Part 1: the Innovation and Entrepreneurial Ecosystem

Recently, entrepreneurship has become a core component of economic development policy all over the world. It is now recognised that entrepreneurs and innovation are key determinants in job creation and economic wealth.

Entrepreneurs play a key role in any economy as they are the people who take risks and have the initiative and capability to develop new business ideas and innovations. If successful, their reward is profits and business expansion, that is, economic wealth and job creation (Investopedia, N.D).

As a result, governments are now striving to create the conditions that foster entrepreneurship, with the “entrepreneurship ecosystem” becoming a common development strategy (Isenberg, 2014).

Entrepreneur an individual who runs a “business and assumes all the risks and rewards of a given business venture, idea, or good or service offered for sale. The entrepreneur is commonly seen as a business leader and innovator of new ideas and business processes”. (Investopedia, N.D)

Entrepreneurship “is much broader than the creation of a new business venture.  At its core, it is a mindset – a way of thinking and acting. It is about imagining new ways to solve problems and create value (Cited in Post, 2017)”.

Entrepreneurial ecosystem:  “refers to the interaction that takes place between a range of institutional and individual stakeholders so as to foster entrepreneurship, innovation and SME growth (SEAANZ, 2014).

Innovation ecosystem: is the flow of technology and information among people, enterprises, and institutions is central to an innovative process. It contains the interactions between the actors needed in order to turn an idea into a process, product, or service on the market (OECD, 1997).

Entrepreneurs may only look at three factors being “accessible markets, human capital/workforce and funding & finance,” however, the ecosystem that enables entrepreneurs to succeed, is a wider and more complex (World Economic Forum, 2013).  The concept of the entrepreneurial ecosystem argues that is it not just business minded people (entrepreneurs) that are required but an environment (i.e. the ecosystem) made of public and private players, which nurture and sustain entrepreneurs and businesses (Financial Times, N.D).

As a development strategy, the entrepreneurial ecosystem can be used as a conceptual framework designed to assess and foster economic development via entrepreneurship.  It contains a set of interdependent actors and factors that stimulate and enable creativity, innovation, small business growth and investment within a place (SEAANZ, 2014).

There are many assessment frameworks and each considers various intervention levels (national, regional and local), as well as various ecosystem determinants (such as policy, enabling environment or culture). These frameworks include the:

On review of these various frameworks, the Aspen Network of Development Entrepreneurs (2013) found that there are three areas of assessing the entrepreneurial ecosystem being:

  1. Entrepreneurial Determinants – the various factors that affect entrepreneurship, and include:
    • Finance (debt access, venture capitalist, access to grants , angels, stock markets);
    • Business support (industry networks incubators/ accelerator legal/ accounting Services);
    • Policy (tax rates, tax incentives, cost to start business);
    • Market (domestic sales, international sales, target market size);
    • Human capital (graduation rates, quality of education)
    • Infrastructure (access to telecom, access to electricity, access to infrastructure)
    • R&D (patents); and
    • Culture (entrepreneurial motivation, leadership/visibility, creativity);
  2. Entrepreneurial Performance – the specific activities that entrepreneurs perform that will ultimately deliver the impacts, and include number of firms created, employment generated and wealth; and
  3. Impact – the value created by entrepreneurs, and entrepreneurship, which may be measured economic growth, job creation and poverty reduction.

Based on an assessment from the aforementioned mentioned frameworks, governments can evaluate whether they have a strong entrepreneurial ecosystem and what actions they should put in place.

However, it is important to recognise that that each entrepreneurial ecosystem is unique and all determinants in the ecosystem are inter-dependent. Thus, governments should also be cautioned against relying on a single element to transform an economy. Instead governments should aim to create a balanced functioning entrepreneurial ecosystem by:

  • building the capabilities of local assets (e.g. innovative firms, universities, incubators);
  • promoting the networks and visibility of entrepreneurs and innovators; and
  • support financing for growth (e.g. venture capital).

 

Part two will discuss the gazelles and job creation.

Part Three will discuss the role of public and private actors in creating the ecosystem.

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