Nurturing enterprise

Nobody seems to argue that entrepreneurship is necessary for driving the growth of economies. This explains why creating environments that are conducive to successful entrepreneurship is on the policy agenda of most governments.

In comparative studies, there are clearly locations that produce a higher concentration of successful entrepreneurs.  What policymakers need to know is this: What are the conditions that enhance the likelihood of value-creating enterprises? Now, clearly these conditions interact in a system. In the management classroom, we call this collection of conditions interacting together an ecosystem.

So here is the question for the week: What types of ecosystems are conducive to successful entrepreneurship.

Entrepreneurship Ecosystems 101

First, a few basics. When analysts talk about an entrepreneurial ecosystem, the common model is Silicon Valley. However, we also know from the study on “SuperEntrepreneurs” (see Nurturing Billionaires, Integrations, March 6, 2015) that countries such as Hong Kong, Israel, Switzerland and Singapore are home to a large proportion of successful entrepreneurs.

Daniel Isenberg, who led a study on entrepreneurship ecosystems in the US as well as in such diverse locations as Israel, Ireland, Taiwan, Chile, Spain and South Africa explains a few things in a 2011 Forbes article. Isenberg explains that the elements of an entrepreneurial ecosystem can be categorized into six domains: (a) culture; (b) policies and leadership; (c) finance; (d) human capital; (e) markets; and (f) institutional and infrastructure support. However, he also points out that each ecosystem is unique and evolved within a specific context.

Perhaps most interesting among Isenberg’s conclusions is that the generic conditions have limited practical value. He explains that evidence clearly supports certain conditions such as education, regulatory framework and well-functioning capital markets, are supportive of entrepreneurship. However, he also asserts that the impact of these factors occur over a long time frame and are generally weak. He focuses on what policymakers would tend to think about as the big bang changes, those big step changes that occur over a short period of time. These big changes, he explains, are the result of “high order interactions”, essentially the result of multiple factors working together as opposed to just a single factor. Isenberg also suggests that a handful of individuals can become catalysts for change. He identifies certain companies that heavily impacted local ecosystems: Skype in Estonia, HP in the Silicon Valley, Scitex in Israel, Baidu in China. Isenberg calls this the “Law of small numbers” and says that these first few pioneers pave the way.

For policymakers, Isenberg has two reassuring comments. First, he says there is evidence that these entrepreneurship ecosystems eventually become self-sustaining.  “Success breeds success.” Second, to the question of whether these ecosystems can be crafted, his answer is a qualified yes. Entrepreneurship ecosystems, Isenberg claims, can be intelligently evolved.

On the ground

In a more recent article for the Harvard Business Review, Isenberg points out potential misunderstandings concerning entrepreneurship ecosystems.

Many of Isenberg’s clarifications echo the Superentrepreneurs study: (a) an increased number of start-ups does not necessarily indicate a strong ecosystem; (b) offering state-sponsored financial incentives for early stage enterprise does not necessarily improve the ecosystem; (c) the creation of jobs should not be the primary purpose of the ecosystem; (d) Co-working spaces such as incubators do not necessarily strengthen the ecosystem; (e) no single player drives the ecosystem; (f) large corporations can be very important within the ecosystem, providing a flow of markets as well as talent.

The many studies on entrepreneurship ecosystems underline a few basic things all policy makers need to understand. 

Entrepreneurship relies on some very basic wellsprings: (a) access to markets; (b) access to capital; (c) access to ideas and inspiration such as information concerning new trends and technology; (d) access to talent; and (e) access to critical raw material.  Most importantly, it is important to understand that the elements in the ecosystem must all work together in order to provide all five wellsprings.

In some ways, it is really a matter of simply understanding how business works. However, it is really important to keep track of important balances. The tricky matter for state actors is to determine how much and what kind of policy and regulatory interventions are necessary. 

For the Philippines, there are two areas of improvement that are immediately obvious. From a legal and regulatory framework standpoint, it is clear that the burden of compliance is very high in the Philippines. A simple review of the Ease of Doing Business Index should point policymakers in the right direction. This combined with a review of tax laws and regulations should provide a clear blueprint for regulatory overhaul.  Second, there is infrastructure. These are obvious: telecommunication and transportation. Port and roads gridlock create massive roadblocks for business. Gridlock on the information highway is even more problematic. Just last week, one of my expatriate friends pointed out that the massive deterioration in mobile connectivity simply in the last three years.

One of the real problems in the Philippines is a failure to prepare for the future. We are constantly in a cycle of demand outpacing capacity.

The challenge of leadership has never been simply about vision. Being able to see the future is useless if one does not have the ability to do something about it. Painting a bright future is pointless if there is no plan for reaching it.

Leadership is about making things happen. In the area of entrepreneurship ecosystems, as in many complex spaces, Filipino analysts and policy makers are likely to be excellent at analytics and proposing solutions. The real challenge is going to be in implementation.


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