Eight ways Europe can boost entrepreneurship

For the past five years, Europe has been engaged in fierce debates about the best way to master the current economic crisis. The discussion has tackled everything from austerity packages and their socio-cultural appropriateness to stimulus programmes and the need for balance, the flawed split between monetary and fiscal responsibilities in the region, conflicts inherent in rating agencies, bankers’ incentives and corporate pay schemes.

All of these issues, however, while valid in their own spheres, are missing a larger point when it comes to Europe’s economic future: the continent’s economic development system is outdated and cumbersome and it is vulnerable to the shocks that the global economy (characterized by disruptive innovation and the flow of capital towards it) will continue to serve up. The model lacks the key ingredient that would lend speed, agility and robustness to an economy: an entrepreneur-driven innovation ecosystem (EDIE).

At an EDIE’s core is a class of entrepreneurial professionals drawn from a diverse range of disciplines “at scale and scope”. These are not just business majors and engineers, but also scientists, liberal arts majors, design professionals, and those without much formal education yet who have valuable life and work experience. This class then goes to work, injecting fresh thinking and novel solutions across a variety of industries. They are not afraid to fail, as this helps them to learn and iterate quickly. Their view is that what disrupts in the short term creates growth and stability in the longer term – and, in the process, creates entirely new categories of economic activity and employment.

Entrepreneurs do not function in a vacuum. An entire innovation ecosystem is required, with a flexible and fluid network of other actors, which nurtures, provides, guides and governs, and which can eventually integrate new ventures into the larger innovation value chains. These chains include angel investors and venture capitalists, new businesses and open innovation groups, private and public labs and universities, incubators and accelerators, city governments, small-business hubs, and a host of service providers to grease the wheels of innovation.

A system such as this can maintain growth when the rest of the economy stalls. It survives downturns because it is too well distributed to suffer near-death experiences, unlike automobile, heavy or banking industries. And it restarts quickly because the people who drive it thrive on uncertainty and are comfortable deferring safe pay cheques. This makes them more adventurous than larger organizations with more to lose when considering new activities.

An EDIE has very pronounced macro benefits. As a case in point, the San Francisco Bay Area, largely driven by its own EDIE (including the famed Silicon Valley), is now the 19^th-largest economy in the world with a GDP of US$533 billion. Over the past 60 years, it has undoubtedly facilitated tremendous lasting value, not just in the form of revenues, but labour skills, industrial capabilities and productivity, for the US and other economies around the globe, notwithstanding periodic boom-and-bust cycles. In fact, it has emerged from the recent US mortgage crisis as an engine for local and national growth.

It is unreasonable, however, to expect Europe to be like California. In Europe, security and stability are essential cultural values that traditionally outweigh gold rush-like striving for opportunity. But Europe can still become more fluid and more welcoming of entrepreneurial innovation. The secret is in the design of the system. It must develop an EDIE that fits its cultural paradigm.

Factors that could jumpstart Europe’s EDIE include:

1. A network of idea, opportunity and risk-share forums to generate a framework of engagement rules for the trust-based exchange of ideas and transactions.
2. A network of hybrid joint-venture institutes that synthesize new ideas and ventures, while lowering transaction costs between parties.
3. An innovation economy think tank to foster:
   • Thought-leadership on European-style entrepreneurial innovation.
   • Sharing of entrepreneurial abilities throughout the professional community, with a view to creating opportunity out of uncertainty, connectivity and complexity.
   • Insights into projected high-growth convergence spaces (eg smart infrastructure and cities, autonomous and electrified transportation, bio-informatics, synthetic biology, neural computing).
   • Educational case studies of successes and failures.
   • Exchanges with hubs in the global innovation economy on ideas, talent, capital and “trust equity”.
   • Tools that visualize and make more transparent the value of network interactions in the ecosystem.
4. Social and commercial entrepreneurship programmes
5. Public media programmes, which feature entrepreneurs as creators of public goods, who are valued and respected by society.
6. Intrapreneurial career tracks for corporate employees, with the prospect of several opportunities or the return to established businesses, if initial ventures fail.
7. Exchange programmes for corporate executives with entrepreneurial start-up teams.
8. Angel and venture-capital tax legislation, with tax deductions for new venture investments, to validate the risks taken.

Europe needs innovation-driven growth now more than ever. There are too many young Europeans with talent and ideas ready to go elsewhere in the global innovation economy.

This blog is part of a series of articles lending context to the World Economic Forum’s work in the field of European entrepreneurship. Click here to read Nicholas Davis’s introduction to the series. 

For more articles on entrepreneurship in Europe, click here.

Author: Olaf Groth is Professor for Global Strategy, Innovation, Management and Economics at Hult International Business School in San Francisco, USA.