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Entrepreneurship development in emerging countries

Using systems thinking for transformative impact

1. Introduction

In recent years, entrepreneurship and enterprise development has moved on top of the international agenda as a way to create jobs and income and contribute to sustainable development. Despite increased interest, there is confusion around how to distinguish the vast variety of entrepreneurial activities, business models and enterprises in emerging countries. Similarly, little is known what works and does not work in enterprise development for different enterprise segments. At the same time, trends such as the emergence of new actors offering new support methods and finance products, the rise in impact-oriented business models or the influence of digital technologies have changed the way how enterprise support and finance has been provided.

Below are some insights on the terminology and principles for effective entrepreneurship and entreprise development based on work I did as Senior Advisor to Swisscontact, a Swiss technical assistance and development agency promoting private sector development in emerging countries globally.

2. Segmentation

I use the notion of enterprise development as a general term and only specifically talk about entrepreneurship or entrepreneurs when we refer to those activities during the earlier stages of the entrepreneurial lifecycle. I also draw a line between income generating activities of necessity driven individuals, households or production units without prospects of further growth and those entrepreneurs and enterprises with at least an incremental, moderate or even significant growth profile.

I believe that a more nuanced differentiation is needed of enterprises in order to adequately respond to enterprises specific support and financing needs and engage in an effective learning exchange. As a result, we segment the pool of enterprises in four main enterprise segments based on the enterprises’ growth prospects, innovation profile and behavioural characteristics (Figure 1).

Niche and growth entrepreneurs who create innovative products and services (with impact) account for approximately 10% of emerging market enterprises but contribute disproportionately to existing growth and future potential employment opportunities. Livelihood sustaining account for the majority of existing enterprises but contribute disproportionally to current and future growth and employment.The figure below illustrates the four enterprises segments in relation to their typical innovation and growth profile.

We distinguished enterprises further in relation to the stage in the entrepreneurial lifecycle as well as their approach to sustainability, impact and cultural value creation.

 

We understand enterprise development to comprise a range of tools and interventions at micro, meso and macro level and often applied in combination depending on local needs and available resources. Interventions typically strengthen entrepreneurial capacity, improve access to markets and networks, facilitate access to finance, provide physical assets and/or help build the entrepreneurial ecosystem.

 

3. Guiding principles

Based our understanding of critical issues and best practices we developed eight high level principles for enterprise development:

  • Principle 1 Use an enterprise-centred approach: Our interventions respond to the specific constraints, barriers and needs of our different target groups or segments. We pay specific attention to how individuals and enterprises are targeted and selected to benefit from support and ensure that support packages are tailormade to respond to the individual needs and the specific constraints of disadvantaged/marginalised groups such as women, youth or refugees.
  • Principle 2 Apply a systems approach in enterprise development:  We seek to achieve impact at scale and sustainable transformation of the entrepreneurial eco-systems. We truly seek to understand the relevant (sub-) systems both in relation to existing structures and practices and less explicit conditions such as relationships, power dynamics and paradigms. Beyond data collection for project design, we consider a system mapping to be both a critical entry point into establishing contacts and partnerships as well as continuous process to enable us to adapt in a flexible way. We set the systems boundaries of our own intervention wide enough to address our target groups’ most important barriers. We ensure that our interventions fill the most critical gaps in the entrepreneurial support eco-system and we are aligned with interventions of other enterprise support organisations (eco-system fit). We facilitate system change through applying an indirect approach, crowding in additional players, working collaboratively with likeminded partners, actively building the entrepreneurial community, facilitating the flow of information and resources and using experimentation, prototyping and adaptive management to take the complexity of systems we intervene in into account.
  • Principle 3 Promote sustainability and impact orientation: We do not engage with organisations, enterprises and companies that have a net negative impact or act in contradiction with Swisscontacts mission and code of conduct. We actively encourage enterprises to implement responsible business practices and support social business models.
  • Principle 4 Apply best practice entrepreneurial capacity building principles: We strengthen both human and social capital of our target enterprises. Beyond the delivery of standardised group trainings, we work with the entire spectrum of tools including mentoring, coaching, technical assistance or peer support. We are aware of global best practice capacity building methodologies and use methodologies or adjust methodologies to best reflect our target group’s needs. Where we integrate trainings, we ensure that they are practical, enable the individual’s empowerment and strengthen the team, are market oriented and provided at the time when they are most needed. We work with partners that have first-hand experience as entrepreneurs and have the ability to act as facilitators rather than as lecturer. Our interventions encourage the establishment of peer support networks, facilitate linkages between target enterprises and key market players as well as governments, industry bodies or research institutions and international partners.
  • Principle 5 Integrate finance in all enterprise programmes: We consider ways to address the financing constraints in all our enterprise development projects. We recognise that different kind of entrepreneurs have different financing needs at different stages of the entrepreneurial lifecycle. We work with enterprises to increase their finance or investment readiness and help develop finance solutions that help finance providers reduce their (perceived) risk and thus close the financing gap. We strengthen local intermediation to effectively and sustainably match entrepreneurs’ demand with finance providers supply of products and services and seek to remove barriers in the entrepreneurial finance eco-system. Where we work directly with individual financial institutions, we make the outcome of our work as accessible as possible to crowd-in additional finance providers.   
  • Principle 6 Strengthen local enterprise support infrastructure: We partner with existing enterprise support organisations (ESO) and address gaps in the provision of enterprise support. We select our partners based on a thorough screening of the market and clear selection criteria. We engage with specialist and high performing ESO’s to deliver services towards entrepreneurs and enterprises, but intentionally also enhance partners with less capacity’s capabilities to maximise development impact. We support learning between ESOs and with their peers from more advanced entrepreneurial eco-systems to enhance capacity in a demand driven and flexible manner and increase international linkages. We also work with our partners and governments to strengthen the ways enterprise support is financed to ensure the long-term sustainability of our interventions. 
  • Principle 7 Ensure additionality in private sector support: When working with private sector actors we intervene in a way that does not distort markets or leads to unfair competition. We directly support individual companies or financial institutions only in circumstances where our contribution is highly “additional”, the development impact is larger in scale, or takes place quicker or happens at all compared to a situation without our support. We work with individual private players where jointly developed products or service help de-risk and crowds in more private ngegement or where we support market infrastructure or “public good” activities (such as the development of tools, guidelines or intermediation services). When selecting a private sector partner, we particularly seek to ensure that our private partners is committed, and our interests are aligned.
  • Principle 8 Apply an entrepreneurial approach internally: Recognising that the effectiveness of our interventions depends on our own approach and our organisational culture (“walk the talk”) we recruit staff with an entrepreneurial mindset, a private or entrepreneurship background and the ability to facilitate dialogue and cross-sectoral collaborations. We encourage low hierarchies, delegated responsibilities and self- management as well as the use of lean-start up and adaptive management principlesAdd paragraph text here.
The long version of the guiding principles document is available upon request akoenig@socialimpactmarkets.org.
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