How Can Decision Makers Foster Productive Entrepreneurship Communities?

  • Entrepreneurship communities are not predestined to follow a single development path. Entrepreneurship communities do not develop along the same linear path, and it is misleading to consider communities of different sizes and patterns as older or younger versions of each other. Instead, patterns of development are strongly shaped by the different approaches used by decision-makers working to support local entrepreneurs.
  • Entrepreneurship communities become productive by generating a relatively small number of companies that reach scale. Companies that reach significant scale generate a disproportionately large share of productivity in their communities. As a result, more productive entrepreneurship communities are those that generate more firms that reach scale.
    The opposite is also true — the majority of entrepreneurial companies in any sector are low-productivity micro businesses that have fewer than three employees and have raised no venture capital. The differences among companies that reach scale and low-productivity microbusinesses can be seen quite early. Even in their startup years, companies that will eventually reach scale tend to rapidly outpace the growth of their peers, while low-productivity firms exhibit minimal to no growth.
  • Founders of the fastest-growing companies are much more likely to have received experience, support, and investment from leaders of companies that reached scale. The founders of the fastest-growing companies observed in this project were much more likely to have built connections with people who had led companies that reached significant scale, i.e., 100 or more employees. These high-value connections came in three forms: experience via previous employment, support through mentorship, or investment.
  • Patterns of influence shape the development of entrepreneurship communities. A number of common principles of network systems can help explain how entrepreneurship communities develop. For example, the principle of like-attracts-like shows how specific types of members often attract others like themselves to each community as they become influential.
    Another principle illustrates how the behavior of influential network members can transmit value signals to others and establish norms. Founders who wish to earn status and influence among their peers respond to these signals, which can promote a range of different behaviors.
  • When people who have led firms that scaled are more influential, it empowers entrepreneurship communities to be more productive. Greater influence coming from leaders who have scaled is associated with better performance among individual companies and greater productivity within entrepreneurial communities. As a result, the level of connectivity in terms of experience, support, and investment coming from these leaders is a strong indicator of how some entrepreneurship communities become so much more productive than others.

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