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Why Entrepreneurs Should Organize Into 'Reefs'

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Every entrepreneur knows that it is important to find a community to help grow a new business. What kind of community is going to be most effective? There are lots of options out there -- business incubators, business accelerators, bootstrap communities. How can you find the community that is right for you?

For the past few years, my colleagues and I at the IC2 Institute at the University of Texas have been studying entrepreneurial communities. We have explored the value that the Austin Technology Incubator brings to high-tech startups in Austin. We have also done interviews with other related entrepreneurial communities around the world.

Based on our work, it's clear that entrepreneurial communities succeed when they are organized like a coral reef. Coral reefs provide a structure that protects and feeds new organizations. It also attracts other marine life that gets value from being near the reef. These animals interact in seemingly haphazard ways that create a thriving ecosystem.

Similarly, organizations like the Austin Technology Incubator operate in the same way. The incubator itself provides protection (and sometimes office space) for member companies. The directors of the incubator attract members of the local business community to engage with companies. These members include business talent, venture capitalists, angel investors, technology experts, students and faculty from the University of Texas, and other companies in related industries.

Related: 9 Tips to Get the Most Out of Your Accelerator

These individuals get value out of their day-to-day interactions surrounding the incubator, and so they continue to spend time in the community. Over time, these interactions allow new companies to meet the people who can help them solve problems like filling key management roles, connecting with new customers, and refining their business plan.

What Reef is Right for You?

You might think that the most important factor in finding a reef is to focus on groups that are in roughly the same business. Companies that focus on wireless technologies should seek other new ventures in a similar space. Restaurant suppliers should engage primarily with food service providers.

To some degree, of course, that is true. But, the most important organizing force in a successful reef is a commonality in the business models of the companies.

When you form a company, you often have a sense of the ideal outcome for your business. You might want to create a venture that will sustain you and your family for the next 20 years. You might hope to create a company that ultimately creates wealth for the initial partners through an IPO or acquisition. Whatever your desired model, though, it is important to link up with other companies that have a similar ideal outcome.

In our studies, we examined a number of business incubators in Portugal. Many of them were much less successful at launching companies than organizations like the Austin Technology Incubator. One big difference between Austin and Portugal is that incubators in Portugal bring together all of the businesses in a region regardless of their desired outcome rather than organizing reefs around particular types of business models.

Consequently, the other individuals and companies that need to surround the reef to help the businesses succeed do not get a lot of value out of most of their interactions with the incubator. As a result, the community does not support the kinds of fortuitous interactions that allow an entrepreneurial community to thrive.

So, as you evaluate communities where you want to affiliate when you create a company, seek out those groups that are forming successful reefs. Find other businesses that share your long-term goals. Even if some of those businesses are in slightly different industries, they may still foster interactions with like-minded individuals who can ultimately provide value to your own enterprise.

Related: How Corporate Incubators and Accelerators Work (Infographic)


Art Markman

Written By

Art Markman, PhD is a professor of Psychology and Marketing at the University of Texas at Austin and Founding Director of the Program in the Human Dimensions of Organizations, which brings the humanities, social and behavioral sciences to people in business. He has written over 150 scholarly papers on human reasoning, decision making, and motivation. He is author of Smart Thinking and Habits of Leadership. His next book, Smart Change comes out in January, 2014.