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Entrepreneurial activity is always essential for broader economic growth and development, though its specific role has shifted depending on era and location. Below we explore the issues that are to be examined and tackled for Entrepreneurship to be achieved pursuant to the UN 2030 agenda.
Entrepreneurial Ecosystems and Platforms
Platform-based strategies change the ways organizations conduct business by increasing openness and engaging more freely with external entities.
More entrepreneurs can succeed if they are able to more freely collaborate. The last few decades have seen the emergence of platform business models that take a flatter, more inclusive, and innovation-centric approach to value creation.
Some of the world’s biggest companies, like Uber, Amazon, and Meta (formerly Facebook), were startup platforms that grew rapidly by orchestrating value-creating interaction among independent suppliers and users.
Entrepreneurial firms typically lack resources and legitimacy, and their technological, organizational, and financial resources tend to be scattered and asymmetrically distributed; this prompts them to collaborate with other, often larger and better-resourced organizations that can give them access to customers and distribution. However, such alliances are not always easy to establish and govern due to size and cultural differences. In this context, the participation of entrepreneurial firms in digital platforms can be critical for survival - as these platforms can grant entrepreneurial firms much-needed exposure to customers and business partners. Examples of this include sellers whose products become highly successful on Amazon or Etsy, or fintech firms who join a digital bank’s platform to reach new users.
Establishing and scaling up a platform is not easy, however. Entrepreneurs sometimes need large infusions of funding to help incentivize platform members to join - by giving cash to customers opening new accounts, for example, or giving smart phones to Uber drivers.
There are also many instances of entrepreneurial firms establishing new platforms. Airbnb, Deliveroo, and PatientsLikeMe are examples of addressing a gap in a market by connecting seekers and providers of information, services, and products.
The concept of “ecosystems” has also gained traction among academics and industry practitioners as a way to boost the odds of survival for entrepreneurial firms. These are groups of firms that (co-)create and capture value through collaboration thanks to their complementary natures. Ecosystems are common in industries like advertising and automotive, and can take hold and increase value in many contexts.
Ultimately, platforms and ecosystems can enable more entrepreneurs to succeed - by facilitating a collaborative, rather than purely competitive, mindset. For entrepreneurial firms, understanding the ways they complement other firms and joining (or creating) ecosystems accordingly may be crucial - because they can provide much-needed resources for research & development, marketing, and distribution through collaboration.
The Venture Lifecycle
Whether it remains independent or is acquired, a venture will follow its own development path. The details of any development process are both idiosyncratic and unpredictable, and final outcomes are inevitably influenced by the skills and ambitions of the venture’s founding team. Lifecycle patterns also differ by industry and geographic location.
The typical lifecycle of an entrepreneurial venture begins with an initial idea stage and ends with either having to close down a failed company, getting acquired, or growing into a mature entity. Each stage of the lifecycle comes with associated risks and challenges - and while every company may have its own unique path, there are many common patterns and waypoints.
Initial ideation is fundamental, and is ideally followed by founder commitment and incorporation, product development and testing, pilot projects and customer feedback, business model development, market launch and initial sales, market expansion, product line expansion, and organizational growth.
At each stage, there are considerable potential risks. The same entrepreneurs who define their business plans, garner resources, and develop operations must also de-risk their venture by achieving milestones and gradually establishing the economic viability of a fledgling business.
There is a learning process for any entrepreneur, which involves testing different hypotheses and responding to feedback by either pushing ahead with the original plan, pivoting in a new direction, or abandoning ship. Company leadership will learn over time whether it should remain independent, or would benefit from being acquired.
Even after an acquisition, a venture will continue along its own development path - though that becomes part of the acquiring company’s lifecycle. For ventures that remain independent, staged financing usually keeps step with development.
The innovation introduced by entrepreneurial companies must often compete with - and sometimes displace - the mainstays of industry incumbents. That process is commonly referred to as “creative destruction.” The most successful ventures reach an “exit” event, where investors reap a return either through an acquisition or an initial public offering of stock.
The startup lifecycle is sometimes linked to broader industry cycles, particularly when there is a parallel development of new ventures and new markets. The latter requires establishing some necessary infrastructure and a sufficient understanding of the benefits and risks of a new product category.
Entrepreneurship and Development
“Development” is often defined as balancing social prosperity, economic performance, and environmental resilience - for the benefit of both current and future generations. The SDGs frequently set the agenda for entrepreneurs aiming to make a positive contribution.
On one hand, entrepreneurship generally creates jobs, drives economic growth and innovation, and contributes to better living standards. On the other, its benefits are often unevenly distributed, frequently lead to the overexploitation of natural resources, and can negatively impact vulnerable populations.
Entrepreneurship plays an important role in development, by creating and expanding access to new products, technologies, and services, often in concert with public initiatives. These efforts can have both positive and negative impacts on social behavior, general well-being, employment, and the environment. This raises practical and policy questions about the merits of entrepreneurial activity beyond the accumulation of wealth - including about how it may benefit some communities more than others.
Within the context of development there is therefore a need to reconsider some common assumptions about entrepreneurial activity, and focus on ways to make it work better (and more fairly) for society. At present, the agenda for entrepreneurs aiming to make a positive contribution to development is often set by the United Nations’ Sustainable Development Goals (SDGs). When entrepreneurial efforts coalesce around development challenges (particularly the most pernicious, persistent, complex, and widespread), the intent is often to expand access to goods and services, and to generate more sustainable and socially-inclusive innovation.
Numerous entrepreneurial experiments in the context of development in recent decades have taught us how crucial the local cultural and political context is for both the process and outcomes - and many examples have illustrated the need for equal amounts of discipline and inspiration for future generations of entrepreneurs.
The success of entrepreneurial activity cannot be judged simply on the basis of shareholder value; instead, the value created for the most marginalized communities becomes key. The challenge now is to learn from these efforts, whether large-scale, state-subsidized capacity- and infrastructure building, or the work of civil society agencies at the village level.
Entrepreneurial networks and new ways of organizing are key, as single actors may not have the capacity necessary to address complex challenges on their own. The core questions are how value is best created and distributed, and how to create an enabling ecosystem where entrepreneurial activity on the part of companies, governments, and community groups can flourish.
Entrepreneurial Finance
Social Entrepreneurship
Most startup investors are accountable to their own institutional backers.
Entrepreneurs need investment throughout their venture-development cycle, and generally obtain it through multiple funding rounds; each will likely involve a new valuation and terms.
Seed- and early-stage investments are generally funded by family and friends, angel investors (wealthy individuals using their own money), crowdfunding, or one of the many seed-stage funds established by governments, universities, or accelerator programs. Later investment rounds, usually classified as a Series A, B, C, etc., are supplied by venture capital funds, corporate investors, and (potentially) institutional investment funds.
Investors generally retain their shares until an exit event like an initial public offering of stock, an acquisition (including partial sales and asset liquidations), or a secondary sale of shares to another investor.
After an investment has been made, investors often play several different roles at a company, including sitting on the board of directors, providing informal advice, making networking introductions, preparing further fundraising, and starting the exit process. Most investors primarily want financial returns, but some are also in search of strategic benefits or may be pursuing social objectives. Some investors, such as angels or family offices, invest their own money, though most deploy other people’s money - and are therefore accountable to their own investors. For example, venture capital funds are typically structured as limited partnerships, with their funding coming from institutional investors such as pension funds. In general, investors differ in terms of available funds, investment preferences, risk appetite, time horizons, reporting requirements, and governance practices; investment practices also differ across countries, and are constantly evolving.
Financial investments in high-growth ventures typically involve taking equity, and occasionally some debt-like structures. For each equity round, investors negotiate the issuance of new shares at a new price to generate a fresh company valuation. Each deal also specifies the type of shares allotted (such as “preferred” shares granting special rights), voting rights, and other matters such as anti-dilution rights that can shield investors.
The investment process usually starts with the introduction of a company to potential backers, followed by the entrepreneurs’ pitch, and some investor due diligence. Investors frequently form syndicates and jointly negotiate a term sheet - which becomes the basis for a legal investment agreement.
Social entrepreneurship gained traction between the 1990s and 2010s, as more funding was made available by philanthropies, governments, and companies, and as venture philanthropy and social-impact funders emerged as critical intermediaries. Focusing on impact rather than profits comes with myriad challenges.
Social entrepreneurship involves creating and implementing solutions to problems like unequal access to healthcare, poverty, gender inequality, water scarcity, and a lack of educational opportunity. Social entrepreneurs (and their ventures) generally share a commitment to social progress as opposed to maximizing profits, and they tend to deploy unconventional strategies and solutions.
Social entrepreneurs came to be seen as heroic figures with strong ethics and a clear vision of what it takes to defy the status quo, against all odds.
However, this overlooks the fact that entrepreneurs’ motivations are diverse, their aspirations vary, their impact may be smaller than expected and too often focused on the near-term, and their efforts can have unintended consequences for some people.
Communities of founders and funders are increasingly recognizing the need for collective action and coordination, and the importance of longer-term vision. This means looking beyond single “heropreneurs” to focus on multiple, complementary actors with varied interests - who nonetheless have a stake in a particular social issue or policy.
Social entrepreneurs are numerous and diverse, and their ventures may integrate profit and purpose in different ways. Some, for example, use the profits from select businesses to implement social-purpose initiatives, and may combine revenue with donations or grants. Their rich array of forms, strategies, and governance arrangements point to ongoing experimentation - and many routes to success.
They face many challenges compared with typical entrepreneurs; the most notable being skepticism regarding their often innovative, unconventional strategies and business models. They struggle to find and retain qualified, committed employees, who tend to enjoy less pay and stability than they would at for-profit businesses. They may also often have difficulty convincing others of their ability to attract capital and develop self-sustaining revenue streams.
Many social entrepreneurs are striving for deeper engagement on specific social ills and challenges, rather than attempting to rapidly expand across geographies. In either case, the challenge is often to scale up not only operations, but also impact.
Social entrepreneurs often have intimate connections to local contexts and stakeholders, and some have strong ties to broader networks that span across regions - helping them tap sources of financial and intangible support to expand their impact.
The Entrepreneurs
Context matters, and people with an ability to read and respond it have an edge. Entrepreneurship has also been incorrectly portrayed as the unfolding of a stepwise process. There is no single recipe, there is no job description for an entrepreneur, and there is no single pathway for progress.
Entrepreneurs must constantly respond to situations with a lack of information, under time constraints, and in changing contexts, and often must choose among multiple seemingly viable paths forward. Context matters, and the ability to read and respond to it can be an important advantage.
The entrepreneurial process is typically initiated by a small group of people committing to launch a new venture. The original contributors are usually deemed founders, though the issue of defining exactly what a founder is can be contentious.
There is a distinction between solo founders, who consider themselves to be the sole (or at least main) drivers of a venture, versus founder teams. The skills and talents of founders (solo or team) are likely to have a tangible impact on the development path - and ultimate success - of the venture.
Prior work experience can of course help, and “serial entrepreneurs” (founders who have already been involved in at least one startup) can benefit from prior experiences including both successes and failures.
In addition to measurable “hard” skills, founders also benefit from “soft” skills - like personal motivation and perseverance, and an ability to communicate well and engage with others. However, there is no single formula for entrepreneurial success, and there is a wide range of opinions as to what individual characteristics and what team combinations are best suited for different types of ventures.
The success of entrepreneurial ventures depends on external stakeholders. Investors, both at early stages (including “angel” investors) and later stages (venture capital firms and corporations) not only provide much-needed financial resources, but also advice and legitimacy - creating a network effect.
In highly regulated industries such as education, energy, healthcare, or finance, public entities are also crucial; regulatory permission and licenses can be essential for operations and growth. Generic templates for entrepreneurial activity may overlook contextual factors that shape the ability of a venture to adapt and flourish in different environments. Many business books and practitioners erroneously propagate the idea that there is a recipe for success replicable across fundamentally different places and sectors.
ENTREPRENEURSHIP
Entrepreneurship requires dedicated people and organizations, and an enabling context for innovating and developing new companies.
There is no doubt that the pandemic has hit entrepreneurship hard, with fewer people starting new businesses, and many established businesses failing to survive. Yet there are encouraging signs, as some entrepreneurs seize new and emerging opportunities, including for digital trade.
Entrepreneurial ventures typically go through several stages of lifecycle development, a process that most often requires some type of external financing and can usually only succeed in supportive environments.
This applies not only to startups, but also to corporate and public sector initiatives, as well as social entrepreneurship. Entrepreneurial activity is always essential for broader economic growth and development, though its specific role has shifted depending on era and location.
There is much to do to support entrepreneurship, not least in creating role models demonstrating that initial business failure can be the springboard to future success. A good place to start would be in schools, where successive generations have been ill-prepared for a life of entrepreneurial activity.