Whereto Entrepreneurship Ecosystem Policy?

This is first in a series of three blogs discussing entrepreneurship ecosystem policy. You can find the second blog here. The third blog is here.  You can follow my tweets on entrepreneurship ecosystems at @eautio.

Facilitating entrepreneurship is high on government policy agendas. Entrepreneurship support policies have become increasingly sophisticated over time, as governments have moved from facilitating the creation of new firms in general towards trying to support high-growth businesses. Many governments currently talk about ‘support ecosystems’ that cover the entire life cycle of the new venture from inception to early survival to early growth to international expansion. However, while policy portfolios are growing, most policies still suffer from a lack of an overall understanding of what drives and constrains productive entrepreneurship in any given economy. Although policy-makers increasingly talk about ‘entrepreneurship ecosystems’, entrepreneurship policies do not really consider and address bottlenecks that hold back system performance. As a result, entrepreneurship policy portfolios remain unable to truly change how the ecosystem works.

Lack of academic research and theory does not help. Entrepreneurship researchers have invested little effort into defining what ‘entrepreneurship ecosystems’ actually mean and how they work. As a result, when governments and researchers talk about ‘entrepreneurship ecosystems’, they may mean completely different things. This confusion undermines the design and implementation of policies that effectively support the kinds of entrepreneurial activity that can make a real difference for economic growth.

In order to design effective policies to enhance entrepreneurship ecosystems, policy-makers need to follow a true ecosystems approach and not merely talk about it. Importantly, policy-makers need to realize that at the country level, entrepreneurship really is best understood as a system and not simply as a mere sum of individual efforts. Policy-makers cannot simply count the number of entrepreneurs in the economy and think that the more entrepreneurs there are, the greater the contribution entrepreneurs can make to economic growth. Not all entrepreneurs are the same: only a few new entrepreneurs ever grow their business to generate meaningful levels of jobs and achieve meaningful levels of economic productivity. Policies that fail to consider the quality of entrepreneurial activity are therefore not likely to be effective.

Second, not all economies are the same. Different economies have different strengths and challenges, and their entrepreneurship ecosystems may suffer from different bottlenecks. For example, financing policies might not be effective if the bottleneck is lack of aspirations or, for example, the failure of well-educated individuals to choose entrepreneurship as a career option. Again, who starts new firms is a much more important question than how many people do so.

Third, entrepreneurship is not about individuals only: also context matters. Exactly the same business will have hugely different growth prospects depending on where it is created. For example, the same high-technology start-up would be more likely to create an impact in Silicon Valley than, say, some low-income country that lacks infrastructure for productive entrepreneurship. The important point to understand is that the country’s economic and social context – or its framework conditions for entrepreneurship – not only influences the prospects of the new venture, but also, who starts new ventures in the first place. Policies ignoring this aspect of the entrepreneurial dynamic are not likely to be effective, if individuals with the right skills and attitudes fail to start new firms.

As the above examples demonstrate, entrepreneurship ecosystems are complex. Entrepreneurship policies need to recognize this complexity and approach policy design accordingly. Because entrepreneurship ecosystems are complex and consist of many interacting elements, they can be very difficult to change. The greater the complexity of the system, the greater its inertia tends to be. Because of this inertia, uncoordinated policy initiatives are not likely create a lasting change in the ecosystem dynamic. If policies fail to recognize and target bottlenecks that hold back ecosystem performance, their effect is not likely to be long lasting. Only coordinated entrepreneurship policies that address real bottlenecks of the ecosystem are likely to bring about a lasting change in the ecosystem dynamics. More about how to achieve this will follow later.