Key Components of an Entrepreneurship Policy

1. Key Components of an Entrepreneurship Policy “Fostering Entrepreneurship” Invest Northern Ireland Seminar Narrow Water Castle, County Down March 14, 2007 Presented by Lois Stevenson International Development Research Center Lstevenson@idrc.org.eg

2. Growing interest in Entrepreneurship policy • Need for increased rate of new firm formation - jobs, productivity improvements, innovation, renewal, links with economic growth • SME policies insufficient • Policy re-orientation to foster “dynamic” • Will need new entrepreneurs – “supply side” (shift from employee mentality) • Limited knowledge about construction of entrepreneurship policy • Better data, international comparisons (GEM), new research (nascents), focus of think-tanks (OECD, EU), convergence of interdisciplinary research (SBE) - all contributing to growing capability • Plus, recent efforts to benchmark e-policy

3. An emerging policy imperative • Will need new firms to replace exiting firms, replace jobs lost due to exiting and downsizing firms, produce innovation • 75-80% of businesses in next 10 years do not exist today • Most will be started by people who don’t even know they are going to be the entrepreneurs of tomorrow • Doing something else right now - in school, out of the labor force, unemployed, working for someone else • Most will start their business driven by some form of “inspiration” or “desperation” • Largely unprepared – little know-how and experience in venturing; most will NOT have business degrees

4. Implications for “supply side” focus • Need a future supply of new entrepreneurs to meet demand for new firms over next 5 -10 years • What needs to be done to generate this supply? • Governments have to examine what they are doing to facilitate the entrepreneurial process - reduce obstacles; create opportunities; build capacity • As well as, what they are doing that might stand in its way • Will need conducive environment for dynamic start-ups

5. What is entrepreneurship? • Entrepreneurship as a process – • through which people become aware of entrepreneurship as a option and take the steps to start a business • the discovery, evaluation, and exploitation of opportunity; mobilization of resources • Entrepreneurship as a system – • (potential) entrepreneurs, institutions and government actions to produce more entrepreneurial activity in a society

6. The entrepreneurship system National Regional Regulatory bodies Local Researchers Accountants, lawyer, consultants Governments Instructors Counselors, advisors mentors Universities and colleges Service providers Tech transfer offices Angels Level of Entrepreneurship School system Banks Capital providers Guidance counselors Venture capitalists Parents Broadcasters The media Teachers Entre- preneurs Community organi-sations Reporters School administrators Business associations Chambers of Commerce Nascents Entrepreneurs’ associations SMEs Growth firms Enterprise centers Trade and employer associations Economic development offices

7. More entrepreneurship begets more entrepreneurship • Density and dynamism matter to growth • Higher density of small businesses leads to higher levels of entrepreneurial activity (Acs and Armington) • Start-up rates in a region are positively related to share of employees working in small firms (Wagner) • Fast growing regions have higher entrepreneurial activity levels • Exposure matters to entrepreneurial behaviour • More exposure to entrepreneurial role-models leads to higher propensity to start businesses (Reynolds) • Many entrepreneurs grew up in entrepreneurial families • More entrepreneurship courses taken, higher propensity to become an entrepreneur (Charney & Libecap, Babson) • Working in small firm an incubation environment for new entrepreneurs • Perception of opportunity, regulatory barriers matter to SUs • Entrepreneurship can be learned

8. The construction of entrepreneurship policy - assumptions • Entrepreneurship as a system to be influenced • …considering its role in economic development and the complex set of factors affecting its emergence (environment, structure, culture) • The entrepreneur as the foundational “unit of analysis” • Motivations, situational forces, triggers, experiences, path through the entrepreneurial process • Policies focused on addressing their challenges

9. What is Entrepreneurship Policy? • Policy designed to: • encourage more people to consider entrepreneurship, • move into the nascent stage, and • proceed to the entry and early stage development of a business. • Aimed at the pre-start-up to early post-start-up phases of the entrepreneurial process; • Addressing the issues of Motivation, Opportunity and Skills Opportunity Awareness Nascent Start-up Post-start-up Growth phase phase phase (up to 42 months)

10. Entrepreneurship policy and SME policy – related but distinctive Focus on individuals Focus on firms Increase potential supply Increase competitiveness Pre-start + support Post-start-up + support Entrepreneurial culture Favorable business environment Awareness Nascent Start-up Post-start-up Maintenance/ phase phase phase (up to 42 months) expansion

11. Four broad E-policy challenges 4) Supporting the first 3-4 years of start-up vulnerability (survival and growth path) 3) Converting nascents – moving from intent to action to start-up • 2) Creating nascents • introducing people to concept of entrepreneurship • instilling “know-how” at an early age • removing career disincentives Influencing an entrepreneurial culture (social legitimacy)

12. Entrepreneurship policy – essential features • Clear statement in high level policy documents about the importance of business dynamics to economic renewal and growth • Plan for accelerating entrepreneurship activity presented in one policy framework • Rationale, objectives, explicit targets, set policy lines of action, policy and programme priorities and measures • Reinforced in other government policy documents • Quantified targets (e.g., increase in SU rate, # of entrepreneurs, level of entrepreneurial dynamism) • Specific budget allocation • Clear responsibility for implementation of policy framework across ministries • Performance indicators for improved culture, climate, conditions for new entries, entrepreneurial activity levels

13. Framework of entrepreneurship policy areas Objectives √ Create dynamic start-up market for entries and exits √ Stimulate climate and culture for entrepreneurship √ Stimulate more entrepreneurial activity; new businesses; entrepreneurs Promotion of entrepreneurship Start-up support Entrepreneurship education Start-up/seed financing Reduction of entry/growth barriers Target group policies

14. Objectives Increase social value and legitimacy Create more awareness Increase exposure Celebrate local role models Measures Awards/recognition programmes Media activity – TV, radio, print features Conferences and events (e.g. Entrepreneurship Week) Promotion of entrepreneurship Critical role in fostering entrepreneurship culture Not well articulated area of e-policy – lots of rhetoric

15. Objectives Expose youth from early age to entrepreneurship concepts and knowledge Increase opportunities to gain venturing know-how and experience Measures Integrate content in levels of the education system Take stock of curriculum; include in National Curriculum Guidelines Action plan for in-servicing teachers Support for youth entrepreneurship programmes Expansion of tertiary programmes and enterprise infrastructure Business plan competitions/ awards Entrepreneurship education Component of “Motivation” and “Skills” Major developments in government policy support since 2002

16. Objectives Reduce time and cost to start a business Reduce regulatory/other barriers to start-up and growth Remove “disincentives” Create enabling policies Measures Streamline registration & start-up “One-stop” shops, SBNs Flexible Company Law More open competition More flexible labor laws Review of social safety nets Favorable tax policies Exemptions, tax breaks for firms and investors Better regulation units - RIAs Less punitive bankruptcy regimes Barriers to entry and exit Component of “Motivation” and enabling “Opportunity” Emphasis on reducing government failure

17. Objectives Address market failures in new firm access to financing (“risk”, “information asymmetry”, “underdeveloped capital market” factors) Ensure multiplicity of financing options for various stages of growth Measures Micro-loan programmes Starter and pre-venture funds Loan guarantee programmes Partnerships with banks (e.g., Enterprise Loans, SME windows) Seed capital funds for technology firms Incentives for angel/venture capital investment in early-stage firms Support for business angel networks Information brokering programmes Access to start-up/seed financing Component of “Opportunity” Redirect more available financing for start-up activity

18. Objectives Reduce systemic failures Increase availability and ease of access to advice and counselling Facilitate transfer of know-how among entrepreneurs Improve access to information Measures First-stop shops Web portals Network of enterprise centers, start-up centers, regional “entrepreneurial nodes” Support for mentoring and training services Quality of business advice National incubator strategies Support for entrepreneurial networks Provision of start-up business support Component of “Opportunity” Adjust SME support to include pre-start-up assistance

19. Objectives Increase start-up rates among under-represented groups Jobs, social inclusion, labor market integration, equity Stimulate technopreneurship Wealth creation, commercialization of technology Measures Group 1: women, youth, ethnic minorities, etc enterprise centers, micro-loans, awards, advisory services, networks, webportals, procurement Group 2: People in knowledge environments (graduates, researchers, technologists pre-seed funds, incubators, IP and prototype support, mentoring, entrepreneurship training/networks Target group policies Tailoring policies and measures to needs and circumstances of different segments of population – “one size does not fit all”

20. Policy framework for innovative entrepreneurship Government labs Intellectual property policies /processing of patents/patent advice Research institutes Universities Access to R&D tax credits Funding of university incubators, innovation/tech transfer centers (IMO) Encourage techno-starts and spin-off firms Pre-seed funds, early stage VC and angel funds Role-models; award programs; innovation BP challenges Entrepreneurship education for engineers and scientists Support for clustering and networks

21. Performance indicators • Indices to measure changes in entrepreneurial culture, climate, vitality • Population surveys to measure attitudes, intent • Data on business formations per capita • Changes in TEA, business dynamics – annual churn rates • Target group share of entrepreneurship • Impact measures for each policy framework area • Performance indicators for individual programmes/ initiatives • UK, FI, NL, DK producing valid indicators; measures of policy impact • Evaluation

22. Formulating entrepreneurship policy… • Examine “context” • Set entrepreneurship policy objectives • Assess e-policy foundations (M-O-S) • Review six policy framework areas • Configure e-policy orientation (4 types) • Align policy and delivery structures • Identify performance indicators • Action plan and budget • Implementation

23. Conclusions re success: depends on… • Commitment from the top • Champions • Common vision/national framework • Policy and program delivery structures • Exposure, density, role models • Consideration of context • Structure level of Vitality • Vitality Outcomes • Outcomes change in Structure • Research and evaluation (bodies of evidence) • Integrated set of policy measures • Ongoing promotion of culture • Building capacity; networks to share approaches • Persistence/continuity

24. Argument for integrated e-policy approach • Good economic framework conditions ARE NOT sufficient to produce more entrepreneurs • But if good conditions DO NOT exist, it will be difficult to achieve good outcomes from specific e-policy measures • Promoting entrepreneurship will be less effective if there are “quiet disincentives” in the social security and taxation system • If it is difficult and costly to start a business, open competition does not exist, and entrepreneurship has low social value, then encouraging people to start businesses may be fruitless

25. Implications of e-policy focus • Need to promote Entrepreneurship Development framework approach – invest in all parts of the system • Need to celebrate entrepreneurs in the regions • Need to integrate entrepreneurship principles in economic and public policy education • Need to teach e-policy; how to use entrepreneurship as an economic development tool; not just New Venture Creation • Need to educate community of policymakers and service deliverers – across ministries • Need to share approaches – arguments, bodies of evidence

26. Entrepreneurship Education New Firm Creation Innovative Entrepreneurs Under-represented groups Innovation Policy SME Policy Collage of policies… Regional development policy Trade Policy "HOLISTIC" ENTREPRENEURSHIP POLICY Education policy Regulatory policy Social policy S&T policy Gender Policy Labor market policy Immigration policy