1 

Literature Review 

September 2018 

EntreWorks Consulting with the Center for Rural Entrepreneurship 

and the Center for Regional Economic Competitiveness 

Prepared for: 

Entrepreneurial Ecosystems in 

Appalachia 
 2

About This Report

This report was prepared under contract to the Appalachian Regional Commission on a project entitled 

Documenting and Strengthening Entrepreneurial Ecosystems in Appalachia (CO-18608-2016). The 

project was led by EntreWorks Consulting, in partnership with the Center for Regional Economic 

Competitiveness and the Center for Rural Entrepreneurship. The Appalachian Regional Commission 

(ARC) is an economic development agency of the federal government and 13 state governments 

focusing on 420 counties across the Appalachian Region. ARC’s mission is to innovate, partner, and 

invest to build community capacity and strengthen economic growth in Appalachia to help the Region 

achieve socioeconomic parity with the nation. www.arc.gov. 

This report, Entrepreneurial Ecosystems in Appalachia: Literature Review, was written by Erik R. Pages of 

EntreWorks Consulting. We are grateful to our partners at the Appalachian Regional Commission and 

the many committed ecosystem builders around Appalachia who helped with this research, but more 

importantly are working to nurture Appalachia’s entrepreneurs. 

This report is part of a larger project entitled Entrepreneurial Ecosystems in Appalachia. Additional 

project materials can be accessed at www.arc.gov, as well as the project’s website: 

http://arceco.creconline.org.
 3

Introduction

Over the past twenty years, supporting local entrepreneurs has become a core part of the economic 

developer’s tool kit. This position actually represents a major shift from past practices, which placed a 

nearly exclusive focus on the use of tax breaks and other incentives to recruit relocating businesses to 

new locations. The Appalachian Regional Commission (ARC) played a big part in this policy shift. Its 

Entrepreneurship Initiative, which operated from 1997 to 2005, was one of the Federal government’s

first programs to invest significant funds into local, regional and state entrepreneurial development 

initiatives.1

Since its initial investments via the Entrepreneurship Initiative, the Commission has continued to 

support its partners in efforts to stimulate new and growing business development across Appalachia. 

Over this long two-decade period, the benefits of supporting local entrepreneurs have become better 

understood by elected officials, economic developers, community leaders and the general public. 

Meanwhile, the practice of entrepreneurial development has evolved. New ideas have emerged, based 

on new research and learning from ongoing projects in the field across the globe. The concept of the 

“entrepreneurial ecosystem” is at the heart of these new ideas and approaches to supporting and 

promoting entrepreneurship. This review of the literature examines the concept of the entrepreneurial 

ecosystem. It reviews the emergence and subsequent history of the concept. We begin by asking: 

What is an ecosystem and why does it matter? We next turn to a brief historical review of where and 

how the ecosystem concept and the overall focus on entrepreneurial development align with broader 

trends in the field of economic development in general and with a specific focus on Appalachia. Finally, 

we conclude with a detailed review of the characteristics and policy components that experts and 

practitioners consider to be the core building blocks of successful and sustainable entrepreneurial 

ecosystems. 

What Is an Entrepreneurial Ecosystem and Why Does It Matter?

The concept of the entrepreneurial ecosystem is relatively new, first emerging about ten years ago and 

gaining more popular traction around 2010.2 The concept emerged as part of a wider critique of 

 

1

For background, see Deborah Markley et al., Creating an Entrepreneurial Appalachian Region: Findings and 

Lessons from an Evaluation of the Appalachian Regional Commission’s Entrepreneurship Initiative, 1997-2005.” 

Report prepared for the Appalachian Regional Commission, 2006.

2

Early popular discussions include Brad Feld, Startup Communities (New York: John Wiley & Sons, 2012); Daniel 

Isenberg, “The Big Idea: How to Start an Entrepreneurial Revolution,” Harvard Business Review, June 2010; Victor 

W. Hwang and Greg Horowitt, The Rainforest: The Secret to Building the Next Silicon Valley, (Los Altos Hills, CA: 

Regenwald, 2012); Erik R. Pages et al., "The Rise of Entrepreneurship as an Economic Development Strategy," in 

David Hart (ed.), The Emergence of Entrepreneurship Policy: Governance, Start-Ups, and Growth in the U.S. 

Knowledge Economy. (Cambridge: Cambridge University Press, 2003).
 4

economic and small business development strategies which had been primarily focused on increasing 

the number of start-up businesses. Increasingly, researchers were noting that small business policy and 

entrepreneurship policy were not synonymous. Thus, many traditional tools used to support small 

business, such as subsidized loans or business planning assistance, were helpful for new start-ups, but 

did not help these firms “scale up” to become high growth or gazelle businesses. Critics contended 

that this focus on the “quantity” of new businesses was misplaced, especially if job and wealth creation 

were viewed as core policy goals. They instead argued that policy makers should focus their attention 

on growth companies, i.e. ventures with high potential to grow, create jobs and generate positive 

economic spillovers. 

This shift in attention from start-ups to growth entrepreneurs and from quantity to quality also led to a 

change in research and policy priorities.3 Earlier entrepreneurship research, dating back to the 1970s 

and 1980s, placed heavy emphasis on issues such as an entrepreneur’s motivation, personal 

characteristics, or key components of the entrepreneurial process such as business planning, raising 

capital or managing employees. All of these research emphases tended to focus on the entrepreneur or 

the company in isolation, neglecting key outside factors such as the emergence of new market 

opportunities or the role of networks in supporting company growth. 

As researchers shifted their focus from personality traits and internal motivations of business owners to 

a new emphasis on external factors affecting business growth, a whole host of new insights emerged. 

These were further supported by the real-life experience of high growth companies and the emergence 

of technology-rich entrepreneurial hotbeds like Silicon Valley, Seattle and Boulder. Researchers 

examining these regions placed heavy emphasis on the role of local business culture in creating an 

“entrepreneur friendly” environment.

4

All of these factors created an environment where the concept of the entrepreneurial ecosystem quickly 

took hold. The concept of the “ecosystem” was consciously adopted from biology for a variety of 

reasons. For some, the entrepreneurial ecosystem is similar to a biological ecosystem in that it is 

composed of “dynamically stable networks of interconnected organisms and inorganic resources that 

constitute their own distinct domain of analysis.”5 For most, the connection is slightly less specific, with

ecosystems simply referring to the fact that certain environments are especially conducive to supporting 

new and growing companies. 6

 

3

For recent reviews of the literature, see Erik Stam, “Entrepreneurial Ecosystems and Regional Policy: A 

Sympathetic Critique,” Utrecht University School of Economics Discussion Paper No. 15-07, 2015; and Yana 

Borisenko and Ron Boschma, “A Critical Review of Entrepreneurial Ecosystems: Towards a Future Research 

Agenda,” Utrecht University Urban and Regional Research Center, Papers in Evolutionary Economic Geography No. 

16-30, 2016.

4

AnnaLee Saxenian, Regional Advantage: Culture and Competition in Silicon Valley and Route 128, (Cambridge: 

Harvard University Press, 1994)

5

Philip E. Auerswald, “Enabling Entrepreneurial Ecosystems,” Kauffman Foundation Research Paper, October 2015.

6

Colin Mason and Ross Brown, “Entrepreneurial Ecosystems and Growth Oriented Entrepreneurship,” Background 

Paper prepared for a Workshop organized by the Organization for Economic Cooperation and Development (OECD) 

LEED Program and the Dutch Ministry of Economic Affairs, January 2014, p. 8.
 5

The concept of entrepreneurial ecosystem is not completely new, and it contains few new ideas or 

concepts. Many of the core elements or strategies around ecosystem development have been widely 

understood for decades. However, the concept of ecosystem serves as a useful organizing framework 

that emphasizes the importance of systems and networks in fostering entrepreneurship. In this view, 

there is no one single cause or factor that leads to an entrepreneur’s (or a region’s) success. It is the 

connections and interdependencies of multiple factors that matter.

Defining Entrepreneurial Ecosystems

Given the huge and growing research literature on entrepreneurial ecosystems, it is difficult to identify 

one consensus definition. For our purposes, we will use the all-encompassing definition developed by 

Mason and Brown in their research on behalf of the Organization for Economic Cooperation and 

Development (OECD). They define an entrepreneurial ecosystem as:

a set of interconnected entrepreneurial actors (both potential and existing), entrepreneurial 

organizations (e.g., firms, venture capitalists, business angels, banks), institutions (e.g., 

universities, public sector agencies, financial bodies) and entrepreneurial processes (e.g., the 

business birth rate, numbers of high growth firms, levels of ‘blockbuster entrepreneurship’, 

number of serial entrepreneurs, degree of sell-out mentality within firms and levels of 

entrepreneurial ambition) which formally and informally coalesce to connect, mediate and 

govern the performance within the local entrepreneurial environment.

7

This admittedly clunky definition captures many of the key components of entrepreneurial ecosystems 

which will be further explored below. First, it notes the wide variety of actors involved in the 

ecosystem, ranging from entrepreneurs themselves to various support institutions. Second, it 

acknowledges the importance of entrepreneurial processes and the different stages of new and growing 

businesses. Lastly, it recognizes that both formal and informal connections matter. 

Why does it Matter? Benefits of Entrepreneurial Ecosystems

While experts may differ on specific definitions of entrepreneurial ecosystems, most agree that these 

ecosystems matter. They make a significant difference in terms of both the quantity and quality of 

entrepreneurial activity. Regions with strong entrepreneurial ecosystems tend to have higher start-up 

rates as well as more success in spawning larger numbers of high growth companies. 

Analysts have long known that entrepreneurial ventures are the primary creators of new jobs in the US 

economy, but the latest research has further refined these results. When it comes to job and wealth 

creation, not all entrepreneurs are created equal. Haltiwanger et al. find that most small firms and 

 

7 Mason and Brown, p. 5.
 6

start-ups fail or do not create new jobs.8 However, a small portion of new firms do grow quickly and 

“account for the long lasting contribution of start-ups to job growth.”9 Together, new firms and high 

growth firms (defined as those growing employment by 25% per year) account for about 70 percent of 

US firm-level job creation in a given year.10 Overall, this group of high growth companies represents 

about 15% of US firms and drives 50% of total gross job creation. Similar results can be found in other 

developed economies.11

Another way to consider the job-creating impact of entrepreneurs is by looking at employer firms – a 

subset of new firms that employ people beyond the owner/entrepreneur. Using both U.S. Census 

Bureau and Bureau of Economic Analysis data series, Reedy and Litan identified two important trends. 

One, employer firms are starting with fewer employees (an average of 7.5 jobs per new establishment in 

the 1990s vs. 4.9 jobs per new establishment in 2009). Two, businesses that survive beyond the first 

year are adding jobs at a historically slower rate.12 They conclude that increasing self-employment, 

particularly associated with contract employment, is not the most effective target for entrepreneurship 

strategies, since many of these enterprises may not grow and employ others. Rather, “the clear 

challenge for the U.S. economy instead is to start more employer businesses, ensure that they are 

starting larger, and nurture their growth.”

13

Beyond their benefits for job creation, entrepreneurial ecosystems also bring other regional benefits. As 

Auerswald has noted, ecosystems “promote diversity, encourage dynamism, and drive deal flow.”14 

Ecosystems help regions spawn a larger number of entrepreneurs (diversity), which spurs more 

competition and innovation (dynamism), which in turn creates new opportunities (deal flow) for new 

entrepreneurs, as well as their employees, customers, and investors. 

Entrepreneurship researchers view regional ecosystems as providing both short-term and long-term 

benefits. Over the short term, entrepreneurial ventures are more likely to start and more likely to grow 

in regions with robust ecosystems in place. This dynamism brings many other benefits beyond 

economic growth; it also generates a “buzz” about the region, attracting more entrepreneurs, more 

investment, and more attention. Over the long term, this virtuous cycle feeds on itself, as early 

 

8

John Haltiwanger, Ron S. Jarmin, Robert Kulick, and Javier Miranda, “High-Growth Young Firms: Contribution to 

Job, Output, and Productivity Growth,” National Bureau of Economic Research Working Paper, September 2016. 

Available at: http://www.nber.org/chapters/c13492.pdf.

9

Ibid, p.1

10 Ryan Decker, John Haltiwanger, Ron Jarmin, and Javier Miranda, “The Role of Entrepreneurship in U.S. Job 

Creation and Economic Dynamism,” Journal of Economic Perspectives, Vol. 28, No. 3, Summer 2014, pp. 3-24. 

Available at: http://econweb.umd.edu/~haltiwan/JEP_DHJM.pdf. 

11 Organization for Economic Cooperation and Development, Entrepreneurship at a Glance 2016, (Paris: OECD, 

September 28, 2016) p. 26. Available at: http://www.oecd.org/std/business-stats/entrepreneurship-at-a-glance22266941.htm.

12 E.J. Reedy and Robert E. Litan, “Starting Smaller, Staying Smaller: America’s Slow Leak in Job Creation,” 

Kauffman Foundation Research Paper, July 2011.

13 Reedy and Litan, 2011, p. 16

14 Auerswald, p. 10. 
 7

generations of entrepreneurs spawn successors and generate other spillover benefits in the form of new 

companies, new jobs and other economic and cultural benefits. 

Entrepreneurship and Economic Development

This growing recognition of the importance of entrepreneurs and their critical role in spurring job and 

wealth creation soon spilled over into both the theory and practice of economic development. In the 

words of Indiana University’s David Audretsch, entrepreneurship became a critical cog in the “strategic 

management of places.”15 

The process of altering economic development priorities and practices moved slowly, and it is still 

underway today. 16 Researchers and analysts of the history of US economic development policies often 

refer to different “waves” of policy priorities (See Figure 1).17 The first wave, which emerged in the 

1930s and dominated the field for decades, emphasized business recruitment and attraction, i.e., what 

critics often referred to as “smokestack chasing.” In this phase, typical policy tools included low cost 

loans or grants, tax incentives and other inducements to encourage firms to relocate facilities and 

operations.

Second-wave economic development strategies first emerged in the 1980s and focused on how best to 

retain and support existing companies. Policy tools took many forms, including R&D investments, 

technical assistance to businesses, capital access and business incubation, among others. 

Pennsylvania’s Ben Franklin Technology Partnership program, started in the early 1980s and still 

operating today, serves as a paradigmatic example of a second wave economic development effort.18

Third wave efforts first emerged in the 1990s and take a variety of forms. In fact, there is some dispute 

in the literature about what constitutes third wave economic development.19 While some debate 

persists, most observers agree that the third wave embraces a more holistic approach that seeks to 

create a more supportive economic development marketplace. This environment is intended to be 

more supportive and nurturing to new and existing firms. Key third wave policy tools include publicprivate partnerships, local networks, industry cluster strategies and workforce-focused sectoral 

strategies.

 

15 David E. Audretsch, Everything in its Place: Entrepreneurship and the Strategic Management of Places. (Oxford: 

Oxford University Press, 2015).

16 For a brief history of this process, see Pages et al in Hart (ed) The Emergence of Entrepreneurship Policy.

17 This concept of waves first emerged from work of Peter K. Eisinger, The Rise of Entrepreneurial State. (Madison: 

University of Wisconsin Press, 1988).

18 To learn more about the Ben Franklin Technology Partnership, visit www.benfranklin.org

19 For a discussion, see Ted K. Bradshaw and Edward J. Blakely, “What are ‘Third Wave’ State Economic 

Development Efforts? From Incentives to Industrial Policy,” Economic Development Quarterly, Vol 13, No. 3 

(1999), pp. 229-244. Some experts also posit the emergence of a 4th or even 5th wave of ED thinking that 

incorporates some of these new ideas. 
 8

FIGURE 1: Waves of Economic Development Approaches

Era Industrial Recruiting 

(1950s to 1980s)

Cost Competition (Early 

1980s to Early 1990s)

Regional 

Competitiveness (Early 

1990s to Present)

Driver Export base Scale Economies Innovation & 

Entrepreneurship

Strategies Financial incentives to 

firms

Industrial parks

Industrial consolidation 

and cost cutting

Deregulation

Entrepreneurship 

Clusters

Commercial research`

Keys to Success Government funds for 

subsidies and tax breaks

Industrial infrastructure

Health of existing 

industries

Distinct regional assets 

such as industry 

specializations, human 

capital, higher 

education & amenities

Source: Adapted from Mark Drabenstott, “A Review of the Federal Role in Regional Economic Development,” Background Paper, 

May 2005. 

The various strategies and policy tools used in each of these “waves” are not mutually exclusive. They 

co-exist and seek to address different policy goals and support different types of companies and 

customers. Indeed, successful economic development organizations typically deploy a mix of strategies 

that deploy tools from all three “waves.” 

Ideas from each of the “waves” have some relevance to entrepreneurial development strategies. Efforts 

to recruit entrepreneurs, such as found in the Startup Chile program, hail from the first wave, and 

traditional business incubation programs hail from the second wave. Local networking programs and 

new approaches to talent development can be traced to ideas and policies from the third wave of 

economic development thinking. 

The concept of an entrepreneurial ecosystem thus embraces ideas from a variety of sources and is 

typically considered part of what some analysts call next wave thinking in economic development.20 

While it includes many policy tools and ideas from other “waves,” it envisions a different approach that 

targets different “customers,” using different policy tools, and seeks to generate different kinds of policy 

outcomes. 

When compared to earlier waves of economic development practice, entrepreneur-focused economic 

development efforts target a different customer: the entrepreneur. Previous economic development 

efforts focused on encouraging the relocation of existing firms or the development of new greenfields 

locations by larger corporate players. Different tools are also deployed. The traditional economic 

development tool kit of tax incentives and other strategies to reduce business operating costs offers less 

direct benefits to new and emerging entrepreneurial firms who tend to have more interest in local 

 

20 Bradshaw and Blakely.
 9

quality of life, access to talent and strong connections to customers and partners.21 Finally, desired 

policy outcomes also differ. Entrepreneur-focused economic development certainly seeks to support 

job creation, much like traditional business recruitment efforts. Yet, it also seeks to support other 

outputs and outcomes, such as increasing business start-up and growth rates, increasing local 

investment in local firms and building a more robust regional ecosystem to support entrepreneurs.

Unique Challenges Related to Rural Entrepreneurship

Many of the basic ideas and concepts related to entrepreneurial ecosystems were developed to describe 

aspects of high-technology hotspots or densely populated metropolitan areas. In fact, for many 

researchers, density is itself a key characteristic of effective ecosystems.22 As a result, few of the best 

known studies of entrepreneurial ecosystems include a specific focus on rural ecosystems. However, 

there is a robust literature that examines broader issues related to rural entrepreneurship.23 This 

research stream is especially relevant to the Commission’s work as 42 percent of the Appalachian 

Region is considered rural. In comparison, only 20 percent of the US is deemed rural.

Rural entrepreneurship research typically emphasizes a number of core themes. First, the research 

often stresses the unique characteristics of rural entrepreneurs. Rural entrepreneurs are more likely to 

run smaller businesses or to operate multiple businesses at the same time. Rural entrepreneurs are also 

more likely to start businesses out of necessity, as opposed to the desire to capture new market 

opportunities. As such, issues such as self-employment, microenterprise or the needs of necessity or 

lifestyle entrepreneurs are commonly studied. 24 

Second, researchers typically review and assess unique constraints facing rural entrepreneurs. Pressing 

constraints include distance to markets, challenges in accessing peer networks, and more difficulty in 

finding a skilled workforce and accessing other specialized services and sources of finance.25 A recent 

review of numerous rural-targeted entrepreneurship initiatives concludes that, while the benefits of 

promoting entrepreneurship in rural places may be great, the costs are high as well. Rural places lack 

the agglomeration economies that often benefit entrepreneurs – access to robust input markets, 

 

21 Endeavor Insight, “What do the Best Entrepreneurs Want in a City?” Endeavor Insight Research Report, 

February 2, 2014. Available at: 

https://issuu.com/endeavorglobal1/docs/what_do_the_best_entrepreneurs_want.

22 Dane Stangler and Jordan Bell-Masterson, “Measuring an Entrepreneurial Ecosystem,” Kauffman Foundation 

Research Report, March 2015. 

23 For recent examples, see Stephan J. Goetz, Mark Partridge, and Steven C. Deller, “Evaluating Rural 

Entrepreneurship Policy,” Northeast Center for Rural Development Paper No. 46, June 28, 2009; Maria Lucia Pato 

and Aurora A.C. Teixeira, “Twenty Years of Rural Entrepreneurship Research: A Bibliometric Survey , University of 

Porto FEP Working Papers No. 516, December 2013.

24 Anil Rupasingha and Stephan J. Goetz, “Self Employment and Local Economic Performance: Evidence from U.S. 

Counties,” Papers in Regional Science, Vol. 92, Issue 1 (March 2013), pp. 141-161.

25 Maria Figueroa-Armios, Brian Dabson and Thomas Johnson, “Rural Entrepreneurship in a Time of Recession,” 

Entrepreneurship Research Journal, Vol 2, No. (2012), pp. 1-29.
 10

knowledge spillovers from working in close proximity to other entrepreneurs – placing rural 

entrepreneurs at a relative disadvantage.26 

Third, a robust research literature assesses the development of key industries and industry clusters that 

often present promising entrepreneurial opportunities in rural America. In recent years, a number of 

important books and articles have assessed entrepreneurship-related prospects in sectors such as 

tourism, health care, manufacturing, recreation and food systems.27 Numerous researchers have 

assessed the role of scenic amenities in spurring rural development.28

Finally, researchers are especially interested in the impact of entrepreneurship on rural development 

and wealth creation.29 Here, the evidence is mixed. Much evidence suggests that entrepreneurship 

and self-employment rates are higher in rural America. However, when compared to their urban 

counterparts, rural businesses are much less likely to grow and generate significant community benefits 

in terms of job or wealth creation. Thus, the primary challenge facing most rural US regions involves this 

issue of supporting growth entrepreneurs. In other words, most rural economic developers want to 

support scale-up businesses, not just start-up businesses. 

Economic Gardening is a prime example of an intervention targeted to growth versus startup 

entrepreneurs. Developed in Littleton, Colorado and now an initiative of the Edward Lowe foundation, 

economic gardening focuses on providing the resources and assistance needed by Stage 2 businesses, 

defined as firms with 10-99 employees and annual revenues of at least $1 million.30 Several Appalachian 

communities are using this model. For example, the GROW Kentucky program provides growth 

entrepreneurs with access to market research and intelligence designed to help them access new 

markets and more strategically allocate resources needed for growth. In order to make these resources 

more accessible to rural entrepreneurs, economic gardening services are offered through both the Small 

Business Development Centers and the Community and Economic Development Initiative of the 

University of Kentucky, which has an effective network through Cooperative Extension that reaches into 

more rural communities. 

 

26 See Goetz, Partridge and Deller.

27 See, for example, Sarah A.Low, Aaron Adalja, Elizabeth Beaulieu, Nigel Key, Steve Martinez, Alex Melton, Agnes 

Perez, Katherine Ralston, Hayden Stewart, Shellye Suttles, Stephen Vogel, and Becca B.R. Jablonski. Trends in U.S. 

Local and Regional Food Systems, AP-068, U.S. Department of Agriculture, Economic Research Service, January 

2015; Association for Enterprise Opportunity, Regional Flavor: Marketing Rural America’s Unique Assets,” AEO 

Report, 2006. (Available at: http://fieldus.org/Publications/RegionalFlavor.pdf); Appalachian Regional 

Commission, “Entrepreneurial Appalachia: Case Studies in Evolving Economic Sectors,” ARC Report, November 

2013.

28 See, for example, Jason R. Henderson and Kendall McDaniel, “Natural Amenities and Rural Economic Growth: A 

Sector Analysis,” The Review of Regional Studies, Vol. No. 1 (2005), pp. 80-96; Richard Reeder and Dennis Brown, 

Recreation, Tourism and Rural Well-Being, USDA Economic Research Service Report ERR-7, August 2005. 

29 For a review, see Sarah A. Low, “Entrepreneurship and Rural Wealth Creation,” in John L. Pender et al, Rural 

Wealth Creation, (New York: Routledge, 2014.)

30 Chris Gibbons, “Economic Gardening, Economic Development Journal, Summer 2010, Vol.9, No. 3, 5-10.
 11

What’s Unique about Supporting Entrepreneurship in Appalachia?

These unique challenges found in the field of rural entrepreneurship are often more pronounced in 

Appalachia. 31 Many Appalachian communities are home to strong regional support ecosystems and 

have succeeded in spurring significant upticks in entrepreneurial activity. However, other regions have 

struggled to develop effective support systems for business start-up and scale-up. For example, many 

regions in Central Appalachia continue to struggle with economic challenges reflected in low business 

start-up rates and higher rates of business failure. Meanwhile, several regions, especially growing 

regional centers like Asheville, Chattanooga, and Huntsville, are developing reputations as start-up hubs. 

A number of factors appear to be impeding the development of strong entrepreneurial ecosystems in 

many parts of Appalachia. These include limited resources in terms of funding, staffing and outside 

support resources such as coaches, consultants and other specialists. In addition, the comparatively 

low educational attainment levels found in many Appalachian communities also contributes to lower 

start-up and business growth rates. 32 Finally, Appalachia faces many structural challenges, such as 

distance to markets, which often impede rural entrepreneurship more generally. 

These challenges and impediments co-exist with a number of structural advantages for Appalachia’s 

entrepreneurs. Relative proximity to large population centers may be a core advantage for Appalachia. 

In this case, distance offers both constraints and opportunities for Appalachian entrepreneurs. They 

may lack the dense markets and large workforce found in urban centers of the East Coast, but many 

parts of Appalachia can easily reach these urban centers within a few hours. In addition, the region can

capitalize on its world class scenic, recreational and cultural amenities which are in high demand across 

the US and worldwide. Finally, the relatively lower cost of doing business in Appalachia can serve as a 

competitive advantage in terms of attracting/supporting entrepreneurs and established businesses. 

The Commission’s recent investments in entrepreneurship have consciously tied entrepreneurial 

support to specific local assets or competitive advantages. This linkage is made explicit in ARC’s 2016-

2020 Strategic Plan which calls for investments to “support the start-up and growth of business, 

especially in targeted sectors . . . (such as) manufacturing, diversified energy, tourism, local food 

systems, and health care.”33 Examples of this approach abound across Appalachia. Southwest Virginia’s 

Crooked Road Music Trail is one of the best known examples. Efforts to promote the trail as a tourist 

destination have been accompanied by large scale investments in helping local people start new 

businesses in tourism, recreation and food-related businesses. 

 

31 For background, see Markley et al., 2006. 

32 Kelvin Pollard and Linda A. Jacobsen, The Appalachian Region: An Overview from the 2010-2014 American 

Community Survey, Report prepared for the Appalachian Regional Commission, April 2016. Available at: 

https://www.arc.gov/research/researchreportdetails.asp?REPORT_ID=129.

33 “Investing in Appalachia’s Future,” The Appalachian Regional Commission’s Five-Year Strategic Plan

for Capitalizing on Appalachia’s Opportunities 2016–2020, p. 9
 12

Characteristics of Entrepreneurial Ecosystems

The research literature makes a compelling case that entrepreneurial ecosystems matter, but it is also 

essential to specify the key characteristics of these ecosystems. How do we define these ecosystems and 

how do we measure and assess them? Unfortunately, there is no consensus answer to this question. 

Researchers agree that an entrepreneurial ecosystems approach focuses on “the role of social context in 

allowing (or restricting) entrepreneurship.”34 Beyond this basic agreement, they offer differing 

assessments of key components or factors. For example, Isenberg presents nine principles for creating 

an ecosystem, while the World Economic Forum presents eight pillars for successful ecosystems. In 

contrast, Feld offers his own list of nine key attributes.35 

There is much overlap in these varied listings and many of these pillars or principles refer to policy or 

program elements which will be discussed later in this review. But, before discussing these policy 

elements, we must address a broader question. What characteristics define a robust ecosystem? In 

terms of characteristics or attributes, we will utilize a methodology promoted by the Kauffman 

Foundation in its 2015 report entitled Measuring an Entrepreneurial Ecosystem.

36

 This analysis identifies 

four indicators of entrepreneurial ecosystem vibrancy: density, fluidity, connectivity and diversity. 

Density refers to the number of entrepreneurs in a given location. Entrepreneurial density refers not 

only to sheer number of entrepreneurs, but it can also include additional measures that focus on the 

number of businesses in certain categories, such as new firms, high-growth firms or firms operating in 

certain industries or clusters. Places with a higher relative density of entrepreneurs are more likely to 

benefit from a similar density in a higher quality workforce, peer networks and other support 

mechanisms. Density provides many other benefits for entrepreneurs who have access to larger 

markets and a larger scale of activities. For rural areas, the correspondingly lower density levels 

represent one of the primary challenges in supporting entrepreneurial development. 

Fluidity refers to the ability of entrepreneurs to connect with one another and with other partners, 

stakeholders or customers who can contribute to company start-up and growth. This measure typically 

assesses several regional characteristics, including population flux, labor market allocation and the 

number of high growth firms. Fluidity may be strongly affected by regional “cultures,” i.e. are local 

business practices and mores open or closed to new ideas and practices? Saxenian’s contrast between 

the open culture of Silicon Valley and the more closed business culture of Massachusetts’ Route 128 

Corridor represents a classic depiction of the importance of fluidity in spurring innovation and 

 

34 Stam 2015, p. 5

35 See Isenberg, Feld, and World Economic Forum, “Entrepreneurial Ecosystems Around the Globe and Company 

Dynamics,” Report Summary for the Annual Meeting of the New Champions, September 2013.

36 Stangler and Bell-Masterson. The Kauffman Foundation has subsequently funded a number of case studies that 

use this typology to assess the strength and vitality of US regional ecosystems. For an example, see Caroline Taich, 

Merissa Piazza, Kara Carter, and Alexa Wilcox, “Measuring Entrepreneurial Ecosystems,” (2016) Cleveland State 

University Urban Publications, 12-2016.
 13

entrepreneurship.37 In more robust ecosystems, firms are more likely to collaborate with one another 

and the flow of talent, ideas and businesses across firms is more pronounced. 

At the national level, open labor markets are especially important. Nations with restricted labor 

mobility also tend to rank lower on various measures of entrepreneurial activity. For example, a 

number of researchers point to labor market factors as a core factor in France’s comparatively lower 

levels of entrepreneurial activity. Rigidity in hiring and firing rules complicate a new business’ ability to 

grow and also restrict the ability of the unemployed and underemployed to start new companies.38

Recently, some researchers have pointed to reduced labor mobility rates as one factor contributing to 

the US’s recent slowdown in business dynamism.39

Fluidity is often associated with the concept of entrepreneurial spawning or recycling,40 i.e. a process 

whereby an existing company gives birth to other ventures started by former employees or partners. 

Places with robust ecosystems can often trace their development back to a small handful of 

entrepreneurs or company leaders who in turn helped spawn new firms as serial entrepreneurs, 

investors, mentors or partners. The research literature contains numerous case studies of these 

patterns in diverse communities including San Diego, Silicon Valley, Kansas City, and even in smaller 

communities like Boise or Portland, Oregon.41 In these regions, entrepreneurial champions have been a 

key part in the development of strong and sustained ecosystems. 

Connectivity is a close corollary of fluidity. Fluidity tracks the ability/capacity to move ideas and 

concepts in a region; connectivity reflects the presence of networking organizations or individuals who 

serve nodes or hubs of the regional ecosystem. Kauffman Foundation researchers suggest that 

ecosystem connectivity can be measured in the number and density of regional support programs, the 

region’s history of business spinoffs and the presence of regional deal-maker networks.

Connectivity refers to a relatively complex set of assets. Sheer numbers of programs matter less than 

the connections between them. As Stangler and Bell-Masterson note:

Recent years have seen a proliferation of entrepreneurship education and training programs 

around the world, but the mere existence of programmatic resources is not the same thing as 

effectiveness, let alone vibrancy.Connections matter, and a dense network of connections, 

among a small number of programs, is arguably more important than a sparse network among a 

 

37 Saxenian.

38 David B. Audretsch, Roy Thurik, Ingrid Verheul, and Sander Wennekers, Entrepreneurship: Determinants and 

Policy in a U.S.-European Context, Springer US, 2013. 

39 Mike Konczal and Marshall Steinbaum, “Declining Entrepreneurship, Labor Mobility and Business Dynamism: A 

Demand-Side Approach,” Roosevelt Institute Research Report, July 21, 2016. 

40 Paul Gompers, Paul, Josh Lerner and David Scharfstein. "Entrepreneurial Spawning: Public Corporations and the 

Formation of New Ventures, 1986-1999." Journal of Finance 60, 2 (April 2005): 577-614.

41 Heike Mayer, Entrepreneurship and Innovation in Second Tier Regions. (Elgar, 2011). For a timeline of Silicon 

Valley’s historical development, visit 

http://www.pbs.org/wgbh/americanexperience/features/timeline/silicon/?flavour=mobile.
 14

larger number.42

Connectors or hubs can vary greatly by region or industry sector. In some communities, a specific 

individual may serve as a core connector. In other regions, an organization—formal or informal—plays 

this role. In all cases, the best connectors serve in an “honest broker” role that seeks to build a broader 

culture of give back and sharing which in turn helps sustain the further development of the regional 

ecosystem. 

Figure 2: Mapping Ecosystems

Many regions have developed maps of their entrepreneurial ecosystems. An example from Kansas City can be seen 

below. (Source: http://wikikc.org/)

Measuring the connectivity of a region can be challenging. Recent advances in social network analysis 

are now being used to better understand how ecosystems help build and capitalize on this connectivity. 

Examples of research using this methodology include Feldman and Zoller’s work on “deal makers” and 

Holley’s work on network weaving in Appalachia Ohio. 43

Diversity refers to a region’s entrepreneurial vibrancy. Is the community or region open to a diverse mix 

of specializations, businesses and people? Several measures matter here: the presence of multiple 

economic specializations, the immigrant share of the local population and the region’s economic 

mobility. 

 

42 Stangler and Bell-Masterson p. 5

43 Maryann Feldman and Ted D. Zoller, “Dealmakers in Place: Social Capital Connections in Regional

Entrepreneurial Economies,” Regional Studies, Vol. 45, Issue 1 (January 2012), pp. 23-27; June Holley, Network 

Weaving Handbook, 2012. Available at: http://www.networkweaver.com/product/network-weaving-handbook/
 15

A region’s economic diversification remains an essential part of this aspect of ecosystems. Regions with 

multiple specializations present opportunities for entrepreneurs in multiple industries and disciplines. 

Moreover, these regions may also enjoy the benefits of opportunities and connections that span 

disciplines and which combine ideas and concepts from multiple industries and focus areas. Past 

research sponsored by the Commission suggests that regions with higher levels of economic diversity do 

perform better on many measures of economic growth and activity.44

In addition to diversity in economic specializations, effective ecosystems also tend to be home to more 

diverse populations. They are often attractive locations for new immigrants and for those who work in 

creative class occupations and fields.45 An ability to attract new immigrants is especially important as 

immigrants are most likely to start new businesses. They also show evidence of a higher than average 

propensity to build high-growth businesses when compared to native residents. 

Diversity need not always refer to one’s background or ethnicity; it can also refer to a diversity of ideas. 

Does a region encourage and support different ways of thinking or behaving? Openness to diverse 

ideas is also an important characteristic of robust ecosystems. For this reason, university or college 

towns tend to have strong capacities related to entrepreneurial ecosystems. Within Appalachia, 

communities such as Knoxville, Starkville, Pittsburgh, and Clemson all rely on university assets as core 

building blocks for entrepreneurial development. 

Many regions of Appalachia still face particular challenges on this measure of ecosystem diversity. 

Many Appalachian communities, especially in Central Appalachia, are among the least diverse in the US 

in terms of economic diversity.46 In addition, many parts of the region suffer from significant 

outmigration. While this outmigration is often characterized as a “brain drain,” it might be more 

accurately described as a loss of entrepreneurial talent. Those inspired to leave a rooted community 

may have a higher acceptance of risk and other characteristics associated with entrepreneurial talent.47

While there is more research to be done to explore this phenomenon, population loss may create an 

even more challenging environment for ecosystem development if those leaving have a high propensity 

for entrepreneurship. Similarly, many of these less diverse places struggle to attract new residents or 

new immigrant populations. These shortcomings create additional challenges for the development of 

stronger ecosystems in Appalachia.

 

44 For data on economic diversity across the Appalachian region, see 

http://www.arc.gov/assets/research_reports/EconomicDiversityinAppalachiaCompilationofAllReports.pdf. 

Hereafter referred to as Economic Diversity in Appalachia.

45 For background, see Max Nathan and Neil Lee, “Cultural Diversity, Innovation, and Entrepreneurship: Firm Level 

Evidence from London,” Economic Geography, Vol. 89, No. 4 (2013), pp. 367-394; Vivek Wadwha, AnnaLee 

Saxenian, and F. Daniel Siciliano, “America’s Immigrant Entrepreneurs: Then and Now,” Kauffman Foundation 

Research Report, 2012; Richard Florida, Patrick Adler, and Charlotta Melander, The City as Innovation Machine, 

University of Toronto Martin Prosperity Research Paper Series 2016-MPIWP-002, July 2016.

46 Economic Diversity in Appalachia.

47 For discussion of these issues, see Patrick J. Carr and Maria Kefalas, Hollowing Out the Middle: The Rural Brain 

Drain and What it Means for America, (Boston: Beacon Press, 2009).
 16

All of these characteristics contribute to a core aspect of successful entrepreneurial ecosystems: they 

are information-rich. The region has a strong base of knowledge about the business start-up and growth 

process. This information typically resides in the minds of entrepreneurs, business support providers, 

educators and investors. This knowledge is also easy to access via networking, access to support 

organizations and technical assistance, or via connectors and network hubs that serve to link 

entrepreneurs to the information, tools and resources needed to support business growth.

Policy and Entrepreneurial Ecosystems

The concept of entrepreneurial ecosystems refers to a region’s “framework conditions” that serve to 

support or impede the start-up and growth of new companies. Numerous factors influence a region’s 

“framework conditions,” and many of these factors, such as local history and culture or geographic 

location, are not easily or quickly influenced by public policy or other types of public or private 

interventions. In this sense, ecosystems share some characteristics with the concept of industry 

clusters. The most successful and robust ecosystems (and industry clusters) emerge organically, based 

on a region’s history, culture and industrial development patterns. They are rarely planned from above 

or designed in advance. Silicon Valley or Hong Kong offer classic examples of this kind of “natural” 

development pattern, where history, location, and culture coalesce to build an “entrepreneur friendly” 

place. 

Social context matters greatly in the development of strong entrepreneurial ecosystems, and the 

literature contains extensive and ongoing debates about the role of community in ecosystem 

development. Ecosystems are, by definition, rooted in and specific to a place. Researchers have argued 

for a systems approach to entrepreneurial development that takes into consideration the community 

and regional context. 48 This approach moves beyond supply side elements of the ecosystem, such as 

capital, incubators or technical assistance provision, which we will discuss below. The systems 

approach also stresses demand side factors, arguing that “the community is an active participant in 

establishing the community milieu within which the development of entrepreneurial talent takes 

place.”49 Communities serve to build the connections (i.e., social capital) between entrepreneurs and 

ecosystem resources and to create a focus on the intended outcomes of building a stronger 

entrepreneurial ecosystem – community prosperity. A recent case study of NetWork Kansas’ 

Entrepreneurial Communities partnership highlights the positive effects of addressing both demand and 

 

48 Maryann P. Feldman, “The Character of Innovative Places: Entrepreneurial Strategy, Economic Development, 

and Prosperity.” Small Business Economics, Vol. 43, No. 1 (2014), pp.9-20; J. L. Flora, J. Sharp, C. Flora, and B. 

Newlon, “Entrepreneurial Social Infrastructure and Locally Initiated Economic Development in Nonmetropolitan 

United States,” The Sociological Quarterly, Vol. 38, No. 4 (1997), pp. 623-645. 

49 Deborah M. Markley, Thomas S. Lyons and Donald Macke, “Creating Entrepreneurial Communities: Building 

Community Capacity for Ecosystem Development,” Community Development Journal. Vol. 46, No. 5 (2015), pp. 

580-598.
 17

supply side issues in ecosystem development. In Kansas’ case, the performance of local ecosystems was 

greatly enhanced by the presence of strong and organized support community.50

Beyond these important social context contributors, a number of public policy factors do serve as core 

factors that help shape entrepreneurial ecosystems. Researchers have highlighted a number of 

essential policy inputs/contributors that are closely associated with robust and effective regional 

ecosystems. They include policies that support: 

 Market Access: Helping entrepreneurs identify, access and succeed in new markets

 Capital: Providing diverse sources of capital to help firms start and grow

 Workforce/Human Capital: Building a regional talent base

 Business Assistance: Providing easy access to technical assistance

 Specialized Infrastructure and Facilities: Meeting the unique space needs of entrepreneurs

 Community Culture: Honoring and embracing entrepreneurship

 Effective Regulation: Cutting red tape and promoting flexibility

Market Access

Market conditions are perhaps the most important factor influencing the success of an entrepreneurial 

venture. Without a ready and accessible market for goods and services, entrepreneurial ventures lack 

the ability to prosper. Their success is similarly affected by other market conditions, such as the level of 

local competition, and the type and level of goods and services produced in a given market. 

Many of these market condition factors are influenced by local culture and history. For example, 

regions located near ports, rivers, or transportation centers benefit from easier access to markets when 

compared to less centrally located regions. In some cases, policymakers can take actions to help 

mitigate historical disadvantages. Strategies that build strong local broadband capacity, such as 

Chattanooga’s Gig City initiative, or various programs to build regional transportation hubs, are designed 

to address these kinds of market access concerns. 

Robust ecosystems also benefit from various types of programs that seek to directly aid entrepreneurs 

in accessing new markets. This market identification and development work is especially important in 

regions like Appalachia where start-up rates are relatively high, but the ability to support high-growth 

ventures is more limited. In some cases, regions lack ambitious entrepreneurs. Local firms limit 

themselves to local markets, and do not consider selling outside of the region, state, or country. 

Market access programs help local firms think bigger, and succeed in markets outside of the local region. 

Economic gardening programs are one well known example of such market access programs targeted to 

 

50 Deborah Markley and Ahmet Binerer, “Creating Entrepreneurial Communities in Kansas,” Center for Rural 

Entrepreneurship Research Report, May 2014. 
 18

helping entrepreneurial ventures.51 In the 1980s and early 1990s, economic gardening initially 

promoted a broad refocusing of local economic development away from business attraction to a 

renewed emphasis on business retention and expansion and support for start-up businesses. Over 

time, the approach has evolved and now places heavy emphasis on providing new market intelligence to 

new and growing companies. Second stage ventures, firms with between 10-99 employees, are a 

special focus of this approach. Michigan’s Lowe Foundation, home to the National Center for Economic 

Gardening, describes its method in the following way: 

. . . Economic Gardening specialists leverage sophisticated corporate databases, geographic 

information systems, SEO and Web marketing tools to help second-stagers:

 Identify market trends, potential competitors and unknown resources.

 Map geographic areas for targeted marketing.

 Raise visibility in search engine results and increase web traffic

 Track websites, blogs and online communities to better understand competitors as well 

as current and potential customers.

 Refine their core strategy and sustainable competitive advantage.52

Economic gardening models are now being deployed across the US, and have been especially popular in 

rural areas. Numerous regions of Appalachia are using this approach, including programs in Floyd, VA, 

the state of Kentucky, and Southwest Virginia.

Economic gardening programs provide market intelligence and other assistance to firms in a variety of 

sectors or seeking to access a wide array of new or growing markets. Other types of support programs 

offer more focused or specialized assistance. Examples include state and local export promotion 

programs, procurement assistance via the Procurement Technical Assistance Center (PTAC) network and 

other local partners, and targeted support for the development of specific sectors or industry clusters.

Export promotion programs can be especially important in helping firms achieve high growth. Across 

the US, very few new or small businesses do a good job in accessing overseas markets. In fact, according 

to the US Department of Commerce, less than one percent of US firms export. Effective export 

promotion programs, such as statewide initiatives operating in Pennsylvania and Virginia, help take 

some of the risk out of entering overseas markets. They train firms in how to do business overseas, link 

them to trade shows and other opportunities, and assist with other regulations such as export licenses 

or in dealing with overseas tax issues. 

In Appalachia, sector-focused programs have enjoyed success and have received active encouragement 

from the Commission and its partners. In fact, the Commission’s strategic plan places special emphasis 

on “emerging opportunities” in sectors including manufacturing, diversified energy, tourism, local food 

 

51 For background, see http://edwardlowe.org/entrepreneurship-programs/economic-gardening/

52 Ibid.
 19

systems, and health care.53 Support for the Crooked Road and ‘Round the Mountain initiatives in 

Southwest Virginia provide two examples of such sector support. Both are tourism efforts that build on 

unique Appalachian assets – music and creative crafts, respectively. Through active promotion and 

support for enterprise development, these initiatives are connecting artisans, once isolated from 

potential tourism markets, into a robust network of visitor sites and market outlets.

Food systems development has been a strong focus for recent ARC investments in ecosystem support. 

Via the federal Local Foods, Local Places Initiative (LFLP), the Commission has invested in 22 different 

local food systems projects.54 West Virginia’s Greenbrier Valley highlights how food systems 

investments can help spur entrepreneurial activity as well.55 Via the Greenbrier Valley Local Foods 

Initiative (GVLFI), community leaders support efforts to develop regional branding for food products, 

and a Sprouting Farms Project to support new and beginning farmers. 

Technology development and commercialization is another arena where specialized business services 

can be core aspects of entrepreneurial ecosystems. This category does not refer to unique facilities,

such as maker spaces (which will be discussed below), but instead refers to technical assistance to help 

new and existing companies turn new ideas into new technologies, services, or products. Specific 

support efforts include design and prototyping services and proof of concept centers.

In Appalachia, these technology support services are typically associated with a college or university. 

They often provide space in an incubator facility or shared lab/work space, but other services are 

available to any company or individual seeking support. Examples in the Appalachian region include 

Ohio University’s Innovation Center,56which provides access to 3D printers and other rapid prototyping 

services in addition to its incubator space. At West Virginia University, two new projects—the Launch 

Lab and the Health Sciences Innovation Center, are providing specialized technology services to West 

Virginia-based entrepreneurs more generally and to those with a focus on health sciences’ related 

opportunities. In South Carolina, the Clemson Inventor’s Club seeks to link local entrepreneurs to 

university researchers with an interest and track record in commercializing new technologies. 

Capital

Access to capital is one of the most frequently cited components of entrepreneur ecosystems in both 

academic and policy literature, and in the popular press. For many observers, venture capital (VC) and 

entrepreneurship are synonymous. It is assumed that a region with lots of venture capital will have lots 

 

53 “Investing in Appalachia’s Future,” The Appalachian Regional Commission’s Five-Year Strategic Plan for 

Capitalizing on Appalachia’s Opportunities 2016–2020, p. 9.

54 Appalachian Regional Commission, “Local Foods, Local Places: Revitalizing Communities by Growing Local Food 

Economies,” Summary Report, January 2016. Available at: 

https://www.arc.gov/noindex/programs/localfood/lflp_summary_report_jan2016.pdf.

55 Ibid.

56 National Business Incubation Association, Best Practices in Rural Incubation, (Athens, OH: NBIA, 2013).
 20

of entrepreneurs, and vice versa. The reality is much more complicated, and many researchers now 

argue that “venture capital lags rather than leads the emergence of entrepreneurial activity; it is not 

part of the initial environmental conditions.”57

Robust entrepreneurial ecosystems are often home to venture capital investors, but they also attract 

and support a diverse array of investors and investment vehicles. Figure 3 depicts this mix. The diversity 

of funding sources and the connections between them are the critical factors for successful regional 

capital networks. Both debt and equity capital are needed. Suppliers of debt capital provide a range of 

financing from microlending to expansion and working capital to large scale project financing. Equity 

capital financing ranges from resources for product development to startup and seed capital to growth 

stage and expansion/mezzanine capital. 

FIGURE 3: Equity-based Capital Continuum for High-Growth Businesses

(Source: Center for Regional Economic Competitiveness and Cromwell Schmisseur.)

Figure 3 demonstrates that the diversity of capital sources – and the attendant ability to fund firms at all 

stages of the business lifecycle – matters. For example, without effective angel networks, startup 

ventures, even those with growth potential in sectors attractive to equity providers (e.g., high tech, 

energy development, biomedical) may be starved for growth capital. Without large and well-managed 

revolving loan funds, it may be difficult for small rural manufacturers or main street businesses to find 

the $50-$250K in expansion capital they need. Yet, even in well-served markets, persistent capital 

market gaps exist. In an assessment of rural capital markets for USDA, researchers identified a 

 

57 Mason and Brown, p. 16
 21

mismatch between traditional sources of capital and capital needs across the business lifecycle.58 In 

most regions, firms in the product development and startup phases nearly always face fundraising 

challenges. 

Capital alone does not constitute an ecosystem. The other critical actors are those who provide the 

business or advisory services that help business owners and entrepreneurs effectively connect to and 

use capital for growth.

In Appalachia, and in rural America more generally, equity capital typically presents the biggest shortfall 

in ecosystem development. Venture capital is in especially short supply as the institutional venture 

capital industry is heavily concentrated in few regions and targets investments in a few core industries. 

The desired value proposition and industry mix for the typical venture investor is most often located on 

either the East or West Coast, with more limited investments in other metropolitan areas and even less 

in rural markets. 

Because the venture capital industry’s market dynamics limit the attractiveness of deals in rural regions, 

regional leaders have sought to co-invest in the development of local venture funds. The Commission 

has backed some of these efforts, such as the creation of several New Markets Venture Capital funds in 

the early 2000s. Other efforts have emerged from the Community Development Venture Capital (CDVC) 

movement. However, some analysts have noted that a large share of CDVC dollars still flows to centers 

of traditional VC investment.59

Federal support has also helped spur creation of a number of new funding sources that make equity or 

equity-like investments in entrepreneurial ventures. These programs include the Community 

Development Financial Institutions (CDFI) program, the Small Business Investment Company (SBIC) 

program, the Rural Business Investment Company (RBIC) program, and a number of programs that were 

created and supported by the Treasury Department’s State Small Business Credit Initiative (SSBCI). 

Local funds supported via these investments operate across Appalachia and have become a critical 

source of funding for local entrepreneurs. They were particularly important in the midst of the Great 

Recession when other sources of equity finance were in short supply.60 They are likely to remain 

important in the future as well. Kentucky Highlands Investment Corporation (KHIC) has a long and deep 

history in eastern Kentucky and the broader central Appalachia region. KHIC has provided capital and 

business support to entrepreneurs, effectively leveraging a wide range of federal programs. With ARC 

support, KHIC launched the first rooted venture capital funds to serve the region. More recently, the 

 

58 Deborah M. Markley, Erik R. Pages and Patricia Scruggs, Access to Capital in Rural America. Research Report 

prepared for the US Department of Agriculture, 2014.

59 Josh Silver and Archana Pradhan, Access to Capital and Credit in Appalachia and the Impact of the Financial Crisis 

and Recession on Commercial Lending and Finance in the Region, Research Report Prepared for the Appalachian 

Regional Commission, July 2013, p. 225.

60 Center for Regional Economic Competitiveness and Cromwell Schmisseur, Program Evaluation of the US 

Department of Treasury State Small Business Credit Initiative, October 2016, pp. 85-86. Available at: 

https://www.treasury.gov/resource-center/sb-programs/Documents/SSBCI_pe2016_Full_Report.pdf. 
 22

Natural Capital Investment Fund (NCIF) has been a key partner in supporting value chain and local food 

system development in West Virginia, again leveraging federal resources through the Rural Jobs 

Accelerator Program. Founded in 2001, NCIF is a subsidiary of the Conservation Fund, and finances 

companies in distressed regions across Appalachia. The NCIF team offers technical assistance, coaching 

support and access to capital for food and farm businesses as a way of advancing this sector throughout 

the state. 

While venture investors get the headlines, most equity investments come from individual angel 

investors or organized angel groups. Angels are an essential source of funds for new firms. In the US in 

2015, angels invested roughly $24.6 billion in more than 71,000 ventures. Nationally, there are more 

than 304,000 active angel investors in the US.61 In 2015, the average angel investment deal was valued 

at $345,000, in contrast to the average VC investment in seed or early stage firms that can be valued at 

anywhere between $4 and $10 million.62 

Because few firms need the large scale investments provided by VCs or private equity firms, angel 

investment dominates the equity funding landscape in Appalachia’s entrepreneurial ecosystems. 

Individual angels matter, but organized angel groups also play important roles. A number of these 

groups have been seeded with ARC funds to support their start up and initial development. Today, at 

least 15 organized angel networks make investments in the Appalachian region. As part of the recent 

investments via the POWER program, more angel groups will be created throughout the region.

Equity investors are especially important players in regional ecosystems because they bring more than 

money to their portfolio companies. Successful investors are classic connectors who link entrepreneurs 

to partners, customers, and other investors. They serve as mentors and coaches, and generally help 

build and sustain a regional culture focused on creativity, innovation, and entrepreneurship. In 

successful ecosystems, these intangible roles are as important as the equity investors’ role as a source of 

funding.

While equity investors receive much media attention, most small businesses and entrepreneurs still rely 

on traditional lending sources for both working and expansion capital. According to the Federal 

Reserve’s annual Small Business Credit Survey, loans and lines of credit are by far the most desired form 

of business finance. In 2015, 89% of surveyed firms seeking finance opted to pursue loans or lines of 

credit. Meanwhile, only 4% of firms sought equity investments. 63 Banks, especially small banks, are 

 

61 Jeffrey Sohl, “The Angel Investor Market in 2015: A Buyer’s Market,” University of New Hampshire Center for 

Venture Research, 2016. Available at: 

https://paulcollege.unh.edu/sites/paulcollege.unh.edu/files/webform/Full%20Year%202015%20Analysis%20Repor

t.pdf.

62 2015 data taken from PricewaterhouseCoopers/National Venture Capital Association MoneyTreeTM Report, 

January 2016.

63 US Federal Reserve, 2015 Small Business Credit Survey: Report on Employer Firms, March 2016, p. 15.
 23

the lender of choice for these firms. They are more likely to approve loan requests and they also enjoy 

the highest customer satisfaction ratings among small businesses.64

In addition to traditional banks, entrepreneurs can also tap into a host of other loan options. These 

typically include: 

 Federally-backed loan programs supported by SBA (7a, 504), and USDA 

 Microloan programs, supported with local, state or federal funds

 Revolving Loan Funds, typically supported by state or federal funds

 CDFI Lending

Recent trends in the field were extensively covered in the Appalachian Regional Commission/National 

Community Reinvestment Coalition 2013 Report, Access to Capital and Credit in Appalachia, and a 

deeper analysis falls beyond the scope of this review. However, when it comes to ecosystems, analysts 

emphasize a region’s mix of capital sources as opposed to any one funding type or any one type of 

investor. In successful regions, entrepreneurs enjoy ready access to a host of different funding sources 

that can support their companies at varied points in the growth cycle. In contrast, less successful 

ecosystems are characterized by a more spotty capital infrastructure where the market is well served in 

certain segments (e.g., equipment loans for established business customers) but faces significant capital 

gaps in other areas (e.g., risk capital for new ventures). 

Workforce/Human Capital

Access to talent is probably the most important building block in a regional entrepreneurial ecosystem. 

Without a deep base of skilled personnel, entrepreneurs will be challenged to develop fast growing 

ventures. This base of talent generally develops thanks to a culture that embraces learning, strong local 

educational systems and the local presence of major institutions, such as colleges, universities, or other 

large anchor institutions, such as a major corporation or research center. 

These historical legacies are crucially important, and it is difficult to change the trajectory of a region 

that has not typically attracted outside talent or groomed its own home-grown talent. Nonetheless, 

regional leaders can and should take some steps to develop a human capital base that can support 

business start-up and growth. This should include investments in workforce and education programs, 

but it can also include some more targeted efforts to enhance the local ecosystem. Specifically, this 

work involves the expansion of entrepreneurial education programs. 

Effective entrepreneurship education programs can and should be made available to individuals from all 

backgrounds and from all age groups. Much education and training can and will be provided by business 

 

64 Ibid, p. iii.
 24

service providers, such as the Small Business Development Center Network, which will be discussed 

further below. But, education programs should also be offered in the formal education system and in 

related organizations that serve youth through adults. 

Entrepreneurship education for youth is one of the most important facets of a robust regional 

ecosystem. In regional hotspots like Silicon Valley, an entrepreneurial culture emerged spontaneously. 

But, many other regions lack the necessary attributes, making cultural change slow and arduous. In 

these regions, residents may be averse to taking risks or to the concept of starting their own businesses. 

Changing long entrenched mindsets is tough, and youth entrepreneurship offers one means to help start 

the culture shift process. In addition to increasing youth entrepreneurship rates, this training also 

provides other educational benefits for young people.65

Youth entrepreneurship programs can take many forms, ranging from short summer camps or clubs to 

formal integration into the K-12 curriculum. Over the past decade, a growing number of states and 

local school districts have adopted formal guidelines for entrepreneurship education. At present, 42 

states have adopted standards, guidelines or proficiencies for entrepreneurship education, and 18 states 

require that entrepreneurship education courses be offered in high school.66 

Numerous other options exist to engage young people in learning about entrepreneurship. Groups like 

the YMCA/YWCA, FFA, 4H, the Boy Scouts, the Girl Scouts, Chambers of Commerce and others all offer 

trainings or other tools to learn about business. In addition, a number of non-profit organizations, like 

the Network for Teaching Entrepreneurship and REAL Entrepreneurship, help train teachers and offer 

their own programming for youth. The University of Kentucky’s E-Discovery program provides K-12 

students with the opportunity to learn and practice entrepreneurial and other business skills. Teachers 

are able to wrap E-Discovery components into their existing curriculum and provide hands-on 

opportunities for students to start a business. 

West Virginia supports several innovative programs promoting youth entrepreneurship. The Governor’s 

School for Entrepreneurship runs a three week intensive summer boot camp for high school students 

from across the state. Participants learn the basics of business, and also participate in start-up and pitch 

competitions. Similarly, the West Virginia Simulated Workplace introduces entrepreneurship to 

students in the state’s career-technical education programs. In this project, students create simulated 

businesses in their respective fields, such as auto repair or cosmetology. Originally designed to teach 

soft skills, teamwork, and leadership, the simulated workplace also introduces students to the real life 

issues that come with running one’s own company.

Beyond high school, entrepreneurship education at community colleges and at four-year schools is 

booming. Over the past decade, the field has grown rapidly and programs and curricula have migrated 

 

65 Aspen Institute Youth Entrepreneurship Strategy Group, “Youth Entrepreneurship in America: A Policymakers 

Action Guide,” 2008. 

66 Junior Achievement USA, “The States of Entrepreneurship in America, “ JA Research Report, 2015. 
 25

from the business schools to other schools and academic disciplines.67 Today, leading edge programs 

do more than simply teach students about how to start and run a business. They offer an immersive 

experience where students learn new ways of thinking and doing, along with the basics of business. 

Close connections to regional ecosystems are the norm, as students engage with local entrepreneurs 

who offer coaching, mentoring, and other forms of support. Entrepreneurship is also becoming 

integrated into college career service programs via strategies first developed at the University of Miami 

in its Launch Pad programs.68

Much innovation is also happening at the community college level. For example, Eastern West Virginia 

Community and Technical College (EWVCTC) has become the regional hub for entrepreneurs in the area 

around Moorefield WV.69 In addition to its classes, the College operates the Launch Pad accelerator 

program and the Institute for Rural Entrepreneurship and Economic Development that is supporting 

new business development in five industries: manufacturing, agriculture, arts and culture, tourism and 

technology. Community colleges in Kentucky, West Virginia, Virginia and Tennessee are also key 

partners in America’s Entrepreneurial Schools initiative launched by the Consortium for 

Entrepreneurship Education with support from the Commission through its POWER funding program.

Business Assistance

As noted earlier, fluidity and connectivity are core characteristics of robust regional ecosystems. To a 

large extent, these two concepts refer to the ease with which an existing or aspiring entrepreneur can 

access business assistance. Can he or she easily find the technical assistance or support needed to 

address a thorny business challenge? This is a simple task when a strong ecosystem is in place. In 

other regions, new business owners regularly complain that they do not know where to get help, or that 

they are confused by the plethora of groups who claim to support entrepreneurs. 

The types of needed technical assistance can vary greatly, and can run the gamut from the basics of 

business planning to sophisticated support with finance, market access, or technology development. 

Strong ecosystems are characterized by a deep local base of talent that can provide support for most 

issues facing new and growing businesses. Yet, even the most robust ecosystem will not be home to 

every kind of expert or resource person. The ability to connect to other regions or outside sources of 

expertise is also an important component of robust ecosystems. 

Business assistance can and should be available from multiple sources. Traditional business support 

organizations are typically the first place where entrepreneurs seek outside help. These groups would 

 

67 For background, see George Washington University Center for Entrepreneurial Excellence, “The National Survey 

of Entrepreneurship Education: An Overview of the 2012-2014 Survey Data,” December 2, 2014; Kauffman 

Foundation, “Entrepreneurship Education Comes of Age on Campus,” Kauffman Research Report, August 2013. 

68 To learn more, visit http://thelaunchpad.org/.

69 “Charles ‘Chuck’ Terrell Named NACCE’s 2016 Entrepreneurial President of the Year,” Community College 

Entrepreneurship, Fall/Winter 2016. 
 26

include Chambers of Commerce, local economic development organizations, and programs specifically 

focused on small business support such as the SBA-backed Small Business Development Center network 

and local chapters of SCORE. More specialized efforts, such as those affiliated with the NIST-MEP or 

USDA Cooperative Extension programs, are also available in many regions.

Most of these resource organizations exist across the US, and are well-known in their communities. The 

quality of support provided by these groups can vary greatly, but many of them provide highly effective 

and low cost assistance to new and growing companies. However, these traditional forms of business 

assistance typically suffer from several shortcomings, many of which result from limited budgets and 

staffing. First, they provide generalized support that may not always be customized for the unique 

needs of a local entrepreneur. Second, their services typically target start-ups and lifestyle businesses, 

and may not be appropriate for scale-up companies. Finally, they may offer their services at times or 

via methods that are inappropriate or ineffective for some entrepreneurs. For example, many 

entrepreneurs prefer peer learning to formal training programs. Others lack the time or availability to 

access programs during the day, and instead prefer to use distance learning technologies. One 

entrepreneurial support organization that is addressing this latter challenge is Northern Initiatives (NI), a 

CDFI operating in northern Michigan. NI has created a blended learning approach to providing business 

assistance. This approach combines a web portal with assessment tools, training videos and other 

resources focused on financials, marketing and management with real-time support from business 

assistance coaches. Coaches are able to direct entrepreneurs to web-based resources, creating a 

customized learning plan, and then complement that learning with coaching session, in-person and 

virtually. The system is enabling NI to provide more customized and appropriate business support to a 

rapidly growing portfolio of loan customers.

Beyond traditional service providers, focused entrepreneurial networks are the support provider of 

choice for most business owners. These groups typically focus exclusively on issues facing start-ups and 

scale-ups, and have little or no formal role in other areas such as advocacy, economic development, or 

the provision of member services, such as insurance or health care. 

These networks take many forms. Some are associated with national or regional networks like the 

Entrepreneurs Organization (EO) or the Young Presidents Organization (YPO). Others emerge naturally 

in response to local interest. They can also encompass many kinds of organizational types, from 

affiliation with a local Chamber of Commerce or economic development organization, links to a local 

coworking space, as an independent non-profit, or an informal Meet-Up group. Regardless of their 

organizational structure, they typically focus on a small set of activities. They support peer networking, 

professional education, and connections to coaches, mentors, partners, and investors. When 

successful, these groups often serve as the local “hub” or “spotlight” for regional entrepreneurship. In 

these regions, they are a core node of the ecosystem. 

Regions may be home to a number of important peer networks for entrepreneurs. For example, in the 

Roanoke-Blacksburg region of Virginia, entrepreneurs can access a number of places to connect with 
 27

their peers.70 The Roanoke-Blacksburg Technology Council serves as a central hub, with a particular 

focus on technology firms and scale-up businesses. But, the region’s entrepreneurs also tap into other 

networks, such as the local Chambers of Commerce (in Montgomery County, Roanoke, and Salem), and 

they also tap into networks at local incubators and cowork spaces, such as Roanoke’s CoLab or 

Blacksburg’s New River Valley Business Center.

Many of these networks can operate in a very informal manner. The model used in the Kauffman 

Foundation’s One Million Cups program is instructive. One Million Cups is a national program that is 

currently being deployed in 107 communities across the US, including Asheville, NC and Chattanooga, 

TN. Each region follows a similar template and convenes regular meetings where start-ups present 

business ideas and receive feedback from other attendees. These regular events help build a 

community of local entrepreneurs, and can often become central hubs of local ecosystems. Yet, 

beyond the actual convening and the provision of coffee, there is no “program.” Instead, One Million 

Cups seeks to build a “supportive, neutral space welcoming entrepreneurs to be open and honest about 

their businesses and the challenges they face.”71

In addition to networking with peers, entrepreneurs have a strong interest in finding mentors and 

coaches to support business growth. Mentors can be provided by traditional business service groups. 

After all, SCORE’s primary function is to provide mentors and coaches. Yet, finding mentors and coaches 

can be a challenge. Networks play an important role in addressing this demand. Many national 

entrepreneur networks, like EO and YPO, view mentoring as part of their core missions. In addition, 

local mentor networks are also quite common across Appalachia and elsewhere. For example, Launch 

Tennessee operates a statewide mentor network focused on firms in the life science and energy sectors. 

This effort is modeled on the Springboard program first started by San Diego’s CONNECT network more 

than 20 years ago. 

Effective regional ecosystems provide businesses with a wide and deep base of entrepreneurial 

expertise. Some of this knowledge resides in economic development and business support 

organizations, but much of the expertise is found in private support providers, such as lawyers, 

accountants, and other consultants. The availability of specialist business services is a critical factor in 

successful ecosystems; a shortfall in such services is viewed as a major impediment by many 

entrepreneurs.72 In successful ecosystems, these firms understand the unique challenges facing 

entrepreneurs, and are able to tailor their services and pricing practices accordingly. For example, 

 

70 See Sarah Lyon-Hill, Scott Tate, Maggie Cowell, Kushboo Gupta and Yaser Keneshloo, “Same Ecosystem, 

Different Entrepreneurs, “ Virginia Tech Office of Economic Development Research Report, 2017.

71 To learn more, visit http://www.1millioncups.com/.

72 See for a review of these challenges in Kansas:, see J. Christopher Broberg, Gaylen Chandler, and James, Wolff, 

“The South Central Kansas Entrepreneurship Ecosystem,” Wichita State University, Barton School of Business, June 

2014. Available at: 

http://webs.wichita.edu/depttools/depttoolsmemberfiles/wsuresearchadmin/IMCP/The%20SC%20KS%20Entrepr

eneurship%20Ecosystem%20Entrepreneurship%20Assessment.pdf.
 28

lawyers may provide reduced rates for start-up firms with the expectation that higher billing rates will 

follow as the firm grows. 

The development of specialized business support networks presents something of a “chicken and egg” 

dilemma for regional leaders. These service providers “naturally” emerge in regions with dense 

entrepreneur networks or where there is a long history of start-up activity. Conversely, they are not 

present in regions that may need them the most, i.e. places with more limited levels of start-up activity. 

As such, less advanced regions typically rely on formal business organizations discussed above, or opt to 

build connections to service providers located elsewhere. Both Kansas and Maine have sponsored 

efforts to connect their local entrepreneurs with national sources of expertise and support. In Kansas, 

the Pipeline Entrepreneurial Immersion program began as a project of the now-defunct Kansas 

Technology Enterprise Corporation. It recruited top Kansas entrepreneurs, and enrolled them in a yearlong fellowship/training program. It also linked them to coaches and mentors located in technology 

hotspots like Silicon Valley, Seattle, and Austin. This program, celebrating ten years in business, now 

operates with no public funds and has expanded to serve entrepreneurs in Kansas, Missouri and 

Nebraska. Maine’s Top Gun program is modeled on Pipeline, and links Maine-based entrepreneurs and 

investors across New England, especially in the Boston area. 

The use of innovation vouchers offers another model for linking local entrepreneurs to outside 

experts.73 This approach is widely used in Europe and is starting to gain adherents in the US with 

current programs underway in Connecticut, Minnesota, and Rhode Island. Program specifics will differ, 

but the basic model operates as follows. Firms apply for a voucher which typically provides a small 

grant (of $10-$25,000 along with matching funds from the firm) that a company can use to seek 

consulting services from a list of local service providers. Requested services can vary greatly. In the US, 

most programs focus on technical issues, such as prototyping or design, but voucher programs have also 

been used to help with marketing, human resources support, and other issues. 

When it comes to accessing a full suite of business services, many regions around the world are 

embracing the concept of business acceleration.74 Business accelerators sometimes operate like 

business incubators (to be discussed below) or other business services, but they bring several unique 

attributes to the table. Figure 4 highlights some of these differences. 

First, they typically focus on supporting start-ups or relatively new businesses. Second, accelerator 

programs recruit entrepreneurs via a competitive process. They may run a competition or use a formal 

application and review process. In most cases, the competition to enter an accelerator program can be 

 

73 For background on the concept of innovation vouchers, see Organization for Economic Cooperation and 

Development, “Innovation Vouchers,” OECD Innovation Policy Platform, 2010. Available at: 

http://www.oecd.org/innovation/policyplatform/48135973.pdf.

74 C. Scott Dempwolf, Jennifer Auer, and Michael D’Ippolito, “Innovation Accelerators: Defining Characteristics 

among Start-Up Assistance Organizations,” Report prepared for US Small Business Administration Office of 

Advocacy, October 2014; Bart Clarysse, Mike Wright, and Jonas Van Hove, “A Look Inside Accelerators,” NESTA 

(UK) Research Report, February 2015.
 29

quite intense. Third, most accelerators provide investments in selected companies. These investments 

may be quite small and are designed to help seed a new company. In most cases, accelerators provide 

this seed capital in return for an equity stake in the company that might range between 4-8 percent. 

Fourth, accelerators provide services to cohorts of entrepreneurs or entrepreneurial teams. The 

training and support is normally provided over a short fixed period ranging from one to three months. 

At this point, entrepreneurs “graduate” in the sense that the new ideas fail or can be translated into a 

viable business enterprise.

Figure 4: Comparing Business incubators & Accelerators

(Source: Dempwolf et al.)

Many of the concepts around business acceleration have been used for years, but many of today’s 

accelerator programs are modeled on Silicon Valley’s Y Combinator and Boulder’s Tech Stars. Y 

Combinator, which began in 2006, is perhaps the world’s most successful accelerator, having played a 

role in spawning firms like AirBnB, Dropbox, and Reddit.75 Meanwhile, Tech Stars has expanded to 

locations around the US and its founders actively promote their approaches to business acceleration in 

the business press.76

Over the past decade, the number of accelerator programs in the US and Appalachia has skyrocketed, 

growing by more than 50 percent every year between 2008 and 2014.77 Today, it is estimated that the 

US is home to anywhere between 110 and 170 different formal business acceleration programs. 78

 

75 “Y Combinator, the X Factor of Tech, The Economist, November 5, 2015.

76 For background on TechStars, see Feld. 

77 Jonathan Ortmans, “A Hard Look at Accelerators,” Policy Dialogue on Entrepreneurship Blog, April 2016. 

Available at: http://www.kauffman.org/blogs/policy-dialogue/2016/april/a-hard-look-at-accelerators.
 30

Appalachia has seen its own boom in business accelerator programs. The Accelerating Appalachia 

initiative has received significant acclaim in recent years. This effort serves a wide swath of Appalachia 

and is focused on nurturing new entrepreneurs operating in sectors such as food and agriculture, forest 

products, and outdoor industries. In 2016, the program supported ten regional businesses in markets 

such as herbal medicines and health products, cereal production, and food distribution. Other recently 

started examples include Gannon University’s Northwest Pennsylvania Accelerator, the Athens (OH) 

Innovation Engine Accelerator, and Chattanooga’s Co.Lab Accelerator.

Business accelerator programs are gaining attention because they have shown impressive results. 

Beyond the headline making companies birthed by Y Combinator and others, much data shows that 

firms supported by accelerators outperform comparable firms without such support.79 Graduates of top 

accelerator programs are more likely to receive follow-on investments and to hit other company 

milestones, such as new market entry or company exits. However, many of these effects appear to be 

limited to the top quality accelerators and the effects may be less pronounced in less popular programs. 

In addition, business accelerators are especially important because these programs typically view 

ecosystem development as part of their core missions. And, the regional spillover impact of 

accelerators appears to be positive. One recent study found that MSAs with accelerator programs 

tended to have higher levels of seed and early stage investing activity after programs have been put in 

place.80 These impacts are not restricted to firms engaged in the programs; they also ripple out to early 

stage firms more generally. In Southwest Colorado, these spillover effects encouraged the Telluride 

Foundation to help create a local venture accelerator program. Donors funding the program often also 

serve as mentors to the selected entrepreneurs. The goal is to begin to create a culture of 

entrepreneurship in Telluride, a region that struggles with economic diversity, due to its heavy 

dependence on tourism and mining.

As much of the data suggests, the quality of business acceleration programs varies greatly. High quality 

programs have big impacts; lower quality programs may have little or no impacts. Thus, it is essential 

that regional leaders heed the lessons from the growing literature on what makes business accelerators 

work.81 Key lessons include: 

 Developing clear guidelines and tips to enhance the mentor connections undergirding these 

programs.

 

78 A number of different data sources track the accelerator industry. For recent background, see Ian Hathaway, 

“Accelerating Growth: Start-up Accelerator Programs in the United States, “ Brookings Institution, February 17, 

2016. See also Ortmans; the Seed DB database at http://seed-db.com/accelerators; the GUST USA-Canada 

Accelerator Report 2015 at http://gust.com/usa-canada-accelerator-report-2015/.

79 Hathaway.

80 Daniel C. Fehder and Yael V. Hochberg, “Accelerators and the Regional Supply of Venture Capital Investment,” 

Working Paper, September 19, 2014. Available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2518668

81 See Dempwolf et al., Hathaway, Susan Cohen, “What do Accelerators Do: Insights from Incubators and Angels,” 

Innovations Journal, Vol. 8, No. 3-4 (2013), pp. 19-25. 
 31

 Creating a “culture” that keeps entrepreneurs engaged and involved in a process of continuous 

learning during and after the formal accelerator program ends.

 Be very clear on what the accelerator program can do for local entrepreneurs and also be clear 

on the role of the accelerator effort in the wider ecosystem.

Facilities and infrastructure

Most experts contend that soft or cultural factors are the essential components of effective ecosystems, 

but facilities and infrastructure can matter too. Entrepreneurs are like any other business in that they 

benefit from and want to work in regions that have strong infrastructure in the form of good 

transportation access across multiple modes, excellent water, sewer and power systems, and world 

class broadband access. 

These types of physical assets are essential to business success, but are not necessarily unique attributes 

of entrepreneurial ecosystems. However, some types of facilities are especially relevant for start-ups 

and new companies. Business incubators often serve as key hubs in regional ecosystems. They are one 

of the first specialized approaches to supporting small businesses, and have long benefited from 

investments from federal, state, and local economic development agencies. Extensive research 

suggests that business incubation may help produce better business outcomes, such as higher firm 

survival rates and an increased likelihood that incubated firms will maintain local operations.82

Over time, many business incubators have altered their missions so that many programs now serve a 

wider diversity of companies, including more established firms. Many also focus less on ecosystem 

support and instead support a more general economic development mission. Meanwhile, some of 

incubation’s past service offerings, such as subsidized office space, are of less interest to new ventures 

that may operate with a limited physical footprint. This shift has been one factor driving the growth of 

business accelerator programs. 

In response, some incubator managers are adopting hybrid business models that utilize new tools, such 

as business accelerators, coworking spaces, and the like.83 As these trends continue, the distinctions 

between incubators and other kinds of entrepreneurial spaces will erode. Examples within Appalachia 

include the Radius Cowork space in Erie, PA, and the Shoals Entrepreneur Center in Florence, AL. 

University centers are also moving in a similar direction that combines teaching, business coaching and 

acceleration services and specialized space for new and growing business. Examples include Virginia 

Tech’s KnowledgeWorks and Apex Systems Center for Innovation and Entrepreneurship, the Invent Penn 

State initiative, and the University of Alabama’s Entrepreneurship Institute. 

 

82 NBIA, pp. 126-130; US Economic Development Administration, Incubating Success: Incubation Best Practices 

that Lead to Successful Ventures, 2011. Available at: 

http://edaincubatortool.org/pdf/Master%20Report_FINALDownloadPDF.pdf.

83 Kirstie Chadwick, “The Rise of Incubator Super-hubs in Unexpected Places,” InBIA Blog, November 5, 2016. 

Available at: https://inbia.org/blog/incubator-super-hubs-reach-unexpected-places/.
 32

The typical business incubator serves a wide variety of small businesses and entrepreneurs, but 

specialized spaces can also be important ecosystem components. Specialized space can take many 

forms, especially in areas targeting science and technology based firms. Laboratory space, such as wet 

labs and testing facilities, are important in regions with high concentrations of life sciences firms. 

Other sectors also benefit from specialized facilities. For example, commercial kitchens or kitchen 

incubators are growing at a fast rate. A 2013 survey identified at least 135 commercial kitchens around 

the US.84 Some of the earliest and best known kitchen incubators, such as facilities in Athens, OH and 

Florence, AL, are located in Appalachia. These facilities take many forms. Some serve a single industry 

or certain population, such as new immigrants. But, the typical kitchen incubator is designed to help 

start-up food entrepreneurs by providing access to large kitchens, cooking equipment, food storage, and 

perhaps some kind of loading and packaging support. The ACENet Kitchen Incubator in Athens, OH 

operates year-round and has spun off a number of entrepreneurial start-ups including Shagbark Seed & 

Mill. ACENet has provided technical assistance to other kitchen incubators in the region, including one 

in Nelsonville, OH and Blue Ridge Food Ventures, a shared use kitchen and natural products 

manufacturing facility in western North Carolina. 

More recently, regions have sought to target other kinds of businesses and to support new ways of 

working. The past decade has seen a global boom in the development of new working spaces that have 

many names, such as makerspaces, hackerspaces or coworking facilities, and take many different forms. 

Makerspaces and hackerspaces are targeted to providing specialized equipment, support and workspace 

for collaborative work. It is estimated that 400 such facilities operate in the US, and the number of 

maker spaces worldwide has grown by 14 times since 2006.85 These spaces vary in nearly every way, 

and they can be located in schools, libraries, other public facilities or operated by private business or 

non-profits. They can range from simple hackerspaces where like-minded people can meet to do 

collaborative work to more elaborate makerspaces that also provide training and access to specialized 

equipment like 3D printers, computer design tools, and various machine tools. The more advanced 

makerspaces serve as digital factories. Makerspaces are important not only because they provide a 

place where ideas and new businesses can form, but they also seek to transform their communities. 

Some analysts refer to them as part of a new “civic infrastructure” which will help create local cultures 

that embrace innovation and creativity.86

Coworking spaces are our final component of the “new entrepreneurial infrastructure,” and are subject 

to growth boom of their own in recent years. Coworking spaces provide a work and meeting space for 

all kinds of independent workers. Many users of coworking space are freelancers, gig economy workers, 

or even telecommuters in traditional employment, but entrepreneurs also comprise a big share of 

coworking space users. 

 

84 Econsult Solutions, US Kitchen Incubators: An Industry Snapshot, August 5, 2013.

85 Nicole Lou and Katie Peek, “By the Numbers: The Rise of the Makerspace,” Popular Science, February 23, 2016. 

The Maker Map (available at: http://themakermap.com/) provides an updated listing of sites across the US. 

86 Will Holman, “Makerspace: Towards a New Civic Infrastructure,” Places Journal, November 2015.
 33

The size of the coworking market is disputed, but no one doubts that it is large and growing. The 2015-

2016 Global Coworking Census projected that worldwide, around 10,000 coworking spaces will be 

operated by the end of 2016, with more than half of these sites having opened in the past two years.87 

In 2005, the US was home to one coworking space. Today, there are thousands of these locations 

around the US. These facilities tend to cluster urban areas. According to surveys from DeskMag, an 

industry consultant, 77% of US coworking spaces are located in urban areas with 17% in suburban 

locations and 4% in rural areas.88 Urban areas have large numbers of such facilities, averaging about 26 

coworking spaces in cities with populations exceeding $1 million. 

These spaces include many shared office companies operated by Regus, WeWork, and others. These 

locations typically have a minor role in supporting local ecosystems. Instead, they offer a new way of 

working. But, in other regions, coworking sites are also important hubs of the local ecosystem. 

Asheville, North Carolina, with a population of about 87,000, has 8 co-working spaces available, 

providing a range of space and services to start-up entrepreneurs. These include The Collider, 

specifically focused on firms seeking climate change solutions and the Hive AVL focused on creative 

entrepreneurs.89 Chattanooga has proceeded even further with the 2016 opening of the Tomorrow 

Building, one of the first co-living/co-working buildings operating outside of major metropolitan areas 

such as New York or San Francisco.

Community Culture

The role of culture in entrepreneurial ecosystems is essential, but also among the most complicated to 

understand and influence.90 Researchers and entrepreneurs themselves have always understood that 

there is something different about successful entrepreneurial regions, i.e. “there is something in the 

air.” While these differences were widely understood, their relative effects were not clearly delineated. 

In the 1980s and 1990s, researchers began highlighting the role of informal networks and social ties in 

entrepreneurial success, and this research ultimately culminated in works by Saxenian and others that 

assessed the histories and business cultures of regions or industries.91 Subsequently, global crosscountry comparisons, such as the Global Entrepreneurship Monitor, highlighted massive differences in 

national and regional entrepreneurship rates, which often occurred independently of other economic 

factors. 

 

87 Deskmag 2016 Coworking Forecast, January 29, 2016. Available at: http://www.deskmag.com/en/2016-

forecast-global-coworking-survey-results

88 For recent data on coworking spaces in the US, visit 

http://coworkinghandbook.com/stats/#USA_Coworking_Stats_2016).

89 See https://www.beverly-hanks.com/blog/coworking-spaces-asheville.

90 For background, see Bosma and Holvaert, 2016; Michael Fritsch and Michael Wyrwich, “Persistence of Regional 

Entrepreneurship: Causes, Effects, and Directions for Future Research,” Jena Economic Research Papers 2017-003, 

February 2017.

91 See Saxenian, Mayer, Feld, and Mary Walshok and Abraham Shragge, Invention and Reinvention: The Evolution 

of San Diego’s Innovation Economy, (Stanford: Stanford University Press, 2014).
 34

Cultural factors seemed to be playing an important role in determining a region’s or nation’s capacities 

for successful ecosystem development Attitudes toward risk and failure are especially important. Are 

local residents willing to take risks? Is business failure viewed as a personal shortcoming or is it viewed 

as a learning experience? In addition, successful regions tend to champion innovation and 

entrepreneurship. They support a culture of research and inquiry, and view entrepreneurs—as opposed 

to big business or the government—as core builders of the local economy and local wealth.92

In general, the US performs extremely well in various global rankings of cultural support for 

entrepreneurs. Yet, this strong showing masks large regional differences. While careful to avoid 

overgeneralizations, researchers have noted that many rural regions may be hampered on a number of 

these cultural attributes. History plays an important role in determining entrepreneurial culture. Many 

rural regions have, for decades, relied on single industries to drive the economy – for example, mining, 

textile and furniture manufacturing, tobacco and other agricultural commodities. The dominant culture 

in these places was more “company town” than entrepreneurial ecosystem. Young people moved from 

high school into employment in these sectors, and successful careers. With their decline, more places 

are turning to entrepreneurship as a revitalization strategy but discovering the need to build a culture of 

risk taking, business ownership and innovation. However, rural regions are not unique in facing these 

challenges. They are often found in urban areas as well. 

Figure 5: Building Entrepreneurial Cultures in West Virginia

Since 2007, Create West Virginia has been working to help make West Virginia into a more friendly and 

supportive location for innovators, entrepreneurs, and creative people more generally. An October 2016 

newsletter highlighted Create WV’s perspective on “what job creators want in communities.” In this 

view, they want: 

Source: CREATE WV EMAIL CAMPAIGN October 25, 2016. “Buy Your State a Beer” 

 

92 World Economic Forum (2014), pp. 12-13.

Diversity: They want 

all kinds of people 

around them. People 

with different ideas, 

philosophies, religion, 

experiences. A lot of 

creativity results from 

the cross pollination of 

cultures and ideas.

Education systems that 

turn out innovators 

rather than recipe 

followers. They want 

cradle-to cradle 

opportunities to learn, 

to keep developing their 

own minds and skills, 

and they minds and 

skills of their families

Attitudes 

that allow 

failure, 

that 

recognize 

failure as 

part of the 

process of 

succeeding.

Social scenes

enlivened by 

music, art, 

dance, literary 

scenes, and 

plenty of 

places where 

they blur the 

lines between 

work and play. 

Access to fast, 

reasonably 

priced internet, 

so they can 

work in home 

offices at any 

time of day or 

night.
 35

Some regions can simply rely on past traditions and current business practices to sustain a strong 

entrepreneurial culture. Others need to actively invest in efforts to help spur interest and enthusiasm 

about the possibilities associated with local entrepreneurship. Some of the more aggressive cultural 

change strategies have been embraced overseas, particularly in Europe where many believe that the 

local business culture impedes entrepreneurial activity. For example, the European Union’s 

Entrepreneurship 2020 Action Plan notes that Europe is home to . . .

(a) culture that that does not recognize or reward entrepreneurial endeavors enough and does 

not celebrate successful entrepreneurs, as role models who create jobs and income. To make 

entrepreneurship the growth engine of our economy Europe needs a thorough, far-reaching 

cultural change.93

Building an “entrepreneurial culture” is not a quick proposition; it requires years of work to change local 

attitudes and to introduce new generations to the benefits of entrepreneurship. Much of this work 

comes in the educational system via efforts and programs discussed earlier. Business accelerators and 

other programs also help spread a message about the economic benefits generated by local 

entrepreneurs. 

A number of other public education and outreach efforts can help further spread this message. Business 

plan and award competitions are especially popular, as they can typically occur with limited investments 

of both time and money. Nearly every state and region is now home to regular business plan 

competitions, and these programs can target nearly every kind of entrepreneur or business idea. 

BizPlanCompetitions.Com, which bills itself as the world’s most complete listing of entrepreneurship 

contests, currently lists 260 competitions in all 50 states, providing total prize monies that exceed $22.7 

million.94

The range and scale of business plan competitions is extremely diverse. At one level is a program like 

the MassChallenge, which operates as hybrid mix of competition and global business accelerator. Each 

year, MassChallenge sponsors a global business competition. Winners receive large cash grants and 

millions of dollars in other forms of in-kind support. They also have access to accelerator programs, 

office space, and many other benefits. Contrast MassChallenge to West Virginia’s Lemonade Day, an 

annual youth competition. For this event, young people from around West Virginia compete to develop 

new and better ways to operate a lemonade stand. They participate in local and regional competitions 

and the top performers compete in a statewide completion at the state Capitol. This effort now 

engages 5,000 youth across the state. 

Beyond competitions, awards programs also garner a great deal of attention. Many of these programs 

have been in place for years and are viewed as significant markers of a business’ success and growth 

prospects. Examples include the annual INC. 500 and 5000 lists, the Ernst & Young Entrepreneur of the 

 

93 Communication from the European Commission to the European Parliament, Entrepreneurship 2020 Action Plan: 

Reigniting the Entrepreneurial Spirit in Europe, 2012, p. 4.

94 See http://www.bizplancompetitions.com/.
 36

Year Awards, and the Deloitte Fast 50 Awards Programs. Yet, not all awards programs need to gain 

national or even statewide attention. Many communities enjoy great success with smaller scale 

“Entrepreneur of the Year” awards that honor local business and spread a positive message about 

entrepreneurship. Opportunity Southwest Virginia, a regional entrepreneurship effort serving seven 

counties, has enjoyed great success with this approach. The project team developed a template and set 

of guidelines for local “Entrepreneur Challenges.” These tools have in turn been customized by local 

town leaders who have sponsored dozens of local competitions across the region. These efforts in turn 

help seed the creation of numerous local businesses. 

Award programs and business plan competitions directly target entrepreneurs; other related initiatives 

work at the community level by supporting or encouraging the creation of “entrepreneur-friendly 

communities” who provide support and a friendly welcome mat to new and growing businesses. 

Beginning in the mid-2000s, Georgia operated a state-wide “Entrepreneur Friendly Communities” 

program that certified 129 Georgia counties, including many in Appalachia, as entrepreneur-friendly. 

Certified communities underwent specialized training and followed a guidebook to help develop new 

programs designed to support local entrepreneurs. Similar community certification programs have 

been used in other regions, such as Western North Carolina, South Carolina, and Atlantic Canada. 

Through the ARC POWER initiative, coal-impacted communities in eastern Kentucky, southern West 

Virginia and Appalachian Ohio are working with coaches supported by regional development 

organizations and the Center for Rural Entrepreneurship to build their capacity to support entrepreneurfocused economic development and become entrepreneurial communities. 

Regulatory/Government support

Entrepreneur-friendly regulations are an essential component of any entrepreneur-friendly community, 

and are thus an important ecosystem building block as well. There is much overlap between 

entrepreneur-friendly regulations and business-friendly regulations, but there are important differences 

as well. For entrepreneurs, the most important regulations are those that affect business entry and 

growth. Is it easy to start a business and is it easy to support that company’s growth?

Creating effective regulatory regimes for entrepreneurs is a huge challenge around the globe.95 The 

World Bank’s annual Doing Business report is perhaps the best known of these efforts.96 Annually 

published since 2002, the Doing Business reports rank 190 economies on their business regulation 

environments, covering a large number of indicators on start-up costs, labor regulations, tax regimes, 

and the like. This annual ranking has had large impacts, leading to significant policy change in 

numerous countries around the world. 

 

95 For background, see J.P. García Villarreal, “Successful Practices and Policies to Promote Regulatory Reform and 

Entrepreneurship at the Sub-national Level”, OECD Working Papers on Public Governance, No. 18, OECD 

Publishing, 2010. 

96 The annual Doing Business reports and rankings can be accessed at: http://www.doingbusiness.org/
 37

In thinking about “entrepreneur-friendly” regulations, it is important to assess what regulatory factors 

are most important to high growth companies. A number of organizations, such as the Small Business 

and Entrepreneurship Council, publishers of the annual State Small Business Tax index, contend that 

entrepreneurship thrives when taxes and regulations are limited.97 Other researchers paint a nuanced 

picture, arguing that effective regulations vary based on the level of government and on the types of 

entrepreneurs operating in a given location.98 In particular, high growth entrepreneurs and lifestyle 

entrepreneurs have much different needs as they relate to public policy and regulation.99 High growth 

entrepreneurs are most interested in locations with a rich base of talent and easy access to customers, 

suppliers, and partners. They are less concerned about taxation levels and other regulatory concerns. 

Regardless of their attitudes to government rules and regulations, all entrepreneurs have to deal with 

government agencies at some point in time. Successful regions make this process as painless as 

possible, and provide clarity, transparency and reliability to entrepreneurs. 

A number of strategies and approaches help create a more “entrepreneur-friendly” regulatory system. 

A first step involves providing one-stop access for permits, business licenses, and other necessary 

business paperwork. These types of initiatives are gaining traction across the US, and have received 

strong support from efforts such as the SBA’s Start-Up in a Day program.100 Examples include Kentucky’s 

One Stop Business Portal and Virginia’s Business One Stop.

The creation of resource navigator tools is also commonly pursued. Many regions develop their own 

one-stop shop websites or resource guides, while others tap into national or regional tools developed by 

groups like SourceLink. NETWork Kansas is a good example of this resource. Their website, designed by 

SourceLink, provides entrepreneurs with access to over 500 resource partners across the state and 

includes an 800 number that is staffed by experienced business counselors who can help direct 

entrepreneurs to the right resource in real time. Numerous states in the Appalachian region have 

created gateway sites where entrepreneurs can easily access information about resource providers –

where they are located and what services they provide. Examples include Business Link North Carolina, 

Georgia’s SmartStart site, Kentucky’s One Stop Business Portal, and Launch Tennessee network. 

Other regions seek to streamline regulations or to install a regular review system to scrub these rules on 

a regular basis. A number of states designate regulatory review boards to address business complaints 

and to lead regular reviews of existing laws to eliminate wasteful, unnecessary or burdensome 

regulations. Examples include the Arizona Governor’s Regulatory Review Council and Missouri’s Small 

Business Regulatory Fairness Board. This process may have reached its zenith with Kansas Governor 

 

97 Raymond J. Keating, Small Business Policy Index 2017, Small Business and Entrepreneurship Council Research 

Report, February 2017. 

98 See the Kauffman Foundation’s Policy Map at: http://www.kauffman.org/what-we-do/resources/policy/theentrepreneurship-policy-map

99 Endeavor Insight.

100 For more information, visit https://www.sba.gov/about-sba/sba-initiatives/startup-day.
 38

Sam Brownback’s 2011 decision to create a statewide Office of the Repealer, with powers to respond to 

citizen and business requests to repeal unpopular state laws and rules.

Finally, a number of states and localities now appoint an ombudsman to serve as a primary point of 

contact for entrepreneurs and other business owners. In addition, the US Small Business Administration 

is also home to a Federal Office of the National Ombudsman (ONO) to bring a small business perspective 

to the regulatory review process. State and local ombudsman operate in a diverse mix of institutional 

structures. Some states support a statewide Small Business Ombudsman, who operates in a manner 

akin to ONO. In addition, many state regulatory agencies, especially environmental regulators, also 

offer ombudsman-like services for regulated business. A small number of states, such as Florida, Maine, 

and Rhode Island, support a Small Business Advocate office that combines both small business advocacy 

and ombudsman functions. All of them focus on the key missions of complaint handling and regulatory 

review, and some offices provide a range of other services.

101

Conclusion—Principles for Creating Robust Ecosystems

As this review makes clear, the development and maintenance of robust regional entrepreneurial 

ecosystems involves a complex mix of culture, history, markets, policy, and environmental factors. 

There is no single recipe: what works in Appalachia may not work in London, Beijing or Silicon Valley, 

and vice versa. However, as this review also notes, diverse ecosystems also share similar 

characteristics. They may relate to characteristics such as fluidity or connectivity, or they may relate to 

policy building blocks such as peer networks, investment capital, or talent development. 

These commonalities allow us to use the lens of entrepreneurial ecosystems to offer general guidelines 

and principles for policy making.102 First, effective regional strategies embrace a holistic perspective. 

They encourage community leaders to move away from our past focus on what (or how) a specific firm 

or firms are doing to a new focus on the broader environment in which these firms operate. Good 

policy matters, but good policy is not enough. It must be combined with other components that often 

relate to a region’s culture, history, or traditions. 

Second, it encourages community leaders to place more policy emphasis on the local business climate or 

policy environment. Building an “entrepreneur-friendly” region should assume precedence (or at least 

equal billing) to the provisions of services and funding to specific companies. Effective policy 

interventions can emerge from multiple paths and venues, so all of a region’s institutions and players—

not just economic developers—must be engaged. 

 

101 For additional details, see Microeconomic Applications, Inc. Research on State Regulatory Flexibility Acts, SBA 

Office of Advocacy Research Paper SBAHQ-11 M 0205, May 2013. Available at: 

http://www.sba.gov/sites/default/files/files/rs413tot.pdf

102 These concepts build on initial ideas presented in Mason and Brown, 2014.
 39

Third, the concept of entrepreneurial ecosystems reminds us that all firms matter, regardless of size or 

industry. All firms have the potential to grow or to be an integral part of a regional ecosystem. Small 

firms—and big firms---matter to an ecosystem’s health and vitality. Fast growing small firms may be 

the engine of new wealth and new jobs, but big firms help create the conditions for their success and 

help spawn new generations of business talent. 

Finally, the biological metaphor of the ecosystem again emphasizes the essential role of growth. 

Ecosystems are not static things. In successful regions, the ecosystem grows and evolves just as the 

local ventures also grow, evolve and hopefully thrive. 
 40

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