This multi-part series offers ecosystem builders and economic developers insights into the four types of businesses in an entrepreneurial ecosystem—and targeted strategies that help them thrive.
Small businesses form the crux of the American economy. Recent data from the U.S. Small Business Administration shows the U.S. is home to 33.3 million companies that qualify as small businesses. As a group, they make up 99.9% of all companies in the country and account for 64% of net new private-sector jobs, 42.9% of private-sector payroll, 46% of private-sector output, and 98% of exported goods, among other economic contributions.
SourceLink segments small businesses into four categories, each with unique needs and ways to grow: microenterprises, Main Street businesses, innovation-led ventures, and second-stage companies.
When ecosystem builders and economic developers understand the needs of the businesses within each quadrant—and work collaboratively and strategically to support them—they create a resilient environment where these businesses can succeed.
Maria Meyers, executive director of the UMKC Innovation Center in Kansas City, Missouri, and founder of SourceLink, says ecosystem developers must provide every resource possible to help make their businesses successful. She encourages ecosystem developers to ask themselves: “Do we have the basics to move each of these types of businesses forward?”
The third installment of this series focuses on innovation-led businesses—their shared characteristics, their economic importance, and how ecosystem builders and economic developers can assist with their success.
Part 3: Building an Ecosystem for Innovation-Led Businesses—Tomorrow’s Economic Drivers
Innovation-led ventures are among the most dynamic and impactful segments of any entrepreneurial ecosystem. Defined by their focus on developing cutting-edge technologies, creating scalable business models, and driving rapid growth, these businesses have the potential to transform entire industries and economies. For ecosystem developers, understanding innovation-led businesses' unique characteristics, challenges, and needs is key to providing the right resources to help them thrive.
According to the Boston Consulting Group’s 2024 report, only about 3% of U.S. companies are considered “innovation-ready,” meaning they have the structures in place to effectively deliver on their innovation goals. However, given the potential of these startups to drive jobs and economic growth, economic developers must understand how to support them.
Unlike traditional startups, they often require more capital, face complex regulatory hurdles, and need specialized talent.
In this article, Sourcelink affiliates and partners discuss these challenges and offer best practices to help ecosystem developers better support innovation-led businesses.
High Capital Requirements
One of the most significant challenges for innovation-led businesses is their need for substantial upfront capital, particularly in industries like biotechnology, climate tech, and health tech. These ventures often require millions of dollars in research and development before they can even begin to generate revenue.
Jill Meyer, senior director at the University of Missouri-Kansas City’s Technology Venture Studio, notes that these businesses require greater amounts of capital upfront because, unlike traditional businesses that often have immediate assets or revenue streams, “they [innovation-led businesses} need capital sooner in order to build the technology.”
Chris Rehkamp director of business services at KU Innovation Park in Lawrence, Kansas, where researchers, business leaders, and entrepreneurs work to bring innovative ideas and solutions to commercial markets. Rehkamp said startups in bio-innovation, for example, might need “$20 million in funding, seven years of regulatory processes, and FDA approval, just to get to the point where they’re relevant.
This lengthy timeline, combined with capital intensity, usually makes traditional funding sources such as bank loans unsuitable.
To help these businesses overcome financial hurdles, ecosystem developers must create or connect innovation-led ventures with funding opportunities that meet their early-stage capital needs. Often, that comes in the form of grants.
In Kansas City, programs like Digital Sandbox KC, a program of the Technology Venture Studio, provide early-stage, proof-of-concept funding, offering small grants to help businesses bridge the gap between concept and commercialization.
“It is one of the only programs that … offers small grants to help businesses build prototypes and validate their concepts before they go out to raise larger rounds of funding or go to customers,” said Meyer. “A grant for development of proof of concept gets them over that first hump and gets them to a point they have a working model that allows them to go out and talk with people. … It’s a program that has been well received, and more importantly, necessary to fill that gap.”
Meyer also stresses the importance of connecting investors with resources, events, and tools to learn more about investing in early-stage companies, which Technology Venture Studio does through the KCInvestED program.
“These small events bring together investors and entrepreneurs. … and build a broader network to be more inclusive of people who may not have the same traditional networks to even get their idea off the ground by introducing and connecting people whose paths may not have otherwise crossed.”
Jim Erickson, director of strategic initiatives at the Economic Development Corporation (EDC) of Kansas City, said the Launch KC grant program the EDC oversees serves a similar function, helping businesses cover funding needs. Through grants and wrap-around services, the program invests in high-growth startups that have achieved at least the validated-idea stage of their business.
“The $50,000 grant isn’t going to make or break their business long-term, but it helps get them to the next level,” Erickson noted. “The real value is in the connections and the network we provide through our programming.”
Programs such as these ensure startups can access the capital they need to move from ideation to commercialization without waiting years to secure venture capital.
Further, ecosystem developers can tap into existing organizations that provide funding.
Erickson suggests checking out state programs that support economic developers and technology startups. “Missouri Technology Corporation not only supports entrepreneurship support organizations like us—they’re one of our sponsors—they also directly fund promising startups in Missouri,” he said.
Similarly, Rehkamp said, “You don't have to create everything. A lot of what we do is find great resources out there. … We are on a regional grant through NIH (National Institutes of Health) where we're building and deploying assets to help the entire region be more successful in succeeding in SBIR/STTR funds, so that's leveraging some of the best practices that already exist and just making sure they're packaged well for people to take advantage of them. We don't have to constantly feel like we have to solve this problem on our own.”
Complex Regulatory Requirements
Innovation-led businesses, particularly those in biotech, national security, or health tech, often operate in highly regulated industries, adding complexity to their path to market.
Rehkamp at KU Innovation Park said the regulatory environment “tends to be much more stringent and makes the path much longer.” This increases the time it takes for these businesses to get their products to market, sometimes extending for years.
For example, in healthcare, securing FDA approval can be a multi-year process, requiring rigorous data collection and testing. Even in industries like fintech, innovation-led businesses often face compliance issues that can delay product launches.
To help businesses navigate these regulatory hurdles, ecosystem developers can offer access to specialized legal and regulatory experts. At KU Innovation Park, startups can attend one-on-one sessions with experts who provide tailored advice on navigating industry-specific regulations. These services help businesses avoid costly mistakes, speed up the process, and reduce the time it takes to bring products to market.
Similarly, Launch KC provides legal guidance to help startups protect their intellectual property and ensure compliance with relevant laws, said co-director Tommy Wilson. “We bring in IP attorneys and legal experts to help startups navigate the complex issues around intellectual property and compliance. These are things that can derail a company if they’re not handled properly.”
By offering regulatory support, ecosystem developers can help innovation-led businesses clear one of the most significant obstacles they face, allowing them to focus on growth and product development.
Specialized Talent Acquisition
Innovation-led businesses often require highly specialized employees with expertise in areas like data science, engineering, biotechnology, and more. Although these specialized skills are critical to product development, finding and retaining highly skilled talent remains a significant challenge, particularly for startups outside of major innovation hubs like Silicon Valley.
A key solution to this challenge is partnering with local universities and research institutions to create a steady pipeline of skilled talent. KU Innovation Park has leveraged its proximity to the University of Kansas to tap into academic resources and foster relationships between startups and faculty or graduate students.
In Kansas City, Launch KC also works closely with local universities like UMKC to connect startups with recent graduates. These partnerships help innovation-led businesses find the expertise they need to develop their products and scale.
“We’ve seen a lot of success connecting graduates and even former corporate employees to our startups, especially in areas like health tech and fintech,” Erickson said. “After a round of layoffs or an exit in a particular industry, about a year later, we’ll see that in our pipeline,” referring to how larger corporations like Cerner have contributed to the local talent pool.
Additionally, internships and co-op programs allow startups to integrate students into their operations early on. This not only provides students with hands-on experience but also helps startups fill critical talent gaps at lower costs. Post-graduation fellowships and entrepreneurship programs are also used to retain local talent, ensuring that startups have access to the skills they need without losing potential employees to larger tech hubs.
Market Access and Customer Discovery
Innovation-led businesses often face significant challenges in accessing the market, particularly when their products are highly technical, disruptive technologies that are still in development. Unlike traditional businesses that can rely on early revenue from customers to sustain themselves, innovation-led ventures typically operate without an immediate customer base.
Meyer said, “With a technology, you're trying to sell a concept because you don't have the customers or the capital to build a full product. You may be showing potential customers a prototype, but saying, ‘with your help, in eight months, it will be done.’ So, customer identification is critical for techs or companies building some sort of healthcare solution for the end user—the patient with asthma or who might be neurodivergent. But, the patient is not the paying customer. The startup is trying to sell it to clinics or insurance companies, for example, so it's twice the work.”
To help innovation-led businesses gain market access, ecosystem developers must create opportunities for startups to connect with industry leaders and potential clients. One successful initiative in Kansas City is Launch KC’s Innovation Lounge, an event launched in 2023 that brings together startups and executives from larger corporations in key industries.
“We created Innovation Lounge as a platform for our companies to have direct dialog with potential customers and strategic partners. Connecting our cohort with procurement leads or chief technology officers from major companies has been one of the most impactful things we do,” said Erickson.
A prime example is how Launch KC connected a local startup, Raven Space Systems, which is developing a new technology that focuses on 3D printing of heat shields for space and hypersonic flight applications. Launch KC facilitated access to a specialized manufacturing space that met their unique requirements. “We actually gave them a separate space outside of our typical program because of their manufacturing needs,” Erickson said.
Programs like the Innovation Lounge that give startups the chance to showcase their technology directly to potential buyers and strategic partners significantly speeds up the customer discovery process.
Adapting to Evolving Startup Needs
Innovation-led businesses operate in rapidly changing environments, where their needs can evolve quickly as they move from development to commercialization. Ecosystem developers must therefore remain agile and responsive to the specific challenges that startups face at different stages of growth. If programs are too rigid or outdated, they risk becoming irrelevant to the businesses they aim to serve.
The most successful ecosystems build flexibility into their programs by consistently soliciting feedback from startups. Wilson said at Launch KC, “We start each year by meeting with every company in our cohort and asking them what they need most. That helps us tailor our programs to their specific challenges, whether it’s legal advice, marketing help, or access to funding.”
Listening carefully to startups and providing timely resources that address their immediate needs is crucial for success. By maintaining a feedback loop, ecosystem developers can ensure their services remain relevant and valuable to innovation-led businesses as they grow.
Remember, you don’t need to work in isolation as you target and assist the innovation-led companies in your ecosystem. Sourcelink can provide ecosystem builders and economic developers with a variety of tools and services that help you build a stronger community—ranging from identifying resource gaps, working with government officials to measuring program success and connecting your community with a network of affiliates engaged in similar ecosystem-building efforts.
Embracing Today’s Challenges … for a Brighter Tomorrow
Innovation-led small businesses face a unique set of challenges, but they also have the potential to drive significant economic growth and address some of the world’s most pressing problems. By recognizing and addressing the capital, regulatory, talent, and market access challenges these ventures encounter, ecosystem developers can create environments where these businesses thrive.
Providing early-stage funding and legal guidance as well as fostering university partnerships and leveraging strategic networks can serve as a blueprint for building successful ecosystems that support innovation-led ventures. By offering the right resources at the right time, ecosystem developers can help these businesses create jobs, attract talent, and develop groundbreaking solutions that improve the world.
