Thomas Friedman is calling on President Obama to create a million new entrepreneurs as a way to rebuild an innovative economy and grow out the recession.
But as we have talked about here on multiple ocassions – can you just tweak public policy or make start up capital a little easier to access or is it not that simple?
Take Atlantic Canada. For close to 30 years the focus has been primarily on stimulating entrepreneurship. Way back when – pre ACOA the best minds determined that if Atlantic Canada was to be successful it would have to grow from within so everyone turned the focus to creating entrepreneurs. As a person working in and around the system for 20 years this is so. There were (are) programs to stimulate young entrepreneurs, women entrepreneurs, minority entrepreneurs, rural entrepreneurs. On EI? There’s a program to help you start a new business. On and on. I am sure there have been dozens of different programs all designed to help people start up small businesses.
But there is no evidence this has worked. In fact, a number of years ago I did some research that showed almost the opposite. In places like Alberta where there were far less government programs to stimulate entrepreneurship there seemed to be far more entrepreneurship.
I have come to the conclusion that entrepreneurship is a far more complex beast than most of us think. I have met likely hundreds of entrepreneurs over the years and some started up to make lots of money, others started because they had what they thought was a super idea, others were in big companies and got bored wtih the bureaucracy, others just can’t stand working for a boss, others were in universities and incubated a neat new idea, others – yes I have met a few – were just desperate and started a company to make survival income and it ended up taking off.
I also think it has a lot to do with risk. Entrepreneurs (and as I have said before I differentiate entrepreneurs from those people that want a lifestyle business and just an income) tend to be folks that like to take risks – they will cash out their RRSPs to start a business.
I have a theory (espoused here before) that successful entrepreneurial climates are those with a good mix of large, multinational firms that are training and providing experience to a class of potential entrepreneurs who get frustrated inside the large firms and end up starting their own. The evidence in New Brunswick’s IT industry is pretty compelling. Most of the successful IT firms in this province have CEOs and executive teams that previously had worked for large firms such as Aliant. There are some that started up right out of university but most – the large majority – got experience and then started their own business.
But back to Friedman’s point. Would a million new entrepreneurs create the economic renaissance that he desires or would it just move us back to a pre-Walmart time with far more smaller mom-n-pops with high cost structures because of a lack of economies of scale? Friedman is implicitly (and explicitly) assuming these million new entrepreneurs would be Steve Jobs – but how many Apples can the economy handle?
Is there a law of diminishing returns to government efforts to stimulate entrepreneurship?
I suspect the best model focuses on creating the enviornment where serious entrepreneurs with truly innovative ideas can emerge. Just another pizza shop with plans to be the next Papa John’s is fine but I am not sure it should be government policy.
Invest heavily in university-industry R&D. Focus tax policy on innovative entrepreneurship – not just encouraging anyone to start their own business. Again, anyone who wants should be able to set up their own business but public policy should be more than just about cranking out more mom-n-pops and more about innovative products and services that are game changers in a specific market segment.
I think the experience in Atlantic Canada show us that we can’t just assume that making it easier to start a business will lead to better economic outcomes (economic development). We need to elevate the discussion beyond just a target for new entrepreneurs (Friedman’s million) to a target for new game changing entrepreneurs.