Entrepreneurship-led Economic Development (ELED) is a series of steps taken to develop an economy and generate revenue for a region through new business starts and existing business growth. It is an approach employed to drive economic growth and create new jobs through entrepreneurial support and encouragement, which includes government and private funding.
Entrepreneurship-led economic development is about forming a thriving business ecosystem and enabling an equitable business environment through fair policies. These policies support the growth of businesses and entrepreneurs, ease access to capital, and foster innovation. Entrepreneurship-led economic development is necessary to enable economic prosperity.
Entrepreneurship-Led Economic Development: A Major Economic Driver or a Contributor to Slow Economic Growth?
Entrepreneurship is considered a significant engine of economic development, but it can only fuel growth under the right conditions. In less-developed economies, entrepreneurship can be the magic bullet for economic growth. Adding innovation to that can drive a region’s economy to greater heights.
Economic development in many countries is still stuck in the past. Global governments spent over $1 trillion on subsidies last year, according to Bloomberg.com. Large corporations receive payments from these subsidy programs with a promise of opening new facilities. Unfortunately, these payments don’t yield any significant growth. A better way to foster economic development is through entrepreneurship. Supporting entrepreneurs who build local businesses can be cost-effective and can benefit the economy. However, fueling the growth of a community or region through entrepreneurship is tricky, especially when the right environment and infrastructure isn’t in place.
While entrepreneurship is generally positive, some studies have suggested it can lead to inequality. This is because economic growth isn’t evenly spread across a country. It is particularly true in developing countries with a lower level of focus on economic development, where necessity entrepreneurship is often practiced. Necessity entrepreneurship is businesses run by people who lack other opportunities. It differs from opportunity entrepreneurship, where enterprises are created in response to a new opportunity or overlooked gap in resources.
Countries where necessity entrepreneurship is the main entrepreneurial activity suggest slow economic growth. It means job opportunities aren’t enough for workers, and they engage in necessary entrepreneurship to make ends meet. To make opportunity entrepreneurship a panacea for economic growth in developing countries, the government needs to redirect its purpose. This includes creating programs that focus on human capital development and leveraging economic parameters to spur growth. We’ll discuss strategies to implement entrepreneurship-led economic development later in this post.
Benefits of Entrepreneurship-Led Economic Development
ELED has enormous benefits for individuals and the country in general. Below are some of them:
Job Creation
One of the benefits of entrepreneurship is job creation. Entrepreneurship-led economic development creates new job opportunities and can reduce the unemployment rate in a country. In turn, it leads to economic prosperity and growth. The more businesses that are created, the more indirect and direct jobs become available.
Community Development
A thriving community that is attractive to both corporations looking to relocate and to workforce talent must have welcoming third places where people can gather, socialize, and interact with others. Third places are social environments that are separate from the home (first place) and work (second place). These spaces are typically informal and provide a neutral ground for individuals to come together and engage in activities or conversations that are not related to work or home life.
Third places can take many forms, including coffee shops, bars, mom & pop shops, collaborative spaces and other social gathering places and small businesses. They are often characterized by a welcoming and inclusive atmosphere where people of all backgrounds can feel comfortable and connected.
Third places are important for building social capital and promoting community development. They provide opportunities for individuals to build relationships, exchange ideas, and collaborate on projects, which can lead to increased civic engagement and a stronger sense of community.
In recent years, the concept of third places has become increasingly important as more people work remotely and rely on technology to stay connected. Third places offer a way for people to connect face-to-face, build relationships, and foster a sense of belonging in a world that is becoming increasingly digital.
Innovation
Entrepreneurship-led economic development drives technological innovation. Entrepreneurs create fresh and innovative products and services that disrupt the economy. These innovative products and services create new business models and processes that can significantly impact economic development.
Diversification
An entrepreneurial ecosystem can diversify the economy by creating new markets and industries where people can be gainfully employed. A diversified economy will reduce dependence on a single sector or industry and lead to a more balanced economy.
Competitiveness
When more businesses are created, it creates competition amongst entrepreneurs in terms of quality of product, delivery, and pricing. It can lead to improved products and services and affordable products and services.
Wealth Creation
Entrepreneurship can create lasting wealth for individuals and society in general. Entrepreneurs can generate revenue from their businesses, which adds to the economy. Launching and supporting local businesses effectively creates more local jobs and more money being exchanged within the community. Supporting these local small businesses through grants, technical assistance, mentorship and more, is investing in the community’s economy overall. As these businesses grow and become mature, they can eventually be sold or handed down to the next generation while continuing to add workforce opportunities and encourage localized spending.
Strategies to Encourage Entrepreneurship-Led Economic Development
Creating a thriving ecosystem of entrepreneurs isn’t easy. This is even more difficult in a developing country. ELED can be implemented in three major steps:
Identify successful entrepreneurial businesses in the state or region
The advantage of successful entrepreneurs is that they have a working or proven business which others can learn from. The first step to foster entrepreneurship-led economic development is to identify these local entrepreneurial businesses that have demonstrated remarkable growth or gained significant traction. These businesses generate useful data and insights on the types of businesses that thrive there the most to help other local entrepreneurs achieve success.
Build networks around successful local entrepreneurs
Cultivating networks between established entrepreneurs and future founders is critical to success. This is what thriving entrepreneurship communities like Silicon Valley and Austin do. Studies suggest that businesses with stronger ties to these networks perform better. Policymakers can help local businesses grow by providing mentorship, support programs, and employee training, connecting entrepreneurs to early-stage investors for funding, and linking founders with potential partners.
Collaborate with entrepreneurial leaders to address the challenges of growing local businesses
Policymakers can better advocate for founders and small business owners by communicating directly with them to recognize their specific challenges and focus on how they can be fixed. Government agents could form advisory boards with local business owners, at various stages of growth, to ascertain how to support them through improved, more current and relevant policy-making that is specific to small and microbusiness needs.
Other approaches include:
1. Creating educational programs that offer training and support to aspiring entrepreneurs and small business owners. These programs can educate budding entrepreneurs on starting and running a successful business, how to access funding, and gaining access to networking opportunities and mentors.
2. Creating effective and fair regulations that support entrepreneurship. This includes granting tax incentives to businesses, providing government grants, and creating programs that bridge the gap between investors and entrepreneurs.
3. Fostering innovation and creativity. This involves investing in technological research and development, supporting new technologies, and fostering collaboration between businesses and academic institutions. Remember, the world is digitalizing, and businesses that aren’t leveraging digital solutions will be left behind.
Conclusion
Entrepreneurship-led economic development can drive economic prosperity and job growth. However, an ecosystem that encourages entrepreneurship must be created to achieve these economic goals. Policymakers must form regulations that support businesses to build a solid and more dynamic economy for the benefit of all. In addition, governments should work with the private sector to provide educational training programs and invest in innovation to unlock the potential of this economic driver. This is a critical component to creating a diversified and stable economy.
At Economic Impact Catalyst, our mission is to activate a world where there is equitable and inclusive access to entrepreneurship. We believe that entrepreneurship is the key to equitable and inclusive economic development. Our team’s main focus every day is to make it easier for founders to launch businesses in order to create wealth for themselves, for their teams, and for their communities. To learn more about our technology and market research solutions, built exclusively to catalyze entrepreneurship-led economic development efforts, book a call with us today.