Posted by: Nicholas Davis | May 6, 2014

Fostering Innovation-Driven Entrepreneurship in Europe

The Europe team and I here at the Forum have been spending a lot of time recently musing on the link between entrepreneurship and innovation. Some of these musings are reflected in a recent report I co-authored (soon to be updated for a launch in June) looks at what we term “innovation-driven entrepreneurship“, and I thought you might be interested in a quick overview.

Our research indicates that growth in jobs and economic activity is correlated with young, fast-growing companies that bring something new to markets – through process, product or business-model innovation. However, despite having some of the most innovative economies in the world, Europe as a whole suffers in terms of the conditions for innovation and entrepreneurship, including measures such as technology adoption, commercialization of ideas and the number of young, highly successful firms.

Unfortunately, encouraging such ventures is difficult from a policy perspective, as what we are talking about is a complex lifecycle of teams of individuals interacting with different organisational forms, markets and regulation in order to bring an idea to life at a large scale. However, following a year of collaborating with the best and brightest in this area (including EC VP Neelie Kroes, Finnish PM Katainen, Estonian President Ilves, innovation guru Clayton Christensen, Europe’s top entrepreneurs, a wide array of leading CEOs and many, many others), we’ve come out with three interesting ways of helping European policymakers create helpful conditions for scale-ready entrepreneurs.

The first contribution from the project is a lifecycle model that helps illuminate and differentiate between various influencing factors in the journey of an entrepreneur (see the figure below). The first thing this model does is to highlight that the end goal is not a linear progression from idea to commercial scale, but rather a circular journey whereby serial entrepreneurs reinvest their energy, ideas and capital in subsequent activities. Secondly, the model helps people recognise that entrepreneurs move in teams, not just individually, through a variety of distinct phases: from the “stand up” phase involving the initial idea and motivation to take a risk in bringing it to life, through the “start up” phase where resources are gathered and execution occurs to create a viable business, then to the “scale up” phase where a step-change in terms of economic impact is realised by expanding markets, users, employees and value. Third, the model links each of these phases with different combinations of influencing factors, both individual and on an ecosystem level, which impact how a person or organisation progresses in their journey.

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One useful piece of feedback we have received from policy makers is that this framework allows them to prioritise policy interventions depending on whether they are looking to inspire and prepare people to take risks, lower barriers to company formation, or scale existing businesses. This sounds obvious, but it is interesting how many policy conversations revolve around identifying interesting ways of intervening in one particular part of this journey, without considering whether this is the bottleneck in their country, sector or segment.

The second contribution of the project came through a survey of 1500 entrepreneurs, predominantly from Europe, and a series of interviews with top policy makers, both of which were designed to identify specific barriers within the different lifecycle phases. The final report will go into depth on these aspects, but the headline result is that, while conditions for scaling are perceived as the most unfavourable among the three phases, it is still heartening that only 37% of European entrepreneurs found these conditions unfavourable, with 41% judging them favourable (see figure below). That is a better result than many of our collaborators expected. However, if you compare this result to perceptions from North American survey respondents for their region, there is a wide gap: 64% of USA-based respondents claim that in the USA scaling conditions are favourable or very favourable. This gap might help explain why so many European ventures move to the US when they want to expand globally.

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The value of the survey is not just the country-level results around assessing conditions, but the various suggestions from respondents as to what can be done to improve the environment, and what they themselves would be willing to contribute to in order to assist others. More on this when we publish.

The third contribution draws from these two previous pieces of work to focus and create momentum around series of activities on which policy makers, entrepreneurs and large businesses can collaborate to improve these conditions and make a tangible difference to entrepreneurial ecosystems in Europe. As a teaser for the final report, here are two areas where we are planning significant work in the Forum community:

  1. Reducing the fragmentation within European and member state activities around support for entrepreneurs. There is a lot of activity already in this space but it is unfortunately characterised by a lack of transparency, high search costs and numerous sub-scale initiatives that tend to be focused at the “stand up” and “start up” phases. Thanks to online platforms, big data and the possibility of new European-level coordination, there is the opportunity to assist entrepreneurs to find the support they need at the right time, meanwhile connecting service providers to share information and, where possible, join forces for greater scale.
  2. Focusing on the opportunities for collaboration across sectors and between young and old companies. The economic structure of Europe is dominated by a wealth of SMEs, many of whom seem to have hit growth limits, and large incumbents. Both young / small companies and old / large companies can benefit from interaction whereby one brings innovation and the other brings market access. However, compared again to North America, there is less of a “symbiotic relationship” between these groups. New tools for collaboration as well as opportunities to interact can help solve this.

The overall goal of this work was to drive focus and momentum around the best examples of how stakeholders can support entrepreneurial activity, focusing of course on Europe, but which would also be applicable elsewhere. If I were to sum up the overall strategy for policy makers, it would be “focus, connect and partner” – identifying leading activities, connecting stakeholders by creating transparency around who does what, then helping people and organisations partner across sectors, countries and organisational types. This is as true for ventures driving new economic activity as it is for those organisations looking to help entrepreneurs.

For the intermediate report of the “Fostering Innovation-Driven Entrepreneurship in Europe” project, click here. For the final report due to launch June 24, stay tuned.

Finally, this work, and in particular the partnering aspects, has led us now to think much harder about the topic of “Open Innovation Ecosystems”. As we work to drive more activity around entrepreneurship, we’ll also be starting a new research effort to look at how new models of innovation across traditional boundaries might be adopted to lift Europe’s growth trajectory.

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