How do you create an entrepreneurial ecosystem?
It’s the question that launched a thousand programs. We know that new business creation is a driver of economic growth and vitality. So, naturally, a lot of effort has been invested in trying to spur entrepreneurship.
Over the past several years, the focus has shifted from narrowly-focused programs that address just one element of entrepreneurship, such as funding or training, to more broad-based approaches that aim to create an environment and culture where entrepreneurship can thrive. From cities to small towns, today’s policymakers, economic developers, foundations and grant makers are looking for incentives and programs that encourage sustained entrepreneurial activity and collaboration on a local or regional level.
The academic world, however, is still catching up. To date, there hasn’t been much rigorous research about what programs work best (although there is plenty of anecdotal evidence). A new report by the Ewing Marion Kauffman Foundation, tries to remedy that by reviewing the existing research and offering strategies for creating effective programs that spur the growth of entrepreneurial ecosystems.
The report, “Enabling Entrepreneurial Ecosystems,” by Philip E. Auerswald, may simply validate what many forward thinking economic developers working on the front lines have known. But coming from the Kauffman Foundation, an authoritative voice (and source of funds) on matters of entrepreneurship, the findings are noteworthy.
Auerswald also distinguishes productive entrepreneurship, which drives the creation and expansion of new firms, from unproductive “rent-seeking” activities (hello Wall Street) and destructive entrepreneurship, such as trafficking in illicit goods.
Here are six tips outlined by the report for creating entrepreneurial ecosystems:
Favor incumbents less.
Startups need a level playing field. Often, well-intentioned efforts to create a ”business-friendly” environment can harm startups by reinforcing the advantages of market-leading incumbents. Policies and regulations that favor existing, dominant companies over entrepreneurial ventures constrain competition and create barriers to entry for new firms. The report cites examples such as assertive enforcement of non-compete laws, excessively restrictive occupational licensing requirements and regulatory complexity that favors entrenched players. (We might also add outdated “attract and retain” economic development practices that dole out subsidies to recruit out-of-state companies). Policymakers should avoid such policies and regulations and work to reduce the barriers to business startup.
Listen to entrepreneurs.
This one sounds like a no-brainer, but many programs and incentives are developed in a vacuum. Echoing a growing consensus among community developers that engagement is critical to effective programs, the report encourages policymakers to seek input from entrepreneurs about their challenges, and use that input to develop more effective policies. The objective is not to address abstract market failures, but to encourage dynamism, diversity and entrepreneurial activity.
Map the ecosystem.
Any good project begins with taking stock of existing assets. Entrepreneurial supporters should create an inventory or graph that indicates who the participants in the ecosystem are and, since relationships are key, how they are connected. Ecosystem maps can become valuable tools in developing engagement strategies.
This simple rule, long a guiding principle for entrepreneurial ventures, also holds true for successful entrepreneurial ecosystems. The ecosystem should enable the connectivity needed for early success, and then clear the runway for future growth. In other words, iterate, iterate, iterate!
Avoid artificially segmenting your community or your strategies.
Ecosystems are fluid and evolving. Entrepreneurs and other members of entrepreneurial communities may play multiple roles—as active participants in creating new companies, as investors, as advisers or mentors, or as customers of entrepreneurial companies. Policymakers should acknowledge this fluidity and make the most of the valuable skill sets of an ecosystem’s most versatile members.
Prepare to capitalize on crises.
In a rainforest, a fallen tree lets in sunlight and makes room for new growth. In a similar way, economic disruption creates entrepreneurial opportunities. Consider, for example, that more than half of Fortune 500 companies were created during a recession. Because disruptions are inevitable in economic and social life, architects of entrepreneurial ecosystems should anticipate them and prepare to make the most of the opportunities they create.