We take the ecosystem of entrepreneurship as a starting point. In short, this concerns the entirety of companies and activities related to (ambitious) entrepreneurship in a certain area, their interaction and environmental factors. After discussing the importance and development of entrepreneurship, we then go deeper into the different parts of this system. A well-functioning ecosystem is of great importance to create more value from entrepreneurship[1] .
The Ecosystem of Entrepreneurship
In the system there is a distinction between so-called preconditions and system elements (figure 1). There is not yet a uniform definition, but there is a clear difference with established concepts in this field such as clusters, systems and learning regions. In the ecosystem, the entrepreneur himself is central, and not the company as a whole. The similarity is that entrepreneurs create new value (Stam, 2014). There are three components to entrepreneurship. Seeing opportunities, exploiting them and creating value. It is difficult to define entrepreneurship empirically ( Stam, 2013 ). There is a distinction between behavioral definitions (being innovative, entrepreneurial behaviour) and legal definitions (a new venture or independent entrepreneurship).
The causality in the system and the ultimate effects on value creation have been studied to a limited extent. More knowledge about such (regional) systems can lead to more value creation in the areas of productivity, innovation, income, employment and well-being through management of the elements via entrepreneurship. Because while the number of self-employed entrepreneurs and new businesses has increased over the past twenty years, this is not reflected equally in an increase in innovation and productivity. The government policy to stimulate entrepreneurship has not led to an equal increase in innovation and productivity from entrepreneurship. This is also referred to as the ‘entrepreneurial paradox’ ( Stam, 2013) and can partly be explained as institutional. Think of certain tax benefits that have resulted in an increase in self-employment (see also: Freelancers during the crisis ).
The importance and degree of entrepreneurship are increasing…
Entrepreneurs and their companies are of great importance for economic activity and thus the earning capacity of an economy. The importance of entrepreneurship is related to the value creation it emanates. The small business[2] , a large part of the ‘entrepreneurial’ Netherlands, accounts for almost thirty percent of employment and gross added value in the private sector (table 1). The business landscape is increasingly characterized by smaller and new companies (figure 2). This also has to do with the increased share of self-employed people without employees (self-employed persons without employees).
But that does not mean that all small businesses also have entrepreneurship or are innovative, as the entrepreneurship paradox shows. After all, this depends on the degree of innovation of the company and its adaptability. By no means all small entrepreneurs are dynamic startups and by no means all small entrepreneurs become fast growers. Furthermore, there can also be entrepreneurship within organizations (‘intrapreneurship’). This mainly concerns ambitious employees who are looking for new opportunities. The Netherlands scores very well on this from an international perspective: six percent of the adult population in the Netherlands is regarded as entrepreneurial (Stam et al., 2011).
The contributions of (young) companies to renewal and innovation, also known as creative destruction, leads to new products, services and knowledge. It is mainly the fast-growing companies that are of great value to the Dutch economy. Within this, so-called ‘startups’ usually receive above average attention.
Box 1: What is a start-up?
A startup is a starting (group of) entrepreneur(s). But a starting entrepreneur is not immediately a startup. There are different definitions of startups. By the way, ‘startup’ literally means ‘to start’ in English, so in this context just ‘starter’. In the Netherlands, there is usually a distinction. The similarities between the Dutch definitions often run along the lines of age (both of the entrepreneur and of the company itself), the innovative element (degree of innovation), the number of employees, the growth potential and the feasibility of ideas.
There are underlying differences between the interpretation of these definitions. For example, one believes that a company should only be called a startup if the product or service has a disruptive character in addition to being young and innovative. This means that the startup causes a fundamental change in a certain market. Examples of this are WhatsApp or Skype. These companies have had a significant effect on the telephony market. Others believe that a startup does not necessarily have to be technologically oriented.
We consider a startup as a starting company with an innovative idea that creates a product or service that is scalable and repeatable. This service/product is created using new or emerging technology but is not necessarily the nail in the coffin of any other product or service. This is mainly because this cannot be measured in all cases.
Starting entrepreneurs are mainly active in the trade, transport, hospitality and business services and real estate sectors (figure 3)[3] . The increase in the number of starters in the healthcare sector may be related to the reforms in this sector, which have led to an increase in the number of self-employed persons without employees. Furthermore, the decreased importance of the construction sector can be explained by the recent crisis, which has caused a sharp decline in the number of starters in this sector.
The chances of survival of starters increase if they carry out international activities from the outset. This is due to the larger sales market and economies of scale compared to starters that focus exclusively on the Dutch market. There is a question of causality here: it is possible that it is precisely the better entrepreneurs who do business internationally, while it has little to do with international opportunities through product or market niches. In addition to the degree of international activities, the nationality of the entrepreneur also influences the chances of survival. Any benefits of a non-Dutch nationality, such as other languages and/or market knowledge, do not outweigh the disadvantages such as a more limited network in the Netherlands and possible barriers in the field of language, knowledge and education (CBS, 2016 ).
Box 2: Activities within (international) value chains
When small and medium-sized enterprises (SMEs) work together in an international chain with one or more foreign partners, in terms of role or type of cooperation, these companies are mainly active in the field of supply, outsourcing, joint purchasing, cooperation in the form of joint ventures, research and development, and licensing ( Rosenbrand et al., 2003 ; EIM, 2005 ).
Cooperation in an international value chain offers these companies the opportunity to benefit from knowledge spillovers from, for example, multinationals or other companies ( Van Essen and Bhansing, 2009 ). In addition, participation in an international value chain can also strengthen the international competitive position and thus also increase the chance of survival.
However, barriers can also arise. A turbulent international market and being increasingly part of it means by definition that the flexibility of a business model and the adaptability of an entire company are of great importance. Innovation also has an effect on this (Stegeman, 2016). It follows from this that a certain degree of resilience is also necessary to be able to change as an organization: a small change in the environment should not lead to the end of the revenue model.
Within the group of ‘fast growers’, the relationship with characteristics in terms of international activities is clearly visible (figure 4)[4] . Fast-growing companies in international trade even made up more than 21 percent of the total of fast-growing companies in 2014. Incidentally, companies that both import and export have the greatest chances of survival, instead of unilateral international trade via imports or exports alone.
…but how can entrepreneurship add even more value?
With regard to the ‘entrepreneurship ecosystem’, there are many other factors that play an important role in the survival of an entrepreneur and his company. In addition to the competencies of an entrepreneur himself, networks, formal institutions, talent and culture, new knowledge and financing are also important for value creation from entrepreneurship. Characteristic of a well-functioning ecosystem is that all elements complement each other in such a way that together they provide more value. For example, the role of well-developed institutions has an effect on education (new knowledge and new talent) and financial markets (access to finance).
One entrepreneur is not the other
The entrepreneur himself plays a crucial role in achieving success. An entrepreneur’s business and personal goals must therefore match his competencies. Driessen et al. ( 2010 )[5] therefore distinguish between entrepreneurs.
Box 3: Different types of entrepreneurs
Driessen et al. ( 2010 ) distinguish three groups of entrepreneurs. The idea behind this division is that each group has shown that the characteristic competencies are related to their personal and business goals. This confirms the impression that there is a so-called ‘fit’ between the competencies and goals of an entrepreneur.
The growth entrepreneur
This entrepreneur has a clear and outspoken growth intention and, relatively speaking, the highest growth potential . He wants to conquer the market. This group comprises approximately fifteen percent of the total group.
The lifestyle entrepreneur
Has no explicit growth intention and average growth potential. Growing is fine as long as doing business remains pleasant. As soon as this is no longer the case, there is a good chance that this entrepreneur will do something else.
The small entrepreneur
has a very clear intention not to grow and therefore has the lowest growth potential. This type mainly does business with his knowledge and uses this knowledge to generate income. This is the largest group.
This analysis provides valuable insights in the establishment of a company. But as a company grows, other competencies will play a role. After all, different growth phases of a company also require different competencies.
In agreement with Miner ( 1997 ), Driessen ( 2005 ) distinguishes four different thinking styles of entrepreneurs that are related to the phase of a company. For example, in the so-called early and expansion phase of a company, competencies such as market orientation, creativity and flexibility are important. In the mature phase of a business cycle, managerial, organizational and motivational qualities play a greater role.
The role of networks and institutions
In addition to the qualities of the entrepreneur, the presence of networks and formal institutions is also an important precondition for successful and ambitious entrepreneurship. A network is a good way for entrepreneurs to gain knowledge about other important parts of the ecosystem, such as access to finance, technologies and new markets ( McKinsey, 2014 ). The density of the network is also important, for example through a strong community of startups and entrepreneurs, together with dedicated and visible investors and advisors (Stam, 2014).
A society and an economy benefit from the quality of the (formal) institutions, such as legislation, judiciary, education, etc. For entrepreneurs, labor market institutions related to social security and the degree of flexibility are increasingly important. Although Dutch institutions are generally well developed, the hiring of employees is hampered by regulations in this area ( McKinsey, 2014). This also applies to rules on continued payment in the event of illness, which is even perceived as a risk. In the Netherlands, if an employee is ill, the employer continues to pay wages for a maximum of two years; abroad this is considerably shorter. The entry of new (potentially) productive firms and the exit of inefficient firms also play a role. An example is bankruptcy law. Too strict legislation in this area hinders the potential inflow of new and outflow of inefficient companies ( Stam, 2013 ).
The importance of talent, culture and new knowledge
The presence of sufficient diversity and ability of talent is also important. Particularly in relatively small, fast-growing companies, the entrepreneur himself does not always have the knowledge and skills to adapt quickly enough to changes. Interaction with others is very important for the exchange of knowledge. Public-private partnerships via knowledge institutions are a good source of knowledge exchange for starting entrepreneurs.
Well-trained people are the key to (innovative) companies that ensure higher value creation. That’s not to say we all need techies; creative minds, but also people who can organize well are essential for innovation. This also require a culture of innovation and being allow to fail. In an organization that focuses on ticking off lists, where change and innovation are mainly see as threatening and contrary to the current ‘order’, innovative employees cannot express themselves (Stegeman, 2016).
Access to appropriate financing
Finally, the (good) plans must also be finance. This challenge mainly applies to startups and smaller companies. In general, Dutch businesses make relatively extensive use of bank loans compared to other forms of financing. Despite the still limited size, new forms of financing can contribute to the growth potential of companies in the future (Stegeman, 2016).
The future of entrepreneurship
In a dynamic economy in which information is freely available, capital and labor are mobile, and production increasingly takes place in international value chains, the added value of entrepreneurship is increasingly important. But while the quantity of business dynamics has increased, the quality of entrepreneurship in terms of value creation is a point of attention. Not so much because of the entrepreneurs themselves, but more because of the lack of an increase in productivity and innovation that has accompanied the increase in the number of new businesses. This is also know as the entrepreneurial paradox. A well-functioning entrepreneurial ecosystem can offer a solution in this regard.
Footnotes
[1] This concerns so-called ‘ambitious entrepreneurship’. Stam et al. (2011) consider ambitious entrepreneurs as individuals who discover and evaluate opportunities for new goods and services with the aim of maximizing new value creation. This goes beyond being ‘your own boss’ and striving for self-development.
[2] The term ‘small business’ refers here to companies between 2 and 50 employed persons, and an annual turnover of less than 7 million euros or a balance sheet total of less than 5 million euros.
[3] Statistics Netherlands qualifies a company formation as the creation of a new company. It is also important that the company is actually new. The continuation of one or more existing companies is therefore not an establishment.
[4] The CBS speaks of a ‘fast grower’ or ‘fast growing company’ when the company achieves an average annual growth of at least 10%, measured by the number of employees, over a period of three consecutive years.
[5] Driessen (2005) has developed a model that can be used to determine to what extent an entrepreneur’s goals match his competencies. This makes it possible, for example, on the basis of competencies to distinguish between ‘fast growers’ and entrepreneurs who want to remain small-scale.
Comments are closed.