Untapped Potential – Don’t Overlook It!

It can be hard for policy makers to guess which company will stand out from the herd. (Photo: Wikimedia commons)
It can be hard for policy makers to guess which company will stand out from the herd. (Photo: Wikimedia commons)

As the world catches on to entrepreneurship’s power to spark growth and employment, high-growth firms have grabbed our attention. Less than one percent of firms – the “gazelles” – propel job growth at more than 10% percent per year (OECD, Entrepreneurship at a Glance 2012). Many policymakers and NGOs rightly seek to encourage high-growth entrepreneurship.

Stop and think, though, before chasing the excitement of glamorous entrepreneurs. You could be missing out on genuine untapped potential in the process.

  • Don’t pick winners – It is exceedingly difficult to predict which firms will succeed in new markets. The best entrepreneurs may not match the profile of past successes; rather, they tend to be the ones who go against the grain.
  • Don’t subsidize the elite – There’s absolutely nothing wrong with talented, educated individuals from well-off families starting innovative firms that create jobs. However, helping entrepreneurs who already have what it takes wastes resources and risks reinforcing barriers that confine opportunity to the elite.
  • Don’t forget mid-size firms – Common perceptions and programs for business focus either on large corporations or micro businesses. Mid-size firms are potential leaders, more serious than many startups, and underserved.
  • Don’t forget the informal sector – While the sector is often characterized in terms of underemployment, Hernando de Soto has shown us the vitality of entrepreneurship in the sector. Sure, not all informal businesses have growth aspirations or productive potential, but just like gazelles, a fraction of them can take off if they break into the formal economy.
  • Don’t forget women – The rise of women’s entrepreneurship represents one of the biggest phenomena in development. Women face distinctive barriers that hinder their enormous talent.
  • Don’t neglect the provinces – Investment and services gravitate to large capital cities. Meanwhile, provincial areas are cut off from global markets and even domestic markets. This is the frontier of emerging economies.
  • Don’t limit attention to high-technology firms – Technology generates the greatest productivity gains outside of the technology sector itself. Entrepreneurship is about new business models and commercializing innovation, not new inventions.
  • Don’t miss the entrepreneurial environment – No question, the regulatory environment affects decisions to start a business. In environments hostile to business, entrepreneurs have no incentive to invest and take risk. Institutions hold the key to long-run economic performance.