Entrepreneurship is vital to growing markets. And across most of Europe, entrepreneurship is lacking because of poor macro economic conditions, which push investment away from the Old Continent or re-direct all the available capital into savings rather than FDI. In 2013, the Global Entrepreneurship Monitor found that in Europe’s largest economies, only 6% of the working population set up or ran a new business. By contrast, in BRIC countries and the U.S., 10%-17% engaged in this kind of early-state entrepreneurial activity. Europe’s paucity of substantial investment in innovation highlights the urgent need for European businesses and governments to work together to develop a new entrepreneurial innovation model to tackle financial deficits, create financial stability, and pull them through future crises. Furthermore, a study conducted by the World Economic Forum, back in 2014, portrayed an unhealthy state of Europe’s start ups. Many in number but with a quite low conversion rate to late expansion and unbroken record. In some cases, back in 2013, the rate of default was as high as 60%. Numbers that reveal that the integration of ideas, capital and scale are not integral to an ecosystem but still very scattered.
The EU needs to invest in an entrepreneur-driven innovation ecosystem to foster recovery and new prosperity. It must shift its core understanding of entrepreneurship away from a profit-driven model and the industrial conglomerates, toward a model driven by value-seeking disruptive entrepreneurs, which are able to generate new products and markets and naturally new jobs. They’re different from small business entrepreneurs because they have different modus operandi: rather than merely seeking profit or accounting balances, they seek out market failures, overturn existing networks and structures, and create value and new markets. They innovate to break open and redefine entire spaces in the economy, and then existing blue chip corporations follow into these new and enlarged markets with greater growth expectations. The innovation driven entrepreneurs define a new gravitational pool of innovators, incubators, business angels and crowd-funders. It is an ecosystem in the way these actors interact, exchange and create jointly.
One classic example is of Henry Ford and his Model T. It was the lower cost, mass-produced version of the automobile, not the invention of the automobile, that upturned the standard mode of transportation of the time, the horse-drawn carriage. Europe needs this special breed of entrepreneurs because they help create disruptive innovation and economic resilience by offering new growth potential where old growth has slowed.
Building an entrepreneurial ecosystem requires action from multiple stakeholders, including governments, corporations, start-ups, private equity, research labs, and universities. We find that the following steps may be necessary for policymakers to initiate and foster the facilitation of such an environment:
- Remove bureaucratic obstacles that block their flows, like high taxes and rigid labor laws in order to achieve serendipitous collisions of ideas, IP, capital, and talent. This would help reduce the financial risk for entrepreneurs and investors to enter into new ventures that have the potential to flourish and lift up the economy.
- Establish links between public servants with research labs, startups, and corporations, in order to create dedicated think tanks, designed to serve the ongoing dialogue among entrepreneurs and the territories.
- Test ideas for government intervention and implement large-scale initiatives to jumpstart entrepreneurial activity through beta version, prototypes and pilots, capable of raising the learning cycle and the opportunities arising from a more systemic integration of ideas.
One clear example of the above recommendations can be found, for instance, in Denmark’s innovation lab, MindLab, is one example of this kind of innovation think tank which nicely gels stakeholders of the same system. MindLab worked with highly skilled professionals in Denmark to develop a social network that would create the right incentives for highly skilled workers to stay in Denmark instead of leaving the country. This is achieved though a collaborative model among parties.
The next step would be to develop a tool that measures and connects entrepreneurial activity. For instance, in the U.S., innovation labs like MIT’s Media Lab created a visual network called Macro Connections to connect communities with research data and methods. The tool allows actors to seek out others with similar research in order to facilitate innovation, share information, and pursue collaborations.
Through more accommodating laws, collaboration, and technology, policymakers can bring researchers, entrepreneurs, and public servants together to identify opportunities for disruptive economic change to better Europe. Innovation ecosystems, when generated by the interface of policy, innovation and institutions for collaboration help economies withstand drastic economic shocks and financial bubbles.
About the authors:
*Mark Esposito is Professor of Business & Economics at Grenoble School of Management & Harvard University’s Division of Continuing Education
Terence Tse is Associate Professor of Finance at ESCP Europe Business School
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