Innovation and entrepreneurship policy

Entrepreneurship policy generally suffers from twin evils of narrow definition and lack of clarity. Every government in the world wants to increase entrepreneurial activity within their jurisdiction but most do not achieve the success that they wish for because of how they define entrepreneurship and the entrepreneurial life-cycle. Narrow conceptualizations lead to narrow outcomes. Entrepreneurship policy is related to every other government policy and should be integrated with and reinforced by those other policies. The second aspect related to definition relates to the types of entrepreneurship that are desired and the proportions of each type of entrepreneurship.

Many governments still speak of SME policy and entrepreneurship policy. SME policy is really about promoting survivalist and old industry type of businesses. It is a rather out-dated policy approach to enterprise development.

Entrepreneurship policy on the other hand is a step above and it is a policy approach that is focused on the individual and putting in place measures that motivate, develop and support the increased supply of that type of individual. Furthermore, it facilitates these individuals starting and growing certain types of enterprises that are innovative or make intensive use of new innovations and create high levels of employment growth and intellectual capital assets.

Innovation policy

is focused on harnessing science and technology to develop cutting-edge products or services or processes leading to the creation of enterprises based on those innovations with ownership of the intellectual property. Therefore, it is applied science and technology which has a strong emphasis on research and development and commercialization of the same through strong support systems. The concept of entrepreneurial ecosystems that foster high innovation and high-growth enterprises is the heart of innovation and entrepreneurship policy.

The policy focus of a government determines the types of entrepreneurs that will dominate the economy and the dynamism of entrepreneurship within it. Therefore, entrepreneurship policy can be viewed as a continuum with SME policy on the low-end, Entrepreneurship policy as the middle of the road policy and Innovation and entrepreneurship policy at the high-end. Each of these policies produce quite different types of entrepreneurs, capital asset formations, tradable intellectual capital and employment impact.

With respect to clarity, the problem usually centres around policy implementation frameworks. These range from convoluted, piecemeal, one-size fits all, to auto-piloted systems of implementation. Secondly, the lack of clarity relates to inadequate understanding by policy-makers of the entrepreneurial life cycle and the needs of different classes of entrepreneurs at each stage of their life cycle and therefore, how they should be supported at each stage of the entrepreneurial process.

Governments that are more successful at developing effective entrepreneurship policy are themselves entrepreneurial and appoint public entrepreneurs to drive entrepreneurship policy. It is important when developing entrepreneurship policy to have a policy theme. For example, in China, the policy theme is: “Mass entrepreneurship and innovation”. To support this theme, there are 115 university science parks and 1600 technology-based business incubators. The result is a high growth of start-ups in general including that of unicorn business start-ups, that is, high-growth, high-value businesses that have a market capitalisation in excess of US$1 billion.

According to Stevenson and Lundström [2002], there are six innovation and entrepreneurship policy objectives. These include:

  1. Promoting entrepreneurship [and innovation].
  2. Reducing entrepreneurship entry and exit barriers.
  3. Providing and facilitating provision of entrepreneurship education.
  4. Providing and facilitating provision of start-up support.
  5. Providing and facilitating provision of start-up finance.
  6. Providing and facilitating provision of measures for target groups and target sectors.

The main question for a government to consider is: “what policy objectives should they prioritise given their specific circumstances and can they adequately finance these policy objectives for maximum impact?” While all the policy objectives need to be achieved the issue is: “where should the greatest focus be placed at any given time?”

In addition, innovation and entrepreneurship policy should have as its goal to create an ideal mix of entrepreneurial firms that were classified by Kirchhoff, [1993], as:

  1. The economic core, consisting of regular lifestyle and survivalist entrepreneurs.
  2. Resource constrained and internally constrained firms.
  3. Ambitious entrepreneurial firms characterised by high investments in research and development.
  4. Glamorous entrepreneurial firms now commonly referred to as gazelles, which are high growth and high innovation firms that can exist in any sector but in reality have tended to be confined to high technology sectors.

Therefore, the challenge for a government at any one time in its innovation and entrepreneurship policy, is to work out an optimum mix of outcomes [policy goals] that their policy objectives should achieve from these four outcomes, which are, either to:

  1. Increase entrepreneurship in a general sense

    by addressing all quadrants (i.) to (iv.), all at the same time through large scale education efforts, and measures designed to improve the entrepreneurial culture and climate. This usually results in low-impact policy measures and slow growth of entrepreneurship because there are simply not enough resources that can be devoted to any one activity and therefore, the pay-off will be incremental and over a relatively long period of time.

  1. Increase number of firms at the economic core. That is, focusing on the creation of basic survivalist-type of enterprises, which are predominantly in quadrant (i). In that instance, there is little tradable intellectual property that is created and the pace of entrepreneurship growth tends to be relatively slow.


  1. Increase the incidence of new high-growth firms

    through niche innovation and entrepreneurship policy. That is, placing emphasis on firms in quadrant (ii.), [both iia and iib] which are resource constrained and internally constrained firms [these face financial and resource constraints even though they are highly innovative firms, and as a result, they face low growth] resource constrained firms lack the finance to access the required resources. The difference between resource constrained and internally constrained firms is that internally constrained firm owners are not willing to accept the costs and/or terms given by resource suppliers in order for firm owners to acquire the needed resources. As such, resource constraint is by choice whereas in the other case it is not. Innovation and entrepreneurship policy approaches should therefore, seek to determine and classify the exact nature of the constraints and then to increase financing, resources and support, networking with large firms and so on, as needed with the view to unleashing the growth potential of these firms.

  2. Increase R and D and innovation capabilities in SMEs

    in quadrants (i.) and (iv.), through clustering, networking with large firms, collaborations with research institutes and universities and so on, so as to develop their stock of tradable intellectual capital. Innovation and entrepreneurship policy in this instance identifies and targets suitable types of enterprises with the right support measures and incentives to achieve the desired objectives.

Funding for innovation and entrepreneurship policy can take a variety of forms. In fact, the wider the forms of funding available between private and public sources, the better. Funding for innovation and entrepreneurship policy can take the form of:

  1. Regular government appropriations to relevant ministries for entrepreneurship development.
  2. Special purpose government funding for specific groups, or sectors or activities.
  3. Floatation of government bonds.
  4. Government guarantees for private sector funding.
  5. Industry association funding and support.
  6. Commercial loans.
  7. Concessionary loans by specific sponsors for targeted sectors or types of business/entrepreneurs, for example, NGOs, World Bank etc.
  8. Public-sector sponsored and private sector-sponsored venture capital funding.
  9. Tax credits for private sector financing for designated sectors, types of businesses/entrepreneurs.
  10. Public-sponsored and private-sponsored peer-to-peer lending networks.
  11. Public and private incubators and accelerators.