Rx for Effective Entrepreneurship Policy: Create ‘Ecosystems’ That Forge Connectivity and Break Down Barriers

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Kauffman Foundation research draws lessons from ecology to provide a framework for building vibrant entrepreneurial ecosystems

The paper raises questions and provides practical advice about the best way to encourage entrepreneurship, which is crucial to the growth of our economy, said Dane Stangler, vice president of Research and Policy at the Kauffman Foundation.

A research paper released today by the Ewing Marion Kauffman Foundation calls into question the effectiveness of strategies by governments and private grantmaking focused narrowly on financing or training entrepreneurs, without regard to the broad context of entrepreneurship. In contrast with such an approach, the report, “Enabling Entrepreneurial Ecosystems” by Philip Auerswald, associate professor at George Mason University, supports the view that entrepreneurs perform best in environments that are connected, dense and diverse. This approach is especially apt to bear fruit amid economic disruptions, and even during recessions, when entrepreneurial activity actually intensifies.

“The paper raises questions and provides practical advice about the best way to encourage entrepreneurship, which is crucial to the growth of our economy,” said Dane Stangler, vice president of Research and Policy at the Kauffman Foundation. “It encourages proponents of entrepreneurship to take a step back and envision a more holistic approach toward accomplishing their goals.”

The most significant impediments to entrepreneurship are the everyday struggles entrepreneurs face in communicating ideas, building trust and making deals, the report argues. The prescription is for an entrepreneurial ecosystem to remove, or at least minimize, the roadblocks to those goals.

The paper recommends six strategies to create strong entrepreneurial ecosystems:

1.    Favor incumbents less. Policies and regulations that favor existing, dominant companies over entrepreneurial ventures constrain competition and create barriers to entry for new firms. Examples of such regulations include assertive enforcement of non-compete laws, excessively restrictive occupational licensing requirements and regulatory complexity that inhibits contracting. Policymakers should avoid such policies and regulations and work to reduce the barriers to business startup.

2.    Listen to entrepreneurs. Rather than developing policies abstractly intended to correct “market failures,” policymakers should listen to what entrepreneurs have to say about their challenges. That input should be used to develop policies that stimulate idea exploration, product development and increased rates of deal flow.

3.    Map the ecosystem. Entrepreneurial supporters should create an inventory or graph that indicates who the participants in the ecosystem are and how they are connected. Ecosystem maps can become valuable tools in developing engagement strategies.

4.    Think big, start small, move fast. This simple rule, long a guiding principle for entrepreneurial ventures, also holds true for successful entrepreneurial ecosystems. The ecosystem should enable the connectivity needed for early success, and then clear the runway for future growth.

5.    Avoid artificially segmenting your community or your strategies. Entrepreneurs and members of entrepreneurial communities are active participants in creating new companies, investing in and/or advising startups, mentoring entrepreneurs and serving as customers of entrepreneurial companies. Expect participants in entrepreneurial ecosystems to play multiple roles, and make the most of their valuable skillsets.

6.    Prepare to capitalize on crises. Much like the rotting trunk of a fallen tree feeds the growth of new saplings, economic disruption creates entrepreneurial opportunities. Because disruptions are inevitable in economic and social life, architects of entrepreneurial ecosystems should anticipate them and prepare to make the most of the opportunities they create.

The paper says establishing an entrepreneurial ecosystem requires a practical approach toward entrepreneurs’ everyday needs. Policymakers should ask relevant questions and map out a broad framework that minimizes barriers to success. Once the results are evaluated, policymakers should use that data to make necessary adjustments.    
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About the Kauffman Foundation

The Ewing Marion Kauffman Foundation is a private, nonpartisan foundation that aims to foster economic independence by advancing educational achievement and entrepreneurial success. Founded by late entrepreneur and philanthropist Ewing Marion Kauffman, the Foundation is based in Kansas City, Mo., and has approximately $2 billion in assets. For more information, visit http://www.kauffman.org.

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