The Right Rules and Incentives

Entrepreneurs start and grow companies in spite of government. But Chris Schroeder’s new book Startup Rising: The Entrepreneurial Revolution Remaking the Middle East reveals a quiet, unnoticed uprising in the midst of front page uncertainty surrounding the region after the Arab Spring. The entrepreneurs leading the revolution illustrated in his book have not been waiting for government direction and resources. To the contrary, they have become the leaders.

To put it simply, the entrepreneurs and mavericks Schroeder talks about in his book about the Middle East are all around the world inspiring and leading policymakers and analysts to engage in more thoughtful ways. Policymakers are not risk-takers but they do read data and listen to stories. Here too in the United States we can see how the data and the stories of the immigrant founders of Silicon Valley startups have awakened Washington to the importance of high skill immigration in creating a startup ecosystem. While getting it done has been slow because of legislative riders being attached to larger conversations about illegal immigrants, there is now little disagreement over the need to allow more foreign talent educated at America’s best universities to remain in the country and create jobs.

While the blossoming of an ecosystem inevitably depends on local communities, national leaders in government are now playing an important role in removing roadblocks to entrepreneurial growth. Many start by simply helping embed the culture throughout their nations by using their “pulpit”—for example, to rebrand things like failure as a more positive act of experimentation and learning. However, pro-entrepreneurship policies and programs need to be guided by entrepreneurs if they are to have any real impact on the ground.

Central to the entrepreneur/government relationship is reducing waste in terms of underused programs and avoiding dabbling where things would best be left to the private sector. For example, there are dozens of well-meaning efforts of government to “design” startup programs that provide financial and technical support. However, too often I am asked if I know of “success stories” as program managers scramble at budget time to find examples and success stories to justify impact and perpetuate their existence.

While there has been an explosion of public and private sector support programs and initiatives to help startups launch and scale, high-growth entrepreneurs are impatient and don’t really want them. They know how to find help when they need it—whether they are just starting or getting set to scale the best team and idea of their life. Entrepreneurs use web-based tools, networks and peers more effectively than most in finding what is out there when they need help.

In fact, entrepreneurs can lead by defining real time what they and their peers need to “multiply” and scale. For example, returning to the Middle East, if policymakers want to combat youth unemployment and social unrest, entrepreneurs can identify which cultural, legal, and societal roadblocks to focus on and in what order. Brad Feld puts it more succinctly:

“As I continue to talk about Startup Communities, I say over and over and over again that the leaders have to be entrepreneurs. Everyone else – who I call the “feeders” (government, university, non-profits, big companies, VCs, angel investors) – has an important role, but the leaders must be entrepreneurs.”

Entrepreneurship is dynamic and policy analysis needs to keep pace. The JOBS Act in the United States and Startup Act in Italy are good examples of government acting fast in response to entrepreneur interest in crowdfunding. While government bureaucracy to actually implement this has been slower than desired, government has shown it can act on a fresh startup priority identified by early stage entrepreneurs. Policy can keep pace with dynamic entrepreneurial trends.

Entrepreneurs can also help policymakers with their approach. Successful policymaking is a continuous, iterative process. Experimentation is as important in policymaking as in an entrepreneurial venture. It is not a hard science. As I continue to travel to various parts of the world, I have observed how more policymakers are becoming open to such experimentation and to benchmarking their ideas with foreign peers. Top-down public sector leadership has become closer to private sector-led bottom-up community building, fueled by initiatives like Global Entrepreneurship Week and gatherings like the Global Entrepreneurship Summit that President Obama will lead and the annual Global Entrepreneurship Congress each March, where sharing ideas for government policies to support new firm formation is now a central part of the mission.

The World Bank’s 2013 Doing Business report, reflecting on the progress of more than 180 economies over ten years, found that countries seeking to boost business creation tend to start with simplifying regulatory processes by tweaking administrative procedures. Only later do they move on to more challenging reforms to strengthen legal institutions relevant to business regulation. These more profound reforms usually require deep political commitment and the involvement of more powerful branches of government. This is becoming increasingly more common around the world. For example, Startup Italy took controversial, divisive issues (e.g. fiscal policy), and by setting them in the context of job creation and economic growth it was able to introduce an aggressive and comprehensive agenda in support of new starts.

Of course, there is no silver bullet and certainly no “one size fits all” policy package. Constraints entrepreneurs face differ significantly across markets, cultures and industries—as well as within regions and communities. But while policymakers cannot “top-down organize” an entrepreneurship ecosystem they can set the rules to provide a conducive environment without spoiling the entrepreneurial dynamics with distortive measures that prevent failure. They must therefore think in terms of fluid ecosystems and communities as opposed to organized clusters or manageable hubs. And they must listen to entrepreneurs.

None of this is easy but with more and more entrepreneurs like the ones described in Startup Rising: The Entrepreneurial Revolution Remaking the Middle East taking a leadership role, policymakers can make better decisions in picking the right rules and incentives.



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