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Essentials of a Strong Entrepreneurial Ecosystem

Entrepreneurship leads to significant community development and wider macroeconomic gains in any market where they function.

Essentials of a Strong Entrepreneurial Ecosystem

Sentinel Digital DeskBy : Sentinel Digital Desk

  |  6 Dec 2022 1:42 PM GMT

Since January 2022, India is the third-largest start-up ecosystem provider racing only after the US and China. In 2021, 44 Indian start-ups achieved unicorn status, taking the overall start-up unicorns in India to 83 which is a record in itself. A unicorn company or start-up is a privately owned business that is valued at more than $1 billion. Some recognizable examples include Airbnb, Robinhood, and Stripe in the US; Flipkart Moglix, BharatPe in India; Alibaba, Tencent, and Baidu in China. A recent Chamber of Commerce report evidences that there is at least one new start-up in the 555 districts in India. These businesses are largely in the service sector with the majority in the IT/knowledge-based sectors.

Entrepreneurship leads to significant community development and wider macroeconomic gains in any market where they function. In addition to wealth creation and sharing, entrepreneurship creates jobs and newer forms of employment particularly when the businesses are innovative. In India, in order to support new start-ups, the government has initiatives such as StartUpIndia and Make in India, the latter primarily aims to attract FDI into the Indian economy. Ensuring that entrepreneurship is supported across different industries and also market–developed and backward areas, the country can achieve balanced regional development. Improved standard of living, increased exports contributing to foreign currency reserves, and also community development are some of the other benefits when we have an established entrepreneurial ecosystem and start-up culture in the country.

A) Entrepreneurship: The 'what' and 'why'

The most widely used definition of entrepreneurship captures it as "a process by which individuals pursue opportunities without regard to the resources they currently control." In essence, it can be perceived as the process of creating value by combining a set of selective and unique combination of resources to exploit an opportunity. A study by Barot captured entrepreneurship as "practice begins with action and creation of new organization" and therefore entrepreneurship helps in transforming old habits into new ones. While some studies capture entrepreneurship as being the process of a successful organization that transforms ways of doing things differently, others define entrepreneurship as a process that enables building a progressive mindset and skills. One of the fundamentals remains, however, is that entrepreneurship generates jobs and contributes to economic development. This is also the reason why it is vital that Entrepreneurship is managed systematically, to identify the skill and impacts, so as to fully realize and actualize the benefits for wider benefits for the community and markets.

As an Economy and state of technology grow over time, newer forms of entrepreneurship and their ways of doing business along with competition also increase. Innovation becomes one of the outcomes in this scenario gradually. Joseph Schumpeter was the first person who connected entrepreneurship to innovation by defining the former as a process of 'Creative Destruction'. In his words, as he tied innovation-entrepreneurship and how they contribute to economic development, "The function of the entrepreneur is to reform or revolutionize the pattern of production by exploiting an invention or more generally, an untried technological method of producing a new commodity or producing an old one in a new way, opening a new source of supply of materials or new outlet for products, by organizing a new industry".

In essence, newer ways of doing things as societies and businesses developed over time would replace existing practices. It remains true, for example, electric cars will replace conventional fuels for automobiles, hyperloop may replace trains and even flights one day, the same way smartphones replaced mobile phones. Previously dominating firms lose out and fade while newer ones take the lead. It is therefore important for firms to keep up with the innovation edge to survive, thrive and lead an industry. In order to do this effectively, firms also need to make sure that there is a system in place to capture creativity and innovation adequately.

B) What motivates Entrepreneurship?

Some studies identify the sources, they are opportunity-based and market-driven entrepreneurship with essential skills that would combine creativity, market awareness, marketing, and organization-building while addressing opportunities in the market. As Schumpeter also viewed, as mentioned above, Entrepreneurship and Innovation create value. Additionally, in light of industry 4.0 (automation, cloud, intelligent, agile) components in every business, including SMEs, Entrepreneurship is shaped by digital technology and adoption. Finally, entrepreneurship education would shape the mindset and build skills that would transform the society and well-being of communities and the economy. Once again, therefore, firms need a system in place that would capture and understand the interplay between leadership, management, culture, systems, and structure to continue riding on the entrepreneurial ambition. This is where the concept of Entrepreneurial Architecture comes in handy.

C) Understanding 'Entrepreneurial Architecture'

An entrepreneurial architecture understands how the overlapping components of a firm such as strategies, leadership, culture, structures, and systems could work together. Therefore, innovative and entrepreneurial firms capture the institutional, communicative, coordinating and cultural elements oriented towards innovation. In essence, this concept provides a conceptual understanding of how business architecture components come together to provide a cohesive and coherent view of an enterprise.

Burns in his study published in 2005 provides an understanding of entrepreneurial architecture in the context of corporate entrepreneurship. Since then, the concept has been used for other forms of enterprises. According to his work, this concept provides "a powerful tool to explain the dynamics of entrepreneurship and describes the relational contracts within and around firms or organisations". The entrepreneurial architecture, therefore, addresses the challenges of encouraging and leveraging entrepreneurship within innovative organisations.

As mentioned earlier in this article, firms need to have a system in place to methodically capture creative ideas and innovation – this could be done by identifying and capturing the routines, norms, structures, and channels that influence the behaviour of individuals in a particular setting and enable the flow of knowledge and innovation from one level to another. The contextual influences in this regard are also very important, for example, not all creative firms are necessarily innovative, and certain markets (geographic and also industries) capture organisational structure, culture, and channels differently. So, each entrepreneurial and innovative firm, big or small, needs to identify its own routines and norms that would provide a structure through which knowledge and innovation could flow to other actors and the market while identifying the value created at each stage.

D) How to build an effective 'Entrepreneurial Architecture'?

Research by Stevenson identifies factors that encourage entrepreneurial processes and behaviour within firms. Firstly, firms should maintain a definite strategic orientation which basically means that since new opportunity identification drives organizational strategy, it is important for firms to keep an open eye out to recognize new opportunities; secondly, commitment and control of resources as new opportunities are spotted and seized in a market. For example, if a new business idea seems risky, a firm may choose to shell out only a limited range of resources to try out possibilities in the market at a reduced level of risk instead of investing heavy resources. This applies not only to the resources that a firm may have at a given point in time but also to resources/ assets that they may have access to from partners and third parties. At all times, therefore, it is critical to measure and keep stock of capital – financial, human, intellectual, and competencies.

Thirdly, firms need to maintain an organic and adaptable management structure, for example avoiding micromanagement, allowing decentralized decision-making and reducing levels of formality to encourage engagement and participation more effectively; and lastly acknowledging expertise power instead of position power. Surely, the list is not exhaustive. Fourthly, designing the reward system in a way that does not discourage employees from risk-taking and decision-making. Employees tend to be afraid of taking risks in organizations where the culture is dominated by fear and a low tolerance for failure. Fifthly, an entrepreneurial organization needs to provide space to take risks and fail to learn from experiences. A suitable reward structure helps in maintaining that flow.

Finally, it is essential that the vision and mission of the company are not only communicated effectively and widely but also that they guide every action and initiative. This defines the entrepreneurial culture and illustrates a growth orientation. Effective leaders should be able to articulate the entrepreneurial vision and resiliency since it does directly affect the culture and dynamism expected in creative and innovative organizations.

To conclude with a practice-based suggestion, entrepreneurs could follow the "tennis rule." There is a common assumption that experts and consultants know what's best for a company but very often that is not the case. When it comes to financing bodies who chose which business to go with, it becomes rather difficult for them to select high-potential firms. At times, even experts upon collecting all relevant data cannot always predict business performance any better than predictions already made in the business plan. A study on selected microenterprises in India found that 'peer entrepreneurs' can better predict the future than predictions based on survey data alone. Leveraging one's business networks and other accessible related platforms help in exchanging information among entrepreneurs—this includes and is not limited to monthly meetings among managers from diverse industries. Participating in a peer knowledge-sharing network contributes to disseminating best practices and ultimately driving growth.

Dr B K Mukhopadhyay

(The author is a Professor of

Management and Economics, formerly at IIBM (RBI) Guwahati. He can be contacted at m.bibhas@gmail.com)

Dr. Boidurjo Rick Mukhopadhyay

(The author, international

award-winning development and

management economist, formerly a Gold Medalist in Economics

at Gauhati University)

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