There is a reason that we call the interlocking network of institutions, attitudes, and policies that enables entrepreneurs to start and grow businesses an “entrepreneurship ecosystem.” An ecosystem is not planted like a garden: it is too complex and unpredictable to simply build from scratch (as the famous Biosphere 2 experiments showed). And, like natural ecosystems, entrepreneurship ecosystems are challenging but vital to cultivate — and all too easy to destroy.
Over the past two days here in Chicago at the Democracy that Delivers for Entrepreneurs conference, panelists from the worlds of business, finance, education, associations, and nonprofits engaged in a lively and productive discussion of how this ecosystem can be nurtured and developed.
It would be impossible to completely distill the diverse range of topics covered at this conference into a single blog post – and we intend to share much more conference content (including videos of each panel) in the coming days and weeks here on the blog and at democracythatdelivers.com. As a start, below are are four of the key lessons that came up repeatedly throughout the conference:
1. Solutions Depend on Context
As Amy Wilkinson noted yesterday, those who are trying to promote entrepreneurship should “stop copying Silicon Valley” and instead focus on each locality’s unique needs and advantages. Whether talking about education, finance, advocacy, or policies for promoting entrepreneurial cities, panelists repeated over and over again that the best solutions are those tailored to the local context.
For example, when it comes to financing, U.S. models are not always appropriate in developing or middle-income country, where the sizes of deals can be much smaller. But growth-stage entrepreneurs in these countries still may find themselves stuck in the middle, too large for microfinance and too small for risk-averse banks to take seriously.
Venture capitalist Osama Mourad noted that family and friends remain the key source of funds for these kinds of entrepreneurs in Egypt. But the rising popularity of Islamic finance is popularizing the concept of angel investor-like deals where groups of investors pool moderate sums to finance a venture, sharing the risks and the rewards. Likewise in Peru, the American styles of angel investing and private equity have failed to take off, said Daniel Cordova, as business there still relies heavily on trust and (often family) relationships. “The way to pull together capital [in Peru] is not the same as the traditional way, it’s through associations and networks,” he said.
2. Culture is Important
(…and education can help)
Another common theme across all of the panels is the vital importance of cultural perceptions of entrepreneurship in different societies. In many countries, the most talented young people are encouraged by their families and teachers to find secure jobs in large corporations or government, rather than taking a risk on starting a new venture.
At yesterday’s panel on entrepreneurship education, participants discussed how changing these attitudes is essential to training future entrepreneurs. Rami Shamma, whose Development for People and Nature Association has introduced an entrepreneurship curriculum in Lebanon, said that he specifically invites parents to entrepreneurship events will sometimes meet with them one-on-one to allay their fears.
In Nepal, according to panelist Robin Sitoula, the idea of making profits was so unfamiliar to many students that his organization, Samriddhi: The Prosperity Foundation, set up a simulated market for participants in their Arthalaya entrepreneurship program. The instructors take on the role of the government, setting policies and regulations, which leads to a better understanding of the whole entrepreneurship ecosystem. “When people participate in markets,” Sitoula said, “They understand the importance of rule of law and property rights.”
The key cultural issue, even in developed countries, is the fear of failure. This is particularly true in places with weak or nonexistent bankruptcy protections. While many of the U.S.-based panelists emphasized the importance of failure as a learning experience, in countries without clearly-defined bankruptcy rules an entrepreneur’s first failure will often be their last. Lack of market exit procedures also makes it extra risky for investors, especially if they have used their own assets (like a family home) as collateral.
That’s why private sector association leaders like panelists Betty Maina of the Kenya Association of Manufacturers and Jehan Ara of ICT group P@SHA in Pakistan have made bankruptcy a key issue in their advocacy campaigns.
3. Working Together is Better for Everyone
One of the great benefits of entrepreneurship is the potential for innovation, including market-changing new technologies and ways of doing business. While these disruptions can often upend large, established companies — as many tech startups have done — the panelists were in agreement that working with entrepreneurs is usually beneficial for everyone (including other entrepreneurs).
Panelist Randall Tavierne of Ernst & Young noted that corporations like his employer see entrepreneurship as good for both society and their bottom line — as successful entrepreneurs will grow their companies into potential clients, which is why they work with foundations, nonprofits, and other organizations to support entrepreneurship programs around the world.
In the realm of business education, the Kellogg School’s Linda Darragh and Amb. (ret) J.D. Bindenagel, who has worked with DePaul University’s business school, stressed the importance of universities working together on entrepreneurship initiatives.
Such educational collaboration also helps cities like Chicago become attractive hubs for new companies by making sure that they can find and hire the skilled workers they need. Governments are also a vital piece of the ecosystem, provided they work together with the private sector to create favorable conditions for entrepreneurs and new businesses.
This means getting regulations right, said former Illinois Congressman Bob Dold. The point was echoed by Derek Lindblom of the Mayor’s Economic Council in Chicago, who emphasized that regulations like business licenses should be designed to minimize the impact on entrepreneurs while still serving the public.
Government support has also helped to strengthen initiatives like the Chicagoland Entrepreneurial Center and their 1871 space, which brings together entrepreneurs and startups under one roof where they can develop their businesses while exchanging ideas and meeting with potential backers and advisers. The Seed Chicago initiative, announced yesterday by the Mayor’s office, takes entrepreneurship support even further, partnering with Kickstarter to create a crowdfunding platform specifically for city businesses.
4. Entrepreneurs Do More than Make Money
At CIPE, we believe that a strong private sector is an essential component of democracy — that’s why our conference is called “Democracy that Delivers.” And entrepreneurs are perhaps the most dynamic and innovative part of the private sector. While the jobs and economic activity their new businesses create are important, entrepreneurs also have much more to offer to society.
Indeed, panelists from academia, large corporations, nonprofits, associations, and government all stressed that their organizations do or should strive to be more entrepreneurial, especially when it comes to cutting through bureaucracy and promoting new ideas.
Social entrepreneurship is a hot topic these days, and many entrepreneurs embrace a positive social mission as a fundamental part of their business. Successful entrepreneurs also go on to become the most prolific angel investors and venture capitalists, setting up a virtuous cycle as they use the fruits of their success to fund promising new startups.
And entrepreneurs take a leading role when it comes to private sector advocacy campaigns as well. CIPE works around the world to make sure the private sector’s voice is heard in the policy-making process, typically through associations and chambers of commerce. Because of their propensity for finding new ways of doing things, entrepreneurs tend to be among the most vocal of those voices — especially when outdated laws or needless regulations stand in the way of their ideas.
This was the experience of panelist Sherwood Neiss, who helped spearhead changes to U.S. securities laws to allow for crowdfund investing, an initiative which passed with widespread bipartisan support. Innovative new businesses are leading change in developing countries as well. The issues that Jehan Ara and P@SHA face in representing the technology industry in Pakistan — from ensuring that government doesn’t arbitrarily block essential online services, to encouraging more women to become tech entrepreneurs — are important for democracy in Pakistan, not just for its business community.
One final take-away from this conference, then: democracy that delivers for entrepreneurs is democracy that delivers for all citizens.