Catalyzing Ecosystems for Entrepreneurship

November 19, 2015

Thank you to all who participated in the second day of the Strengthening Entrepreneurship by Understanding Failure and Catalyzing Ecosystems E-Discussion. We had a great discussion on ecosystems that support entrepreneurship, bringing together people with diverse backgrounds, experiences, and insights.

Yesterday we focused on the following four questions:

What evidence do we have that demonstrates the success of firm-level support vs. broader ecosystem actor support and which drives greater impact?
Which areas of intervention in the ecosystem have had broad impact? What are some examples of programs?
In trying to drive collective action to change the ecosystem, who should play what role? How do we best go about this?
What are effective ways to measure ecosystem change? Who has an interest in measuring that change? Who would benefit from that analysis?

Here are the key takeaways from each of the discussions:

Question 1: What evidence do we have that demonstrates the success of firm-level support vs. broader ecosystem actor support and which drives greater impact?

It is not a zero-sum game. Firm-level support and ecosystem support should be mutually reinforcing. Developing demand-driven technical assistance to help businesses grow and forming alliances with industry buyers and key government entities is key to strengthening domestic, regional, and international markets. Interventions might focus on the firm level, especially those companies at earlier growth stages, but should be guided by overall market goals. In other words, keeping the pulse at the firm level, and fostering powerful alliances involving firms and other key actors, are both critical to broader, systemic reform (example from Carana Corporation).
Having a focused approaches that links with other practitioners' work is key to success. It is perhaps not realistic to address all aspects of the ecosystem at once, but that's where partnerships become important in order to target ecosystem components in complementary ways. For example, financial access and government policies must work together, as access to finance is important, but can sometimes be a weakness in initiatives that focus broadly on policy.
Developing entrepreneurial ecosystems may look different than developing SMEs. Supporting entrepreneurship involves (but is not limited to) supporting people, networks, and creating an environment where people can take risks.
Using ecosystem diagnostics can be helpful in figuring out the strengths and weaknesses of an ecosystem in order to drive greater impact. In addition to the Entrepreneurial Ecosystem Diagnostic Toolkit that ANDE and the UK Department for International Development (DfID) developed, other programs (like USAID's Egypt Competitiveness program) break the ecosystem down into similar components that focus on enabling government policies, incubators and collaborative spaces, culture and PR, networks, and finance. Focusing on all of these elements yielded great results for them.

Question 2: Which areas of intervention in the ecosystem have had broad impact? What are some examples of programs?

Focusing on value chains from an ecosystem perspective is one way to see powerful results. For example, several years ago, SNV found that taking a multi-stakeholder approach with value chains proved successful in helping smallholder farmers grow their businesses. Approximately 50 percent of these businesses survived for at least four years. They created a network that enabled transparency through the system and helped create policies to develop an enabling environment. Peer-to-peer learning and efforts to include multiple players helped significantly. The importance of engaging stakeholders (ecosystem engagement) at all levels creates unprecedented momentum, and fleshes out opportunities, challenges, and transparency, especially for the economic development programs.
Creating an enabling environment that addresses informal and formal rules on setting up businesses can make a big difference. For example, in the Kenyan dairy sector, after a change in regulations produced unintended results of pushing many middle level milk-sellers out of business, a couple of organizations engaged with these middle level aggregators to set up processing facilities. These organizations worked to revise some of the regulations, which put the industry back on track. It also created opportunities for new dairy enterprises and mid-level processing facilities to emerge.
Another example from the Center for International Private Enterprise involved lowering the capital requirement to register a firm in Jordan, which spurred 1,800 new firms to register. See Strategies for Policy Reform Vol. II.
Ecosystem interventions must be locally led and focus on building local knowledge to make the efforts more sustainable.
Finance still matters in ecosystem interventions. There seems to be a lack of capital at key growth stages for small businesses in emerging markets. For example, finance for equipment and purchase orders, capital markets, and more can be hard to come by. Legal structures matter around finance, as do attitudes from and for investors. For examples of organizations working to address critical finance gaps (or the Pioneer Gap), see what Enclude and Investisseurs and Partenaires are doing. In addition, while interest among commercial banks in SME lending may be growing in some countries, not all banks are sure of how to do this. In this sense, capacity building needs to go beyond the entrepreneur to other actors in the ecosystem who wish to work with entrepreneurs. This brings us to the next point.
Though finance matters, many entrepreneurs also report other needs. Mentorship, business services, and stakeholder coordination are just as important. This can also include building capacity of entrepreneurs and other ecosystem players through technical assistance, as well as connecting the academic and private sectors.

Question 3: In trying to drive collective action to change the ecosystem, who should play what role? How do we best go about this?

Development agencies, Foundations, Banks and financial institutions, and corporations all have a role (some of these are detailed at www.smallandgrowingbusinesses.org). Donor agencies are gaining interest in public-private partnerships, though there may still be challenges in getting everyone to work together due to different interests. Each situation and context is different, though, and should weave in local voices, as donors do not always have a deep grasp of the reality on the ground.
Corporations can work with entrepreneurs and SMEs through their core businesses, bringing a local focus to creating value. This, in turn, contributes to the economic development of the countries these corporations work in, and reduce supplier costs for the corporations themselves.
Finding champions is important to help drive initiatives and partnerships forward, as are good facilitators.

Question 4: What are effective ways to measure ecosystem change? Who has an interest in measuring that change? Who would benefit from that analysis?

Different actors and different communities have different goals for their ecosystems (such as job creation, more startups, more scaleups, innovation, etc.). But one potential way is to look at key economic indicators (such as profit, new hires, debt, etc.) and track them over time.
As mentioned earlier, ANDE and DFID worked together to develop a diagnostic toolkit, which may also prove helpful in measuring change.
The Kauffman Foundation has also put together a guide to measuring an entrepreneurial ecosystem that is worth reading.

Conclusion

Creating thriving entrepreneurial ecosystems takes dedication, coordination, and deeper discussions about what works and what doesn’t. Each context is different, and requires local actors to take a lead in developing these ecosystems. Providing firm-level support and boosting the knowledge and capacity of other actors and elements in the ecosystem should make interventions to support entrepreneurs even more effective. We may need more hard data, but anecdotal evidence points to promising results in terms of taking an ecosystems approach. We can learn a lot from each other to develop effective ways to measure ecosystem change and drive ecosystem interventions forward. Let’s keep these conversations going.

Catalyzing Ecosystems for Entrepreneurship

Here are the key takeaways from each of the discussions:

Conclusion

Further Reading

Contributors

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Stephanie Buck

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