“Culture is one of the most precious things a company has,” said Herb Kelleher, the founder of Southwest Airlines. So it is with countries and cities looking to foster entrepreneurship.
A recent study of startup rates in the United States and Great Britain found that regions infused with entrepreneurial knowledge and culture had high rates of entrepreneurship. Florida, the Pacific Coast, and certain regions along the Rocky Mountains performed particularly well by this measure. Silicon Valley unsurprisingly topped the list, while the South and Midwest lagged. Meanwhile, in Great Britain, there was basically London and everywhere else when it came to high-growth startups.
Regions that are successful in today’s globalizing, innovative economy get the relationship between culture and knowledge creation right. Simply investing in knowledge creation—such as education—doesn’t guarantee a high rate of entrepreneurship. Neither will a diverse industrial base—another kind of knowledge resource—guarantee more economic dynamism. Culture is key.
Entrepreneurial cultures are marked by what’s known as the “Big Five” traits: adjustment, sociability, conscientiousness, agreeableness, and intellectual openness. Nobel Prize-winning economist Edmund Phelps found similar attributes helped “enable, stimulate, and spur experimenting, exploring and trying things.” These marks of culture in turn ordered human behavior in the marketplace.
Yet without human capital and a complex industrial structure, there is nothing for culture to do. Brazil’s favelas are among the most entrepreneurial places in the world, but they’re unlikely to generate world-beating startups. Whatever ideas may come from a bright, young slum dweller are quickly snuffed out when they try to make the leap beyond the favela or into other industries.
The startup formula for regions then goes something like this: Knowledge + Culture = Entrepreneurship. And with more input comes higher output. Regions in America that have high levels of knowledge and a highly entrepreneurial culture boast startup rates that are on average 18 percent higher than in regions with lots of knowledge and a lagging culture. High-performing British regions have a 35 percent advantage over their peers. Where such culture is weak, the authors find, “The positive effects of human capital and industry diversity are substantially weaker or even vanish.”
The effect of culture is clear even when looking at large firms. More than three-quarters of Fortune 100 firms and two-thirds of Britain’s Fast Track 100 companies are located in regions with above-average levels of knowledge and entrepreneurial culture. It seems then that all manner of economic activity benefits from a dynamic startup culture.
Put simply, culture is entrepreneurialism’s soil. No amount of seed or fertilizer can make sandy soil flourish. Rich earth yields a rich harvest.
Yet culture doesn’t form out of thin air. It is the sum of a society’s values and beliefs. It would not be too much to say then that entrepreneurially-minded economies begin with first principles: individualism enriched by community, industriousness marked by charity, and success leavened by sacrifice.
This article was originally posted at valuesandcapitalism.com