The predominant metaphor for harnessing entrepreneurship as an economic development strategy is the “entrepreneurship ecosystem.” Accordingly, countries around the world aspire to make their economies more competitive by boosting the entrepreneurship ecosystem. Unfortunately, many governments take a misguided approach to building entrepreneurship ecosystems. Indeed, in Ghana entrepreneurs still struggle with the basics of operating and growing their businesses because the attention and resources devoted to entrepreneurship promotion tend to focus on singular interventions, not systemic change. For years, I have written several scholarly articles on growth and entrepreneurship development in emerging markets. I have realized that for entrepreneurship to flourish there needs to exist a supportive ecosystem of intertwined factors ranging from infrastructure to financial access. In this article, I will discuss the constituents of entrepreneurship ecosystem and offer some strategies for policy makers to develop a robust entrepreneurship ecosystem.
Any ecosystem involves a number of interconnected key elements that constantly interact and mutually reinforce. Entrepreneurial ecosystem encompasses a number of moving components that come together to facilitate innovation and growth. These components consist of six domains: a conducive culture, enabling policies and leadership, availability of appropriate finance, quality human capital, venture-friendly markets for products, and a range of institutional and infrastructural supports. For the purpose of this article, I will discuss the domains of entrepreneurial ecosystem and strategies government can use to stimulate entrepreneurial ecosystem.
First, culture is an important component of any entrepreneurship ecosystem. Culture is defined as the mix of norms, values and beliefs that are shared by a particular community, a country, or a geographical region. A culture that favors entrepreneurship depicts entrepreneurs as role models who are not only acceptable, but desirable. In such societies, challenges are regarded as opportunities (and not threats). In societies where entrepreneurship is absent, business challenges are left to be taken care of by foreign investors. On the other hand, within entrepreneurial cultures, people will find inspiration in challenges. These will enable them to act and find ways to exploit existing opportunities. In Ghana, many individuals believe that the government should take responsibility for all problems in society. This shows an example of lack of entrepreneurial culture. Many Ghanaians do not believe in the projects and do not invest in their physical, psychological and other resources in their venture with a view to succeed. It is the responsibility of the people to take decisions based on available information and experiment in innovation and with risk taking. A budding entrepreneurship culture needs a robust and dynamic support system to promote growth, resolve challenges and match with investments.
Policymakers can harness a successful entrepreneurial culture through entrepreneurship courses in the educational curriculum at different levels. Entrepreneurship education is now beginning to be anchored in tertiary education curricula. Also, entrepreneurship incubators are crucial for changing the mindset of the people. What is truly beneficial for culture change is a planned process that uses set objectives and performance targets. For example, in many developed nations, entrepreneurship and entrepreneurial culture developed as a result of a planned entrepreneurship. This can take the form of entrepreneurship education starting at primary or secondary education level, targeting rural women with a microcredit scheme, seminars, etc.
Second, policy frameworks play a particularly important role in entrepreneurship ecosystems. Building a truly competitive entrepreneurship ecosystem requires an environment where businesses operate on a level playing field, where their rights are protected, and the same rules apply to all. There is no one-size-fit-all template for building such ecosystems; each country must find its own unique approach to reform. That requires an open, democratic dialogue where policymakers and entrepreneurs come together to discuss barriers and find solutions. Because all entrepreneurship ecosystems contain multiple and interconnected components, building such ecosystems implies a balanced approach where equal attention is given to key pillars. Practically, in Ghana, it is rarely feasible because Ghana faces limited resources. As a result, focus often shifts to the elements of the entrepreneurship ecosystem that are relatively easy to implement such as entrepreneurship training programs or special funds to provide entrepreneurs with seed money. While valuable in their own right, such programs rarely lead to the entrepreneurial take-off of an economy because they do not reach beyond helping individuals and they fail to address the larger underlying factors that stifle entrepreneurship. To be able to successfully build a solid entrepreneurial ecosystem in Ghana, the government should (1) simplify business registration and licensing procedures, (2) establish proper disclosure requirements so that information is readily available to consumers and investors, (3) establish programs that provide entrepreneurs with technological, managerial, and financial skills.
Third, access to finance is a key driver in the creation, survival and growth of innovative new ventures. Access to financial services boosts economic activity and makes small businesses and people in low income groups more self-reliant. Lack of finance typically prevents new ventures from investing in innovative projects, improving their productivity, financing their growth, covering working capital requirement and meeting market demand. In mature economies, during the seed and start-up stages of financing, technology-driven high-growth small businesses can obtain equity or debt financing from banks, venture capitalists, and angel investors. In the developing world, for example Ghana, formal financial intermediaries, such as commercial banks, and other financiers such as venture capitalists usually refuse to serve startups because of the high cost of small transactions, lack of traditional collateral, lack of basic requirements for financing and geographic isolation. By doing so, these institutions ignore the enormous potential in talents and entrepreneurship of this stratum of society. It is therefore crucial that the government works closely together with various parties on an inclusive finance agenda to promote the financial infrastructure.
Fourth, access to human capital is vital for entrepreneurs who want to grow their businesses. The quality of human capital domain includes skilled and unskilled labor, serial entrepreneurs, and educational institutions. This can be achieved through mentoring, skills development and leadership. For example, mentoring provides entrepreneurs with true nurturing and this is seen as “key” within human capacity development for today’s entrepreneurs to deliver the much needed economic growth and leadership. In Ghana, however, the human capital part of the ecosystem has not received enough investment. This leads to an imbalance in the ecosystem which is not ideal for entrepreneurs to grow in a sustainable manner. Indeed, entrepreneurs need support to create new jobs required to meet current market demands, as opposed to those who are still growing up through the education system and able to take advantage of changes being made within the ecosystem. Investing in human capital is the foundation upon which all the other components can be optimized and where the greatest return on entrepreneurial investment can be made.
Fifth, entrepreneurs always look for ways to grow their business. Finding markets for their products or services is a great way to reach this goal. This include finding early adopters for prototypes and reference customers.
Finally, a vibrant and sustainable entrepreneurial ecosystem is built on a solid infrastructure of connected networks-entrepreneurs that are informed, resources that are visible, programs that are relevant and collisions that are timely and impactful. That is, the vibrancy of an entrepreneurial ecosystem is dependent on the quality of infrastructure available within a country. The main infrastructure critical to the growth of entrepreneurial ecosystem include transport, telecommunications (particularly broadband access), and utilities (e.g. electricity, gas, water, sewerage). There is little doubt that the ability for business to perform at a globally competitive level is contingent on the quality of this infrastructure. The latest Global Competitiveness Report (2015-2016) ranks Ghana in 115th place out of 140 countries. Key areas of concern are labor market and wage setting “rigidities”. It is critical to Ghana’s long term economic growth and our ability to foster the next generation of globally focused, innovative and competitive industries to have world’s best practice infrastructure. Any failure by government to provide or facilitate such infrastructure will impede the emergence, growth and development of business.
The question is: what can governments do to stimulate entrepreneurial ecosystems? The challenge for government policy is to develop policies that work, but avoid the temptation to try to effect change via direct intervention. One way to do this is to contrast “traditional” versus “growth-oriented” policy approaches to enterprise development. The first of these approaches tends to focus on trying to grow the total number of firms via business start-up programs, venture capital financing and investment in R&D or technology transfer. This is a “pick the winner model” and can also include business or technology incubators, grants, tax incentives and support programs. Such programs are essentially transactional in nature. It is not that they are of no value, but they cannot guarantee success via such direct intervention. A “growth oriented” approach is more relational in nature. This focuses on the entrepreneurial leadership of these growth firms. It seeks to understand their networks and how to foster the expansion of such networks at the local, national and international level.
The most important thing is the strategic intent of the team running the business. Firms seeking to grow need to be given help in linking up with customers, suppliers and other “actors” within the ecosystem who can provide resources. Government ministers can play a critical role in fostering enterprise and innovation. Their role is to direct the government departments and agencies to focus on the problem and develop effective policies. A minister who has a good understanding of what entrepreneurial ecosystems are, how they form and the role and limitations of government policy is well-placed to generate more effective outcomes.
In summary, the government should make the formation of entrepreneurial activity a government priority. The formulation of effective policy for entrepreneurial ecosystems requires the active involvement of government ministers working with senior public servants who act as ‘institutional entrepreneurs’ to shape and empower policies and programs. In addition, it crucial to ensure that government policy is broadly focused. Policy should be developed that is holistic and encompasses all components of the ecosystem rather than seeking to ‘cherry pick’ areas of special interest.
Conclusively, entrepreneurs lead economic change by creating new goods and services, new firms, and innovative solutions to local and global needs. It expands opportunity, unleashes individual initiative, and cultivates independent citizens who have a stake in society and democratic governance. As such, enriching the entrepreneurial ecosystem in Ghana will help develop the local entrepreneurial capacity by supporting the development of policies, structures, programs and an operating environment conducive for entrepreneurial growth. For entrepreneurial ventures to take root and grow, the right environment must be in place. Startups require low barriers at the outset; to achieve scale they require a legal and regulatory framework that rewards entrepreneurial initiative, ensures fair competition, and protects private property rights. In a sustainable entrepreneurship ecosystem, financial, educational and other supports must be backed by a favorable policy environment. Governments should therefore focus on building the legal and institutional basis for supporting bottom-up efforts of entrepreneurs.
Note: The writer is an Assistant Professor in Entrepreneurship and Innovation at the Entrepreneurship Institute, King Fahd University of Petroleum and Minerals, Saudi Arabia. His research examines the nexus of entrepreneurship, innovation, and creativity within small and medium-sized enterprises (SMEs) and analyzes the role of institutions in new venture creation or new business formation. He received his Ph.D from the University of Warwick, United Kingdom. He can be contacted at: email@example.com