Entrepreneur-Led Economic Development: Five Practical Steps for Decision Makers
Endeavor Insight recently completed one of the largest studies ever conducted on entrepreneurship communities in order to answer the following question: How can decision makers empower local entrepreneurship communities to become more productive?
The report found that a number of popular support initiatives may actually be harming entrepreneurs’ productivity by elevating unqualified leaders and wasting efforts on very low-potential businesses. Decision makers also have the power to play a more positive role by empowering leaders with experience leading a company to scale to influence others. This strategy, referred to as “Entrepreneur-Led Economic Development,” utilizes existing local strengths to increase the productivity of businesses in the community.
Here are five practical steps to implementing this approach, followed by key questions that decision makers should ask when evaluating a strategy or program dedicated to support an entrepreneurship community.
- Avoid the “Myths of Quantity.”
Many decision makers assume that increasing the quantity of startups, support organizations, or connectivity will automatically generate greater productivity in an entrepreneurship community. These assumptions are not supported by the data in this research.
Most startups are short-lived microbusinesses with 0-3 employees that make only a minimal contribution to productivity in a sector. Increasing the number of these companies will likely have a negligible impact on job growth. Increasing the number of support organizations may have the unintended consequence of elevating the influence of people with no entrepreneurship experience as leaders of support organizations or investment firms. Similarly, increasing connectivity within a local network often dilutes the influence of leaders at companies that reached scale by increasing the influence of people without this type of experience.
Key questions: Who will this be elevating in the local community? What are we telling local founders to value if we support this?
- Follow founders who have reached scale.
Decision makers should follow the lead of successful local entrepreneurs when identifying which industries to support. For example, many cities waste large amounts of money trying to establish hubs in industries where no local founders have demonstrated “proof of scale,” while overlooking industries where local founders are highly successful.
Similarly, programs that support entrepreneurs should build on the types of support that successful local entrepreneurs already find useful.
Key question: What evidence is there that local entrepreneurs can succeed in reaching scale in the targeted industry?
- Listen to leaders of the fastest-growing firms to identify the critical constraints in the local community.
The report shows that the fastest-growing companies in a sector are responsible for a very large share of productivity in an entrepreneurial community. Addressing the obstacles of these entrepreneurs will increase productivity significantly. These challenges are often important signals of the broader, structural limitations of the entrepreneurship community, and they tend to be different from those of other entrepreneurs. In the cities studied in this project, the founders of the fastest-growing firms frequently reported that their greatest challenge was access to talent, while the majority of other entrepreneurs tended to struggle with access to finance.
Key question: What challenges have the leaders of the fastest-growing local companies identified as major obstacles and are those challenges targeted in this initiative?
- Expand existing mechanisms that leaders of companies at scale use to influence upcoming founders.
Data from this study shows that the leaders of entrepreneurial companies at scale can improve the performance of local founders by acting as mentors and investors. These mechanisms are often underutilized — the typical entrepreneurs at scale in many cities are only mentoring or investing in a single entrepreneur in their communities, if they are providing this type of support at all.
Previous studies indicate that entrepreneurial leaders can mentor founders of two to three companies at a time and have five or more companies in their investment portfolios. A small increase in the number of companies supported by each of these local founders has the potential to make a large impact.
Key question: How can leaders of entrepreneurial companies at scale be encouraged to be more active influencers of upcoming founders?
- Invite leaders of companies at scale to positions of influence at existing support organizations.
When the founders of companies at scale are more influential, it increases the productivity of the entire community. In many entrepreneurial communities worldwide, however, the most influential actors are entrepreneurship support organizations led by people with no entrepreneurial experience. Once these or any actors become influential, they are likely to remain so in the future.
Stakeholders can use the influence of these organizations as an opportunity by inviting founders and executives at local companies that have reached scale to join their leadership. This can significantly increase the influence of these founders in the community and provide huge benefits for the entrepreneurs they support. These leadership positions could include day-to-day roles or positions on an organization’s board of directors.
Key question: Where can leaders of companies at scale take on executive or board-level roles at support organizations?
The full study can be accessed here.
Contributed by Maha AbdelAzim