Assignment Task
Introduction (aim, background etc.)
The main aim of this report is to identify Melbourne’s Entrepreneurship ecosystem and analyse the connection and interactions of its elements. These are drawn out through analytical study of literatures, concepts of entrepreneurial ecosystem. The purpose of this report is to classify and analyse the elements relations of the knowledge entrepreneurship ecosystem. An adequate example of entrepreneurial experts of ACY Securities in Melbourne was being questioned for this purpose. The obtained elements were then nominated by directing on the prominence of each in the entrepreneurial ecosystem.
The principal image for stimulating entrepreneurship as an economic development strategy is basically termed as “entrepreneurship ecosystem.”
Entrepreneurship is a momentous driver of economic expansion. Following monetary growth through consolidation of the entrepreneurial space or driving modernism has become a profitable enterprise for Melbourne directing to achieve economic development and these can be attained over an amalgamation of strategies. An entrepreneurship ecosystem enfold varied types and phases of activities and intricacy of interrelating parts which associate to drive the ecosystem.
Bygrave and Hofer (1991) distinct entrepreneurship ecosystem or entrepreneurial process as “all purposes, activities, and actions related with remarking opportunities and the formation of organisations to follow them.
The common usage of the word “ecosystem” in social science in spite of an ecological background turned out prevalent only after the work of Moore (1993), that emphasised the business ecosystem as the organization’s external environment. Entrepreneurial ecosystems have resemblances with built-up districts, groups, and innovation systems; entrepreneurs as well as spin?offs are there in these other frameworks but are not central as they are in entrepreneurial ecosystems (Stam & Spigel, 2017). Acs, Stam, Audretsch, and O’Connor (2017) correspondingly classify entrepreneurial ecosystems as having settled from literature in both business strategy and regional expansion.
Below, we briefly demarcate the features acting as the mechanisms of an entrepreneurial ecosystem.
Theoretical literature review about eco-system
An entrepreneurial ecosystem combines the influence of interdependent actors in order to create and grow new ventures. An Entrepreneurial Ecosystem combines entrepreneurship; setting up a business, taking risks in the hope of a profit, and an ecosystem; a complex network or interconnected system. This creates an environment that considers the agents that influence business. “The predominant metaphor for fostering entrepreneurship as an economic development strategy is the “entrepreneurship ecosystem”. (Isenberg, 2014) Isenberg’s work on entrepreneurial ecosystems considers many factors influencing a business and their decision making. Isenberg combined a range of myths and assumptions to determine the exclusiveness of a company and provide a reality check to businesses. “Entrepreneurship does indeed create many positive economic and social spillovers, yet the only way that policymakers, civil society, corporate leaders, and entrepreneurs themselves can truly set the context for successful economic development is to separate myth from reality” (Isenberg, 2014). These myths and assumptions include that the increasing number of start-ups in an ecosystem do not determine success, and financial incentives for risky investments in entrepreneurship do not necessarily stimulate the ecosystem. Job creation is not the main objective of fostering an entrepreneurship ecosystem, and that one objective is not broad enough to represent all influencing actors. Isenberg also determined that it is not necessary to establish co-working spaces and incubators to strengthen regional entrepreneurial ecosystems. These are a range of assumptions made in determining what an ecosystem is.
Another view of entrepreneurial ecosystems is that “ecosystems practices and processes can be thought of as the glue binding together different ecosystems actors and factors and allows them to produce a cohesive system of support for high-growth entrepreneurship” (Spigel, 2020) Spigel determines that actors and factors play a huge role in determining the success of a business. Much like Isenberg, Spigel acknowledges that the ecosystem considers the broader picture as opposed to a narrow-minded approach and allows us to navigate an individual business and divide it into each agent and factor associated with that ecosystem. Furthermore, “for more than two decades scholars have argued that firms should count solely on their own resources, knowledge, and capabilities to face the aggressive pressures coming from the environment and achieve superior competitive advantages.” (Caravannis, 2018) Without considering the external and internal environment it is unlikely that a business would be successful, however, it is important that the business has a strong foundation. Caravannis reminds us to consider the foundation the initial business is built upon before considering the external environmental impacts. Entrepreneurial ecosystems that surround a strong foundation are likely to be sustaining, and entrepreneurial action will likely thrive, and innovation will drive the economy or industry. That being said, methods used to analyse ecosystems are often inconsistent, and difficult to determine. Ecosystems in this piece are constructed in localities, such as cities.
“Entrepreneurs are drawn to and inextricably bound together, with other core entrepreneurial actors in close geographic, institutional and relational proximity” (Brown and Mason, 2017) proving the usefulness of cities as defined localities. Most environmental factors are similar within the same city such as politics, law, resources, etc, and as the geographical area becomes larger such as states, and countries, it becomes less relevant as there are more factors to consider. When we determine the strategy and regional development, we seek to better understand the strategic approaches, challenges and pathways that various places face and how the entrepreneurial ecosystems respond across various places, either through coordination or organically” (O’Conner, 2018). Again, a business that considers internal and external factors is more likely to thrice. Strategy and regional development allow us to come to certain conclusions regarding the current ecosystem of an industry and make predetermined decisions in response to predicted changes. Stangler and Bell-Masterso break down an ecosystem into “four indicators that we think answer the question from ecosystem leaders: what do we measure, and how do we measure it? Indicators of Entrepreneurial Ecosystem, vibrancy, density, fluidity, connectivity, and diversity” (Stangler and Bell-Masterso, 2015). These internal and external factors allow us to measure and predict potential success of ecosystems leaders and provide a pathway to create a practical strategy that plays to identified strengths.
An action-research practical project posed to identify and outline entrepreneurial ecosystems is BEEP. The Babson Entrepreneurial Ecosystem Project is made up of six elements, policy, finance, culture, support, human capital, and markets. The aim of the BEEP framework is to identify entrepreneurship within a locality or city over a 5-year period. There are 1-3 pillars and agents within each element which we will further delve into. We have used the BEEP framework to explore the coffee industry in Melbourne and its relevant ecosystem, by bringing together the policies, structures, programs, and climate that foster entrepreneurship within the defined locality. “Spigel (2017) defines entrepreneurship ecosystems as “combinations of social, political, economic, and cultural elements within a region that support the development and growth of innovative start-ups””(Spigel, 2017 quoted by Snow and Prater, 2018).
In this report we analyse the coffee industry in Melbourne according to the BEEP framework, the following elements have been identified. These elements interact and interrelate, and all too often we reduce the factors to individual sections limiting our view of the ecosystem. The six factors are not all the factors we must look at, some overlap such as policy and finance, finance and markets, human capital and culture. Human capital make-up the culture within a business and having a set culture when hiring can ensure that the culture continues in a positive manner whereas separately you can consider hiring great employees who have no idea about the business culture who do not reflect the business’s core purpose. Therefore, all the elements must be considered separately and the influential by-products but also, they must be considered from an interrelating perspective.
Entrepreneurial Ecosystem In Melbourne (Coffee Industry)
Coffee industry in Melbourne sprung in the early 1830s and gained prominence in the 1970s post World War II. With the espresso boom in the 1950, many cafes started to establish in the city of Melbourne which subsequently led the government to encourage the industry as a strategy to boost the economy. The influx of European migrants post the war led to the emergence of European and Italian style café across CBD. It has become an affordable luxury and boosts the demand for coffee in the industry (IBIS world, 2020). Eventually, the coffee culture has seen a significant growth over the past five years with resilient income and lifestyle changes.
Further, we explore the six domains in the BEEP framework to understand the entrepreneurial ecosystem in the context of the coffee industry in Melbourne.
Policy:
Policy relates to the influence that the state and federal government have on the industry. It includes government institutions that were built to foster the entrepreneurial community and safeguard startups in the region through regulatory policies and developed assistance (Mujahid et al. 2019, Donaldson and Colin 2021). For example, LaunchVic is a government established organization to develop the startup ecosystem in Melbourne by supporting entrepreneurs through funding and community building. One such funding strategy includes a non-profit incubator called free to feed to foster the interests of migrants and refugees in food related business. It also offers various accelerator programs such as rocket seeder to assist startups in the food and aggrotech industry, with entrepreneurial expertise identifying customers and offers a platform to meet potential investors.
There are a number of federal and state government policies and regulations to promote entrepreneurial culture in the city of Melbourne. Government policies provide the fundamental steps to take action in place and use resources substantially for the benefit of the community and economy. Example of a government policy that is implemented to fund and develop a circular economy in food based business and social enterprises is a circular innovation economy grant. As a response to the Covid-19 pandemic, in April,2020 the Australian government provided temporary cash flow support to small to medium sized businesses in order to retain business and employees. Highly developed government agencies and leadership can encourage entrepreneurs to learn opportunities and enable “economic interaction” in the ecosystem (Stam et al. 2021).
Culture:
Culture plays an important role in bringing the community to socialize and diverge entrepreneurial attitudes that support others in identifying and developing entrepreneurial opportunities (Donaldson & Colin 2021). It is one of the key attributes to foster community. A platform to embrace coffee culture in Melbourne through events, exhibitions and competitions such as the Melbourne international coffee expo. (MICE). It not only stimulates the opportunity for café startups but also builds connections with the successful roasters in the industry, equipment manufactures, café owners and is known to be one of the nest trading platforms locally and on an international level.
Finance:
Finance involves funding loans and investments from potential investors, institutions such as banks and financial companies. According to the IBIS world report 2020 on coffee and cafes in Australia, the coffee industry in Melbourne has seen a high growth over the past five years (IBIS world 2020) supported by a significant growth in revenue. The capital intensity in this industry is relatively low which suggests that there are significantly less startup costs. Despite the positive trends in the coffee industry, a highly competitive environment and poor scalability leads to fewer investment opportunities. However, there are government organizations, as mentioned above that provide investment to potential business ideas. Few private agents such as Max funding provide loans for cafes based on aspects such as café plan, location, strategy by the business owner (Max funding). Smergers is an investment banking company that not only lends funds but also offers financial advisors to evaluate new business in the locality. Moreover, most of the cafes are found to be self-funded or operated on bank loans as the set-up costs such as infrastructure and equipment is relatively low compared to other industries.
Human Capital:
One of the important sources of an entrepreneurship opportunity is the presence of skilled workers and knowledge. While this domain includes intangible resources such as education and experience and knowledge includes science and technology (Stam et al. 2021), however both are interdependent. Efficient management of cafes requires a set of skilled labour or barista to perform activities such as brewing coffee, serving costumes, cleaning, etc which requires appropriate training and scientific knowledge. There are public institutions such as RMIT activator provide entrepreneurial expertise to support venture creation and nurture innovation. On the other hand there are specified coffee or cafe based institutions such as The Dukes and Melbourne Coffee Academy that provide scientific knowledge on the coffee and provide essential barista training through workshops and seminars.
Support:
The domain of support has a great impact on fostering the ecosystem. It involves areas such as logistics and transportation, incubation centres, support professions such as accounting, legal advisors, technology, etc and non-government institutions that support business operations to run efficiently. Budding entrepreneurs often lack experience and expertise in the market. Incubators are organizations that provide co-working spaces, and professional expertise which bootstraps the startup in the early stages. For example, Chobani is an Australian based incubator that supports food entrepreneurs in partnership with the Food innovation centre(FIC). It offers different programs to build a sustainable business such sales and marketing, packaging, supply chain and logistics, etc.
Accounting services play a fundamental role in any business entity. It provides a financial picture of the business success. SBG is a Melbourne based accounting firm that offers accountants and business advisors to organizations. They are reputed start-up specialists and helped numerous coffee shops and cafes in tax registrations, accounting software, site lease and insurances.
Market:
The coffee market in Melbourne is made of huge Multinational channels and supply chains across the globe. The sole focus of these MNCs is the quality of coffee beans and the process that undergoes roasting and brewing coffee. Over the years, the demand for freshly brewed coffee has increased as opposed to the corporate companies. These cafes and coffee shops including the franchised coffee chains such as Gloria Jean’s coffee account for a large share in the coffee bean distribution industry (IBIS world 2020). Due to the entrenched coffee culture in Melbourne, and emerging small sized boutique cafes across the city, these distribution channels exhibit a huge role in the business operations. Inglewood Coffee roasters offers a wholesale range of coffee beans and brewing equipment to the market including cafes.
Consumption of coffee is highly determined by the quality of coffee beans and coffee prices.
The majority of cafes are small sized businesses that are based locally. However there are a number of retail coffee chains such as Hudsons coffee chain and Starbucks concentrated in Melbourne CBD.
Interview
Interviewee: Jimmy Ye (CEO of ACY Securities)
Interviewer: Alex Xiao
Please refer to the appendix for questions.
ACY Securities is a leading Forex & CFD broker offering CFDs across Shares, Forex, Indices & Commodities. Jimmy often invests in businesses and has acquired multiple successful companies in recent years.
Scalability of Cafe
“Cafes are not generally something I look at. This is because cafes usually aren’t scalable. Most of the time I don’t look at the business, but the founder himself. “
Elaboration: As seen above, most investors do not look at cafes due to the low scalability of it. Although there is usually a low risk involved in cafes, the returns are often not worth it. However, there are cafe giants out there such as Starbucks in Australia, but the chances of one’s cafe reaching that scale is little. Hence investors usually look at the person, rather than the business itself.
Traits of the founder and reasons for investing.
“I look at his past experience, whether he has enough experience in that certain industry or not. It is very important to have a proven track record of success if you want my investment.”
Elaboration: It is important to look at whether the founder had similar experience or proven track record of success in the past. If the founder is well experienced, then his business will also do well. When the founder of Alibaba Jack Ma had a chat with Masayoshi Son (CEO of Softbank) for 10 minutes, Masayoshi did not even ask about what Alibaba is, then he proceeded to invest Jack Ma $20M dollars. This just shows that investors look at a person more than your business. Regardless, your business idea must be tangible.
Investor’s benefits (Why should a founder seek for investment)
“We have all the connections and channels in the market, whether it is for B2C or B2B. Sometimes in business, it is all about referrals.”
Elaboration: There are many benefits for why a business needs investment. A well known investor or VC usually has been in the business circle for a long time. They have a vast connection with other businesses which they can refer to the people they invest in. Furthermore, you can beat your competitors easier with more budget. For small businesses such as a local cafe, investment will not affect your business too much. However for large startups such as Afterpay or Zip, it is essential to conquer your competitors for more market share; and the only way to achieve this is to have more marketing budget from investors.
Jimmy’s investment habit
“Investing is not my full-time job, I have to run my own company. By running the business, I meet many successful businessmen, who I can refer to the people I invest in.”
Elaboration: Many investors are business owners, they have to work on their business for most of the time. Occasionally during networking events, entrepreneurs may meet some investors, who they can pitch their ideas to.
Domain: Culture
Interviewee: Jeff
Interviewer: Svan
Interview details
It is observed in many kinds of entrepreneurial ventures that it does not get any kind of momentum in the beginning and fails to achieve the needed return on investment. This can be a result of not complying with the regulations of the local culture. In the interview I have deduced that the participant is stating that he belongs from the corresponding place of Victoria and he has the potential and knowledge to contribute in a proper manner for the business development process in the locality. The minuteness of any kind of needed service is an important thing to be considered in the beginning and the interviewee is stating that he has the understanding of those things too. It can be deduced that the possibility of getting a better result in an entrepreneurial venture is going to get maximised with the involvement of this knowledge.
The person has the idea of different types of people who consider to have an entrepreneurial venture and from the typology he has selected to go for the hybrid entrepreneurs (Solesvik, 2017). The reasoning behind this kind of selection is logical and there is a possibility of getting a better kind of return on investment if these types of entrepreneurs are supported. The understanding of the local culture is an important thing to be considered in any kind of business venture. This is going to give an upper hand that will be necessary for better kind of business management policies. on the other hand the possibility of having any kind of return on investment rises in a significant manner. As per the discussion made with the interviewee, it is identified that he is more inclined to the risk management process. I have found that the person is well aware of the importance of sustainability and the impact of it on an ongoing businesses’ future. This is a necessity to be considered because most of the businesses do not have any kind of risk management and they fail from the financial and management perspectives (Ramoglou & Tsang, 2017). This is important to identify the potential threats that might be a major risk for the business and the person is well aware of it.
On the other hand the person has stated that there is a major role of the cultural aspects and the in person interaction. The in person interaction is going to help in making better decisions because the businessman is going to get first-hand experience of the matters in a profound manner. I think that making a logical deduction of the culture and the ambience where the business is running needs a proper idea of how the people think and for that practical experience is needed (Süsser, Döring & Ratter, 2017). I think that interview is fruitful from the perspective of having an idea of what the possible problems are in an.
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