In some parts of the world, entrepreneurship is a way of supporting oneself in the absence of an established labor market. In the countries that experienced the industrial revolution, the entrepreneurial spirit was awakened and companies were created and secured jobs for the general population. In developing countries that did not experience the industrial revolution, established companies can be rare. Many of the existing established companies are either the result of rare local companies that grow larger, foreign direct investment or branches of multinational corporations from industrialized countries.
In this setting, people have to secure their jobs through informal economic systems. In most African countries, between 80 and 95 percent of the working population earn their living in the informal economy (Friedrich Ebert Stiftung). In 2022, more than 59% of employees in Indonesia were in informal employment. Informal employment in the archipelago is particularly prevalent in rural areas and in the construction and agricultural industries (Statista).
However, this does not mean that the entrepreneurial spirit is not there. On the contrary, many of these countries are developing into emerging economies driven by a strong entrepreneurial ecosystem that is thriving in the new economic era and driving economic growth. This spirit leads to numerous ventures that later transform themselves as established companies and secure many jobs for the people.
Although entrepreneurship is a very important quality, not everyone is born and raised in an entrepreneurial environment or has an entrepreneurial spirit. On the contrary, some people only want to become employees with a fixed income if there are opportunities to do so. Life as an entrepreneur is not all silver spoons. There are many hardships and challenges that must be overcome.
Despite all these disadvantages, successful entrepreneurs create jobs for people. A major study by Global Entrepreneurship Monitor (GEM) and Endeavor included more than five years of GEM data from more than 60 countries and 70,000 entrepreneurs. The results of this study showed that 40% of new jobs were created by just 4% of the companies surveyed. The same study also showed that these high-growth companies paid higher wages and that their employees were more satisfied with their jobs (GIZ).
The question worth answering is: How to foster entrepreneurship and its ecosystem?
In entrepreneurship, success is not only determined by individual efforts, but also by the ecosystem in which entrepreneurs operate. Entrepreneurial ecosystems, which consist of a network of interconnected entities, play a central role in promoting, supporting and accelerating the growth of start-ups and innovative ventures.
What is an entrepreneurial ecosystem? The OECD defines it as follows:
An entrepreneurial ecosystem consists of interconnected entrepreneurial stakeholders (both potential and existing), entrepreneurial organisations (e.g., firms, venture capitalists, business angels, banks), institutions (universities, public sector agencies, financial bodies) and entrepreneurial processes and statistics such as the business start-up rate, the number of high-growth firms, the levels of ‘blockbuster entrepreneurship’, the number of serial entrepreneurs, the degree of sell-out mentality within firms and the levels of entrepreneurial ambition. These all coalesce both formally and informally, with the ultimate aim of linking, mediating and governing performance within the local entrepreneurial environment.
Referring to the OECD definition, it is clear that entrepreneurs do not thrive in isolation; they need a nurturing ecosystem to thrive. Below I highlight 10 key factors that play a crucial role in empowering entrepreneurs to make meaningful contributions to the economy.
Source: taken from GIZ
Several key factors contribute to the success of entrepreneurial ecosystems:
Access to Funding: Adequate funding opportunities, including venture capital, angel investment networks, government grants, and any other possible funding schemes provide crucial capital infusion for startups at various stages of growth.
Incubators and Accelerators: These programs offer mentorship, resources, and networking opportunities to early-stage start-ups, helping them refine their business models, access markets, and secure investment.
Research and Innovation Culture: Proximity to research institutions, technology centers and innovation hubs promotes collaboration, knowledge transfer and breakthrough discoveries. Fostering a culture of innovation also encourages experimentation, risk-taking and the pursuit of new ideas, promoting entrepreneurial activity and innovation.
Talent Pool: A skilled workforce, comprising entrepreneurial-minded individuals with diverse expertise, fuels innovation and creativity within entrepreneurship ecosystems.
Open Networking Opportunities: Networking facilitates connections with fellow entrepreneurs, investors, mentors, and industry experts, opening doors to collaboration, partnerships, and potential opportunities for growth and expansion.
Access to a Diverse Customer Base: This access creates market demand and revenue opportunities for startups, driving business growth and sustainability.
Collaboration and Partnerships: Collaborative partnerships foster resource-sharing and market expansion. It can provide entrepreneurs with access to new markets and distribution channels, enabling them to reach a broader audience and accelerate growth.
Investment in Education: Investing in entrepreneurship education and training programs equips individuals with the knowledge, skills, and mindset needed to start and grow successful businesses.
Community Support and Dedicated Mentoring: Building a strong sense of community creates a supportive ecosystem where startups can share knowledge and support each other. Experienced mentors can offer advice and support to entrepreneurs and help them overcome challenges, make informed decisions and avoid common pitfalls.
Supportive Policies: Government initiatives, such as tax incentives, regulatory reforms, and startup-friendly policies, create an enabling environment for entrepreneurship to flourish.
Conclusion
In both developing and developed nations, the entrepreneurial spirit sparks innovation, driving the establishment of new businesses. Successful entrepreneurs not only create job opportunities for the general population but also contribute to economic growth. The debate over whether entrepreneurial spirit is innate or cultivated remains ongoing, but it’s evident that entrepreneurial ecosystems play a pivotal role in nurturing and fostering entrepreneurial skills. These ecosystems provide entrepreneurs with the necessary support, resources, and opportunities to thrive and succeed in their ventures.
Entrepreneurship ecosystems include a variety of actors, including entrepreneurs, investors, companies, government agencies, academic institutions, accelerator, and support organizations. These interconnected entities work together and leverage synergies to create an environment that fosters the creation, growth and sustainability of start-ups. To fully leverage the potential of this ecosystem, it’s essential to incorporate 10 key factors. These include ensuring adequate access to funding, fostering a culture of research and innovation, and implementing supportive government policies. By creating a conducive environment for entrepreneurs, they are more likely to make substantial contributions to the economy.
