both –

local enterprises and

universities

Košice

Source : Based on own conclusions of interviews from Žilina, Bratislava and Košice

Acknowledgement:

This work was supported by the Slovak Research and Development Agency (APVV) under the

contract No. APVV-14-0512.

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CONTACT TO THE AUTHOR(S)

[Marek Lavčák, Ing., Oto Hudec, Profesor]

[Letná 9, 042 00 Košice]

[0917 408 136]

[marek.lavcak@tuke.sk]