Governments and NGOs have increasingly turned to entrepreneurship interventions to drive economic development. A new paper, “Enabling Entrepreneurial Ecosystems,” seeks to inform researchers and policymakers by drawing lessons on entrepreneurship ecosystems from evolutionary biology and ecology.
The paper establishes three main concepts: entrepreneurship as the creation of new combinations, complexity as a driver of opportunity, and market failure as a positive force for entrepreneurship. It also notes that accelerating entrepreneurship does not always mean supporting small and medium-sized enteSMEs. New, high-growth “Schumpeterian” ventures initially start out as small or medium-sized companies, but do not remain that way for long. Therefore, programs supporting SMEs may actually undermine entrepreneurship if they reduce incentives for growth.
The fourth section of the paper propose six policy recommendations, which are listed below:
Favor incumbents less. Efforts to create a “business friendly” environment often favor market-leading incumbents and therefore actually hinder entrepreneurship. In order to keep the playing field level, policymakers should reduce subsidies for incumbents and minimize the time needed to register new businesses. The paper also cites research published on Entrepreneurship Ecosystem Insights that highlights the characteristics entrepreneurs look for in a city: access to networks, quality of life, a pool of talented employees, and access to customers and suppliers – as opposed to deregulation.
Listen to entrepreneurs. Local founders are the primary stakeholders when developing policy. Stop targeting market failures and “encourage dynamism, diversity, and above all metabolic activity” – that is, the number of ideas explored, products prototyped and sold, services offered, and deals closed.
Understand the environment. Policymakers should work to build ecosystem maps that identify central players, key relational structures, and linked domains of capabilities. The author states that “the particulars of the map matter less than what it is used for—to identify central players, key relational structures, and linked domains of capabilities.”
Think big, start small, move fast. The report notes that strategies to enable entrepreneurial ecosystems can only be effective if they are developed and implemented at a scale and with a level of adaptability that is consistent with the functioning of the ecosystems themselves.”
Recognize that participants in ecosystems engage in many functions. Ecosystem stakeholders lead new ventures, work in R&D or market-facing activities at large corporations, act as equity investors, formal advisors, mentors, teachers, or service providers to entrepreneurs, and can be buyers of goods and services.
Prepare to capitalize on crises. Disruptive events can create fertile entrepreneurial opportunities. As researchers have noted, most Fortune 500 companies were founded during economic recessions. Leaders should look to support local entrepreneurs who wish to benefit the most from the changes that will come.
To read the full paper by Philip Auerswald, please click here.
Contributed by Edward Kong.