Learning from American entrepreneurship ecosystem

Learning from American entrepreneurship ecosystem

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The American entrepreneurship ecosystem provides a case study for developing countries like Nigeria struggling to battle high youth unemployment and economic slump. It clearly points way for governments across the world scavenging for policies to stimulate start-ups and small businesses.

For starters, the American economy is driven by small businesses which constitute 99 percent of enterprises and employ 55 percent of working Americans, according to John Dearie, founder and president of Center for American Entrepreneurship (CAE).

The economy is full of entrepreneurs working to disrupt the status quo. It has produced world’s biggest entrepreneurs such as Facebook’s Mark Zuckerberg, Bill Gates of the Microsoft fame and Jeff Bezos of Amazon, among many others.

One of the biggest steps taken by the United States is to prioritise new businesses without neglecting existing ones.

A study done by the United States Census Bureau on the jobs created between 1980 and 2005 showed that 100 percent of new jobs within this period were created by businesses that were less than five years. Older existing businesses, in aggregate, shed about one million jobs annually on the average.

Another study by Ewing Marion Foundation revealed that in the 22 of the 29 years between 1977 and 2005, 100 percent of the net new jobs were created by businesses that were less than one year. Start-ups contributed an average of three million net new jobs annually.

Armed with the data, American government pays special attention to attracting new businesses—local and foreign.

“Innovation mostly comes from small businesses,” Dearie told journalists in Washington DC during the Foreign Press Centers international reporting tour, which was part of the Global Entrepreneurship Summit.

 “New businesses and existing businesses are different,” he further explained.

“New businesses are exceptionally fragile and can be affected by issues like accept to capital and tax compliance. New businesses are sources of innovation. Old businesses are not like the guy who started Uber,” he added.

However, the American society encourages innovation even among old businesses by providing funding and required collaborations. The government of the United States makes processes so transparent that businesses gain a lot by being structurally formal.

Dane Stangler, president and chief policy officer at StartUp Genome, which supports forward-looking regions to catalyse their start-up ecosystems, explained that what countries like Nigeria needed to do was to remove barriers preventing businesses from becoming formal structures.

“The question is, how do you remove the barrier and allow informal entrepreneurs to become formal,” he asked.

“A lot of entrepreneurs do not want to become formal because they do not want to pay taxes,” he said.

Apart from the need to create new jobs, the American entrepreneurship ecosystem is shifting from New York and San Francisco to Chicago. Like Lagos in Nigeria, estimates show  that 85 percent of investments in the U.S go to New York. Similarly, the renowned Silicon Valley of San Francisco attracts tech start-ups, venture capitalists, angel investors and institutional investors. Consequently, New York and San Francisco are expensive for start-ups and small businesses.

But entrepreneurship is now moving Midwest to Chicago today, whose economy is above $600 billion. Currently, investors are flocking to Chicago with foreign direct investment in the city estimated at $100 billion. There are 1,800 foreign –based companies there and no one industry makes up more than 14 percent of the economy.

The city is the home of big firms such as method, ADM, Grubhub and Suntory, among others. Flights from all over the world touch down at airports in Chicago.

The question for Nigeria is, can there by an innovation hub away from the ever-busy, overpopulated Lagos?

The innovation in Chicago is being strongly aided by schools in the city.

The Chicago Booth Business School’s Polsky Exchange is the entrepreneurship hub of the entire University of Chicago, said Michael Alter, clinical professor of entrepreneurship. It has raised $500 million in venture capital and grown 100 companies, including GrubHub. Firms worth $10 billion were made in the entrepreneurship hub. In fact, universities in the United States are platforms through which entrepreneurs are hatched. They bridge the town-gown gap by making vital skills available for industries. A lot of research comes from the universities,  making innovation easier while reducing costs that should have been borne by entrepreneurs.

This is completely different in many countries, especially Nigeria, where universities are centres of theoritical education.  Research is limited owing to poor state funding. The immediate consequence of this is that skills are in high shortage, with several multinationals complaining of not finding the right talents months after job placements.

The World Business Chicago, a private-public, non-profit partnership, is now in the forefront of supporting businesses and promoting Chicago as a global city, said Dennis Vicchiarelli, executive vice president of business development. With this alone, employment has gone up by 15 percent in the Midwestern city since 2011 and it has been ranked as the number one in corporate expansion and relocation by Site Selection magazine.

“Since 2011, there has been 142 percent increase in corporate expansions,” Vicchiarelli said.

An initiative of World Business Chicago  called ChicagoNext has birthed a number of firms. Basically, ChicagoNext is targeted at driving inclusive growth for all in Chicago by developing small and medium business support. More so, in 2012, a firm known as 1871 was founded. It was created to support Chicago’s digital start-up community. Today, it is the home of nearly 500 early-stage, high-growth digital start-ups.

Those with ideas come to 1871 and discuss them with investors who are available in a room. These investors—mostly venture capitalists and angel investors—provide funds for setting up such businesses. It is a typical co-working environment where people share ideas and get funded.

“We bring people with different ideas and equip and assist them to grow,” Betsy Ziegler, CEO of 1871, said.

“We have 450 companies being built here. We do not have money, but we introduce businesses to those who have money,” she further explained.

She has 130 corporate partners and seven universities.  Interestingly, 36 percent of founders in 1871 are female.

“Businesses that come here are digital based,” she said.

This is clearly what is lacking in many countries.

Nigeria has some interesting innovation hubs, but they hardly fund or test marketable ideas. Again, they are not yet developed hubs where investors come daily looking for who to invest in.

Entrepreneurs believe that Chicago will become world’s biggest entrepreneurship hub in the next 100 years.



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