Two approaches dominate entrepreneurship and innovation policy: the market failure approach and the structural failure approach. As its name suggests, the market failure approach fixes market failures by throwing money at them: think about the R&D subsidy example I discussed in my earlier blog. The structural failure approach identifies structural gaps in the institutional structure and fixes them by building walls: think about building a science park to shelter academic spin-off firms.
Both of these approaches break down in entrepreneurial ecosystems. Both are top-down approaches: this is what policy-making agencies do best. They analyse systems, create plans for improvement and coordinate the implementation of those plans. This is what policy agencies have been built to do, and they do it well.
The problem with entrepreneurial ecosystems is that they are bottom-up systems brought to life by prospective, opportunity-seeking action by individuals and teams. Many stakeholders participate in this process. The stakeholders interact locally, and the system performance is co-produced in myriad, usually one-to-one interactions. This makes it difficult to pin down specific market failures, and because the system performance is driven by dynamic action, the approach of identifying static structural gaps is not likely to help either.
Think about football teams. You have plenty of team members. The market failure approach would focus on enhancing individual activities. Perhaps the goalkeeper plays poorly, and we need to find ways to make him or her play better. The structural failure approach would discover that we do not have a goalkeeper at all, so we need to get one!
Football teams are similar to entrepreneurial ecosystems in that there are lots of players, and the team performance somehow emerges through loose interactions between them. However, in entrepreneurial ecosystems there is no real team in the football sense: there are only individual players. There is no all-powerful coach to decide who gets to play in the next game and what the game tactic should be. Football lends itself perfectly for top-down coaching, but not for bottom-up emergence.
In entrepreneurial ecosystems, the players interact mutually, but there is no overall game plan. Individual players may not even know who all the other players are. The players might have their own individual game plans but no one thinks about the system. Worse, the interactions between players are localised and therefore usually hidden from the public view. So it is not really feasible to observe the game from the stadium seats either. Think about a football field full of tents, with individual players interacting within those tents. This is difficult to observe from outside.
With this football analogy in mind, how can you get those individual players to play more like a team, and how can you improve team performance? First, you need information about all the players in your system. The GEDI Ecosystem Facilitation approach uses GEDI index data as its starting point. The index is composed of 14 pillars, such as Opportunity Perception, Risk Acceptance, Product Innovation, and Globalisation. These pillars are analogous to what the players do — i.e., goalkeeping, defence, attack and so on. We have information about each activity. We might see that Opportunity Recognition works well, but there might be weaknesses in Globalisation.
The shortcoming of any index data is that it can only portray individual activities but not how well they work together. We have a photo of the team but what we really need to analyse the game is a video showing the team in action. This cannot be captured in static data describing entrepreneurial ecosystems since most interactions between individual players are hidden from public view.
To get insight into the process of how the players actually play the game, you need to engage the ecosystem stakeholders themselves — i.e., the players who produce goalkeeping, defence and other activities within the team. This is like getting all the individual players into the same room, with each contributing their own perspective. They would chat with one another, discover who the other players are, and they would share their views on how the game is played. Through this interaction, a shared understanding would gradually emerge regarding how the game is actually played, what each player does well, and which aspects of the game should be improved.
At this point, something interesting usually happens. When the players become more aware about one another and what everyone’s approach to the game is, the players start playing better together as a team. That is, once the stakeholders agree on what the ecosystem bottlenecks are and how they could be improved, action follows almost automatically. Once the players develop mutual awareness and a coherent game plan, mutual coordination becomes possible.
In top-down systems, coordination is centralised: you have a football coach who decides on the game plan. In multipolar, multi-stakeholder systems you need multipolar, bottom-up coordination. You can only achieve this if all stakeholders agree on ecosystem priorities and are aware of each others’ strengths.
Put schematically, the GEDI approach to ecosystem facilitation comprises four steps:
- The Bottleneck Discovery Workshop brings all stakeholders together to debate GEDI analysis on ecosystem strengths and weaknesses. The goal of the workshop is to reach an agreement on ecosystem bottlenecks – i.e., factors that hold back ecosystem performance.
- Once the stakeholders agree on bottlenecks, Bottleneck Analysis Workshops follow. These would focus on understanding individual bottlenecks and what drives them. The result is a detailed understanding of factors that give rise to each bottleneck in its context, be it country or a region.
- Solution Discovery Workshops develop ways to alleviate the bottlenecks. Once the stakeholders agree on what the drivers of each bottleneck are, it is straightforward to think about how to break down those drivers. The result is a shared understanding of priority actions – and how to implement them.
- During the Collective Impact phase, the stakeholders work together to implement the priority actions. Sometimes centralised policy action by policy-making agencies is needed, but most actions are typically undertaken by the stakeholders themselves.
The GEDI Ecosystem Facilitation approach has been designed to address the key challenges to policy-making in entrepreneurial ecosystems – i.e., how to deal with multipolar emergence, how to reach an evidence-based understanding of the inner workings of the ecosystem, and how to achieve multipolar consensus, commitment and coordination among the ecosystem stakeholders. The beauty of the approach is that it virtually eliminates the need for centralised, top-down coordination, as once the stakeholders agree what the priorities should be, the ecosystem proceeds to fixing itself: no or only a little top-down planning needed!
This brings me to my final point. Typically, people use the terms ‘entrepreneurship’ and ‘innovation’ interchangeably, almost as if they were practically the same thing – and therefore, the same policy approaches would apply by implication. I am of the opinion that nothing is further from the truth. From a policy-making perspective, entrepreneurship and innovation are completely different. In innovation policy, top-down works. You can build research facilities and equipment and get existing facilities to produce more innovation. In entrepreneurship, what you tend to see is a lot of bottom-up action: think about the Slush event in Helsinki, the thousands of Global Entrepreneurship Week events around the globe, and so on. These are all spontaneous, emergent events, where the ecosystem stakeholders (and not the policy planner) take the lead in identifying and advancing shared goals. You see lots of such events in entrepreneurship but only very few in innovation.
It is time to recognise that entrepreneurship is different from innovation – and start behaving accordingly.