Who takes the lead? Government or entrepreneurs?

Image Credit: City of Melbourne / That Startup Show / Photographer Wren Steiner

Image Credit: City of Melbourne / That Startup Show / Photographer Wren Steiner

Many regions and nations across the world recognise the need to support the startup and growth of innovative businesses to generate new wealth and employment. A fundamental question is who should take the lead in supporting startups: government or entrepreneurs?

Government interest in supporting startups has been sharpened by the GFC and the associated increase in unemployment. At the same time, the contribution of startups to job creation has been promoted through influential research from the US based Kauffman Foundation.[1]

Government across the world are investing millions – or even billions – of dollars in initiatives to support startups, a few examples:

  • Russia: a $4bn investment planned in ‘Innovation City’ – Skolkovo, outside of Moscow – an attempt to manufacture a startup culture, a special economic zone will house a research university, 40 corporate R&D centres and a Technopark for up to 1,000 startups
  • UK: a $50m investment to develop London’s Silicon Roundabout with a major building designed to boost networking, education and provide co-working spaces
  • Chile: offering $40k seed capital and temporary visas to attract high potential early stage entrepreneurs

Entrepreneurs taking the lead

The startup movement is taking off across the world, with many high-profile local and national initiatives to support startups. Many of these startup initiatives are private sector led and often go to great lengths to stress this independence from government.

In Scotland, the Entrepreneurial Exchange - evolved to Entrepreneurial Scotland - promotes itself as ‘For entrepreneurs, by entrepreneurs’. The Exchange has over 400 members and fosters opportunities for entrepreneurs to network and learn from each other.

Brad Feld, venture capitalist and author, argues the case for entrepreneur led approaches in building startup communities [2], with government, universities and others playing an important but supporting role.

Striking a balance

Silicon Valley is well known as the world’s leading innovation hub. The popular view is that its development was largely organic and the result of the efforts of successive generations of entrepreneurs and investors. The reality is that it was heavily influenced by government investment in defence and electronic intelligence in the Second World War and Cold War.

In her book, The Entrepreneurial State, Marianna Mazzucato challenges the minimalist view of the state in the field of economic policy. She notes that government often realises the potential of areas like the internet or nanotechnology before the business community and highlights work by Block and Keller which found that 77 out of the 88 most important innovations between 1971 and 2006 were found to have been heavily dependent on federal government support, especially in the early stages.

Furthermore, Universities have long played a key role in establishing incubator programs and business support initiatives such as Connect that originated at the University of California at San Diego. Many universities, notably Stanford and MIT in the US and Cambridge in the UK – have been catalysts in the development of dynamic innovation ecosystems. Smaller regional universities – such as the University of the Sunshine Coast in Australia – have also taken leadership roles in establishing technology incubators, recognising their long-term economic impact.

Clearly both government and entrepreneurs have important roles to play. When it comes to developing an innovation ecosystem, Professor Fiona Murray, Associate Dean of Innovation at MIT, suggests that the answer may lie somewhere between the two extremes:

‘The conflict now is between two logics on how to create an ecosystem … one is a government logic that says it’s too important to leave to entrepreneurs, and that you that need specialised inputs, like a technology park. The other is purely focused on people and their networks.’[3]

Stepping up

Leadership is about stepping up, having a vision and making it a reality. Government policies and investment in research, education and business initiatives can provide the foundation for success. The fact that an initiative is led by government or by entrepreneurs ultimately may not matter as much as the vision, passion and drive of the individual or team who are leading it and their decision to step up, take a lead and make things happen.

[1] The Importance of Startups in Job Creation and Destruction, The Kauffman Foundation, July 2010
[2] Startup Communities, Building an Entrepreneurial Ecosystem in Your City, Brad Feld, 2012
[3] Quoted in article by Antonio Regalado, In Innovation Quest, Regions Seek Critical Mass, Technology Review, 1 July 2013

Colin Graham