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High-Growth Entrepreneurship for Development: Report of a Roundtable with Michael Dell

highgrowth

Policymakers around the world have increasingly come to realize that entrepreneurship, particularly high-growth entrepreneurship (HGE), is critical for economic development in nations at all levels of development. That is one reason the United Nations Foundation asked Michael Dell, founder and CEO of Dell Inc., to be the Global Advocate for Entrepreneurship and to work closely with the Foundation and its Global Entrepreneurs Council to help shape and advance a global entrepreneurship agenda.

To inform the Council’s thinking, Michael Dell led a meeting in Washington, DC, on December 2, 2014, hosted by 1776, a cutting-edge “accelerator” to help technology-based entrepreneurs translate their ideas into growing businesses. The meeting participants included tech-based entrepreneurs and policymakers, and I was asked to participate and serve as rapporteur.

Michael Dell opened up the roundtable with a discussion of proposed policy mechanisms to spur high growth entrepreneurship, including ensuring access to capital, technology, talent, and markets. The following is a summary of the themes and recommendations from the discussion.

The Nature of Technology-Enabled Entrepreneurship Opportunities

Policymakers around the world are interested in HGE because they understand that technology opportunities driving this type of entrepreneurship have exploded. This is particularly true with information and communications technology (ICT), where new innovations (e.g., cloud computing, mobile, data analytics, social media, etc.) are creating new entrepreneurial opportunities. But while technology is a key driver, HGE development is also contingent on applying existing technologies to new business models, such as Uber in car-sharing and Airbnb in house-sharing.

Thus, HGE means more than just more firms developing more new products; it means that entire economies can become more entrepreneurial and dynamic. Indeed, flexibility, risk taking, experimenting, and churn (firms going out of business, new firms being born) are key enablers of economic vitality. However, in some economies it has proven difficult for leaders in both government and business to fully embrace entrepreneurial economies, in part because they can be disruptive.

The Challenges of High-Growth Entrepreneurship: Developing Robust Systems of Supply, Demand, Support Networks, and Overall Policy

Success in HGE requires both supply (of entrepreneurs) and demand (for innovation), coupled with a network that links the two and a supportive overall policy environment. The supply is the individuals who have the desire, knowledge, and capabilities to be entrepreneurs. As economist Joseph Schumpeter put it, “[T]he function of entrepreneurs is to reform or revolutionize the pattern of production by exploiting an invention or, more generally an untried technological possibility for producing a new commodity or producing an old one in a new way, by opening up a new source of supply of materials or a new outlet for products, by reorganizing an industry and so on.” This is different than small business per se, for entrepreneurship is defined as bringing something new to market.

Demand relates to the fact that unless consumers (businesses, non-profits, government, and individuals) want to buy innovative goods and services entrepreneurs bring to the market, the entrepreneurs will not succeed regardless of how innovative their idea is. As Amar Bhidé writes in The Venturesome Economy, “[V]enturesome consumption, the willingness and ability of businesses and consumers to effectively use products and technologies derived from scientific research, is a critical factor in innovation and entrepreneurship.”

Finally, despite the iconic myth of the lone entrepreneur working in their garage, most successful entrepreneurship involves support networks of various kinds, including those providing capital, linkages to customers, mentoring, or other assistance. Often intermediary organizations like 1776 play key roles in providing and facilitating these support systems. And getting the entrepreneurial policy climate right, relating to tax, trade, talent, technology, and finance, is also critical.

Supporting Entrepreneurial Supply

Entrepreneurship is not for the faint of heart, but public policy can play a role in supporting its growth.

One place to start is with access to capital. For example, 60 percent of the venture capital in Brazil has been funded by the Inter-American Development Bank, including a program to provide financing for small producers from marginalized communities. Likewise, the U.S. Small Business Administration supports early stage business finance needs through a variety of programs, including the Small Business Investment Corporation Program, the Small Business Innovation Research program, and a nationwide network of Small Business Development Centers. Some countries—led by Chile, but now copied by six Latin American nations—provide startup grants for entrepreneurs with good ideas who move to the nation to establish their company. While entrepreneurs pointed to how helpful these kinds of programs can be, they did note that it is critical that financial programs be structured to provide relatively quick answers for entrepreneurs.

Access to skills and talent is another key enabler of entrepreneurship. Governments should support entrepreneurship education, as a growing number of U.S. high schools and colleges now do. For example at the Met School in Providence, RI, students with promising ideas are supported if they want to start a company. Indeed, one 14-year-old boy started a successful company to help entrepreneurs seeking funding through Kick Start (itself an entrepreneurship platform) make their introductory web videos. The fact his high school not only “made space” for him to do this, but provided community-based mentoring support helped make this possible. In this sense the high levels of youth unemployment in many developing nations might be seen as an opportunity to build more entrepreneurial economies.

Entrepreneurship education occurs at the college level as well, where over the last 20 years, the number of U.S. colleges providing entrepreneurship education has increased significantly. In fact, the University of North Dakota has established its own freestanding Department of Entrepreneurship designed to equip students with a comprehensive set of entrepreneurship skills. In addition, entrepreneurship and STEM (Science, Technology, Engineering and Mathematics) education should be combined, as Olin College in Massachusetts does, where students learn both engineering and entrepreneurial skills. It’s important to note that the practice of entrepreneurship itself provides valuable education, for even if not successful, failure can result in “knowledge capital” that can bear fruit in other places later down the line.

While entrepreneurial skills can be learned, entrepreneurship is not for everyone, as some individuals have the knowledge and temperament suited to the activity. As such, nations might want to consider processes to identify individuals at an early age (for example in the year before high school) who show an aptitude for entrepreneurship and provide them with educational experiences that allow them to take full advantage of this. For example, Gallup has been developing a methodology that can identify young people with these skills and traits. And one skill that all entrepreneurs can benefit from in today’s global economy is English language fluency. Indeed, because of the importance of being “born global,” for entrepreneurial startups, English is the universal language of global entrepreneurship.

In many regions of the world, foreign immigrants play an outsized role in HGE, particularly in technology-based startups. This means that nations should have open and flexible high-skilled immigration policies, particularly for scientists, engineers, and individuals wanting to start companies. For example, the U.S. Congress is considering legislation that would establish a start-up visa for foreign entrepreneurs looking to locate in the United States.

Finally there is the question of what governments can do to create a culture of entrepreneurship. The United States benefits from a culture that accepts risk. Policymakers can help by acknowledging that such cultural traits are important and vocally support the importance of risk taking and innovation. In addition, they can ensure that bankruptcy laws are structured in ways to give a second chance to entrepreneurs who take risks and fail.

Supporting Entrepreneurial Demand

Nations will not fully succeed in HGE if they only focus on the supply and not the demand for entrepreneurship. And there are a number of factors that can hamper entrepreneurial demand.

In many countries, consumers (whether they be organizations or individuals) may not embrace venturesome consumption due to other cultural, economic, or political factors. Entrepreneurship can also be easier in some sectors than others. It can be a challenge in getting customers in highly regulated or entrenched industries to take risks when it comes to buying new products or services. For example, entrepreneurial activity in health care is a particular challenge, in part because of significant regulatory barriers and the fact that there are no direct customers, only third party ones (e.g., payers) intermediated through doctors.

These restraints on demand can be a particular burdensome in developed nations where government controls or influences a larger share of the economy. But at the same time, government control can be used as a lever for venturesome consumption if the government mandates or puts in place incentives for government-controlled or influenced organizations to explicitly support entrepreneurial activity through their own purchasing decisions. In this sense, government can be a first adopter and drive further investment from the private sector. The United Kingdom has been particularly adept at this through their innovation-based procurement policies. In addition, a share of government research funding can be set aside for entrepreneurial startups, as the United States does in its Small Business Innovation Research program.

Building HGE Network Support Systems

The third component for strong national HGE is a system that supports high-growth entrepreneurs, in part by linking them to funders, mentors, and customers, and ensuring an overall strong entrepreneurship policy environment.

In terms of building support networks, accelerators like 1776 can help entrepreneurs find mentors who have already gone down a similar path. In most places the density of entrepreneurs is low, so establishing institutions that can connect them with mentors and potential customers is critical. This is why UNICEF created a global network of innovation lab accelerators that bring business, universities, governments, and civil society together to create sustainable solutions to the most pressing challenges facing children and youth. The lab model creates opportunities for young people who have a unique insight into the challenges that affect their communities and teams them up with local leaders to develop creative and sustainable solutions.

In addition, these support organizations can help HGEs better understand the process of bringing ideas to market, in part by developing methodologies that can be used and transferred. For example, 1776’s “Lean Canvas” classroom provides a structured system to help entrepreneurs get to market faster and with less waste.

This support network can also play a critical role in vetting and giving entrepreneurs a “good housekeeping seal of approval,” making it easier for an HGE to get in front of angel investors and customers. It can be very hard for these audiences to know if they are dealing with someone who has the next big thing or is simply a person with an interesting, but not marketable idea.

Because entrepreneurship is so risky and often involves first-time business people, initiatives to help entrepreneurs learn from each other can be critical. Options discussed at the roundtable included a global entrepreneurship corps where leaders from other sectors bring capital, ideas, and mentorship, and meet in specific cities where there is limited access to such talent. In addition, a web-based global entrepreneurship mentor program was suggested, where successful entrepreneurs and experts from around the world could help budding entrepreneurs in developing business plans, creating marketing and investment strategies, and serving as necessary “sounding boards.”

Crafting an Overall Entrepreneurship Support Policy

Entrepreneurship is often a brave act, requiring someone to take risks and trust their judgement that their new idea that no one else has done before is worthwhile. But taking these risks and being successful can be a lot easier if governments get the overall entrepreneurship policy right.

Successful HGE depends on access to markets. With the global Internet, entrepreneurs can increasingly sell their goods or services all around the world. This means that nations should work to lower tariff and non-tariff barriers, particularly on ICTs, which are a key toll for entrepreneurial activity. Countries should work to eliminate tariffs and discriminatory taxes on ICT goods and services as well as other non-tariff barriers, including local content requirements, restrictive certification and licensing requirements, and restrictions on cross-border data flows.

Entrepreneurs also need access to robust broadband networks, and nations and sub-national regions need to ensure that they have in place policies to support a strong broadband ecosystem. Among the steps nations can take is the development of a national broadband plan, ensuring tax policy lets carriers more quickly depreciate network investments, ensuring adequate spectrum is transferred to wireless carriers, and ensuring that broadband regulation neither limits nor artificially supports competition.

Government also needs to reform the tax code to better support entrepreneurship. For example, nations should look to implement or expand R&D tax credits, including refundable credits that startups and young companies can more easily use. It is also important for tax systems to be easy for startups to understand and simple to comply with.

Governments need to also help startups and young companies by providing access to research and development. For example, a number of nations have established innovation voucher programs where startups and small firms can receive a voucher to be “spent” on a cooperative project with a university, community college, or research institution, for R&D assistance, technology feasibility studies, etc.

Finally, one of the most straightforward ways for governments to support entrepreneurs is to make the new business registration process easier. Some nations have created a digitalized firm registration process that can be completed via a single, unified website.

 

 

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About the author

Robert D. Atkinson is the founder and president of ITIF. Atkinson’s books include Innovation Economics: The Race for Global Advantage (Yale, 2012), Supply-Side Follies: Why Conservative Economics Fails, Liberal Economics Falters, and Innovation Economics is the Answer (Rowman & Littlefield, 2006), and The Past And Future Of America’s Economy: Long Waves Of Innovation That Power Cycles Of Growth (Edward Elgar, 2005). Atkinson holds a Ph.D. in city and regional planning from the University of North Carolina, Chapel Hill, and a master’s degree in urban and regional planning from the University of Oregon.