Three factors that allow entrepreneurship to thrive

Creating the right conditions for new companies to thrive is essential for job creation and prosperity around the world. The top 5% of the fastest-growing companies produce more jobs and generate more revenue than the other 95%, according to a report from the World Economic Forum. Additional research from other global institutions has supported these findings.

Given the impact of fast-growing companies, it is important to understand what companies need to achieve high rates of growth. For example, is it critical to create the right regulatory environment, or is increasing access to funding and other resources more important? Unfortunately, there is not a great deal of information to help policy-makers and business leaders address questions like this.

A recent Forum report on entrepreneurialism offers data that can help provide answers. It is based on a global survey of more than 1,000 entrepreneurs that was conducted by the Forum in partnership with Stanford University, Ernst & Young and Endeavor.

According to entrepreneurs, three factors are most important for enabling a company’s growth: access to markets, the supply of human capital (i.e. people with the right skills for the job) and access to funding. These findings were remarkably consistent across different regions and across countries at varying levels of development.

Access to markets primarily concerns the ease with which businesses develop relationships with customers. Respondents in the study tended to rank domestic businesses as the most critical customer group, though entrepreneurs in smaller countries were often more internationally oriented.

Human capital is made up of the different sources of employees that businesses can hire. Management and technical employees were ranked as most critical by entrepreneurs.

Access to funding includes the various sources of debt and equity capital that can be used by growing companies. Entrepreneurs in the study tended to rate angel investment and venture capital as the most important financing sources available to them.

The preferences of the entrepreneurs in this study were clear. Market access, talented employees and financing were all ranked as significantly more important than other factors, such as regulatory frameworks, cultural support and universities. Policy-makers and business leaders who wish to foster the development of more high-growth companies in their cities and countries should focus on increasing entrepreneurs’ access to these resources. There is great room for improvement. In Europe, Asia, Latin America, Africa and the Middle East, at least 40% of entrepreneurs reported that one of these three factors was not readily available. Making positive changes across these three areas will ensure that entrepreneurship thrives.

Author: Rhett Morris is director of insight at Endeavor.

Image: People walk at Beijing’s Central Business District REUTERS/Grace Liang