LOCAL CITIES can prosper if municipal officials work closely with universities, funders and mentors to set up an entrepreneurial ecosystem. So says Professor Dan Isenberg of the Babson Entrepreneurship Ecosystem Project who visited Cape Town in November.
In the year or more that his initiative has been in operation, Isenberg has helped 25 cities to foster entrepreneurship.
The key to creating an entrepreneurial eco-system, he believes, is for key roleplayers such as banks and financial institutions, government organisations, business associations, universities and schools, to form a coalition that sets up an organisation independent of any one of the stakeholders.
For such an ecosystem to prove successful the roleplayers must address various factors: including creating an enabling culture of entrepreneurship, building the necessary human capital, encouraging networks and clusters and putting the right infrastructure in place.
And cities are principally placed to boost entrepreneurship, because entrepreneurship is often very localised. Entrepreneurs cluster in what Isenberg refers to as watering holes.
“California is not a hotbed of entrepreneurship, but Silicon Valley is. Massachusetts is not, but Boston’s Route 128 is,” he points out.
Isenberg believes that though governments have an important role to play in setting up infrastructure, improving education and to some extent boosting the country’s research and development (R&D) capacity, it should not be trying to get too involved in assisting business owners.
This is particularly so when it comes to financing businesses, where he believes government’s involvement should be limited unless they know how to exit to the private sector, which is good at funding businesses. The same can also be said for any marketing, business support and export assistance programmes, he says.
Furthermore governments should refrain from setting up clusters and should rather look to scale up existing clusters where entrepreneurs have already gathered and were doing well. In this way clusters would have first passed the “market test” before getting support.
Similarly he says, governments should also refrain from picking key sectors to finance and support. Remaining “sectorally agnostic” he says, sends out a strong message, because it encourages entrepreneurs to identify what they themselves believe to be opportunities rather than what bureaucrats, tell them will work.
Self-employment vs entrepreneurship
But maybe most importantly, the aim of an entrepreneurial ecosystem should not be to create more small businesses (a mistake many governments make), but to rather foster more entrepreneurs which often create more economic growth than small businesses alone.
There’s a “huge difference” between self-employment-type businesses where the main aim for the business owner starting the business is simply as an alternative to wage-based employment, and entrepreneurs, who start ventures for the sole reason of growing very big, he says.
Most governments, however, battled with the idea of supporting entrepreneurship as they perceived it as “elitist” or because it ignored the majority of small businesses, he said.
Isenberg however hastened to add that this didn’t mean it wasn’t important for governments to also support small businesses, but pointed out that these had to be treated in a different light to entrepreneurs.
And though he did not want to chance a guess at how governments should balance their support for small businesses with that for entrepreneurs, he believed about 0.5% of a country’s budget should be dedicated to fostering entrepreneurship.
Supporting entrepreneurs is “a never-ending story” maintains Isenberg, who points out that in all his years assisting entrepreneurs around the world, he has yet to come across a city which says it has enough entrepreneurs.
For example Boston of all places, situated in one of the most entrepreneurial countries in the world – the US, is introducing a programme to generate more entrepreneurs.
Yet Isenberg is quick to add that it’s no easy thing to learn from other countries when improving your level of entrepreneurship and that policymakers often get it wrong by cherry picking best-case examples. For him it’s “more of an art than engineering”. “There’s no recipe, the only recipe is to delve into the specifics,” he said.
Though Isenberg’s message is hitting home in cities the world over, the real trick for South Africans will be to forget about our differences and partner together. For entrepreneurs are our future leaders.
This column was featured in the January 2011 issue of Entrepreneur (SA) magazine.
Stephen Timm is a