Creating the Environment for Entrepreneurial Success

Entrepreneurship drives economic change and innovation while at the same time expanding opportunity and unleashing the initiative of citizens. Entrepreneurs are crucial to building prosperous societies that deliver opportunity to all. In emerging economies around the world, interest in entrepreneurship is currently higher than ever amid burgeoning youth populations and a desire to move up value chains.

Unfortunately, in many developing economies, obstacles in the business environment close off entrepreneurial opportunities to huge swathes of the population. For example, a rural Kenyan entrepreneur must incur the cost of travel to Nairobi to register a business. In Lebanon, 65 percent of small and medium-sized enterprises must pay a bribe to conduct government procedures. Tunisian street vendors, most of whom cannot attain legal status, “live in constant fear of being evicted or harassed by local officials.” Even bankruptcy can be considered a crime in some places.

These barriers add to the usual challenges that entrepreneurs face with regard to capacity, financing, and market access. To be sure, some entrepreneurs prevail in spite of the obstacles. We should celebrate the successful cases that inspire future entrepreneurs. However, most would-be entrepreneurs face restricted options because they lack the connections, status, and resources enjoyed by established businesses and elite families. Women, youth, and non-elite individuals face higher hurdles to growing a business.

Experts, policymakers, and entrepreneurs have now turned their attention toward building entrepreneurship ecosystems. This attention reflects a recognition of the need for multifaceted support for entrepreneurial activity, as well as interactive effects within communities that accelerate efforts of individual entrepreneurs. As lessons in ecosystem development accumulate, it is becoming clear that initiatives to finance, educate, and connect entrepreneurs are outpacing improvements in the business environment. The majority of entrepreneurship programs struggle to incorporate the business environment pillar into the ecosystem.

This special report, Creating the Environment for Entrepreneurial Success, highlights the crucial environmental dimension of entrepreneurship ecosystems. Improving the conditions for entrepreneurship and leveling the playing field goes beyond the effort to help promising entrepreneurs. It expands the pool of potential entrepreneurs, builds incentives for entrepreneurship, eases the costs of doing business, and generates healthy competition. Policy and regulatory reforms should be integrated with comprehensive services to educate, finance, advise, and encourage entrepreneurs.

An international group of experts contributed to the report, reflecting experiences and lessons from developing countries and the United States. The insights and examples shared by these thought leaders will have practical applications, yet the broader theme is to illuminate how these various components interact within the entrepreneurship ecosystem.

Part one of the report gives an overview of why and how environments influence possibilities for entrepreneurial success. Hernando de Soto and Mary Shirley explain how fundamental institutions such as rule of law and property rights shape the context for innovation and investment. Robert Litan argues that an entrepreneurial capitalist system provides the drivers for disruptive innovation and long-run growth. The lessons in building entrepreneurship ecosystems are then spelled out by John D. Sullivan and Anna Nadgrodkiewicz.

The second part of the report delves into approaches for strengthening specific features of ecosystems. Research by Leora Klapper and Douglas Randall demonstrates that reforms to the business environment do have an impact on the creation of new firms – provided that they are of sufficient scale. Drawing on the experience of the Global Entrepreneurship Congress, Jonathan Ortmans describes how growing awareness of entrepreneurship has led to productive discussions on policies for ecosystems. Daniel Cordova examines the potential for financing entrepreneurs in informal as well as formal sectors of the economy, while Lynda de la Viña shares current models for educating entrepreneurs. Finally, John Murphy considers the implications of a global trading environment for entrepreneurship, and Andrew Sherman sums up what this all means for entrepreneurial growth decisions.

Four case studies of actual ecosystems in developing economies round out the report. The authors of the country studies combine their expert diagnosis of strengths and weaknesses in each ecosystem with their recommendations for reform based on their experience as practitioners. These respective priorities and initiatives are outlined by Ryan Evangelista (Philippines), Majdi Hassen (Tunisia), Majid Shabbir (Pakistan), and Robin Sitoula (Nepal).

From the rich set of insights and perspectives featured in this report, several general lessons emerge about effective ways to improve environments for entrepreneurship. While there is no single template available, all stakeholders in entrepreneurship promotion can benefit from these lessons:

  • Entrepreneurs fare best in a policy and regulatory environment that keeps barriers low, rewards innovation, and protects private property.
  • Entrepreneurs themselves must take a leading role in building ecosystems, by creating entrepreneurial communities and providing input into policy.
  • Policymakers should engage in open dialogue with entrepreneurs to find ecosystem solutions that are appropriate to local circumstances.
  • The different actors in an entrepreneurship ecosystem should cooperate and network with other stakeholders to make the most of their respective strengths.
  • Educators and community leaders must foster a culture that supports entrepreneurial aspirations and celebrates success stories.Diversity and access to opportunity should be promoted by empowering women, youth, and informal business owners to pursue entrepreneurial ambitions.

PART I: Overview of Ecosystems

Under what conditions can entrepreneurship thrive? Can entrepreneurs in developing countries innovate and generate wealth just as entrepreneurs in developed countries? What makes a healthy entrepreneurship ecosystem possible?

The principles explained in Part One of the report are central to the emergence of scaleable, sustainable solutions to innovation and growth. In fact, an environment for entrepreneurial success requires more than the core ingredients of technology, infrastructure, and investment. It requires institutions that provide incentives and opportunities for entrepreneurs to create and take risks. These institutions evolve through dialogue, experimentation, and a combination of grassroots and high-level reform initiatives.

PART II: Elements of Ecosystems

Ecosystem models derive their power from a holistic view of factors influencing individual entrepreneurs as well as synergies that propel entrepreneurship as a phenomenon.  Yet for the system as a whole to function, the component parts must play their proper roles and fit together. Knowledge, resources, motivations, rules, and opportunities each must be developed to serve and stimulate entrepreneurship.

Part Two examines the effects of key elements such as business regulation, financing, education, and the trading environment. It also calls attention to priorities for advancing entrepreneurship in areas such as awareness raising, research, and promotional efforts. The models and lessons described here aid in gap analysis and illustrate a diversity of choices for building ecosystems. Policymakers and entrepreneurship promoters should diagnose entrepreneurial needs carefully and be open to the possibility that competing approaches have merit in different situations.

PART III: Emerging Ecosystems

It takes committed champions and dynamic partners to marshal the players and pieces of ecosystems together. Each of the authors in Part Three has been immersed in the work of cultivating young ecosystems. They possess the knowledge and experience required to analyze entrepreneurial conditions in their country and identify priorities for reform.

Familiar themes run through these brief country studies, beginning with the imperative of unleashing entrepreneurship as a means to expand access to opportunity. There is wide agreement among the authors on the need to engage youth, improve policy and administration, foster networking and education, and provide financing. Each country, however, is distinguished by creative initiatives, such as the entrepreneur clubs in Nepal, the entrepreneurship tents in Tunisia, the Go Negosyo communities in the Philippines, and the Young Entrepreneurs Forum of the Islamabad Chamber. They may provide inspiration for other adaptations and experiments.

Acknowledgments

This report was made possible by the generous support of the Smith Richardson Foundation.

Additional support was provided by the National Endowment for Democracy.

Authors

Daniel Cordova, President, Invertir Institute

Lynda de la Viña, Peter Flawn Professor of Economics & Entrepreneurship; Director, Center for Global Entrepreneurship, University of Texas at San Antonio

Hernando de Soto, President, Institute for Liberty and Democracy

Ryan Patrick G. Evangelista, Former Executive Director, Universal Access to Competitiveness and Trade

Majdi Hassen, Executive Director, Institut Arabe des Chefs d’Entreprises

Karen Kerrigan, President & CEO, Small Business & Entrepreneurship Council; Vice Chair, Center for International Private Enterprise

Leora Klapper, Lead Economist, Finance & Private Sector, Development Research Group, World Bank

Robert Litan, Director of Research, Bloomberg Government

Anna Nadgrodkiewicz, Senior Program Officer, Center for International Private Enterprise

Jonathan Ortmans, President, Global Entrepreneurship Week; Chair, Global Entrepreneurship Congress

John Murphy, Vice President for International Affairs, U.S. Chamber of Commerce

Douglas Randall, Research Analyst, Finance and Private Sector, Development Research Group, World Bank

Majid Shabbir, Secretary General, Islamabad Chamber of Commerce & Industry

Andrew Sherman, Senior Partner, Jones Day

Mary Shirley, President, Ronald Coase Institute

Robin Sitoula, Executive Director, Samriddhi, The Prosperity Foundation

John D. Sullivan, Executive Director, Center for International Private Enterprise

Editing

Kim Eric Bettcher, Senior Knowledge Manager, Center for International Private Enterprise

Julia Kindle, Publications Manager, Center for International Private Enterprise

Frank Stroker, Assistant Program Officer, Center for International Private Enterprise

Communications

Jon Custer, Social Media / Communications Coordinator, Center for International Private Enterprise

Anna Dawson, Editorial Communications Assistant, Center for International Private Enterprise

Web Design/Layout

Jon Custer, Social Media / Communications Coordinator, Center for International Private Enterprise

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